Beating Broke

How a Drop in Income Turned Out to Be a Good Thing

April 22, 2014 By MelissaB 5 Comments

Over the last few months, my husband and I have lost some income. Not a little drop in income. About 20 to 25% of our monthly income. And let me tell you, we weren’t earning more than the median income for a family of five to begin with.

Our budget was already tight, so when the drop in income happened a few months ago, I’ll admit, I panicked a bit. I felt a little bit desperate. I’m sure those of you who’ve been in a similar situation know the feeling.

And then I took a deep breath, and told myself we’d be alright. And we are alright. We’re actually better than alright.

Taking Stock of the Positive

The first thing I did, after I calmed down a bit, was to look at the positive side. We had already paid off half of our debt, so we don’t have several debts to pay monthly. We’re only left with one student loan payment every month, so that is a relief. (When we started our debt repayment over two years ago, we had five monthly debt repayments that totaled almost $1,000 a month. Now, we only need to pay $315 a month.)

Secondly, we’re used to living on a tight budget because we’ve been doing so as we try to pay down debt. Our income drop, though not slight, was not going to throw us into a completely different style of living that we weren’t accustomed to. I’m used to buying my clothes second hand. I’m used to cooking all of our meals from scratch and not going out to eat. The only adjustment we had to make was buckling down even more.

Why Our Income Drop Turned Out to Be a Good Thing

While our budget is lean, we still had some fat there. We subscribe to Netflix for both streaming movies and DVD home delivery. After the income drop, I decided the home delivery at $11.99 a month could go. I had been thinking this for awhile, but I was afraid we’d miss the service. Guess what? We don’t. I can borrow most of the movies for free from the library.

In addition, I think much more carefully about purchases now. Buying something on a whim is no longer a possibility. I have to think carefully before making a purchase, which has made me realize I don’t need many of the things I’ve been thinking of buying.

I also took other frugal steps that I’d been to lazy to take previously. I had always read that making your own laundry detergent can be a big money saver. A year ago, I bought all the supplies that I needed, but I never got around to making it. Well, I finally did a few weeks ago, and it works great. Sometimes it takes circumstances to prod me into changes I should have made a long time ago.

Of course, we don’t want to live with such a tight budget indefinitely. But now I know that there are many cost cutting measures I’ve implemented that aren’t difficult. When we make more money, that just means I’ll have room for greater savings and paying off that last student loan.

Have you ever experienced a tight budget? If so, did you find it to be a good thing as I have?

Keeping Up With the Smiths

April 15, 2014 By Shane Ede 10 Comments

Keeping up with the Joneses is bad. We know that. From a financial perspective, we spend a great deal of our time overcoming the green monster called envy in order to keep our lives in some semblance of financial order. We know the Joneses down the street with their big, fancy new SUV. We see them going on long family vacations. And we know the guy that mows their lawn. But, we also know that there’s a pretty high probability that they still owe a ton of money on that SUV. That that family vacation likely was financed through a credit card. Their entire financial life depends on them keeping their well-paying jobs.

Forget the Joneses

I’d like to talk about another family. The Smiths. You don’t know them. We don’t talk about them like we do the Joneses. Why don’t we? Because, outwardly, their lives are nothing to be envious of. They don’t own a big house on a double lot. They don’t drive a brand new Escalade. Their family vacations consist of weekend trips to state parks or trips to visit family a couple of counties over. Outwardly, they may even seem a bit downtrodden. They may seem (GASP!) a bit poor.

Sometimes they are. Sometimes, they are truly victims of their circumstance, or their poor financial choices along the way. But, for every one of those families, there’s at least two that aren’t poor. They have well paying jobs. They have money in the bank. And they occasionally barbeque a steak on the cheap grill they have on their back deck. It’s those Smiths I’d like to talk about.

It’s the Quiet Ones You Have to Watch Out For

Why don’t we know the Smiths? Because we live in a society that is enamored of our celebrity. We hang on every word that that famous athlete, or famous actress says. We try and model our lives after theirs. They live a glamorous life, full of flashing photography, red carpets, and any number of endorsement deals.

Who wouldn’t want to be like that? Short of being famous, we decide that we’ll see how close we can get. The bank doesn’t turn us down for that big house, big car, or vacation to the same beach that the celebrities hang out on. Maybe we’ll even get to see one of them!

But, it’s the Smiths we should know. We should know people who live their lives responsibly within their means. We should know people who live for more than having our fellow neighbors think about how rich we are, and how rich our lives must be. We should be the Smiths. We should be the people who drive the reliable older car without the flashy rims and booming sound system. We should be the people who live in the smaller house that we try and repair ourselves.

Society may push us towards that Joneses sort of lifestyle. After all, what would become of some of the companies if we stopped trying to keep up with the Joneses and stopped buying all their luxury goods? What would the news and tabloids cover if we weren’t constantly buying their rags in order to find out what sort of clothes the princes and princesses of some foreign country were wearing this spring?

Shiny Facades, Crumbling Foundations

All around us, there are Smiths. We don’t notice them, and we rarely get to know them. We’re surrounded by the Joneses, and the shiny facades of businesses and economies that are driven by their reckless spending. But, under those shiny facades is a crumbling foundation. The economy of the world is on shaky ground. We saw just how shaky it really was in 2008. When the housing market crashed, it very nearly brought the entire world economy with it. Luckily, the economy was strong enough at the time to take a beating. It wasn’t strong enough to bounce right back. It’s been a long slog back to where we were. We aren’t even back there yet. There are still parts of the world that are hurting economically.

Imagine, for a moment, if we rebuilt that economy, not on the sands of bailouts and extended unemployment benefits, and instead built it on the bedrock of hard work and frugality that got us where we were in the first place. Imagine if we had seen the folly of our loose spending ways and tightened our belts, stuck to our budgets, and started building an economy that doesn’t shake and quiver at the smallest rise in unemployment, or the slightest miss in an earnings report?

What if, instead of running around willy-nilly chasing the lifestyle of the Joneses, we were calmly working ourselves into the stable economy of the Smiths? What if we all didn’t have wait for our next paycheck to buy gas because our last paycheck went to our mortgage and car payments? What if we were able to fill a tank of gas from the cash in our bank account and know that we still had our emergency funds to help us along should a real emergency come along?

We can. We can bring our spending in line with our earning. We can sell the fancy car that we don’t need. We can downsize our house to something that we can afford. Sure, the dependable used car you buy might not have as much chrome as the fancy one. It might not have the same heated seats. And the house you downsize to might not have a walk-in closet, or a jacuzzi bath tub. I’ll let you in on a little secret. You don’t need them. They’re luxuries. You only think that it’s normal to have those things because the Joneses told you it was.

We should be keeping up with the Smiths.

We can be the Smiths.

Do You Have a Rainy Day Cash Fund?

April 3, 2014 By Shane Ede 13 Comments

Everyone should have a rainy day cash fund. Not an emergency fund. Although, you should have one of those as well. No, a rainy day cash fund should be exactly that. Cash. Easily accessible, and easily spendable. Ahhh! Did he just say “easily spendable”? Yes. I did. Why would I say something like that? Common advice is that you should put your money in an account where it isn’t easily spendable. Especially your emergency fund. You don’t want any everyday “emergency” to drain your emergency fund dry. It’s for real emergencies. An engine in a car that stops working and needs repairs. Although, some would argue that’s what a car repair fund is for. Those quasi “emergencies” aren’t what a rainy day cash fund is for either. Sorry. I’m sure some of you wanted me to tell you that it was smart to have a little stash of cash that you could hide away for those tools you really, really, “needed”. But, it’s not for that.

What is a Rainy Day Cash Fund for?

It’s still for real emergencies. Just not the kind that your emergency fund is for. Consider. A major power outage happens. You really, really, need a tank of propane to light up to heat your house until the power comes back on. You get to the gas station, or wherever you buy the propane from, except they don’t have any power either. Their credit card reader isn’t going to take your debit card. In fact, they’re writing down transactions and calculating change with a calculator. Without power, it’s a cash only transaction. If you don’t have any cash, you’re headed back to your cold house without any propane to heat the house with. Taken to an even farther extreme (a Prepper extreme, you might say) you could find yourself in a situation where regional or national economies fail entirely. Of course, having cash in that regional or national currency probably isn’t going to do you much good. That’s why you hear all the stories about preppers stockpiling gold and silver. They believe that in a situation of economic collapse, everyone will revert back to gold and silver for bartering with each other. In the show, Revolution, which is about the total loss of the power grid and the destabilization that follows, you’ll often see people paying each other in diamonds. I’m not saying that you’ve got to have a couple of coffee cans full of gold coins out under the tree in the backyard. For most of the situations you’ll find yourself in, a little of ol’ greenback will do you just fine.

How Much Cash in a Rainy Day Cash Fund?

Thousands. Then, please send me a note with your address, and the exact location where the cash is stored. I’m only kidding. Much like anything else, your rainy day cash fund is a bit variable. It will depend on what you can afford to just put away in cash. Although, for most, the rainy day cash fund is well within budgetary limits. Really, what we’re talking about is having enough cash available that you can afford a tank of gas, or a loaf of bread should you be unable to use a debit card. In almost every case, something like $100 should be plenty.

Where to Put the Rainy Day Cash Fund?

The short answer is, wherever you want. Just make sure that it’s reasonably secure, and easily accessible. Buried in a can in the back yard is probably not the best idea. Your wallet isn’t a very good idea either. If you’re creative enough, you can find plenty of places to hide that small stash in your house. If you’re not so creative, there are plenty of pre-devised ways to stealthily hide your money. Here’s a few easy ones:

Tape the bills lightly (you don’t want to rip them taking them off) to the back of a framed picture in your house. Most people won’t look there, and you’ve only got to take the picture off the wall to reach them. Just don’t forget they’re there if you decide you don’t want the picture anymore.
Under your mattress. Yes, really. It’s an old joke, but it’s also a convenient place that’s easily reachable and that most people aren’t going to casually look in if they’re being nosy.
In a book. Pick your favorite book, and your favorite page and place the bills in the books there. Again, easily reachable, and less likely to be found. Just make sure that if you ever decide that you don’t need that book around, that you take the money out first.
In the freezer. This is another old one. Throw the bills into an envelope and place it at the back of the freezer. Easy enough to get to if you really, really need it, but not so easy that guests (welcome or not) will easily find it.
Behind the furnace. Put the bills in an envelope, along with a decently strong kitchen magnet. Attach the envelope to the back of your furnace or any metal surfaced appliance so long as they won’t be exposed to flame or extreme heat. Easily accessible, but who’s gonna go poking around your furnace (or the back of your fridge) looking for loot?

That’s just a few ideas. What it really boils down to is putting a little cash away for a rainy day when you need it, and placing it somewhere where it won’t easily be found by prying eyes. What do you think? Should you have a little rainy day cash fund? How much would you put in it? Where are some other good places to put the cash?