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“Pay Director Edwin Stewart, Bureau of Supplies and Accounts” (between 1890 and 1901). Photo by Detroit Publishing Company. From the Library of Congress Prints and Photographs Division.

This is a very busy time of year for our family. We go through our finances for the past year with a fine tooth comb, prepare our taxes, review our 401(k) accounts, reconcile the flexible spending account and check our budget and other planning.

This is the first year I ever recall being surprised during any of this review process. Fortunately, my shock was not due to the state of our finances but rather upon discovering questionable business practices and fees among some of the companies we did business with in 2012.

Perhaps you can attribute it to the poor economy but the general tone seems to be that businesses are willing to do whatever they can to scrape together more dollars, even if that means taking advantage of people.

For example, we found that one of our medical providers had double-billed for its services, charging both the insurance company and us for the same amount. We complained and the business indicated that if we provided proof they would refund our money. We provided the documentation (that they should have had in their own system) and the charges were refunded to us.

Next, I was updating some accounts that are generally inactive most of the year and was shocked to discover every kind of fee imaginable being levied against these accounts by the bank. It was particularly bad when a savings account had gone from being an interest-bearing account to earning zero interest and instead being charged a monthly “inactivity fee,” all without notice to me. I no longer do business with that bank.

After some research on inactivity fees, I find these are really insidious fees that seem almost designed to take advantage of people who need their savings the most. Essentially these fees are charged by the bank after a period of time of “no activity.” For example, you might be putting your child’s birthday checks in a savings account for education expenses. If you don’t make any deposits or withdrawals on the account for a period of time (ranging from months to years depending on the bank), the bank can then start assessing your account a monthly fee, typically somewhere between $5 and $10, until the account becomes active again. It is not clear why the bank should be charging these fees in the first place but federal law allows it so they do.

Some banks complain that if you are not actively depositing into the account, they are not making enough money from you to cover their basic costs for preparing your monthly statements and other overhead charges. Some banks complain that they have no way of knowing how to contact you if you don’t actively interact with the bank–even if you have another account with the same bank that is “active.” These reasons seem very frivolous to me.

You might also be surprised to know that some banks have very high standards for what counts as “activity.” Interest deposits often don’t count. Sometimes banks will also not count deposits or withdrawals made electronically as activity. Some people have indicated that they have to physically go into the bank to make a deposit at least once a year to make it count as activity.

Don’t get caught by inactivity fees! Make sure you know your bank’s policies on these fees and make at least one active transaction on every account you hold at least once per year. Even a token dollar transfer in and out of the account should be enough to avoid the inactivity fees.

So a warning to all . . . make sure you are tracking all of your money and that at LEAST once a year you are poring over all the details of your accounts. If you have opted for electronic delivery of your bank or payroll statements, make sure you are logging in and downloading your statements every month so that you can catch these fees and account changes right when they start. Don’t blindly assume that things are just the same as they are last year.

Are you seeing an increase in business shenanigans? Please share in the comments.

If you are a Quicken user, you may know that Quicken is planning another mandatory upgrade this year. I believe the last mandatory upgrade was in 2010. If you, like me are operating on the 2010 software version, by April 30, 2013 you need to upgrade to the 2013 version of the software or you will lose the ability to electronically download transactions from your financial institutions to your accounts. Electronic downloading is probably the biggest benefit of Quicken.

While I’m not a big coupon person, this past weekend, I was seeing a lot of deals on Quicken and I snapped one up. I was looking for the Home and Business edition of the software which retails for $109. If I was going to be forced to upgrade, I wanted to get the lowest price I could. I used a coupon at Staples and got a copy for about $89 with tax (the in-store coupon was far more generous than the shop online coupon), which I thought was pretty good. Prices on this software are maddeningly always changing however and now it looks like they have dropped online.

Quicken Deluxe 2013 at amazon.com.

Quicken Premier 2013 at amazon.com.

Quicken Home and Business 2013 at amazon.com.

Note that the “Starter” version of Quicken, while the cheapest option, has restrictions on converting your old data and might have issues if you decide to transfer your “Starter” data into more robust editions of Quicken. So, you probably want to avoid this edition so you don’t waste time entering transactions you can’t use later.

The 2013 software is about 90% the same as the old software but there are a few key changes.  The first is that the software has some sort of mobile interface where you can update your balances from a smart phone.  It sounds like a neat feature but there is no way we are going to use this.  With all of the sophisticated ways that people can “steal” data from cell phones, I am just way too nervous about snooping.  Interestingly, the 2013 Quicken End User Software License Agreement (yes, nerds like me do read these things) had this to say on the matter:

8.     USE WITH YOUR MOBILE DEVICE.  Mobile access to the Quicken Connected Service may not be available for all mobile devices or telecommunication providers.  Use of the Quicken Connected Service requires a compatible mobile device, Internet access and may require software.  You agree that you are solely responsible for these requirements, including any applicable changes, updates and fees as well as the terms of your agreement with your mobile device and telecommunications provider.   INTUIT MAKES NO WARRANTIES OR REPRESENTATIONS OF ANY KIND, EXPRESS, STATUTORY OR IMPLIED AS TO:  (i) THE AVAILABILITY OF TELECOMMUNICATION SERVICES FROM YOUR PROVIDER AND ACCESS TO THE SERVICES  AT ANY TIME OR FROM ANY LOCATION; (ii) ANY LOSS, DAMAGE, OR OTHER SECURITY INTRUSION OF THE TELECOMMUNICATION SERVICES; AND (iii) ANY DISCLOSURE OF INFORMATION TO THIRD PARTIES OR FAILURE TO TRANSMIT ANY DATA, COMMUNICATIONS OR SETTINGS CONNECTED WITH THE SERVICES.

I am still getting used to the new software.  Again, it seems mostly the same as the old version.  However, I did discover one new feature that is actually useful! If you have a home mortgage, Quicken 2013 has some new financial graphing and calculation tools. These tools let you experiment with different scenarios to see what would happen if you paid extra each month or made a one-time lump sum payment.

Example of the mortgage payoff chart in Quicken 2013.  (Data obscured)

Mortgage payment options calculator in Quicken 2013. (Data obscured).

Are you due for a Quicken upgrade this year?  How will you snag the best price on Quicken?  Are you pleased with any of the new features?  Please share in the comments.

Walmart.com is doing such a ridiculous amount of business right now that it was impossible to check out! I encountered this error for over 12 hours until I finally got through. After seeing this warning so often, however, I have decided that it should appear automatically on my personal voicemails and emails at the moment. Don't we all need a "high volume" warning this time of year?

One of the main reasons I haven’t been blogging lately is because I have been shopping.  Family budgets are a bit better this year so the holiday present exchange rules have been expanded.  While this is certainly great news, it means that we have to spend more time picking out gifts.  On top of that, there are 6 Briggs birthdays to celebrate between Thanksgiving and New Years.  As a further challenge, we “adopted” a little girl for Christmas through the Red Cross and are purchasing all of her Christmas gifts as well.  So there is a LOT of shopping to be done.

If you are going to do this much shopping and not have it result in a miserable, financial mess, you have to be organized about it.  It has taken me many Christmases of experience to figure out the system that works for us.  Below are some of my tips.

1.  Work the spreadsheet.  The only way I feel comfortable with all this spending is to diligently track it.  In addition to the standard financial accounting we do in Quicken, I create a spreadsheet for each year’s holiday spending where I track EVERYTHING related to Christmas.  My spreadsheet is ridiculously detailed.  I break out spending by person so we can keep things “fair.”  I also put down any travel or holiday entertainment expenses, charitable donations, holiday card expenses, postage, etc.

2.  All shopping is holiday shopping.  We also count any “bargain” purchases as Christmas gifts.  For our tracking purposes, there is no “regular” shopping for anything but routine groceries during the holidays.  So if we stock up on socks because they are on sale, they get wrapped up for Christmas and tracked just like any other present.  If we pick up after-Christmas bargains, they get added in too or carried over to the next year’s spreadsheet.  If we are spending money because of the holidays, it’s in there.  We have one bottom line number that we keep our eye on for our total spending.

3.  Realize that you are really going to flex your savings willpower.  Getting through the holidays without going into debt takes a LOT of effort.  There is no simple way to say that you will only spend $x and not go over.  It just doesn’t happen.  But what you can do is work hard to keep those expenses as low as possible while still enjoying yourself.

4.  Bargains are everywhere.  For children’s toys, buying used is a huge savings and, yes, I have given my own children used stuff for Christmas (see last year), and they didn’t mind one bit.  I don’t have the energy to watch every Black Friday sale but I do watch for free shipping or __% off your entire purchase specials.  This year I did better than usual picking up bargains.

5.  The best “savings” are usually the things you don’t buy in the first place.  The best “bargains” I have made occurred when, rather than immediately clicking “Buy” on my shopping cart, I slept on it and realized that I could do without certain things to stay in budget.  I put back over $100  this way.

6.  Be careful about buying things for yourself while shopping for others.  The danger of being the primary shopper for a family is that you find so many great things to buy for yourself.  I am officially done shopping for me at this point.  I hope my willpower holds ‘til Christmas.

7.  Know your priority deadlines and focus on those.  If you are shopping for charity, the deadlines are usually in the first week of December.  If you want a very specific toy or item, buy it now while it is still in stock.  If you need to ship anything, get it sent by December 15 or so to avoid expedited shipping costs.  December 20 is the last day for first class mailing of letters and cards for Christmas arrival.  Photos or photo gifts need to be ordered as early as possible as well.  The only gifts that can wait are those that don’t have to be shipped and where the recipient is not picky and a generally appreciative person (don’t we all wish there were more of those people)!

How is your shopping coming along?  What are your shopping secrets?  Please share in the comments.

One of Santa's many lists this year...

Cha-ching, cha-ching

Cash is hemorrhaging

I’m near the end of my shopping

My bank balance is dropping. . .

A sad but true rhyme of the holiday season.  For the past 24 hours, I have been shopping like a woman possessed.  Since we have to ship about 90% of our gifts, we have to hit the December 15 deadline to get everything in the mail in time.

Some people have trouble shopping for such a sustained length of time and prefer to break up their shopping into smaller segments throughout the year.  While it is not necessarily my preference to cram my shopping, there are a few advantages to this method:

1)      Overall, I am probably spending less time shopping than I would otherwise.  There is no agonizing for days or weeks over the right present or the best price.

2)      The continuous charges to the credit card in such a short period of time help keep us mindful of our spending and budget.  We hope this will encourage us to spend a little less.

3)      We are buying “in the moment” so we hope our gifts will have a better chance of hitting the mark with our recipients.

One thing I have been doing as I shop (and that I encourage you to do as well) is track my expenses on a simple spreadsheet.  My version goes a bit like this:

I add in all expenses for the holidays, from travel costs to event tickets to charitable donations and food costs.  I keep a running total as I go and it really helps me both to stay aware of how big a hole we are digging for ourselves and also to track whether I have something for everyone on my list.  As a parent, it is also helpful to look at the list and say, “OK, we have plenty for [child], no more!”  Each year, we can go back to prior year’s lists and see what our ballpark estimate is for total holiday expenses.

Aside from the budgeting and shopping management aspect, it is also helpful to look back at past year’s lists for gift ideas.  If a gift was a particular success or a spectacular dud, I try to make a note of that. I also create a separate tab in the spreadsheet to track gifts received from others.  We use that list to make sure we write our thank you notes/emails.  Since the type of gifts you give others often says a lot about yourself, the gift received list can also be a great source of gift ideas.  Sometimes I re-use old gift ideas for new recipients.  If you are going to spend the time shopping, you might as well leverage that information the best you can.

Finally, a list like this is a great way to preserve memories.  Suze Orman has been pointing out on her show that most people can’t remember a single present they received the prior year for Christmas.  With a list like this, you at least have a point of reference.  While we don’t particularly care to remember the gifts themselves, sometimes remembering the gift triggers other memories about shopping for said item or what family memory was created because of that gift.

How much does the average person spend for December holiday festivities?  I suspect most people don’t really know.  Here are some estimates from a variety of groups, which you can see range quite a bit.

American Research Group: $646

National Retail Federation: $704.18

Gallup: $712

Fool.com: $1,000

PR Newswire.co.uk: £713 (approximately $1,100)

 
For your own financial situation and peace of mind, however, you can’t rely on the “average.”  You need to face up to what you are really spending, whether it is far less or far more than the above estimates.  Unless you make the effort to track it yourself (whether using a spreadsheet, a software solution like Quicken or just by hand on a sheet of paper), chances are you are probably underestimating your holiday expenses.

You want to go into 2012 confident and ready, not hiding from your credit card statement.  Face the music now.  Don’t let worrying about money ruin your holiday but instead start working out a plan to pay off your holiday expenses now.  Could you eat at home the rest of December, carpool to save on gas, or reduce some other expenses?  Could you return some presents you don’t really need, buy used instead of new or stop shopping while you are still ahead?

Are you on track with your holiday expenses?  Could you add another stanza to my holiday spending poem?  Please share in the comments.

"Check 044933." Photo by Steve Snodgrass. From the Flickr Creative Commons.

The first question in my November healthy eating experiment was whether eating at home would aid weight loss and make you healthier.  I told you my results on that yesterday.  The second question in my experiment was whether eating at home saves you money?

Logically, you would think the answer is an automatic yes.  You can listen to the opinions of Suze Orman and Peter Walsh on this or you can run some numbers yourself.

Quantifying the cost of meals at home takes some time and effort and probably few people really do this.  When I looked at my own grocery receipts for the month, it was a little tough to calculate the cost of each recipe.  For example, you don’t buy celery one stalk at a time but rather in one big bunch.  You also can’t buy spices one tablespoon at a time and have to purchase a large bottle.  You may also have some staples at home like flour or rice that you didn’t have to buy.  For simplicity, I calculated the cost of each recipe as just the groceries I had to buy.  If I had to buy a bottle of spices, I put in the cost of the whole bottle but if I used the same ingredient for multiple recipes (like celery) then I spread the cost of the celery bunch over multiple recipes.  I did not account for staples like eggs, milk, butter, flour, oil, etc. that we always stock whether we are cooking or not or didn’t buy this month.  You could probably add on about a dollar to the cost per serving for this.

Here are some examples of our food costs:

Recipe	Groceries Cost	Cost per serving
Blueberry Orange Smoothie	$20.58	$0.99
Collard Greens	$6.00	$0.99
Beet Soup	$5.66	$1.42
White Bean Soup	$7.94	$1.98
Green Curry Thai Soup	$10.60	$2.65
Cabbage and Sausage	$6.32	$3.16
Mini Pumpkin Pies	$5.58	$0.23
Gourmet Sweet Potato Pie	$9.93	$0.83

When you look at these numbers your first instinct is probably to say, “Wow!  That’s so cheap!”  There isn’t a restaurant around that charges per serving prices like those.  You would expect that those dollars go right back into your pocket.

But this is where it gets complicated.

When I compared my total food budget for November (eating out plus groceries) with the last five months, the savings weren’t as high as you might guess.   (We looked at a five month span because our food budget goes up and down depending on whether we have guests visiting, we are hosting a party, etc.)

Money Saved: $27 – $400

The total savings eating at home ranged from an impressive $400 to a rather paltry $27.  While $27 a month over the course of a year is $324, when you factor in the amount of work to cook and wash dishes, $27 is hardly inspiring.  We also don’t tend to eat out much at high end restaurants and know of several yummy places (aside from McDonald’s and Taco Bell) where we can feed our entire family for a grand total of $20 – $30.  One friend found that he and his wife actually spent more money cooking at home because they were cooking similar high-end meals to restaurant fare.

When I looked over the past five months, I found that we keep a pretty good balance between grocery and eating out money.  If we are eating out a lot, we buy fewer groceries.  If we buy a lot of groceries, we eat out less.

We also have to put aside some money for eating out for my husband’s lunches at work.  He has built an impressive network of colleagues that frequently go out for lunch or have happy hours.  If these were just social lunches, he could skip them and bring a lunch to eat at his desk.  However, since these lunches have generally built the network that he relies on for his employment and have directly or indirectly resulted in his last several jobs, it would be a foolish bargain to sacrifice them.  In his field, people like to get away from the office to have important conversations.  Not every office works this way and I have seen several offices where people are too busy to go out to eat.  In this situation, you might network better in the office lunchroom than the corner restaurant.  So you have to gauge this for yourself.

Why doesn’t eating at home generate more savings?  I think the primary reason has to do with waste.  Even the most frugal person is going to waste some food money eating at home.  Your recipe might not turn out as expected and you throw away what you don’t want to eat.  You might accidentally overcook something and have to throw it out.  You might forget to use your perishable produce before it spoils.  Even if you manage to avoid these pitfalls, there is some built-in waste in the food buying process.  For example, you pay by the pound for your produce but there are parts of that produce (carrot tops, onion skins, etc.) that most people cut off and don’t eat.  You might have to buy special ingredients that are only available in large quantities for a recipe you make only occasionally.

There is also an interesting psychological effect that happens when eating at home (at least for me).  I tend to look at the food I have prepared and think, “It was so much work to make this plus we spent good money on the groceries for it so we better eat all of it.”  We don’t like to eat leftovers for more than a day or two after the initial meal so we hurry to eat the food while it is still relatively fresh.  Because of this, we may end up eating more than we might if we were at a restaurant which may also be increasing the grocery bill.

So, bottom line, does eating at home really save you money?

It depends.

If you want to this answer to be a definitive yes, you have to assume either that people are eating out constantly (at least one meal per day), or that people are eating at relatively expensive restaurants.  You also have to assume that people will trade down their food choices at home to be something less indulgent than what you eat in a restaurant.  Peanut butter and jelly sandwiches, for example, rather than turkey, swiss, avocado and sprouts. (mmmm!)  If you are an incredible cook and an avid coupon shopper you may be able to really maximize your savings but these are skills that build up over time and not everyone will see this success right away when they first start eating at home.

The answer shifts more to a no (or not much) if you already eat at home quite a bit and eat out only on occasion.  It also is more likely to be no if you know how to eat out inexpensively, if you are trying to reproduce restaurant meals or gourmet cooking at home or if you waste a lot of groceries due to food spoilage or bad cooking.

Now, there are certainly many other reasons to cook at home aside from financial ones.  Some people just really enjoy cooking.  Others might have food allergies, religious or health preferences that require that they know exactly what ingredients go into their food.  Some may fear how their children will behave in a restaurant.

There is no “right” answer to this question.  We each have to balance it for ourselves.

As for me, I will feel a little less guilty eating out now.  We still can save some money eating at home but there is no need to eat at home exclusively under the guise of saving money.  On this point, I think of some of the frugal, retired people I know who like to eat at all-you-can-eat buffets or order the Happy Meal at McDonald’s, giving the toy away to eager kids dining nearby.

How do you balance the expense of eating out versus cooking at home?  Please share in the comments.

P.S.  It was also interesting to compare this experiment with my eat-from-the-pantry experiment in 2009 where I saved approximately $600 eating at home.

"Fashion Fwd2011-89." Photo by Uptown Saint John. From the Flickr Creative Commons.

One of the biggest hurdles to dressing well is having enough money to afford the latest looks or the highest quality clothes.  Recently, two fashionable women weighed in in the issue of money and fashion, with answers you may not expect.

First, my favorite financial adviser, Suze Orman, talked about the issue on her show.  While the clip was primarily about whether women should be allotted more money in the family budget to take care of their appearance, Suze also weighs in with some fashion advice!

While I suppose I shouldn’t be surprised that Suze has a frugal approach to her clothes as she does with all things money-related, I was surprised.  I assumed that anyone in such a public role would require an enormous expenditure on clothes.  Now, I am certain Suze’s clothing expenses still dwarf all of ours, but it was interesting to know that even a celebrity can live on a clothing budget.

Second, one of my favorite fashion bloggers, Maegan Tintari, wrote a recent post on her blog . . . loveMaegan about how she spends money on clothes.  Maegan, who has the good fortune of looking like a beautiful, human Barbie-doll, posts photos of her outfits several times a week, if not daily.  While she achieves so many different looks, often she is recycling the same wardrobe pieces all the time.  She also adds in these really clever, simple, but very cool DIY projects that adopt high fashion runway looks for pennies.  Yet, in the post that was so interesting to me, she reveals that she is not necessarily about budget fashion and that she does spend a lot of money when she wants to and that she is picky about certain items.

Clothes are one area we try to save money on in our household budget.  When you are dressing children who are constantly changing sizes, you have a lot of clothes to buy–not to mention accessories like shoes, boots, pajamas and coats.  We haven’t had a lot of luck thrift store shopping but we do patronize a lot of discount stores, browse clearance racks, buy online, request clothes as gifts for birthdays and holidays, share hand-me-downs with younger siblings and sometimes I sew or knit things as well.  We also try to buy classic things in the off season sales to wear the following year.  I don’t have a set pattern for what I splurge on.  It’s more of an “I’ll know it when I see it” sort of test.

Where do you stand on fashion and money?  What items are you willing to spend a lot on and where do you try to save money?  Do you save elsewhere to splurge on fashion instead?  Please share in the comments.

A $75,000 wheelbarrow of mutilated money on way to vaults. Employee in picture has wheeled barrow 50 years (created between 1909-1925). From the Library of Congress Prints and Photographs Division.

All money management discussions inevitably start with the basics of budgeting. Income should be greater than expenses. Just like dieting, we all know this simple formula but in practice, there are a lot of things that sabotage our decision making. We aren’t completely rational when it comes to money. How we spend our money tells people a lot about our hopes and dreams and how we view ourselves.

If you are aiming toward building wealth and living without financial worries, however, you have to constantly bring yourself back to basics. You have to face the cold, hard numbers and take an honest look at your decision-making.

Below, I created the Ruly Money Scale based on our family’s experience to date with money. Our philosophy has always been that it is not about the total dollars of our income or net worth but rather that our finances are structured so that we don’t have to worry about money. Over time, we have started low on the scale and worked our way up. We are not yet at the coveted 10 position but we have plans to get there one day.

As a quick check on your own financial planning, I invite you to take a look at the criteria and figure out where you are on the scale.

The Ruly Money Scale

While I won’t be so nosy as to ask you to comment with your scale rating, I would like to know your comments on how you think the scale is structured. Are there financial milestones you would include at the various stages that I have omitted? Do you agree with my criteria for a perfect 10?

P.S. There have been so many great retirement planning articles published lately. I would like to recommend this 40-minute webcast from Merrill Lynch on retirement planning, aimed particularly at younger people. You can also sign up to receive free updates from Merrill Lynch for future webcasts.

"The comforts of matrimony - a smoky house and scolding wife." Engraving by Robert Sayer (1790). From the Library of Congress Prints and Photographs Division.

Money is a flash point in most marriages. Conflicts over money occur in good times and in bad but many marriages right now are incredibly strained because of financial decisions.

Adding to the economic woes is a broader trend of gender role changes in marriages. Who is the breadwinner any more? Joe Peck’s editorial in The Atlantic has raised a few eyebrows with its dire predictions of the societal impacts of the recession.

The weight of this recession has fallen most heavily upon men, who’ve suffered roughly three-quarters of the 8 million job losses since the beginning of 2008. . . . In November, 19.4 percent of all men in their prime working years, 25 to 54, did not have jobs, the highest figure since the Bureau of Labor Statistics began tracking the statistic in 1948. At the time of this writing, it looks possible that within the next few months, for the first time in U.S. history, women will hold a majority of the country’s jobs.

In this respect, the recession has merely intensified a long-standing trend. Broadly speaking, the service sector, which employs relatively more women, is growing, while manufacturing, which employs relatively more men, is shrinking. The net result is that men have been contributing a smaller and smaller share of family income.

–Joel Peck, “How a New Jobless Era Will Transform America,” The Atlantic, March 2010.

Why is money management so hard for couples? At a macro level, it seems so simple. Each partner should chip in a contribution for the basic expenses and share in the excess funds. Suze Orman gives a good explanation here.

But why isn’t it this simple?

Often the basic problem is that the couple doesn’t have enough money to fund all of their desires. Then it is not merely a conversation of budgeting and accounting but a difficult negotiation about who will sacrifice a dream and who gets to indulge. It is always hard to tell someone, especially someone you love, that they can’t have or be what they want because of a lack of money.

The Medians

If our fictional family, the Medians, were to apply Suze Orman’s advice about splitting their money among 3 accounts: his, hers and ours, their current budget requires that all of the money go in the “ours” account, leaving nothing for individual needs. Suppose Mr. Median’s goal is to eventually get a new flat screen TV, add a deck on the house and buy a new car. Suppose Mrs. Median’s goal is to update her wardrobe and hire a personal trainer or maybe she wants to stop working so she can stay home with their children.

Maybe they both have decided that life is short and they want to enjoy it now. Is it OK if they each charge up secret purchases on credit cards? When they finally have “excess” money in their budget how should they share it? Should it be a strict 50/50? Do they take turns funding their respective goals? There isn’t one answer and a lot of complex emotions involved.

How does a real life couple address these issues? Ruly Ruth shares with us.

My “BFFs” on Bravo’s “Housewives of Orange County” are showing us that even in their elite worlds, money and spouses clash/have problems that mirror all economies of life in this crazy financial era. Lynne’s husband hid from her the fact that they’ve been going under for some time now—-crashing to a horrifying halt. Ending their stay in their gorgeous home, and placing them in a condo to rebuild their lives. Even Lynne admits on the show, “We’ve been living beyond our means.”

A 2003 Reader’s Digest poll “How Honest are Couples, Really?“ found that the most frequent form of dishonesty in marriages was the amount each of the partners was spending.

From clothing purchases to haircuts/dye job costs, a new video game, even how often and where we eat out for lunch, are hidden all the time from spouses. In the grand scheme of things these items seem and may be trivial and unimportant. But when budgets are tight, an $80 blouse or even a $20 Walmart splurge can almost break the bank, especially when a couple’s main goal is working to reduce debt and increase savings.

So this brings us to two questions:

1) Why do we buy/splurge on something we know our spouse won’t be happy about? Is it because we don’t realize the price of the item until we reach the cashier? On rare occasion, yes–but the vast majority of time we DO know the approximate or exact transaction price before we pay for an item or service. So why do we still do it?

2) What can we do to reward ourselves without breaking the bank/budget? (Since often shopping is a known temporary stress relief–yet can cause marital stress once the trip is over.)

Part of the problem is education of the other spouse and appreciation of the desired object. For example, my son has a “Cars” polyester inexpensive $35 comforter. My husband was not thrilled when he learned that it was time to upgrade to a new all-cotton queen-sized comforter for about $100. (For some that would be the basement model.) Until he went to Walmart and researched online for himself would he believe me, and allow said purchase. By the way, this convincing took over two days. So I can see if you found this item for $75, which to me would be a great deal, that you would jump on it without taking the time to educate your spouse, that you would go ahead and buy it and pretend you spent $50 or whatever dollar amount would be acceptable. (I am NOT saying you SHOULD do this–just simply stating that I understand and am probably guilty of this in the past myself.)

On the flipside, my husband has wanted a welder and had to explain to me the variances and options of what is turning out to be a spendy purchase. Apparently a butane torch and a piece of metal are not all that are required!

The other issue that goes right along with this is the unwillingness of spending time on said object by the other spouse/partner. For example, my husband doesn’t mind shopping for my son’s bedding, but he does NOT want to go through a mall with me for a new ball gown or new outfits. This is unproductive to him–he’d rather “throw money at the problem” as our Uncle Jimmy would say, than spend his own time researching ball gowns and garment lines. Therefore he doesn’t always understand what makes a $300 dress MUCH better than the okay $150. (By the way—I settled for the $50 post-pregnancy-not-sure-if-I-can-wear-it-again one this year–just wait ‘til next year, honey!)

So—what do we do now? How to alleviate these purchases that cause marital discord….or at least mitigate the sticker-shock? COMMUNICATION! My husband recently told me after 11+ years of marriage he would rather we spend $25 or $100 more on an item we agreed upon rather than me snatching up a “deal” without letting him know about it first. Prior communication would be ideal, but in this world of instantaneous communication via texting and email, it’s very simple to notify your spouse of the unplanned purchase.

However, probably the best idea would be to talk each week (like we try to) and discuss how many lunches out we plan to have, what gifts we need to buy, and any incidentals that are beyond the typical household requirements. Maybe those incidentals can wait until a sale comes around, or at a later time when maybe a bill is paid off fully. This is my Ruly challenge to our readers—communicate with your spouse weekly and see if it makes a difference in your spending. I hope it does! Let us know how it goes.

How do you rate your communication skills with your spouse about money? What lessons have you learned about the marital checkbook? Please share in the comments.

Budgeting is one of the most basic financial planning methods but also one of the most powerful. A budget is nothing more than adding together your sources of income and subtracting your expenses. Your budget should be the baseline for all of your financial decisions. Most people, however, think budgeting is complicated, time consuming or have no idea where to start.

If you are only going to read one post at Ruly this month, this is the most important one.  Regardless of any other financial decision you make, if you structure your life so that you can comfortably pay all of your obligations as they come due each month, you should sleep well at night and hopefully amass wealth slowly over time.

Art Brown and Family on the couch. (1932) Photo by Theodor Horydczak. From the Library of Congress prints and photographs division.

Sometimes the best way to learn is by example. Allow me to introduce you to The Medians, our fictional family who loosely represents the data on median American income and expenses compiled by the Federal Reserve and the Census Bureau. Because the median doesn’t accurately capture any one particular circumstance, I have filled in a few holes based on my life experience to round out the Median’s finances.

The Medians are a Virginia family (husband, wife and two children).  They earn the American median family income of approximately $73,000.  Both Mr. and Mrs. Median are employed full-time.  Their children are cared for in a day care setting while their parents are at work.  Mr. and Mrs. Median commute to work in the Washington, D.C. metropolitan area.  Due to the high cost of living in D.C., they reside in the distant suburbs where housing is more affordable and commute long distances to work.  The Medians try hard to live within their means.  They aren’t extravagant in their expenses but they do indulge in a few treats: annual family vacations to the beach, visits to family during the holidays, cable TV, a restaurant meal out once a week and occasional wardrobe updates. Sometimes the Medians come up a little short each month and charge a few things to their credit card. They are still paying off car and student loans and their mortgage. They put aside a little for retirement savings each month in their 401(k) accounts and their employers match their contributions.

Peeking inside the Medians checkbook for the month, you see the following:

THE MEDIAN FAMILY BUDGET

ANNUAL INCOME

Mr. and Mrs. Median’s combined full-time salaries		$73,000
Mr. and Mrs. Median’s combined 401(k)/retirement plan contributions		$2,190
Estimated salary income after taxes and deductions for Social Security, Medicare, 401(k) and employer health insurance premiums		$60,000
Estimated Monthly Disposable Income		$5,000

MONTHLY EXPENSES

Housing
Mortgage Payment ($150,000 @ 5.5% interest)		$851.68
Real Estate Taxes ($0.62 per $100 of assessed value on $200,000 home)		$103.33
Home Insurance		$24.75
Home Repairs/Improvements (1% of home’s value)		$166.67
Subtotal Housing Cost		$1,146.43
Food
Groceries (assumes the “Moderate” cost of food at home)		$850.00
Restaurant Meals		$120.00
Subtotal Food Costs		$970.00
Transportation
Car Loan Payment		$200.00
Car Insurance		$166.67
Gasoline (assumes Mr. and Mrs. Median are driving to work)		$400.00
Vehicle Registration/Inspection Fees		$7.00
Car Tax (required in Virginia)		$50.00
Car Repairs/Maintenance		$100.00
Subtotal Transportation Cost		$923.67
Child Care
Day care expenses and/or children’s classes/extracurricular activities		$800.00
Subtotal Child Care Costs		$800.00
Utilities
Electricity/Gas/Water		$200.00
Telephone/Cell phone		$70.00
Internet		$40.00
Subtotal Utilities Costs		$310.00
Debt Payments
Credit Card Payment ($3,000 balance)		$150.00
Student Loan Payment		$125.00
Subtotal Debt Costs		$275.00
Luxuries
Clothes, shoes, haircuts, manicures, etc.		$150.00
Gifts		$50.00
Cable TV		$60.00
Travel (cost of 1 or 2 big vacations per year, airfare, hotel, etc.)		$125.00
Subtotal Luxuries		$385.00
TOTAL ALL EXPENSES		$4,810.10
MONTHLY NET INCOME		$189.90

The Medians feel pretty good about themselves after this exercise. They have done a lot of things right. They are saving for retirement, they own a home and they are making regular payments on their loan obligations. And gee, they even have almost $200 left over at the end of the month. That’s pretty good, right?

Well…not really. While the Medians are doing a lot of things right, this budget is really pretty tight. The Medians spend every penny they generate. The budget prices only the average cost of expenses over the year. If the gas bill suddenly doubles in the winter, the Medians will have to charge that to their credit card, for example. The Medians also are not counting on the fact that since most employers pay every two weeks, their typical monthly income is more like $4615 with two months a year where it is $6923. So, 10 months out of the year, the Medians’ expenses put them in the hole by $200.

There are a couple of things that are not in this budget too that really should be, like life insurance on Mr. and Mrs. Median for the benefit of their children and a small amount for emergency savings. Mr. and Mrs. Median are not putting away nearly enough money for retirement and college savings is out of the question.

Any family budget with less than about $500 “fat” at the end of the month is prone to overspending in my experience. Even the most accurate budget is going to forget a few things. In the Medians case, for example, there is no allocation for charitable donations or religious tithing, which for many people is a common expense. Magazine subscriptions, impulse buys, computer upgrades, they all add up. Also, I have been a bit kind to the Medians on some of their expenses. For the DC area, their housing and child care expenses are probably on the low side.

Also, if you put this family under one extra bit of stress (higher taxes or health insurance premiums, Mr. Median gets laid off or Mrs. Median takes a 5% pay cut, one of the Median’s children has a medical emergency, etc.) this family’s debt load will spiral out of control. The Medians current situation assumes that everything in their lives will go perfectly. As we all know, this never happens. There always has to be some allocation for disasters.

Is it hopeless for the Medians? No. They can do a lot to improve their financial situation but they have to be realistic about how much things cost and consider adopting an extraordinarily frugal lifestyle for at least a little while to build up an emergency reserve. They might consider axing their “luxuries” for a while. Mr. or Mrs. Median could consider “slugging” to work to save on the transportation expenses. (Slugging is an unusual Virginia transportation solution wherein you drive to a commuter parking lot and hop in a car with total strangers so that the driver can take the fast highway commuting lanes (which require at least 3 occupants in the car)). They could stop eating out and try to adopt more frugal eating habits with their grocery shopping.

Is any of this fun? Not really. But this extreme frugality doesn’t have to last forever, just until Mr. and Mrs. Median pay off their credit card and build up at least a small emergency fund (say $5,000). The luxuries can work back in gradually, hopefully as Mr. and Mrs. Median’s income rises over time.

This type of exercise can be particularly stressful for those in retirement age or on fixed incomes. There could come a point at which the budget shows, for example, that a home is no longer affordable. Making a big change like selling a home is stressful and hard. Yet, we all have to be realistic that such a difficult change could come to any of us at any age. Rather than fear the change, I would rather be prepared to accept it.

Now that you have seen what life is like for the Medians, it is time to issue the Ruly Challenge.

The Challenge:  Create or update your household budget.  Have a firm understanding of your income and expenses.  Identify the costs that are fixed and the opportunities you have to save or improve your financial situation.

Below is a Ruly worksheet to guide you in your efforts. You have two options, the pencil and paper method or a spreadsheet with some calculations built in that can be adjusted over time.

• Ruly Budgeting Worksheet (printable pen and paper version)
• Ruly Budgeting Worksheet (Excel spreadsheet)

Be brave!  This is the foundation of your financial planning.  There are no wrong or right answers.  Each budget should reflect the lives and goals of its planners.

Please feel free to share in the comments your thoughts on the Medians or budgeting in general. What advice would you give to the Medians?  (The Medians are fictional and don’t bear a grudge so if you have some tough love to give them, they can take it!) Do you think the Medians reflect the financial challenges of the typical American family?

It will be a difficult week transitioning back from holiday schedules to regular schedules.  Perhaps you are also trying to start new routines as part of a New Year’s resolution as well.  Do your best not to get overwhelmed by what you are facing and take a few moments to breathe every now and again!

Now that we are off to a fresh new year, one of the to do items is to refresh our calendars. As I was going month by month through some planning for the year, I thought it would be helpful to give a short preview of how 2010 lays out with regard to holidays and other matters.

Perception of time is a complex issue and in fact there is a whole science of the “philosophy of time.” No one knows exactly how time is represented in the brain.

“[T]he perception of [time] is crucially bound up with memory. It is some feature of our memory of the event (and perhaps specifically our memory of the beginning and end of the event) that allows us to form a belief about its duration.”

–“The Experience and Perception of Time,” Stanford Encyclopedia of Philosophy

The above fascinating article (which I confess I don’t completely understand) addresses such complex questions as how our brains process events in time and why we don’t perceive the future.

It seems possible that perception of time could vary from person to person and that we all have strengths and weaknesses with regard to working with time. Take for example, the numerous formats of calendars and planners available. Some people like a monthly paper calendar, others a full year viewed simultaneously, others weekly or day-by-day checklists. Some need a combination of all of these. Others eschew all paper calendars and rely on electronic methods instead.

When I am working with time, I find it essential that I look first at the long view of what time there is to work with and then focus in progressively smaller, from years, to months to weeks to day-to-day tasks. Other people I know find looking at the long view overwhelming and just want to focus on day-to-day, week to week or month to month. Both approaches have their limitations. Long-range planning has to be adjusted frequently to adapt to the inevitable changes of life. Short-range planning, while flexible, can be limited in its effectiveness. Decisions we make in the moment today may be “wrong” when viewed on a longer time scale.

First things first, when is our next vacation? 2010 looks to be a near perfect year from a holiday scheduling perspective. All of the major U.S. holidays fall at or very close to a weekend so there are many 3 and 4-day holidays to look forward to and no awkward one-day-off-in-the-middle-of-the-week type of holidays. You can save your precious vacation time for a good long summer vacation or split it up throughout the year for numerous mini-vacations.

• Martin Luther King Jr. holiday comes two weeks from today on Monday, January 18.
• President’s Day Holiday comes on Monday, February 15, which happily coincides with Valentine’s weekend. There are sure to be a lot of romantic vacations that weekend. School celebrations of Valentine’s Day, however, will probably be pushed up to Friday, February 12. The Winter Olympics in Vancouver start that weekend as well.
• Easter, although not a work holiday, comes Sunday, April 4. Spring Break for many schools comes the following week, April 5-9, although it varies quite a bit. If you have children in school, now would be a good time to find out when this break occurs and include it in your planning. If you are planning a spring vacation and have some flexibility in your scheduling, you might want to avoid traveling during spring break weeks to save some money.
• Mother’s Day comes Sunday, May 9.
• Memorial Day comes May 31. There are five Mondays in May this year so it will seem like quite a wait for it to come.
• Father’s Day comes Sunday, June 20.
• Independence Day comes on Sunday, July 4th with the federal holiday granted the following day on Monday, July 5th. We get a built-in 3-day weekend as a result!
• Labor Day comes Monday, September 6th and Columbus Day, Monday, October 11.
• Halloween falls on a weekend again, Sunday, October 31 (which usually means it is celebrated on Saturday night in many places).
• Veterans Day is November 11 and falls on a Thursday this year so if you take just one vacation day on November 12, you get a 4-day weekend, followed by another 4-day weekend two weeks later for Thanksgiving on Thursday, November 25. If you celebrate Hanukkah, you might need both of these long weekends to get prepared as Hanukkah comes early this year, December 1-9. If you celebrate Christmas, you could get a jump start on your preparations as well.
• Christmas Day falls on Saturday, December 25 with the holiday falling on Friday, December 24 and we kick of 2011 on a Saturday as well so 3-day weekends for Christmas and New Year’s as well!

Now that we know how much time we have off, when do we get paid? If you are an employee paid according to the most common biweekly time schedule, paychecks start on Friday, January 15 and end tidily on Friday, December 31.

One budgeting tip that has been helpful to our family is to figure out when the “bonus” paychecks occur. Even if you don’t receive a bonus as part of your pay, there are two built-in “bonuses” to your regular 26 paychecks. Most of us effectively need to subsist on 2 paychecks per month since 10 months out of the year, we only receive 2 paychecks. If you can work your home finances so that you are always subsisting on 2 paychecks per month, the “extra” 2 paychecks can be your “bonus.” In 2010, the “bonus” months are July and December. This timing is also fortunate to help with holiday spending at the end of the year.

So, many positive things for 2010! What other scheduling or budgeting items are you looking into at the moment? What type of calendaring system do you prefer to use? Please share in the comments.