I have had a lot of reminders recently of the poor state of the current job market. I was able to spend time over the long holiday weekend with family and friends and many shared with me tales of frustrating job searches, salary freezes, or even upcoming decreases in salary. However, you may be fortunate … Continue reading
I have had a lot of reminders recently of the poor state of the current job market. I was able to spend time over the long holiday weekend with family and friends and many shared with me tales of frustrating job searches, salary freezes, or even upcoming decreases in salary. However, you may be fortunate enough to receive a raise or a bonus this year, and these things often come at calendar year end.
While it is easy to quickly adjust your standard of living to reflect a higher salary or to squander away a year-end bonus, raises and bonuses offer a huge opportunity to improve you financial health. I have used bonuses to pay off my student loans, both from undergrad and grad school, pay off my car loan, and to increase my emergency fund. Pay raises have allowed me to contribute more to my retirement plan and save more for the down payment on our next house. I find I get the most out of raises and bonuses by pretending they don’t even exist.
My first job out of college was one that paid a very low base salary but offered huge upside potential, in the form of year end bonuses. If my timing had been a little different, this blog would have a different name as I would actually have a trust fund, a self financed trust fund, but I digress. While I was working at this job, up to 50% of my annual pay came from my year end bonus and I loved this pay structure. Rather than feeling paralyzed by the uncertainty of year end bonuses, I lived frugally as if my only pay was my base salary and, after paying off my student loans, I tucked my bonus into savings every year. These savings helped me take the plunge of quitting my job and heading to grad school.
At some point we have to cover the depressing part of bonuses and raises, they are never as big as they seem. Before you get too excited by your $2000 dollar raise be sure to do the math. While $2000 is a lot of money, it quickly whittles down to $83 a paycheck if you are paid semi-monthly and that is before taking out taxes. After taxes you are probably looking at a raise of less than $60 a paycheck depending on your tax bracket. While still good money, this is not enough for any major lifestyle changes, and is an amount that is easy to squander away. So take note, and find a way your raise can really benefit your financial health.
If you are not currently maxing out your retirement plan, put your raise towards your retirement savings. If you have an employer sponsored retirement plan, such as a 401k or 403b, moving your raise into this plan will give you the most bang for your buck as this money is taken out pretax. Therefore, your $2000 raise will allow you to save $166 more a month rather than the $120 you would get after taxes.
Increase debt payments. Put your raise toward paying off your credit card debt, student loan, or car loan.
Increase savings. Your emergency fund, house fund, car fund, vacation fund, or student loan fund will grow quickly with your added savings. Whenever I get a raise, I like to calculate what the after tax amount will be per paycheck and then increase the amount of my automatic savings. This way I never even see my raise in my back account and continue to live my life as I did pre-raise.
Finally, consider giving part of your bonus or raise to charity. If you are fortunate enough to get a raise or bonus this year, remember there are others who are not as lucky. And after all of this, do not forget to treat yourself to something special. If it was not for your hard work you would not have received this money and I find it is easier to stick to to my increased savings or debt payments if I have treated myself to a little something first.
Of all the things I have done to get my personal finances in order, starting an emergency fund is the one thing that has done the most to reduce my stress level on a day to day basis. Having an emergency fund helps me to sleep better at night knowing we would be able to … Continue reading
Of all the things I have done to get my personal finances in order, starting an emergency fund is the one thing that has done the most to reduce my stress level on a day to day basis. Having an emergency fund helps me to sleep better at night knowing we would be able to cover our basic expenses for several months if we lost our jobs and that we have extra cash set aside for unforeseen expenses.
An emergency fund is money that you set aside, in a safe place, that can be used for emergency purchases. It is just for emergencies. A new pair of shoes, a new car, or a vacation do not constitute emergencies; these are things you know are coming and you should set aside additional money for these planned expenses. Money in your emergency fund is intended for things such as unexpected car expenses, medical expenses, or to cover the basics if there is a job loss. An emergency fund allows you to pay cash for these unexpected things, rather than put them on a credit card. In the past month we have taken a family vacation and replaced one of the windows on my husband’s car after it stopped working. The money for the window came from our emergency fund, the vacation money came from other savings.
So how much of an emergency fund do you need? The rule of thumb is 3-6 months of expenses, however, the exact amount depends a lot on your personal situation. Here are some things to think about:
Are you a one or two income household? If all of your household bills are paid from one paycheck, you will need a larger emergency fund.
How stable is your job? The less secure you current job, the larger your emergency fund.
How long would it take you to find a new job if you lost your current job? If you are in a field where it is hard to find jobs, or if you are in a senior position which often also requires a longer job search, take this into account went determining how many months of savings you need to have on hand. The three month emergency fund will not last very long if you are out of work for a year.
Coming up with three to six months of expenses, or more, is a daunting task. However, this is something that can be done a little bit at a time over months, or even years. Get started now, something is better than nothing, and monthly savings can start to add up quickly.
When thinking about where to store your emergency fund, remember the goal. This is money you want to have easy access to if you need it, but not be tempted to spend it on a day to day basis. In addition, it is more important to have this money available than it is to have you emergency fund earn any kind of return. Personally, I keep our emergency fund in two different places. I have a small amount in a savings account linked to our checking account and the bulk of it in an online account. The online account is easy to access, but is not readily available on a day to day basis. The money in the savings account allows us to cover small things, such as the car repair I mentioned, and the larger amount is there should a costlier emergency arise.
What to get started? Figure out how much you want to have in your emergency fund, set up an account, and start socking away a little every month. You will be shocked to see how quickly this money can grow and you will sleep better at night knowing you a prepared for an unforeseen financial emergency.
Running errands last week, I was shocked to hear Christmas music in all the stores. We are having an Indian summer here and the Holidays feel a long way off but will be here soon. Now is the time to think about your holiday gift giving routine and have conversations with family and friends if … Continue reading
Running errands last week, I was shocked to hear Christmas music in all the stores. We are having an Indian summer here and the Holidays feel a long way off but will be here soon. Now is the time to think about your holiday gift giving routine and have conversations with family and friends if there is anything you want to change.
Four years ago my husband and I were in tight budget mode. I was in the process of making a job change that required a big pay cut and we were saving for our upcoming wedding. As a result we had stopped eating out, one of our favorite activities. When Christmas rolled around that year, rather than buying gifts for each other, we went out for a nice dinner. While we ended up spending more than we would on an average dinner out, the overall expense was much less than if we had bought each other presents. Going out for dinner as a Christmas present has now become a tradition for us, a tradition that allows us to better enjoy the holiday season.
Spend less time at the mall
As a result of this holiday tradition, I have one less person to shop for each holiday season. The holidays are busy and stressful as is and I much prefer to spend my extra time baking cookies for people rather than scouring for gifts.
We do not need more stuff
If my husband wants something, he usually buys it for himself and he is also a man of very few material needs in general. As a result, it is very hard to shop for him and we certainly do not need more ‘stuff’ in our already cramped household. With birthdays, anniversaries, and other gift giving holidays, it is hard to think of truly unique and wanted gifts for every occasion. More and more we have either stopped buying gifts for each other for most of these occasions, or try to buy each other experiences rather than actual material possessions. Fewer gifts make the presents and fun surprises I do get every once in awhile that much more special.
Spend money on experiences
When I do buy a present, whether for my husband, family member, or friend, I always start but considering whether I can give a gift that involves spending time with the person and creating a fun memory in the process rather than a more traditional gift. My life has gotten so busy and I do not get to see as much of anyone as I would like in an ideal world. So one girlfriend and I always take each other out for lunch for our birthdays and another girlfriend and I go for pedicures on her birthday. My husband and I often buy each other cooking classes as gifts (or give them to others) and one year for Christmas we took our family to a holiday play rather than buying physical gifts. This is not necessarily a money saver, but these gifts leave memories that last for years after another gift would be forgotten.
Here are a few things to think about as the Holidays grow near:
Can you make a gift?
Nothing is more personal than a gift someone has taken the time to make themselves. Unfortunately, the creative part of me is laying dormant somewhere, so in this case I am not practicing what I preach. However, I love being on the receiving end of homemade gifts- everything from homemade Glogg to sweaters and hats we received as baby gifts to an afghan blanket my grandmother crocheted me for Christmas several years ago. Homemade gifts are also very economical, especially if you give to a large number of people.
The gift of no gift
Can you cut back on your shopping list? Among our extended family, we have had conversations with some of the groups we get together with every year and agreed to cut back on gifts or not give gifts at all. The economy has been in dire straights for several years now and in a time when so many people have lost jobs or seen their pay cut, it has been a huge relief for everyone to not have as big of a shopping list.
If you do want to buy someone a gift can you buy something handmade
With a little one who has a growing interest in toys, I have an increasing interest in knowing where her toys are coming from and how they are made. I also love the idea of buying local and supporting local artists and the local economy. I read a great post recently on an artist’s blog about buying handmade.
Less anyone call me Uncle Scrooge, I must say that I love the holiday season. But the holidays have become very materialistic and I would rather have them be about spending time with loved ones. As I have changed and cut back on holiday gift giving I have found it easier to get in the holiday spirit every year. Less time in the mall or spent online searching for the perfect gift makes the holidays less stressful and means I get more time doing the things that make this time of year special to me, relaxing and spending time with family.
On October 13, a very kind reader wrote to me saying how much he was enjoying Where’s My Trust Fund? Specifically, he was impressed by the FREQUENCY of my posts, among other things. I am sure this poor reader is now convinced he has completely jinxed me, or my blog. Alas, this could not be … Continue reading
On October 13, a very kind reader wrote to me saying how much he was enjoying Where’s My Trust Fund? Specifically, he was impressed by the FREQUENCY of my posts, among other things. I am sure this poor reader is now convinced he has completely jinxed me, or my blog. Alas, this could not be further from the truth.
The last few weeks have been unusually crazy. I spent the first week on vacation followed by two hectic weeks at work, including some work travel. On top of all this our little girl was really sick last weekend and we spent our first ever evening in the children’s ER. I am hoping the next few weeks will be uneventful. Thanks for your patience as life slowly returns to ‘normal’.
One of the things I was really excited to do while on vacation was attend a yoga class. I started doing yoga over 10 years ago and it has been a part of my life ever since. After having our first child last year I have struggled to get back to yoga. It has been hard to find the time and frustrating to be at such a different place physically compared to two years ago. However, I try to make it to a gentle yoga class once a week, nervous to head back into the vinyasa classes I used to take pre-pregnancy.
On vacation two weeks ago I found myself at an unfamiliar yoga studio and innocently attending a ‘mixed-level yoga’ class. It completely kicked my ass and it felt amazing. I was pushed to do things and work up a sweat in a way I had not done in months. Turns out I had been babying myself for the past year- scared of the challenge of getting back into the swing of things. I have spent the last two weeks back in my ‘old’ vinyasa class, struggling a bit, but feeling really great about the challenge and already noticing how much better I feel physically.
This experience has left me looking at other areas of my life to check-in and see where I may need to push myself a little to get things to the next level. The two areas I am currently working on are my job and savings level.
Ever since getting back from vacation I have been working really hard at my day job. A few things have come up and I have spent the last two weeks at work with my head down and extremely focused. The days have flown by. As with the yoga class I took while on vacation, I have been impressed with how great it feels to work so hard. I have been in a groove and have felt more engaged in my job than I have in a long time.
Right around the time our daughter was born last year I did a big overhaul of our finances to account for the all the changes that go along with having a child: diapers, day care, saving for college. However, since then things have been in steady state and I am more than overdue to repeat the exercise. There have been only minor changes to our fiances in the last year but I like to go over our saving and spending at least once a year and I have been repeatedly struck recently with the feeling that we could and should up our monthly savings. So over the next few weeks I will be tracking our spending and looking at our outflows to see if there are ways for us to save more on a monthly basis.
It is so easy to get stuck in a rut. I always take comfort in routine, but it is easy for things to quickly become stale. Are there areas of your life where you are in a rut and a little extra effort could put you back on track?