Free From Broke

A Personal Finance Blog for Regular Folks

Glen Craig

I’m Saving By Bringing Lunch To Work

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the finished product

So as you know, we’re living off of one income now as my wife took off from her education job to stay home to raise the kids.  We’ve been looking for all sorts of ways to cut expenses to make my salary stretch a little farther.

One thing I’ve started to do is bring lunch to work a few days a week.

I work in NYC.  I don’t tend to go too crazy on lunches in general.  I tend to stay away from the expensive restaurants.  This was a habit before we were on one income.  But the costs of eating in Manhattan do add up anyway.  A sandwich is easily $5 at least if I go to a small deli.  More if I go to a bigger establishment.  Salads cost at least $7.  One thing to note is that I don’t eat at fast food places such as McDonald’s, Subway, or Wendy’s.  I could get cheaper lunched there but I gave up that food long ago.  I try to keep my eating healthy.  It could cost more at times but I think the payoff to my health is much greater in the long run!

So now my wife has been making lunch for me around three times a week. If I would have spent $5 on lunch then that saves me $15/week.  That’s around $60/month or $720/year!  And that’s if I only spent $5.  I’m saving more if my lunches were more expensive on those days.

I also don’t buy any beverages for lunch.  We have a coffee machine and water cooler at work which I use instead.  This also goes back to eating healthy since I wouldn’t buy soda or sugar drinks anyway.

So there’s one way we’re making our money stretch.  I’ll be telling you about others ways in future articles.

How do you stretch your money?

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Best Financial Advice You’ve Received

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Father and son surf lesson in Morro Bay, CA 12 of 12

There’s a meme going around that I saw at The Digerati Life who got it from Sound Money Matters.  It’s basically asking everyone to answer:

What’s the best financial advice you ever received?

Probably one of the best pieces of advice I received was from my dad.  When I go my forst credit card he told me to be careful and not go into debt with the cards.  “Pay off your balances every month,” he said.  Unfortunately I was young and headstrong and had to learn mistakes the hard way.  I’d go onto opening numerous credit cards – Macy’s, Bloomindale’s, two CitiBank cards, and others.

At first I was real good with my cards and paid them off.  But as I got older with more responsibilities the balances started to grow (that and I couldn’t keep my hands off buying “stuff”).  In the end I had debt in the thousands.  I was able to slowly pay everything off with a little help from my family as I moved back in with them for a while.

I was foolish for not taking my dad’s advice to heart.  I’m sure many people out there have a similar story.  They know what the right thing to do is but somehow their credit card debt got out of hand anyway.

If you’re one of these people – You can get out of debt! It may take a while but small steps will lead to big changes over time in paying back your cards.  Start now!

If you’re not in credit card debt then make sure you stay that way!  Be responsible with your charges and make sure you can pay back everything once the bill arrives.

I’m not one of those who thinks that credit cards are evil. The mistakes I’ve made with them I take full responsibility for.  They can be very useful in fact.  But you have to be responsible with them.

I’m tagging the other members of the Money Life Network to answer the question: What is the best financial advice you ever received?  (MiB Smarter Money, Bible Money Matters, Sense To Save, Remodeling This Life, Prime Time Money, and Milk Your Money).

If you’re reading this then consider yourself tagged too!  Write about it or drop a comment here.

What’s the best financial advice you ever received?

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We Got Our Insurance Deductible Back

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Happy!

Some years ago we got into a car accident.

Fortunately I called the police and had the officer file a car accident report.  As a result, a full report of the accident was on file for my insurance company to use in their case against the person who hit us.  If we didn’t have a report on what caused the accident, the other driver, then we would have been responsible for the deductible.

Not calling the police would have cost us $1000!

How is that possible?  The other driver rear ended us putting the fault of the accident on him.  Without that police report stating what happened, and that the other driver got a summons for driving too close, then we would have shared the blame in the accident.  That would have meant we’d have to pay our $1,000 deductible.

A little while after we repaired the car from the accident we got a check in the mail from the car insurance company for $1,000.

Whew!  Everything worked as it was supposed to and we got our insurance deductible back.

Our insurance company paid for all of the repairs but we had to pay $1,000 of the repairs out of pocket.  I was afraid everything would drag out and it would take even longer to get the deductible back.  Or even worse, something would happen and we wouldn’t get it back.  In fact the collision company that fixed our car stressed that we should firmly follow up with our insurance since some companies keep the deductible.  You always hear about some paperwork SNAFU that causes you to not get your insurance money.  Thankfully our insurance was great and they paid us back without any problems.

So you understand, our insurance takes all of the information about the accident and basically sues the other driver’s insurance company for the damages.  The success of the case determined whether we got our deductible back.  If our insurance couldn’t win it back then we wouldn’t get it back either.  Fortunately that wasn’t the case.  A big part of that was having a police report saying the other driver rear-ended us.

Some of you might wonder why our deductible was so high?

I set it up that way with my insurance so I would have lower payments.  Since we had the $1,000 socked away we could afford to have a high deductible.  A higher insurance deductible is a great way to save on your car insurance.

This is a great example of why it’s important to have adequate savings! If I couldn’t back up the deductible I’d be paying higher insurance OR I might have to find the money somewhere else such as a credit card.  That would not have been good.

If you are going the higher deductible route to save on your car insurance make sure you have that deductible handy in savings.

So to recap: Make sure you have the police at a car accident.  And raise your car insurance deductible as much as you can afford in order to get lower car insurance payments.  Also have enough savings to cover your deductible should you ever need to pay it.

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The American Dream Is An Illusion

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part of our living room

What is the American Dream to you?

I used to think of it as owning a home, having a good job, and raising a family.  I don’t think I’m far off by thinking that’s what many of us think it is.  Perhaps the conventional thought is the house has a white picket fence with a 2-car garage as well?

But is that what we are actually aiming at these days?

My big issue here is owning a home.  We’re all hearing about financial institutions doing bad because of mortgages.  So what is happening to the people who buy homes?  Foreclosures!

Why foreclosures?  Could be that people bought too much house than they could afford with too little down?

The way I see it, when you’re buying a house with say zero down or even 5% down when will you actually own your home?  This has become a major problem for people.

In my opinion it’s no longer the American dream to own a home.  That’s an illusion.

Today’s American dream is to appear like you own a home.  It’s become more important to look like you have a great big home.  Who really owns these homes?  The banks!

If there’s anything to learn from all of the recent financial bruhaha it’s that most people have to re-think what owning a home really means!

  • An interest only loan or an adjustable APR will not help you own a home.  You’ll get to move into one but you won’t own it.
  • A modest home is OK.  You don’t need a McMansion!
  • Put down as much as you can when you buy a home (remember when you really needed 20%, aim for that).  This way you start off owning a good piece of it.
  • Homes are to live in!  Perhaps flipping a house is profitable for some.  But for most people a home should be where you live not where you speculate.
  • Just because you make enough to cover the cost of the mortgage it doesn’t mean you can actually afford the home!  So many other things have to be considered from taxes to losing a job to how much savings you have to home repairs, and so much more.

I’m ranting a bit so I apologize.

It just seems that there’s so much talk about how banks and such are so greedy that we might be forgetting that it’s people who are living in these homes.  They had a bit to do with all of this as well.  Some people probably got genuinely swindled and some came on hard times.  I understand this.  But many people were just greedy and wanted as big a home as they could get without considering if they could afford it.

I’m going to go a bit further.

The American Dream has turned into consuming as much as you can.  At least that’s what corporate America wants.

One of the biggest measures of the economy is GDP, Gross National Product.  This is driven by us buying more stuff.  When we buy less stuff then the economy stagnantes.  But is it really a fair point to judge the economy by how much stuff we buy?  What’s the end goal?

We can only buy so much stuff without going into debt and I dare say we’re in enough debt already.  How much more debt can we handle without bursting?

We need a new measure.  Maybe we need to look at quality of life instead of a dollar figure put on our economy.  Think of it.  How many times can we upgrade our personal technology?  We can only get so many computers and flat-screen TVs.  How quickly can we really upgrade or cell phones?  But when we don’t do these things, even if we’re already saturated, then Chicken Little runs around saying the economy isn’t doing well.

But how happy are we?  What is our life like?  If we have to work 2 jobs or put in overtime in order to afford all this stuff and their upgrades then is that a good life?  Is that a dream to aspire to?

What do you think?  What is the American dream these days?  Is it attainable?  Is the American Dream an illusion?

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Personal Finance In One Simple Equation

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We’ve heard it all before haven’t we?

The simple way to build wealth is to spend less than you earn.  Let me demonstrate this as a simple equation:

Spending < Earnings = Savings

That’s it in a nutshell.

Take what you earn.  Now look at what you spend.  If what you spend is less than what you earn then what is left over is savings.  Let that grow and invest it properly and you will build wealth.   You only need two numbers to figure out that math!

Let’s use dollar figures.  You earn $3000 a month.  If you spend $2999 you have a dollar left over for savings.  What’s a dollar you ask?  In today’s economic climate one dollar of savings will put you in better shape than corporate giants like Lehman Brothers, which is declaring bankruptcy, Enron, Worldcom, or Merrill Lynch, which was bought by Bank of America.  And that dollar will have friends joining it every month as long as your spending is less than your earnings.

Now imagine if you could increase that savings amount either by spending less or earning more?  The savings will build up faster!

Let’s change the equation slightly now:

Spending > Earnings = Debt

Spend more than you earn and you are in debt.  You have to be.  Where else could the money come from unless it’s borrowed?

Back to the numbers…  You still earn $3000 a month but now you spend $3001.  You’re in debt.  Where do you get that extra dollar to get out of debt?  Maybe you borrow it from a friend?  Maybe you put it on a credit card (another name for debt)?   Either way it won’t materialize from out of nowhere.

And what happens the next month? 

Either you lower your spending by a dollar (assuming no interest) or you increase your earnings so you can pay back the debt.  If you don’t then your debt increases!  Just like our savings example that debt will keep growing until you find a way to pay it off.  If you let it grow too long then you get to be in the same boat as some financial institutions as you either have to declare bankruptcy or find someone to bail you out (and really if someone bails you out you will probably still be in some sort of debt).

As complex as personal finance can be sometimes it still boils down to a simple equation.  Plug in your spending and earnings. 

Too often we over-complicate the ideas that make up personal finance.  In reality the concepts are pretty simple, aren’t they.  Sure, you can go nuts poring over the different ways you can invest your money but the simple concept is clear — spend less than you earn and you can save.  That savings can help you build wealth.

Are you saving or in debt?