I know things have been quiet on Saving Without a Budget lately, and I apologize. That being said, I have a legit reason – I’m now a published author!

Over the past month, I’ve been working to get my ebook How to Make a Budget: Simple Budget Techniques and Ways to Save Money up on the Amazon Kindle platform. As of this morning, it is up and running, which I’m super pumped about! In fact, I’ve already made a few sales – that I know of – and have gotten three likes. No reviews yet, but hopefully soon enough.

Anyway, I would be absolutely thrilled if you headed over to Amazon and checked out the book – at the very least, clicking the like button up by the “write a review” link.

Thank you for your patience with Saving Without a Budget. I hope you enjoy How to Make a Budget: Simple Budget Techniques and Ways to Save Money so much that you forget all about the fact Saving Without a Budget has been dormant for the past month!

While driving home from work the other day, I heard a report on the radio about how, for many Americans, retirement will be nothing more than a pipe dream, mostly due to poor financial planning.  This is sad to hear because you’d like to think that after putting in 50 years of work, more of us would be able to ride off into the sunset, but we can’t because, for the most part, we’re our own worst enemy when it comes to money.

In being our own worst enemy, one of the absolute dumbest things we do is pass up matching retirement funds from our employers.  To put it a different way, we fail to take free money from our employers that goes directly into some sort of retirement plan, like a 401(k).

What is a 401(k) and how does it work?

Take control of your retirement!

For those of you who don’t know, a 401(k) account is a tax deferred retirement account.  To put it plainly, you tell your company to contribute part of each of your paychecks to a retirement account for you, and because you never “touched” the money (remember, your company took it out for you), you do not pay taxes on that portion of your paycheck.

The money you put in your 401(k) account can be allocated to stock, bonds, mutual funds and/or money market accounts; it all depends on the investment company your employer uses as well as how you choose to allocate the money.

Still confused?  Let’s look at this example:

I have a monthly income of $1,000 and contribute 10% of that to my 401(k).  So, $100 goes directly into my retirement account; only the remaining $900 is subject to tax.

However, when you begin to withdraw money from your 401(k) account upon retirement (or under very specific circumstances), you will have to pay income tax on the money at that point.  Thankfully, since the money has been allowed to grow tax free for (hopefully) many years, you will come out on top.

With most 401(k) accounts being tied up in stocks, bonds, mutual funds and/or money market accounts, there are risks associated with this type of investment.  You are not guaranteed any return, and may ultimately have less than what you started with.

For example, remember Enron?  Many employees of Enron lost all of their retirement when the company went belly up because they had a significant portion of their 401(k) tied up in company stock.  So, if you have a 401(k) account or plan on starting one, I urge you to speak with a professional financial planner to get help in determining the correct retirement/investing strategy for you.

Are You Making a REALLY Dumb Mistake?

Okay, so now that you know what a 401(k) is, how they work, and possible risks, what is the best way to maximize your investment?  TAKE ADVANTAGE OF EMPLOYER MATCHING!

Would you burn money? Then why would you pass on free retirement funds?

Many employers will match an employee’s 401(k) contribution, up to a certain amount.  And what that essentially boils down to is an automatic return on your investment.  In today’s environment, you need to take advantage of any automatic return you can get!  Actually, scratch that – not just today’s environment, but whenever you’re investing!

So, what do I mean by automatic return?  Let’s go back to the previous example I used, where I contributed 10% of my $1,000 salary every month and assume I also happen to work for an employer that matches every $1 of my contribution with a $.30 contribution of their own.

That means each month when I put in $100 my employer will put another $30 in my account for me.

That’s an instant return of 30%!

Granted, this is just an example, and not every company will match or match this this well, but no matter what your company matches, the moral of the story is it is an automatic return on your investment, and you’d be a fool to pass up this free money – which could eventually mean hundreds of thousands of dollars towards retirement.

So, if you haven’t started a 401(k) account, I highly recommend you go and talk to your company’s human resources department to find out how you go about setting one up.  Once you have an account set up, or if you already have a 401(k) account, I suggest you meet with a financial planner to determine the investment options that are best for you.

This afternoon, my wife and I got a check from our mortgage company for overpayment of our escrow account.  Since we weren’t expecting the money, it was certainly a nice surprise, and got us talking about what we might like to do with the money.

It wasn't exactly raining money...

Getting money you weren’t expecting, like in our case, or getting more than you were expecting, for example, your birthday, is always a great feeling.  Having a big check or a giant stack of cash in your wallet has a funny way of putting a spring in  your step and daydreams in your mind of what you’re going to buy with the loot.

So, should you take these good feeling all the way to Best Buy and get that big screen TV you’ve had your eye on?  Or, should you be boring and do something frugal with the money instead?

As you’ve probably already guessed, I’m going to argue that you should do something that involves frugality.

Let’s assume you received a $500 “windfall” and you’re debating between buying a PS3 and two games, or doing something frugal with the cash.

Pay Down High Interest Consumer Debt

Paying down high interest debt should be high on your priority list.

This is an absolute no-brainer.  By contributing the unexpected money toward paying down high interest consumer debt, it’s possible you could ultimately save yourself hundreds, if not thousands of dollars in interest charges.

For example, let’s make it easy and say you have $500 in outstanding credit card debt on which you were paying 18% annual interest.

If you were to wipe out the debt, obviously, you would incur $0 in additional interest charges.  However, if you were to blow the money elsewhere and then continue to make just the monthly minimum payments, you would ultimately incur nearly $200 in additional interest charges!

Blow the money and lose an extra $200, or pay off the debt and lose nothing else?  Again, seems like an absolute no-brainer.

Contribute to Your Emergency/Rainy Day Fund

If you’ve already paid down all of your high interest consumer debt, but don’t have much in savings for an emergency, it would be a very wise move to put the unexpected cash there.

As you’ve read here before, 64% of Americans don’t have enough money in savings to cover a $1,000 emergency expense, so if you’re in that boat – and based on statistics, there’s a good chance you are – stashing away that $500 will put you half way there.  And considering $1,000 expenses really aren’t all that uncommon, wouldn’t you rather have something other than a video game system to fall back on?

Plus, once we get back into a higher interest environment – which, according to the Fed will likely be years from now – that $500 will make you even more money simply by just sitting in a bank account.

Pay Off Other Debt

Once you’ve paid off any high interest consumer debt and have enough in savings that you can cover three to six months worth of living expenses, it might be worth contributing that extra $500 towards more “acceptable” debt – things like mortgages, student loans, car loans, etc.

While a one-time $500 payment won’t do much, especially over a the life of a loan like a 30-year mortgage, making a habit of contributing these surprise payments will make a big difference.

For example, if you had a $200,000 30-year fixed rate mortgage at 5%, and paid an extra $50 per month towards your mortgage (only $600 per year), you would pay off your loan nearly three years early and, here’s the kicker, you’d save over $20,000 in interest costs!  That’s absolutely incredible!

Do Something Memorable

Okay, so you don’t have high interest consumer debt, you’ve got an emergency fund, and you don’t need to pay down a mortgage or other debt.

Now what?

Don’t go out and blow the money on the PS3, like in the scenario I outlined above.  Go out and spend that money on something memorable instead!  Go whitewater rafting, or get a bunch of friends together and rent out a beach house for a week.  Maybe do something nuts like skydiving.

Just don’t blow it on something that’s going to give you buyer’s remorse two weeks from now.

So, those are my suggestions for what you should do with unexpected money.  Hopefully you’re fortunate enough to need to reference this post in the very near future!

What do you think about this post?  Leave your comments below and, as always, please share this post using the social bookmarking buttons below – especially Facebook and Twitter!

Apparently lots of people still don’t trust banks and financial institutions nearly three years after the financial crisis, which, to be perfectly honest, leaves me shaking my head.

In an article entitled “Stashing Cash in Tampon Boxes – And Other Sneaky Spots” published on CNNMoney, author Blake Ellis writes about all the weird places people admit to stashing their cash:

Earlier this week, personal finance site Mint.com asked its users to name the most unusual places they’re hiding their cash.

Answers ranged from an iPhone case, the back of a boom box, a box of Animal Crackers to an unused purse. There was also a door frame and a box of waffles.

For sure, America’s cash hoarders have moved beyond the traditional safe haven — their mattresses.

One person is hiding money inside the wood panels of a bed frame, while someone else has cash hidden in rolled up nylons in the back of a drawer.

“We actually mounted a smoke detector on the kitchen ceiling that we removed all the guts from,” said another cash hoarder. “Perfect spot for a cash stash. It was easily accessible from the step stool we kept in there. I don’t think a burglar would be checking the smoke detectors.”

To be perfectly honest, I think the idea of stashing large amounts of money in some obscure place in your house is kind of ridiculous.  The last major bank runs occurred during the Great Depression, so, even in this financially unstable environment, there’s about a 99.99% chance your money isn’t going to vanish into thin air should you deposit it at a bank.

Plus, by having the cash on hand, it’s not really doing anything for you.  Sure, we are in a low interest environment, but every little bit counts, as Ellis’ article points out:

Of course, hiding cash around your house can be risky, said David Hefty, president of financial planning firm Hefty Wealth Partners. Not only do you risk getting it stolen, but you get no financial benefit — whereas a savings account could at least earn a little interest.

“This is the typical fight or flight mammal response,” Hefty said. “These people are very fearful and have a large distrust with our financial system right now.”

While I think many of these responses are comical, I certainly wouldn’t recommend you take the same tact. 

It’s absolutely a good idea to have some cash on hand.  That being said, having a hidden treasure chest filled with cash in your home isn’t exactly the brightest idea in the world.

Penny wise and pound foolish sounds like a funny saying, but it’s actually a pretty important concept when it comes to living a frugal life.

For those of you who don’t know what the phrase means, it more or less means you sweat the small costs so much that you either end up incurring a larger expense down the road or miss an opportunity make a ton of money.

Make good decisions with your money. Aim to be frugal, not cheap.

Or, to use another idiom, it’s not being able to see the forest for the trees.

If this still doesn’t make sense, here are some real world examples. Let me know if you’re guilty of any of these:

Buying the cheapest product at the expense of quality. For example, your refrigerator breaks, so you run out to the store and replace it with the cheapest model at $500 for the sake of minimizing the expense.

Seems to make sense right? Not necessarily.

If you would have just done a little bit of research you would have found that the cheapest model lasts only five years on average, and that the $650 model – just slightly more expensive – last for eight years on average, and is more energy efficient.

So, instead of saving $150 up front, you actually end up losing at least $350 after five years when you end up replacing the cheaper fridge instead of having another three years with the slightly more expensive model.

Skipping out on doctor’s appointments to avoid having to pay a co-pay. As a 30 year old man, this is one of the penny wise and pound foolish things I deal with all the time. I know I should go to the doctor to get my aches and pains checked out, but I don’t feel like spending $20 to be told everything is fine.

Well, what if everything isn’t fine?

Instead of possibly getting something serious taken care of early, minimizing the expense and increasing the chance for full recovery, I risk letting something serious drag on, which could lead to much higher medical costs and maybe even worse stuff (i.e. death).

Now, I’m not advocating running to the doctor’s every time you sneeze, but, at the very least, make sure you’re getting an annual checkup!

Opening up a store credit card to save 10% on that day’s purchase, only to make minimum payments. I’ve never understood why people bought into the whole “open a card with us and save 10% on your purchase” thing. Unless you’re buying $5,000 worth of stuff – which I really hope you’re not – you’re likely only saving $10 to $25 on your purchase.

Save money by shopping sales, not by opening up store credit cards.

Then the problem is compounded when you pay off the new bill by making only minimum payments, which end up costing you ten times the initial savings in interest charges! So, instead of saving $25 you end up losing $225 due to incurred interest expenses ($250 in interest – $25 in initial savings).

Eat from the dollar menu at fast food restaurants because it’s slightly cheaper than a healthier home cooked meal. If you’ve made your three daily meals consist of nothing but fast food dollar menu items as a means of saving money, you’re likely setting yourself up for a lot of health related expenses down the road.

Eating nothing but junk is a great way to increase your chances of obesity, diabetes, heart disease, and various cancers, none of which are particularly inexpensive to treat.

Plus, if you actually plan out your meals around sales at the grocery store, you can make much healthier home-cooked meals for very little money. For example, you can have a bowl of whole-grain spaghetti in marinara sauce with a side-salad for probably less than $4. Sounds a lot better, healthier, and cost effective than a quarter-pounder, fries, and a soda.

You don’t contribute to a retirement account because you want the money now.  While it’s certainly a good idea to have an emergency fund, and nice to have money on hand to pay your bills or splurge every once in a while, you really shouldn’t build up these funds at the sake of your retirement accounts.  Or, to use another idiom (I’m action-packed full of them today), don’t rob Peter to pay Paul.

Sure, it’s nice to have an extra $100 to play with every month, but, thanks to the power of compounding interest, that $100 today could add up to thousands of dollars years down the road.  And, if you fail to contribute to a taxable account, you’d be missing out on today’s tax benefits, too.

(That being said, I always recommend to my friends that they contribute to a Roth IRA first.  Sure, you don’t get the tax benefit but that money grows tax free.  It’s the greatest investment vehicle for your retirement accounts!  I love Roths!  Anyway…)

Obviously, the list of ways you can be penny wise and pound foolish is much longer than the examples above, but I think you get the point.

For me, being penny wise and pound foolish is the litmus test I use when I’m trying to figure out if I’m being frugal or if I’m being cheap. If I find I’m being cheap – which I almost was when I had a real life refrigerator emergency – I have to take a step back and realize that sometimes it’s okay to spend a little more up-front because I know in the long-run it’ll be a lot more cost effective to do so.

So, make sure in going forward, you’re being both penny wise and pound wise.  That is the definition of being frugal!

Are you penny wise and pound foolish?  Leave a comment below!  Also, as always, please share this post using the social bookmarking buttons below – especially Facebook and Twitter!

It’s no secret the economy stinks.  That’s not the question.  The real question now is: how bad will it get?

As I said in my post, “10 Signs We’re Headed for Another Recession – Or That the Last One Never Ended,” there is a laundry list of things wrong with the economy – housing is still down, unemployment and under employment is still up, credit is still tight, GDP growth in non-existant – and all of these things never really got any better since the end of The Great Recession.

Sure, there was a momentary upward tick in GDP due almost entirely to deficit spending by our government.  It wasn’t due to a true rebound in housing or job growth, two things that have normally taken us out of recessions in the past.

So, since things never really got any better, that has to beg the following questions:

1. Did we ever really get out of The Great Recession?
2. If not (which, as stated before, I don’t believe we did), are we in a depression?

I’m not ready to declare the United States economy as being in a depression, but it’s starting to get awfully close, and I think soon enough, we’ll start hearing more discussion of “the D word” as opposed to “the R word.”

Despite the fact the government and the Federal Reserve have pumped trillions of dollars into the economy, home prices are still depressed, we’re still losing more jobs than we’re gaining and the stock market is starting to crater.  And, the reason why I think we will ultimately end up in a depression is the fact the government isn’t going to be able to spend it’s way out of this downturn.  We’re already tapped out; that well has run dry.

Needless to say, I think we are on the verge of very, very trying economic times.

What do you think?  Leave your comments below and, as always, please share this post using the social bookmarking buttons – especially Facebook and Twitter.

It’s no secret the economy is not doing well. Unemployment is still close to 10%. Under employment – the figure I think gives a better representation of how bad the labor market is – stands at 18.3%, meaning nearly one in five Americans either doesn’t have a job, or is working a part-time job while attempting to find full-time work. Second quarter GDP came in at only 1.3%, and for the first six months of 2011, the economy grew at less than one

Did the America's greed push us into the first and (likely) second recession?

percent. Personal spending is down, and planned layoffs are up.

I’m sure the list could continue for a while, it’s just typing all the problems is making me kind of depressed.

All of these problems beg the following question: are we headed for a double-dip recession in 2012?

(Editorial comment: My answer is no, but not because I don’t think the economy will get worse – it will – but I just don’t really believe we ever truly emerged from The Great Recession. I think our next leg down will simply be a continuation of a recession we never really put in our rearview mirror.)

According to many leading economists, the answer is yes.

In an interesting article from The Atlantic, entitled “10 Signs a Double-Dip Recession is Around the Corner,” Douglas McIntyre, Ashley Allen, Michael Sauter, and Charles Stockdale point out 10 compelling reasons why a the economy is headed into another recession:

Perhaps the most powerful argument that the recession never ended or that a new one has begun is the persistence of unemployment. Fourteen million people are out of work. A third of those have been jobless for more than a year. May employment data showed the jobless rate rose unexpectedly and that the economy added only 58,000 jobs. Experts believe that the unemployment rate will not improve significantly until the monthly gain in jobs is consistently 300,000 jobs or more. And, at that rate the gains would have to go one for more than two years to bring the economy back to what is traditionally considered a reasonable unemployment figure.

(I just threw the above quote in to show that I’m not the only one who thinks the last recession never really ended.)

Here’s a Cliff’s Notes version of the 10 reasons:

1. Housing still stinks
2. Credit is still really tight
3. There will be cuts in government spending because of the debt ceiling deal
4. Unemployment is still really high
5. The Chinese economy is slowing, too
6. The Government can’t spend its way out of this slowing economy
7. Oil prices are still relatively high
8. The auto industry isn’t/wasn’t as healthy as it appeared
9. Investment yields are down
10. Inflation on stuff people spend most of their money on – energy, food, health care – is still pretty bad

The Atlantic article is really interesting and goes into a lot of detail regarding the ten points above, so I recommend that you read it in its entirety if you have a chance.

I 100% agree with the article. I believe the economy is headed into the tank and the next leg down will be far worse than what we saw in The Great Recession, namely because the Government can’t spend its way out this time.

The only beef I took with the article is I wish they would have put more emphasis on the fact The Great Recession might not have ended. I think years from now, when economists and historians look at this timeframe between the end of 2007 and whenever the economy finally turns around to sustainable growth, they will see what amounts to the second Great Depression, not two separate recessions.

What are your thoughts? Leave your comments below. And, as always, please share this post using the social bookmarking buttons below – especially Facebook and Twitter.

For many years leading up to the real estate bubble, it was almost unheard of to purchase a home without at least a 20% down payment. This was the bank’s way of making sure you had adequate skin in the game and started off with enough equity that, if you ran into payment problems, the bank wouldn’t end up with a house worth less than the mortgage.

If you want to be approved for a mortgage, you might have to have a 20% down payment.

Then, during the housing bubble, not only were people able to get massive loans for homes they couldn’t afford, but they were able to get these loans with little to no money down. If you had a pulse, you got a mortgage!

Of course, we know now this was something that not only expanded the bubble, pushing home prices to irrational and unsustainable levels, but also exacerbated the deflation of the bubble.

According to an article published on Yahoo! Finance, courtesy of The Street, not only are the days of no-money-down mortgages done, but we may be very close to returning to the days of at least 20% down payments.

In the article, entitled “Return of 20% Home Down Payment Looms,” Joe Mont writes the following:

The public comment period concludes Monday for potential mortgage-related provisions spawned by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Among the potential outcomes is that homebuyers could be required to front a higher down payment — as much as 20% — before they can legally qualify for a mortgage loan.

The proposed changes are being reviewed by federal regulators, among them the Treasury Department, Federal Reserve Board, Federal Deposit Insurance Corp., the SEC, the Federal Housing Finance Agency and Department of Housing and Urban Development. There is no set timeline for when final decisions will be made.

Many in the real estate sector have joined forces to fight such a change aimed at so-called Qualified Residential Mortgage loans, arguing that a 10% or 20% down payment mandate would deliver yet another damaging blow to the floundering housing market.

In past decades, a 20% or more down payment was standard. The lower the down payment, according to conventional wisdom and ongoing research, the greater the risk of default.

To be perfectly honest, I’m fine with going back to the days of requiring 20% down payments.  I feel as if many people now believe owning a home is a right, however, it most certainly is not.  Owning a home should be something you have to work towards and save for.  Just because you have a pulse — or a job and credit worthiness for that matter — doesn’t mean you are entitled to owning a home.

Don’t get me wrong, I’m all for people owning homes.  I think it promotes people taking better care of their property and taking pride in their community, and it provides the owner with a sense of accomplishment.  However, as I said before, I believe home ownership is something that has to be earned, and requiring significant down payments is a great way to make sure that happens.

What are your thoughts?  Am I heartless and crazy?  Do you agree with requiring higher down payments?  Leave your comments below and, as always, please share this post using the social bookmarking buttons below.

Related articles

• 5 Reasons To Save For A Big Down Payment (thekeytoyourheart.wordpress.com)
• Plan could require home buyers to put 20% down (ajc.com)

Living a frugal life now will let you live your dreams later.

Living a frugal life and learning how to save more money is great in the short-term.  You have a nice emergency fund, you don’t feel the pressure of keeping up with the neighbors, and, in this day and age, everyone is envious of your money saving abilities.

Also turns out, living a frugal life and saving more of your money is a great way to help you live out your dreams.

In a great article entitled “5 Dreams You Won’t Achieve Unless You Live Below Your Means” published on WiseBread.com, David Ning points out that living below your means – i.e. spending a lot less than you take in, being frugal, making smart purchases, etc. – is probably the single best way to set yourself up to live out the life you want to have:

Living below your means is probably a personal finance tip that you already know about. In fact, spending less than you earn has been talked about so often that it doesn’t even feel like advice anymore — many people’s reaction is, “Isn’t this obvious?”

However, not everyone who knows what to do actually practices what they know. If you are one of those people, you probably won’t be able to achieve the following dreams unless you start living within your means.

Obviously, I think you should check out the article and read it in its entirety, but if you’re just looking for the Cliff’s Notes version, here are the five things living below your means can help you achieve:

1. Having more time and working less
2. Retiring early
3. Finding a job you love
4. Getting better raises
5. Buying when you want

Of the five, I thought “getting better raises” was the most interesting point, and certainly one that I hadn’t thought of before:

Unless you’ve been living in a cave (or have so much money that you have your assistant carry your wallet and pay for everything), you know that prices of just about everything have gone up. Fortunately, not all is bad in regards to inflation. People who spend less than they earn are have an easier time adjusting to the new prices because even though their companies’ raises might be smaller than the inflation rate of goods, these people are more likely to have the increases to their cost of living fully covered by their raises.

Here’s an example. Let say you make $50,000 dollars and get a 2% inflation adjustment this year, giving you a $1,000 raise. If you only spend $20,000 a year, and a 2% increase on $50,000 is $1,000, it’s like you have a 5% increase on what you can spend.

It’s kind of convoluted, but once you get what Ning is saying, it’s a great point.

Now, here’s an interesting video talking about the importance of living below your means!

What are your thoughts on living below your means?  Leave your comments below and, as always, please share this post using the social sharing buttons below, especially Facebook and Twitter.

Funny mortgage pic from Flickr

First, the good news: mortgage applications increased by the largest amount in four months.

Next, the bad news: don’t take this as a sign that the housing market will rebound any time soon.

According to an article published on Yahoo! Finance, mortgage applications surged by 15.5% for the week ending July 15.  Unfortunately, this surge was fueled by refinancing, not home buying:

The MBA’s seasonally adjusted index of refinancing applications soared 23.1 percent, but the gauge of loan requests for home purchases dipped 0.1 percent.

The refinance share of mortgage activity rose to 70.1 percent of total applications from 65.6 percent the week before.

In order to get the housing market turned around, there will need to be a surge in applications for home purchases, not refinancing.  The only way the decline in housing prices will end is by buyers – in particular, first time homebuyers – soak up all of the inventory of unsold, foreclosed, and vacant homes on the market.

With the economic recovery tenuous at best, and unemployment continuing to be a huge drag on consumer spending (which it should be – I would love for the days of easy credit and loose spending to be over), it’s not as if there are a lot of people ready and willing to make the single biggest purchase of their lives.

Don’t be surprised for the housing recovery to take decades.

What are your thoughts?  Leave your comments below and share this post using the social buttons.