Beating Broke

Personal Finance from the Broke Perspective

Create Your Own Layaway Plan

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The stores are already starting to advertise for the holidays, and several major retails are pushing the option of layaway as an option to finance your gift giving.  While layaway was not offered in stores for years, it is making a comeback due to the current economy.  You can choose to use layaway or not this year, though it is certainly a better option than financing gifts on credit cards, but why not also start your own layaway program?

One idea that revolutionized the way I budget is to set aside money each month for recurring expenses.  I used to be a teacher, and I could choose to teach classes in the summer or not.  Sometimes I did teach the classes, but a few summers I chose to take off, which also meant that I was choosing not to get a paycheck for three months of the year.  Considering I was the sole breadwinner at that time, summers could pack a painful punch.

Kmart - Sedalia, MO - August 2009However, I began to enjoy my summers off and not suffer financially when I began setting aside money for monthly expenses.  At the time, we required on average $2,500 a month to live, so that was $7,500 I needed during the summer months to survive without a paycheck.  I received a paycheck nine months of the year, so I automatically deducted $833 a month into a special account to live off of during the summer.

Even if you have a regular paycheck coming in all year long, you can benefit from this plan.  For instance,  I know that over the course of a year I would like to spend $500 on gifts.  Some months I may not spend anything, and other months I may spend $100 or more.  To make sure I have the money set aside, I would take $500 and divide it by 12.  Then I would put aside $42 a month for gifts.  It would be its own little gift fund, and I would draw from it when I needed to purchase gifts.

Likewise, my energy bill is very low in the winter because my landlord pays for the heat, but the electric bill is high in the summer because I have to pay to air condition or drafty apartment.  I set aside $50 a month for electricity.  During the winter months, my electric bill may only be $25.  The remainder of the $50 after I pay the monthly bill goes in savings in a special fund to help cover the high summer electric bills.

If you set your monthly budget up based not just on your exact expenses for that particular month but for the average you will spend all year long divided by 12, you essentially create your own layaway plan.  On months that may have higher expenses, you simply dip into the money you have already put aside.  This type of budget makes your monthly outflow much more stable and protects you from the highs and lows of creating a budget based on each month’s actual monthly expenses.

photo credit: robertstinnett

Have a No Spend Month This Fall to Save for Holiday Gifts

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Have you ever watched your family open up Christmas gifts while mentally calculating how much each gift cost and comparing that against the amount you have in your checking?  Have you dreaded opening the bills in January because you know the credit card statement from holiday shopping will be coming soon and you do not have the money to pay the balance in full?
When my husband and I were newly married and dirt poor, we carefully planned our Christmas purchases to fit within our meager budget.  We didn’t buy many gifts, but the ones we bought were well thought out.  When we went to visit my mom over the holidays, she kept telling us about all of the presents she had bought for us.  There were so many under the tree!  Because we are the only people to buy gifts for my mom because my dad has passed, we started feeling guilty about the few presents we bought her.  Noticing that her bathroom towels were worn, we went out Christmas Eve night and bought her an entire set of 6 new bath towels including hand towels and washcloths with money we did not have.  Then we bought her some jewelry.  We charged everything knowing we didn’t have the money to pay.

50mm HBWOn Christmas morning, she delighted in her presents.  When we opened ours, we were in for a surprise.  She too had bought a few well thought out gifts for us.  But all those extra gifts we found under the tree?  They were leftover t-shirts from a conference some of the professors had hosted at the university where she works.  She bought them for a $1 each.  Each time I or my husband opened another one of those presents that contained a t-shirt, I felt sick.  We had put ourselves in debt to try to make sure our presents were equal to hers, but she had stuck to her financial budget by giving us “filler” presents.  There had been no need to buy those extra gifts on Christmas Eve. . .

We worked like crazy selling off things in our apartment such as textbooks we no longer used so that we could pay off those credit cards used to buy the extra gifts.  On our meager salary, it took us until March.  Thankfully, we have learned our lesson.

If you don’t want to spend the months after Christmas worrying how you will pay off the new debt you just acquired, consider having a no spend month now.  We still have nearly three months until Christmas.  Pick a month such as October or November to drastically reduce your spending.

If you normally spend $1000 a month on groceries, gas, entertainment, eating out, toiletries, etc., decide how much you want to cut that amount.  Maybe you will decide that in October you will only spend $500 a month.  To make up the difference, perhaps you won’t eat out or you will eat from the pantry to use up those groceries that have been on the shelf for awhile.  Maybe you will do something for free as a family rather than catching the latest movie.

By reducing your spending for just 4 weeks, you will be able to come up with a good amount for your holiday gift giving.  If you normally spend $1000, but only spend $500 of that in October, you now have $500 saved for holiday gift buying.  Yes, you sacrifice now, but it will be well worth it when you know that every present under the tree has been paid for.  Best of all, there is no reason to dread the bills in January.  Isn’t that a great way to start the new year?

photo credit: kevin dooley

5 Creative Ways to Save

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Piggy BankCommon financial advice is to pay yourself first; set aside your own savings before you pay any bills.  Yet, what happens if you don’t have enough money to pay yourself first?  What if you can’t set aside $100 or more each month?  How can you continue to save for your goals whether they are establishing a $1,000 emergency fund as Dave Ramsey recommends, saving for a replacement car so you can avoid a car loan, saving for a down payment on a home or simply saving for a vacation?

My husband and I are temporarily in a tight financial situation; he is finishing his Ph.D. and I am staying home to take care of our three children while doing freelance work at night.  While I expect our financial situation to improve in a few months when my husband graduates, we are now in the situation where we have little to save, yet we would like to begin to save for a down payment for a house.  We have found unusual, creative ways to save.  Utilizing these methods won’t get us to our 20% home down payment, but they offer a great way to start saving, and we will add to the savings when our income increases.  If you are trying to save more, try some of these strategies:

  1. Save all of the $5 bills that you get.  You are at the grocery store and you buy $33.22 worth of groceries; for your two twenties you give the cashier, you get back one single and one $5 bill.  Put that $5 bill into savings.  My husband and I have been doing this since June 1, and already, in less than three months, we have saved $175.  That is a savings rate of approximately $60 a month.  More importantly, that is $60 we didn’t think we had to save.  Sometimes it is painful to put that money aside, but in the long term, it is worth it.  Of course, this method works best if you routinely pay in cash.
  2. Save all of your change.  This is a similar strategy to the $5 bill strategy, but it is a little less painful because you will be saving less overall.  However, your savings will still add up quickly.  My husband and I used this method a few years ago to save for a weekend vacation.  We saved $300 in a year’s time.
  3. Save one dollar a day.  Another blogger I read was told at her wedding that she and her husband should save one dollar a day.  She and her husband did just that, and at their 10 year wedding anniversary, they had $3,650 saved, which they used on a 4 day second honeymoon.  Talk about a painless way to save, but what a great reward at the end.
  4. Save the money you would have spent on an impulse purchase.  Do you really want a pop when you are checking out at the grocery store, but you resist the urge?  If so, take the $1.59 you would have spent and put it in your savings account.  You would have wasted it on an unhealthy, impulse purchase; why not instead use it to your benefit and put it in your savings account?
  5. Have $5 or 10 automatically withdrawn from your pay check.  Even if money is very tight, you can probably sacrifice $5 a week.  If that is the case, arrange to have the equivalent of $5 a week automatically withdrawn from your paycheck and placed in your savings account.  Over the course of a year, you will have saved between $260 and $520.

Of course, there are many ways to save when on a tight budget; you just need to get creative with how you do it.  Also, don’t worry that the saving method you choose is not adding up quickly enough.  Saving something is much better than saving nothing, and once you become disciplined to save money regularly, as your income increases, you can save more.

photo credit: Carly Jane1