About Those Resolutions Russ Leonard 12-29-15
It is that time again when millions of people make resolutions for the New Year. Unfortunately only a small fraction of those people will be successful. It is the same story every year. Intentions that are genuine and good will be defeated by harsh reality.
In case you have not guessed, I do not make New Year's Resolutions. The concept of picking an arbitrary date to change some sort of behavior is a strange concept to me. If it is something that you know you should not be doing, why haven't you already stopped? The simple reason is that it is hard to break bad habits or change behaviors that are years in the making. We all do and say things that we shouldn't. It takes great discipline and determination to correct bad habits such as smoking, overeating or drinking too much. Many of those problems may also involve complex medical and psychological issues.
In work we used to have a "Biggest Loser" contest every year. It probably had been going on for about 10 years. The same group of employees would be involved each year. Over the years they lost thousands of pounds. Today, they are all heavier than they were 10 years ago. If they lost a combined 5000 lbs, I am sure they have gained back 5500 lbs. Each January I would witness the great "Gym Rush". The gym would be crowded with new faces for a few weeks. By March only a few would remain. On rare occasions, someone would stick with the program and become a regular.
I have always wondered what fueled those behaviors. False hope, unrealistic goals and some slick marketing might be to blame, but it must be more. Maybe we all just want to be better people, act better, look and feel better.
My advice would be this. Keep it simple. Tackle one issue at a time. Start with something easy and attainable. That will give you a sense of accomplishment and give you momentum for the larger tasks ahead. Get the proper support from friends and family. In some cases you might also need professional help. If you want to improve something you need to have a complete understanding of where you currently are. You need honest data. If you want to lose 30 pounds in three months you need to know in detail how much you currently consume. If you want to save $2000.00 more in 2016, you need to know exactly how much you currently spend and on what. I have always been a data driven person. For me it is the norm. For most people it is not.
So trash your big list of resolutions. Pick an area of your life that you want to improve and develop a specific, measurable plan and set a realistic goal of when you plan to attain it. After you succeed, go on to the next area of improvement. Before you know it, New Years Resolutions will be obsolete.
Decision Making and Long Term Consequences Russ Leonard 10-5-15
Let's start off by saying that I have made plenty of bad decisions and have paid a price for them. I have certainly said and done things that I should't have. In other words I am human. What separates me from most people is that I learn from my mistakes and try not to repeat them. I have always had the ability to look at things, people and events and see them for what they truly are rather than what I would want them to be. Sometimes the truth hurts but you can not ignore it. Over my working career I was always a "go to" person to analyze a problem or put a common sense assessment on a situation. I tried to do the right thing and if I was wrong I was quick to admit it and move on. I am sure my Father's influence had a lot to do with the way I am but I was also very fortunate to have some great mentors early in my career who were also great people.
Being able to retire early, be comfortable financially and live a healthy life are the consequences of many good decisions that I made a long time ago. When I was making these choices many years ago, I believed they were logical and the right thing to do. It is only since I retired that I can fully appreciate the magnitude of those decisions and how they have changed my life. I tend to be more analytical than most people but still have the ability to make most decisions quickly and go for it. When you make the best choices with the current information that you have, sometimes you end up being wrong. There is nothing bad about that, providing that you have the ability to admit your mistakes, correct the situation and move on. Nothing irritated me more in work than watching some manager trying to make an obvious bad decision work by investing more time and resources. Those types of decisions are often driven by ego and the inability to admit when you are wrong. In most situations in life you get another opportunity after an initial bad decision, but not always.
So what is the point of all this? The way you life your life in your 20's, 30's and 40's, will determine what type of life you will have in your 50's, 60's and beyond. If you make it to the beyond. Your financial and physical health are the two main areas that will be affected. So if you are reading this and you are 30 years old and only 10 lbs. overweight you might not be concerned about your future health. If you gain only 1-1/2 pounds a year until you retire at 65, you will be 62.5 lbs overweight at the start of your retirement. I have seen this exact situation play out many times. So maybe a lifestyle change would be a good idea. It will be a lot easier to lose 10 lbs when you are 30 than 62.5 when you are 65 years old.
Let's look at it from a financial point of view. You are 30 years old with a good income but love to spend money, all of it. You go out a lot, to fine restaurants, ordering expensive wine, driving there in your new BMW. Maybe if you went to a nice restaurant, had a good beer and drove there in your Ford, Chevy or Dodge, you would have an extra $1000.00 a month to invest. At 3% rate of return your $1000.00 a month would be almost $730,000.00 at age 65!
Altering ones lifestyle at an early age because of consequences 35 years down the road is not that common. Instant gratification, live for today seems to be the way many people live. The future comes faster than you think. I am so glad I thought about it!
Getting the Best Rental Car for Your Trip Russ Leonard 7-26-15
We are now in the middle of the Summer travel season and thousands of vacationers are renting cars every day. How many of these vacationers get the best car for their trip? Too often people look for the best deal and compromise on the vehicle that will make their vacation more enjoyable.
We have rented a lot of cars over the years. I don't know how many, but it is a big number. We have also put some impressive mileage on some of those cars. On many of our Western trips we drove over two thousand miles. On some over 3000 miles! You do not want to compromise on your needs when you are driving those distances. I would bet we have put at least 75 thousand miles on rental cars over the years.
We always tried to get a purpose built vehicle for the type of trip we were on. We never considered gas mileage even though we often traveled great distances. When travelling great distances we rented large comfortable cars like full size Buicks, Chevy Impalas and even a Lincoln Town Car when we traveled with my sister and her husband. On our trips to the Miami area and Florida Keys we rented convertibles. When we did some city trips we rented small cars that were easy to park in congested areas. When we traveled at high elevations and there was a chance for snow we rented all wheel or 4 wheel drive vehicles. A perfect example was in October 2011 when we traveled to Yellowstone N.P. and stayed in southern Montana. We rented a 4 door Trail Rated Jeep Wrangler. It was the perfect vehicle for our trip. I do not understand why city dwellers that only see dry pavement would buy one, but If I lived where we traveled, it would be the only vehicle that I would buy. We had snow and ice on two mornings. If we had rented a common car like a Malibu we would not have been able to go into Yellowstone on those two days. We also did some back country off road driving. They may have been considered roads in Montana but I can assure you that they do not qualify as roads in Connecticut. It was incredible fun. We even crossed a small stream at one point. A full size 4 wheel drive Toyota SUV saved one of our trips to Colorado. A late May high country blizzard didn't keep us from going out in the snow and having a great time. One of the Rocky Mountain N.P. rangers thought we were nuts for going up in the mountains during the storm. I could not have asked for better weather. Not to pick on the Malibu, but if I had rented one we would have been stuck in our rental home. Just to let you know, I have rented a Malibu and it was just fine for the trip we were on.
My wife and I travel light. We keep the baggage small and to a minimum. If you do not, you better think about trunk space. We once rented a Mitsubishi Eclipse Spyder, which is a very small convertible. The trunk is miniature. We saw a young couple coming back in the rental office to get another car because they could not fit their luggage in their Eclipse.
We should also discuss at least a couple of ways to save money on your rental car. Definitely shop around. There are huge price differences between rental companies and locations. There are some great package deals that often include a car. Just make sure it is a car that you want. Always bring your car back to the original point of rental if possible. There are huge fees for having a different drop off point. We Never buy any of the insurance that the rental car company offers. Between our own policy and our credit card company we are covered. Check your auto policy and all the benefits that your credit card company offers before you decide to buy the insurance. Never pre-pay for fuel and always return the car full. Do not buy your last tank of gas near the car return. They often charge very high rates. Fill up a few miles away where the rates are normal. Always do a walk around and check for damage to the vehicle before you drive off and start your trip. Make sure any damage is noted and recorded on your contract. You do not want to be held responsible for something that you did not cause. At most major airports with the major rental companies you can now complete your transactions on line prior to picking up your car. In many cases you can walk out to the car lot and pick any vehicle that is in a designated area. It gives you a chance to check trunk size, features, condition and mileage which should help you chose the best car for your trip.
About that trip to the North Cascades. They were still waiting for us a few years later. That time Seattle was the bargain flight.
Traveling to Point A ?
Maybe Point B is Less Expensive and Just as Much Fun. Russ Leonard 4-16-15
My wife and I have traveled to many wonderful places providing priceless memories of our life together. Of course these priceless memories come at a cost. Depending on how you travel can make the difference between an affordable trip and one that may be out of reach of your budget. Being flexible has saved us tens of thousands of dollars over the years. I am not talking just about being flexible with your travel dates and times. Those are basic things that should always be considered if possible.
We have always been flexible with where we have gone. We have gone on many great trips where the final destination was not even considered originally.These trips were chosen based on a good value within a general time frame. We never have sacrificed quality and diminished the experience to save a buck.
Several years back I was looking into a trip back to the Pacific Northwest. My primary consideration was Washington State with a flight into Seattle. I really wanted to spend some time in the North Cascades. When I starting checking into air fares for Seattle they were very high. I looked at flying into Vancouver and they were worse. I decided to check out Portland, Oregon and was shocked to see some prime flights at less than half the price of the Seattle and Vancouver flights. To me, flying from coast to coast should not have had such price swings for cities that are so close together, but they did.
Instead of the Cascades, I recalibrated my thinking to spending a week in Oregon. Not only was the airfare less expensive so was the rental car and accomodations. We had ventured into northern Oregon on a previous trip to Washington State going to Mount Hood and exploring the Columbia River Gorge, but had never dedicated a trip to Oregon.
I am so glad we did. Not only did we save nearly a $1000.00, we got to enjoy the beautiful Oregon coastline. We stayed in some gorgeous old Victorian Bed and Breakfasts and saw Crater Lake on a brilliantly clear, early May day with 10 feet of snow still on the ground!
That type of travel planning also requires the ability to make a quick decision and go for it. Hesitate and you certainly can miss out. It also requires a spouse that does not get shocked when you tell her that she is going to Oregon in less than five weeks, when she doesn't even know she is going on vacation.
I did this while I was employed. At that time I also had to make sure that my plans would not have a negative impact on the workplace. Being retired makes it even easier.
Don't Wait! Russ Leonard 5-1-16
I was never a procrastinator. I never assumed that I would have infinite time to do whatever, some time in the future. At the same time, I would never spend money that I did not have, to do something or go somewhere. I am a pay as you go person. When I had the pay, I went. I am so glad that I had this attitude throughout my life.
My wife and I went on over hundred major trips together. Many of these would qualify as true adventures. I could write a book, just on our travels. Maybe I should? Many of these trips included long back country hikes in our many National Parks. They required a good level of fitness. Hiking 12+ miles at high altitude is not easy when you live at sea level.
I am very fortunate that my current health still allows me to do this. Unfortunately my wife's health can no longer support such activities. Four bouts with cancer has slowed her down considerably. The cumulative effect of massive radiation, chemotherapy and multiple surgeries, now limits her to slow walks of about a mile. We will never again be able to go on the type of trips that we used to. We did not get cheated. We did more than anybody that we know. When we had the money and our health, we went for it. We Did Not Wait! We still have a great time together. We just do different things and go on different types of trips.
Over the years I have known many people who thought that they had plenty of time. Unfortunately they did not. A gym friend who died of massive aneurysm at the age of 39. My brother-in-law who died as a result of substance abuse at 45. Two co-workers who died unexpectedly in their mid forties. The list goes on and on. It is called life. It is not unusual. What happened to one of my friends was both very sad and tragic. He was Mr. National Geographic. He loved everything about our National parks and was extremely knowledgeable about them. The funny thing was that he had never travelled to any of them. I would go out to Zion, Bryce, the Grand Canyon, etc. and talk to him about the trip when we returned. He would know more about the parks than me and I had just been there. He managed to retire early, buy a travel trailer and prepare for a several month trip out West. You can guess what happened. He was slim, fit and energetic and he died just before he was about to go on the journey that he had been planning his whole life. I used to ask him why he was waiting to travel. He said, " I will have all the time in the world after I retire early".
If it is financially responsible, you want to do it and you have the time, what are you waiting for? Life is in fast forward. You can't hit rewind. Assuming that your health will allow you to do whatever you want in your "Golden Years" is at least a big gamble. Just do it. That was my motto long before anyone even heard of Nike.
Have A Ball Russ Leonard 11-14-15
Adjusting to the Heat Russ Leonard 7-10-16
We are now approaching the hottest time of year in CT. Mid July to mid August is my least favorite time of year. Even at my age I prefer Fall and Winter. I will take 10 degrees over 95 degrees and humid anytime. I remain very active and have been mountain biking almost everyday as of late. I have also made some changes to my riding as well. Excessive heat not only hurts your athletic performance but can be very dangerous as well. Recently we have had a couple of those real humid nasty types of days where air conditioning and swimming pools are king. I still went riding.
First, I realize that my pace is going to be considerably slower. I have nothing to prove here and I don't want to drop dead in the process. I do all the common sense things that you are supposed to do. I hydrate well before I go and bring plenty of water. I wear light colored clothing. I put a white handkerchief on my bald head to absorb the sweat and keep my helmet from irritating my head. I wear # 30 waterproof sunblock. In addition to my planned slower pace , I also have a planned rest and hydrate stop. I stop at the halfway point, in the shade for 5 minutes. It makes a huge difference. As with any of my hikes or rides, my wife knows where I am going and approximately when I should be back. And of course, I bring my 2005 Motorola Razr flip phone, just in case.
Most importantly I keep in mind why I am going on these rides. I am doing them to stay fit. It also helps that I really enjoy it. As with all my other fitness routines, I try to avoid injury. I may feel like a kid most of the time but I am very aware that I am not. If the best athletes in the world have to make adjustments for excessive heat, it is probably a good idea that I make a few as well.
This Year's Spending Plan Russ Leonard 2-3-16
I just recently finished our spending plan for 2016. Though similar, this is not to be confused with a budget. I know what all our fixed costs are. I also know what we spend on average on groceries, misc. household, etc. That is all included in our monthly budget which rolls up into our basic expenses for the year. Our basic expenses are $2227.00 per month. This is actually lower than last year. We are down to 2 cars, so our insurance and taxes are lower. My wife retired on 10-31-15, so our gasoline expenses have dropped now that both of us no longer commute to work. We have also gotten better at not buying things. My appetite for spending money has declined significantly since I stopped making money. That is obviously a good thing.
Our spending plan is a combination of our known expenses (budget) and a whole bunch of "What Ifs". The "What ifs are what get most people in trouble. They can be as simple as not paying attention to controllable expenses or involve medical costs which can be sudden and extreme.
We have a private health care plan purchased through our state exchange, or if you prefer, Obamacare. Our premiums are low but our potential out of pocket max is very high. Go out of network and they are insane. Our spending plan has to take into account the possibility of hitting the out of pocket max. Not to do so would be gambling. If unforeseen bad things happen we have liquid funds available to take care of the expenses. We have planned for other "What Ifs", such as major house repairs, car repairs, dental emergencies ( we do not have dental insurance) etc. We have added some fun items such as a little travel and maybe a toy or two.
After crunching all the numbers we have a best case, worst case and a most likely outcome scenario on which to gauge this years spending success against. The most likely outcome is just the average of the high and low. Any point at or below that midpoint will be considered a successful year. The money for all of our years expenses comes out of two accounts. The starting points have been recorded. Every couple of months I will check our progress against the year's spending plan. Last year was close to the best case. This year we have gotten off to a rough start.
The plan is full of facts, data, experience and common sense. Wishful thinking or executing unproven habits, have no place in a plan like this. I know good luck can be important. I prefer to rely on my disciplined lifestyle and make my own luck.
If someone had told me 30 years ago, that someday playing with balls would be an important part of my exercise routine, I would have thought they were crazy. There are hundreds of beneficial exercises that can be performed with medicine, stability and playground balls. They can be used for strength, balance, stability, flexibility, core and aerobic training. The possibilities are endless and in general they can be a safe form of exercise. Except the other day when I hit my wife in the mouth while doing bounce passes with a 6 lb medicine ball. I only laughed after I realized she was okay. I use balls ranging from a tennis ball to a 15 lb medicine ball for various exercises. All balls are not created equal. Some bounce, some don't. Some are a gel like consistency and some are hard as a rock. My friend Alice (AKA Big Al) and I, sit 9 feet apart and fire the 15 lb ball back and forth, as fast as we can for 100 plus repetitions. We often do this between lifting sets. It is an incredible cardio workout. That ball is soft shelled. If we tried that with one of the 12 pounders we would break our fingers. Maintaining and or improving your balance becomes very important as you age. We often stand about 10 feet apart on one leg and throw and catch the 4 pound gel ball with one hand. We will switch legs and hands several times. These are just a couple of examples of the many exercises that can be performed with balls of all sizes and weights. Over the years I have done push-ups while balancing on one, two or three medicine balls. That is why I have the three 12 lb balls in the above photo. Using a little imagination will keep you both interested and challenged while doing ball exercises. My wife and I play ball almost every day. We do progressively heavier chest and bounce passes with each arm individually and both arms at once. This also helps maintain your eye-hand coordination, which can also deteriorate as you age. As with any form of exercise it should only be attempted with proper medical clearance and should start out slow and easy to avoid injury. Give it a try. You just might feel like a kid again. It is a lot of fun.
Downsizing? What is the Right Size? Russ Leonard 6-28-15
One size never fits all. I have been giving a lot of thought to what type of house I would like to move into for the balance of my life. For now I am assuming that my wife will eventually agree to a move. It is a big assumption. I told her that my target date is no later than 2022, when I turn 65. That gives me less than 7 years to convince her. Wish me luck.
Our current house is about 1700 sq', of which 250 sq' is a finished lower level. When the house was built in 1972 the average new home size was about 1500 sq', so our house is about the norm for an early seventies house. I grew up in a house that was built in 1955 that was 1046 sq'. The average house built in the mid 1950's was about 1100 sq', so I also grew up in a house that was average in it's day. Today the average new home is over 2500 sq'. I can guarantee you that I will not be living in a new home of average size in the future. Nothing can screw up your savings potential like a large home. Unless you have real money, nothing can restrict your retired lifestyle like a large home. We have a new housing development less than 2 miles from our house. The minimum size home the developer will build is 3400 sq'. Who buys these homes? The bigger question is who will buy them in the future when the owners may decide to downsize. Student loan debt has now passed all credit card debt in the US. It is now more than 1.2 Trillion dollars. I am thinking that 10 years from now there are going to be a lot of large homes for sale with no buyers. Given the size of my current home, I am thinking that I should be able to sell it a lot easier than someone with a McMansion, seven years from now.
I have actually started working on floor plans for a new home. Over time I will share my progress and eventually my final product. My starting point is a single level ranch style home that will be built on a pad with a maximum of 1200 sq'. It will have an attached 2 car garage. It will have one main bedroom and one small combination bedroom and office. It will have one or one and a half baths and have an open living/kitchen/dining area. I might be able to shrink it to 1000 sq', but a specific number is not a goal. That might not sound like a lot of room, but consider that the largest Travel Trailers are limited to 400 sq', not counting the side outs or expandable areas. I have a couple of friends with large 5th wheel trailers. I could almost live in one of those, many people do. The biggest difference is that they are designed from the ground up to make effective use of space, most homes are not. Since I am planning on building a new home, I have an opportunity to design a home that lives larger than it's square footage.
I also have an opportunity to design an environmentally friendly and energy efficient home. Solar and battery technology is advancing at a rapid rate. It would advance even faster if the market demanded it. Cheap oil is holding back that market. I have no illusions about living totally off the grid. To me it is just not practical or cost efficient yet. I am thinking that being connected to the electrical grid will be required, but maybe in seven years it won't. It is going to be a fun project. I will learn a lot in the process. If my health remains good, maybe I could build the house myself or at least finish it. I could live in my travel trailer that I plan on buying while the house is being built. When I hear my wife Marilyn, yelling my name, I will know she just read this last paragraph.
Where to Retire? Russ Leonard 4-28-15
I have read a lot of articles on the best places to retire. If these are really the best places, why is each list different? The simple answer is that they are the opinion of the author. They are based on the author's own criteria. Read them, get information but just keep in mind that only you can decide on where to spend your retirement. I would never even consider telling someone where they should retire. I will offer some suggestions that may aide you in your decision making process.
I like to think there are 3 major categories that need to be satisfied in your own mind, that will lead you to the proper location. There are really 4, but we will save number 4 for last. The three general categories are
1. Your health and medical requirements
2. What you like and what you don't like
3. What you can afford and maintain throughout your retirement.
Let's take a look at each one.
If you are completely healthy with no medical issues of any kind, maybe number one is not important. If you have a heart condition it probably would not make much sense to live 150 miles from the nearest emergency room or intensive care. Several of the largest western states get great reviews for potential retirement locations. These are big states with big cities that are often hours apart. Will you be comfortable leaving all your doctors behind and developing new relationships? Your doctors are not going with you. Do you have allergies that would benefit or suffer from a relocation? These are just a few things to consider. No one knows your needs better than you do.
Number two is where you work on the fun factor. What are your likes? What do you hate? What are your hobbies? Do you like four seasons? Do you hate the cold? Do you like the ocean or the mountains? Or maybe both. Both of my wife's siblings hated the cold and retired to Florida. I love the snow. Putting Christmas lights on a palm tree just does not work for me. I am not a city person. Some people love the arts and entertainment that a large city can offer. We are all different with different ideas. Let's not forget about family and friends. Do you need to maintain close contact with your family or do you want to get away from them and give them a place to visit every now and then? Make a list of all your likes and dislikes. You will find out that many areas will be eliminated from consideration very easily. Surfers don't retire in Iowa.
Now that you did all this great planning, can you afford to live there? Do they tax your pension? Do they have a state income tax? How are the property and estate taxes? Would part time work be available if you needed it? etc, etc. This is the main reason that you should develop a list of several potential areas not just the one perfect place. In reality the perfect place does not exist. I live in Connecticut where the taxes are extreme. The overall cost of living is very high here. I am retired here and I can afford it(barely) and I actually like it here. The state, not the politics. Where would I like to move to?
I won't get into the details but southwest Colorado and southwest Utah are the perfect fit for me. They satisfy all the criteria on my checklist. So why am I still in Connecticut? That is where number 4 that I eluded to earlier comes into play. My wife has veto power. She likes where we are and does not want to move. She is emotionally attached to our home. I have been working on her for years with some small progress. At the rate I am going I should be able to retire to Colorado or Utah before my 175th birthday. I am not giving up but when it comes to retirement we both make the rules.
Safety in the Home Russ Leonard 8-15-16
I have written a lot about staying healthy through proper exercise and nutrition. That alone won't help too much if you do something that is ill advised or just plain stupid and hurt yourself. Even with all the proper preparation and precautions you can still get hurt. Case in point: last Wednesday the cable snapped on my lat exercise machine and sent me to the cement floor pretty hard. I was not seriously injured but still have the marks and some aches to show for it 5 days later. What made this even worse was that I checked the cable as I do every now and then just 3 days prior to it snapping. I obviously did not check it good enough. I was lucky that my injuries were minor, it could have been far worse.
Even before my intimate encounter with my basement concrete I was planning on writing a segment on safety in the home. In the past two months I have been repairing items and making safety improvements in many areas of our home.
There are millions of injuries every year in the home resulting in tens of thousands of emergency room visits and thousands of fatalities. Many of these injuries are a result of a fall. We live in a split level home with a full basement which means we have three sets of stairs. Until 2 weeks ago we did not have a hand rail on the stairs going into the lowest level where my gym is. I just installed one. There are only 5 stairs but why did I wait 38 years to fix it? Last month I slipped a little in the shower. I did not fall but it was close. Our shower resides in a full tub that you need to step over. I installed a 5 foot long rail that runs on an angle from the wall to the top of the tub. It provides something to hold onto and may prevent falling out of the shower. I recently installed some new electrical outlets in my basement. They are much better than the extension cords that I used to use. Extension cords are both a tripping and a fire hazard.
I could not write about safety without talking about ladders. In 2003 I had a semi-serious ladder injury after my 4 section fold out ladder collapsed with me on it. I had not properly locked it. I spent the entire evening in the emergency room being put back together. Still, it could have been worse. Someone that I worked with for 25 years retired and moved to Florida. He had worked in our maintenance department and spent hundreds of hours on ladders and lift trucks during his career. He fell off a ladder while working on his new retirement home and was killed. That was a real shock to all of us. I am very cautious with ladders. I still clean our gutters a couple of times a year. I use an extension ladder and clamp it securely to the gutter with two large spring clamps. I also secure the bottom so it can not move with temporary screws into the deck or tent stakes when the ladder is on the lawn.
Safety is all about awareness and thinking before you do certain things. At times that is still not enough. If you see something that is a potential hazard don't wait to fix it. Procrastination does not go well with safety.
A Simple Way To Budget Russ Leonard 5-27-15, edited 5-30-15
Many people associate the word "Budget" with a time consuming chore that requires too much work and is destined to fail. Some of these same people often wonder where all their money goes. It is true that a budget does require a basic level of discipline and self control. If you have neither there will probably be a few speed bumps and pot holes in your life's journey. Maintaining a budget does not have to be a time consuming chore or difficult. Used properly it can be a tool to future financial freedom and possibly early retirement if that is something that you strive for. I am going to outline a simple way to set up a budget that will only require you to look at two numbers at the start of each month and make one simple transfer. This is just a cursory overview. Of course there is considerable initial start up work and tweaking that will be required to get to that point.
Modern technology is making it easier every day to keep track of and adjust your finances. For those that are impatient it may be as much of a curse as a blessing. I will tell you up front that I was never the type to continuously check my investments and worry about day to day volatility. I also set up routine checks that would give me a clear picture of how my financial health was. Once my working budget was in place it took less than 5 minutes per month to maintain.
First, let's start with direct deposit. It is a relatively new convenience, maybe 30 years old. I can say that because I can remember when the armored car came to your workplace and you were paid in cash. I can not remember when I first started direct deposit but I embraced its simplicity immediately. For this to work you will need your pay deposited into both a checking and savings account that are linked and allow immediate transfers between these two accounts. Nowadays that should be standard just about everywhere. The first thing I always did was "pay myself" with my 401k contribution. I had my pretax contributions maxed out for many years including my catch up contributions after the age of 50. After paying Uncle Sam, his relatives and myself I had X dollars remaining. The next step is to determine how much to allocate between checking and savings and that will take some work. The better job you do up front the less work and maintenance you will have in the future. Sounds like most everything in life.
Everyone has standard monthly bills that are fixed or only creep upwards over time due to inflation. These include your phone, cable, utilities, mortgage, car loans, etc. Most people have a credit card or cards that see charges for food and entertainment, gasoline, clothing, household expenses and other items that are both required and controllable.
Providing you are dealing with reputable businesses, set up everything you can on auto pay from your checking or credit card. Be somewhat careful when you do this. If you just joined "Joe's Gym" and he has been open for only a couple of months I would not be inclined to give him access to any funds automatically.
I use my only credit card for most of my purchases. I hardly ever use cash and never had an ATM card. My phone and cable are both automatically charged to my credit card. I buy all my food, clothing and gasoline with my credit card. My home and car insurance are automatically withdrawn from my checking account. My utilities are on auto pay from my checking. They are also on budget pay which means I pay the same amount each month. That number is based on my average monthly usage. It is a great feature that many utilities offer. My credit card is on auto pay from my checking. As you can start to see, buy just watching my checking balance on the same day each month I can tell if I am spending more or less than planned. Keep one important thing in mind. I pay 100% of my balance every month. I use only one card. I have had this card since 1982 and have never paid a penny of interest.
The goal is to have roughly the same amount in your checking every month on a given day. I would just use the first of each month. The reason you need your savings linked is simple. You have other expenses. Vacations, home repairs, big ticket items like a new washing machine when your old one finally dies (Nov. 2014). Every time I made a large purchase that was not typical to the normal budget it came out of the checking or was charged which also came out of the checking. If I spent $500.00 on a new washing machine I would transfer that amount of money from the savings to the checking on the first of the month. If I spent $3000.00 on vacation I would do the same. Let's make up a simple example. You will obviously need to determine your own numbers.
We will say that you have determined that your standard monthly expenses are $3000.00. Let's also say that after taxes and your 401K contribution you have $4500.00 to split between your savings and checking. Simple math tells you that anything over $1500.00 of additional spending will cause some issues. In the perfect world it would be nice to have a starting balance of $6000.00 in your checking. That is just two months of expenses. I originally started with a one month buffer. You need a cushion. You can not run your account to zero each month. The amount will depend on how consistent you are with your spending and all the variables that life will throw at you. For the past 20 years I kept 2 years of expenses in cash on hand in my savings. That is unrealistic for many and maybe unwise for some. For me it provided security and peace of mind. I have never had an overdraft.
Remember, the goal here is to keep your checking balance close to a given figure at the start of each month. You will do this through consistent disciplined spending and one simple transfer from your linked savings each month. Over time you would like your savings to grow which will allow for larger purchases and possibly other investing opportunities. Doing this from two separate accounts will give you better visibility than just dumping everything into your checking.
It is very simple. If your checking and savings are both slowly getting lower each month, you are in big trouble. You are only supposed to be replenishing your checking or pulling excess out of the savings. If your checking is stable and your savings is shrinking you are in trouble a little ways down the road. If your checking is stable and your savings is growing, you are on your way to financial freedom. The more work you do up front the better the results will be. If you consistently spend more than you make you need to be doing more than reading something that I wrote. I modified my budget last year when I retired. After the first three months of this year I was within $8.00 of where I thought I would be. That is attributed to luck, good planning and a level of discipline that is rare in today's society. I guess I could thank my parents for the discipline part. I wonder what happened with both of my sisters? (just kidding)
In Case You Were Wondering?
Our current bare bones budget is $2356.00 per month. This includes all taxes, insurances, food, utilities, etc. It does not include any additional out of pocket medical, trips or large ticket items like a new roof for the house. If things go bad and we both were to hit our out of pocket max for healthcare and we needed a major repair of some sort, our maximum monthly budget would be about $3700.00.Based on this past year we are currently at about $2700.00 per month. That has included some travel and a couple of new toys. I know people that spend $2000.00 per month on entertainment alone. Our budget only includes $100.00 per month for going out to eat. We do not have television. We have old flip phones with basic plans without data. We generally do not buy anything for the house that is not required. Our house is well maintained by myself. We rarely buy any new clothes. We have plenty. We spend about $525.00 per month on food items. That is a large number for two people. We do not make compromises on our healthy eating habits. We live in what is considered the most expensive state for retirees, Connecticut. Our property taxes are about $440.00 per month. Many of my friends pay more than double that on their beautiful large homes. If we can eat well, have great fun and enjoy life at $2700.00 per month in Connecticut, then it can be done most anywhere. All it takes is some discipline and priorities. Simple, right?
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