We’ve moved beyond the days when frugality was absolutely necessary because of our low income.  But we continue to keep our expenses at pretty much the same level they were at when we were poor, because that allows us to move as quickly as possible towards our goals.  We want to add a window in our dining room, and even though I suppose we could technically afford to just have a window company put in a new one for us, we’re going to head over to the Habitat for Humanity thrift store and poke around in their enormous used window stash and see what we can find.  Frugality is so ingrained in us that we just prefer it that way.

But I wonder if it’s a luxury to be able to make decision like that?  Well, I know it’s a luxury to be able to ponder how to go about adding a window to a room… what I mean is whether it’s a luxury to be able to think in terms of buying things used, minimizing our ecological footprint, growing our own food, etc.?  The things we do are things that people a few generations ago did without even thinking about it.  But these days, it seems that people who are talking about things like environmental preservation, reusable shopping bags, thrift stores, and organic gardens are all relatively well educated and well off.

50 years ago, having a backyard garden was commonplace.  Now, it’s not as common, and I notice when I walk through town that the poorer neighborhoods don’t seem to have gardens at all.  A garden is a very frugal way to provide food for a family, but it does require a time investment, and people who are working two and three jobs probably don’t have the time.

It seems completely counter-intuitive, but I feel like frugality is more popular among people who don’t have to be frugal, but rather choose to be frugal.

Why is this?  Is it because middle class people have more time to ponder their choices?  Is it because we’re exposed to more choices in the first place?  I know that not having a TV is a very good influence on my family in terms of avoiding commercialism and advertising.  And I know other families have made the same choice.  But I wonder what the average income and education level is for TV-free households?

There are definitely people who are living below the poverty line and absolutely thinking outside the box in order to make ends meet without going into debt.  But I feel like many of us (at least those of us who are blogging about it) are living frugal lives in order to be able to save money for retirement, our children’s education, and various other goals, rather than to stretch a small paycheck to cover the bare necessities.

This has been bouncing around in my head for a few days now, and I’m still not sure if I’m doing a good job of explaining my thoughts.  Basically, I feel like more needs to be done to help people who could truly benefit the most from frugality gain a good understanding of the options that are available.  What do you think?  How can we make high quality organic food available to people who aren’t making a ton of money?  How can we encourage the dual benefits of avoiding consumerism and protecting the planet, when people are struggling just to make ends meet?

We were talking today about how so many people with incomes similar to ours end up spending most of what they earn each month.  It would be easy to do, with payments on two newer vehicles, a more expensive home with a larger mortgage, several meals/movies out each month, some new (as in, not second-hand) clothes here and there… we started tallying up the money that an average middle class family could easily spend each month and it got high very quickly.

Then I started thinking about why people spend so much of their income rather than saving it.  For us, a healthy IRA balance is FAR more exciting than a new car, but I know that this isn’t the case for a lot of people.  In addition, a lot of people really don’t like their jobs, and feel huge amounts of stress over trying to balance work, family, fun, and all the rest of it.  But those same people might have brand new living room furniture, top of the line kitchen appliances, a new car, and a house with lots of custom upgrades.  The disparity between what they own and how they feel is striking.  Many of them are working at a job they don’t really enjoy, just to pay for all the things they own.

Some things are worth the money.  If a thing brings you great pleasure or gets used all the time, it was probably worth the money you spent on it.  My VitaMix blender is a good example.  It cost nearly $400, but I’ve used it at least twice a day (sometimes a lot more) ever since I got it in 2008.  It came with a 7 year warranty, and I can’t imagine my kitchen without it.  Each of us have things like that – a super comfortable piece of furniture, an outfit we feel great wearing, a vacation that created awesome memories… But a lot of us have things that we bought because we figured they would be impressive.  And often times, it wasn’t ourselves we were trying to impress.

This made me start thinking about my friends, and our relationships with each other.  I have friends with a wide range of incomes.  Some have fancy houses filled with fancy stuff, and others have apartments with futons that they’ve had since college.  And I can say for sure that I don’t care at all about any of it.  They’re my friends because I enjoy spending time with them.  They make me happy, and that doesn’t have anything to do with whether they have impressive “stuff.”  Think about your own life and the people you love.  Chances are, your friends and family don’t care about your stuff either.  When they come over to visit, it’s to see you, not your new living room set or big screen TV.  If you had to choose your five favorite people, my guess is that they would be the people who make you the happiest, who make you laugh, who provide a shoulder to cry on when you need it.  And whether or not they have a new car or a house with granite countertops probably has nothing to do with it.

Just food for thought for the next time that the urge to buy something impressive strikes (and yes, it strikes me sometimes too, although I’ve gotten pretty good at recognizing it for what it is and moving on).  The people who love you will love you regardless of what possessions you own.  The people who would like you better if you had more fancy stuff probably aren’t worth keeping around anyway.  And a secure financial future will get you a lot further than anything you can buy at the mall.

Ok, I’m stepping down off my soapbox now.  Hope you all have a good weekend!

As our income increased and our business grew stronger, we could have started spending a lot more money.  We could comfortably fit car payments and other doo dads into our monthly budget now.  The reason we don’t is because we are focused on the big picture and our long-terms goals.  Without those goals, there would be little to keep us from just spending our money as we earn it.

Our goals involve paying off our mortgage in order to be truly debt-free, saving as much as we can for retirement, and getting ourselves to a position of financial flexibility within the next 15 years or so.  By flexibility, I mean that we might not be quite to financial freedom at that point, but we’d like to be to a point where we can work less and be able to focus more of our attention on things that don’t necessarily bring in money.

Goals like that only work out if you break them into smaller steps that you can focus on regularly – otherwise, you wake up one day and realize that the 15 years have gone by and you’re still treading water.  So we’re paying extra on our mortgage every month – a concrete step.  We put 20% down on our house when we bought it last summer (thanks to the equity we had built up in our first house by paying extra on that mortgage for six years).  We got a 15 year loan with a 4.625% interest rate, and like knowing that every month, when we put additional money towards the principal, we’re cutting time off of that 15 year term.

For the retirement aspect, we’ve both been maxxing our our IRAs for a few years now (in the early years of our business, we could only afford $100/month in each account).  We also have an HSA that we’ve been contributing to since 2006.  Hopefully we’ll never need the money for medical bills and can use that account for retirement too – but it’s nice to know that the money is there (tax free) if we ever do have a medical emergency, since our health insurance deductible is $5000.

Since paying off our mortgage is a huge priority, there is very little temptation to spend our money on other stuff.  Having our IRAs, HSA, emergency fund, and our son’s 529 plan forces us to diversify and make sure that we’re working towards our other goals too, but the mortgage keeps us focused on the big picture, which is to be free of all debt.  It’s much more satisfying for us to see the balance dropping on our mortgage than to have a new pair of jeans.  Yes, the amount it’s going down each month is relatively small compared with the total balance, but over time, it adds up.

For us, big picture goals are what make frugality fun and exciting.  What keeps you frugal?  What are your big picture goals?  I’d love to hear your stories and what motivates you to make frugal choices every day.

We paid off the last of our non-mortgage debt in 2007.  Our income has slowly increased over the years without an increase in our living expenses (actually, as we paid off debt, our expenses went down).  And neither of us liked keeping every receipt for every purchase.  It was interesting to keep track of our expenses, and it did provide some motivation for keeping our spending down.  But we’re pretty far along on our frugal journey at this point.  Frugality is second nature around our house, and we never spend money mindlessly.  We ponder our purchases, buy used whenever possible, and avoid buying much of the time.  We use homemade cloth diapers, prepare pretty much all of our food from scratch, ride our bikes instead of driving, read books from the library, and we don’t even have a TV anymore.  Our cars are nearly 20 years old (no payments, and very inexpensive insurance and registration fees), and everything we wear comes from thrift stores.  We’re spending so much time trying to turn our little plot of land into a mini farm that we don’t have time to go out and spend money (we have spent money on things like fruit trees and berry bushes, but we planned for those expenses).

So we stopped keeping track of every penny spend quite a while ago.  Instead, we use a pay-ourselves-first approach that we like better.  Our only debt is our mortgage.  That means that each month our bills amount to current living expenses plus the mortgage.  In addition to that, we’ve created “bills” for several savings accounts.  Some are automated, some are not, but they are all priorities.  We have our son’s 529 plan, our HSA, our IRAs, and our emergency fund.  We also pay an additional amount towards our mortgage principal each month (it varies, but we try to make sure that each month we pay a little more than we did the month before).  Once we pay all of those “bills” we can use whatever is left over for current living expenses.  If there is a higher-than-usual amount left over, we tend to stash it in one of our savings accounts – we don’t spend it just because it’s there, but that’s probably a result of being frugal for so long that the habits are ingrained.

This is what works for us.  It guarantees that we keep making progress with our savings goals, but it also allows us some flexibility with how we spend our money.  Now that our checking account is paying more interest than our on-line savings accounts, we’ll be keeping more money in checking.  This means that we’ll have to do a little more keeping track, since money that is in our checking account will technically count as savings, and thus be untouchable for day to day expenses.  I do like having our savings in a separate place (out of sight, out of mind), but the extra interest in the checking account is enticing, and we’ll make it work.

What about you?  Do you prefer to keep track of every penny? (my mother started doing that in the early 70s, and still does to this day, even though she and my dad don’t need to anymore)  Do you use the pay yourself first method?  Do you have a budget at all?  Have you started keeping more careful track of your money since the economy headed south last year?  I’m curious to hear what other frugalites (and not-so-frugalites!) do.

Ever since I found out that my credit score wasn’t as perfect as I thought, I’ve been pondering changes I could make to improve it.   I know my score is still really good, but it’s not excellent.  My payment history is spotless, my ratio of available credit to credit in use is very high, and I’ve had credit established since about 1997.  I have a mortgage, credit cards, and a couple store credit cards.  The one thing I’ve never had is a car payment.

My husband’s credit score does fall into the “excellent” category.  For the most part, we have the same credit history for about the last 6 – 7 years, as we started combining our finances in 2002.  But he had a car loan when I met him, and it still shows up on his credit report.  He hasn’t had a car loan since the summer of 2002, so I assume that will be coming off of his credit report sometime this year.  But for now, we think that is what is giving his credit score a boost compared with mine.

I’ve always been proud of the fact that I’ve never had a car loan.  We bought my 1991 Civic with cash ($2300) in 2003, and it’s still cruising along.  Before that, I had a 1989 Hyundai Excel, which my sister still drives.  I just can’t get my head around the idea of paying interest on a depreciating asset like a car.

But I’m wondering if having a car loan might be worth it in terms of boosting my credit (our credit, since we would get the loan together, and I think that my husband’s old car loan won’t be on his credit report much longer).  We’re currently putting money aside so that one day when we need to replace one of our cars, we’ll be able to afford it.  Both of our cars are closing in on 20 years old, and we know they won’t run forever.  Our plan had been to just pay cash for another car one day.

But now I’m thinking about perhaps getting a loan instead.  We would pay it off quickly – perhaps making a total of 10 or 12 payments.  This would minimize the amount of interest we had to pay, while still building an auto loan segment of our credit history.  If I look at the interest as a fee paid to increase my credit score, it doesn’t bother me as much as the idea of paying interest on a car normally would.  If we went this route, we would still only finance as much car as we could afford to buy with cash.  But instead of paying cash, we would make payments for a while.

Right now, both of our cars are running just fine, and we have no intention of replacing either of them until they aren’t running at all.  We put very few miles on our cars, and don’t anticipate having to buy another one for at least a few more years.  So there’s plenty of time to mull this over (and build up our car replacement savings account).  And who knows – maybe there will be zero percent interest offers again by the time we need another car.  One of my girlfriends bought a car in 2002, paid it off in 2007, and never paid a dime of interest.  A deal like that would definitely make me reconsider my “never finance a car” stance.  (Although I think that those offers were limited to new cars, and we would only be interested in used vehicles).

Any thoughts on this?  We don’t often need our credit score, since we rarely apply for credit.  But since we’re preparing to sell our house and buy another one, it’s been on my mind a bit lately.  Anyone have any experience with changes in their credit score following a financed car purchase?

• $5000 into my IRA
• $5000 into my husband’s IRA
• $5950 into our HSA
• $200/month into our car savings account
• $300/month into our solar panel savings account
• $100/month into our son’s 529 plan
• $100/month into our emergency fund
• decrease our mortgage principal by $20,000

The first seven things on the list are pretty much just a continuation of what we’ve been doing.  We put $5000 into each IRA this year, and put $5800 into our HSA (the IRS increased the limit for 2009, so we will increase the amount we contribute).  We have been putting $100/month into our emergency fund for two years, and have been contributing to our solar panel fund, our car savings account, and our son’s 529 since the middle of 2008. 

It’s that last item that will be a stretch.  I am not sure if we’ll be able to reach that goal, but what’s the point of setting goals if you know that you can get there easily?  Having such a large number in our minds will force us to live very frugally next year.  And even if we don’t get to $20,000 (I can’t even type it without swallowing hard), we’ll be a lot closer to owning our house by this time next year if we make this a major focus for 2009.  Right now our total mortgage balance stands at $154,861.  If we live very frugally (which we’re pretty good at), I think we can make a major difference in that number over the next year.  We won’t be spending much of anything on things that aren’t on the goal list, but that’s ok – we like it that way.

Anyway, I put $1000 of the money into my Roth IRA.  That’s the first money I’ve put into that account this year.  We plan to max it out, so we still have $4000 to go, but it feels good to have made a start.  The rest of the check will be going into our HELOC.  I’m really looking forward to getting the HELOC balance under $20K, and I’m hoping that will happen within the next couple months.  This will help.

I called our health insurance carrier to add our son to the policy, and it’s going to be $158/month.  Ouch.  We were expecting about $100 – $120.  But our policy has a family deductible, which we already met this year when my husband had knee surgery, so if our baby does happen to need anything medically for the rest of the year, we don’t have to pay anything for it.  So the HSA money should be safely locked up at least until next year. 

I’m going to start checking out college savings options, and I hope to have a 529 plan set up by next month.  We don’t plan to fully pay for college for our son, since we think that it’s important that the student have a part in the financial outlays of getting an education.  But we do plan to put aside $100/month from now until he graduates from high school, which should make at least a dent in whatever college costs in 2026.

So for the time being, our expenses will increase by $258/month for sure, just for insurance and college savings.  After that, we don’t anticipate a huge amount of additional expenses for now.  We have everything we need and then some as far as baby stuff goes.  Our homemade diapers are working great, we won’t have any additional medical expenses until at least 2009, and we’ll be staying far far away from Babies R Us.  If the last few days are any indication, our other expenses should go down for a while, since we’ve barely left the house since he was born.  Our already small entertainment and eating out budget will probably actually get smaller for a while, since it’s so much easier to just stay home and have family time.  And since all we want to do it sit and stare at him, that works just fine.

Now we can move on to my husband’s traditional IRA, which is our second goal for the year.  Since we put $200/month into it automatically, we only have to come up with another $2600 to max it out for the year.  Our tax refund should get deposited tomorrow, and we’re planning to put $2600 of it into the IRA.  That will be two of our goals met for the year, within 24 hours of each other.  The refund is obviously not a normal part of our income (and not something I want to make a habit of – I’m hoping to get back to our usual refund of a couple hundred dollars next year), so it almost feels like cheating to hit the IRA goal so soon after the HSA.  But I suppose we could be going to the mall tomorrow night to buy a big screen TV instead of putting the money into the IRA…

I’m debating where to go next… we had planned to start working on my Roth IRA as soon as we maxxed out my husband’s IRA, but with the baby due next month, part of me wants to pad the emergency fund a little more instead (we’ve only got about $1500 in it, which is a lot less than a month’s worth of expenses for us).  Maybe we’ll deviate from our one-at-a-time method and work a little on both for a while. 

A happy result of all the extra business is that our paychecks and dividends from our corporation will be higher this month than they have ever been.  So what to do with the extra money?  Since we laid out our financial goals for the year back in December, we don’t even need to wonder about what we’ll be doing with any extra paychecks.  We’re still working on goal number 1, which is to max out the HSA, so that’s where the money will go.  And once that’s finished, we’ll be moving on to my husband’s IRA… I suppose if we managed to max out the HSA and both IRAs and put an extra $5000 into our HELOC before the end of the year and still had extra money (not likely…) we could look for other things to do with it.  But since we have such concrete goals that are already a bit of a stretch for us, there isn’t any temptation to go on a shopping spree when we happen to end up with more money than we expected in a given month.

It’s definitely helpful for us to have our goals so clearly laid out, and to have them be such a large percentage of our total income.  For us, this works much better than just saying “we’ll save as much as we can” or something like that.