Life for Less: Save Save Save

A friend of mine (we'll call her "J") sent me an email in mid-December asking for advice on how to "save save save" (her words... & I love 'em!) as she & her hubby are saving up for grad school, a home & trying to pay down student loans. They've started a little nest egg, but are looking for new (& maybe creative ways?) to stretch their savings.

At the time J emailed me, I was absolutely slammed both personally & professionally, but now that I have a few minutes, I figured it would be good to share with her & the rest of y'all, as well. Also, in keeping with my New Year's Resolutions, I am not going to apologize for my lack of Life for Less postings (remember, blog = hobby), but I do realize it's been awhile.

{Warning: This is way long....so if you don't have time to read it now, maybe scan now & bookmark for later!}

Let's start with some Dos & Don'ts. Some of this will sound elementary, but it's always good to return to the basics, especially when your primary goal is to increase your savings. In fact, it's really quite simple. It just takes some action.

1. Do take your time! (a.k.a. Don't rush into major purchases or life decisions, for that matter). No matter what you are saving for, make sure you give yourself some time to do adequate research, vet your options, & most importantly, pray about your decision. Matt knew when he graduated from U of I in 2007 that he didn't want to be an architect & he thought dentistry might be the right career fit, but before he jumped back in school he took an entire year to make sure he was serious, shadow dentists, pray about it with me, work, & save up. We try to take that approach to all decisions -- financial/school or otherwise. If you're rushing into to something, there is a chance that down the road you'll have "buyer's remorse." When it comes to major life and financial decisions (think house, car, babies, pets, etc....) take your time. Plus, you'll appreciate it more if you (a) are sure you're ready, (b) can afford it & (c) waited patiently for it! As my momma says, "Patience is a virtue, dear."
2. Don't be dishonest! Don't save by cheating elsewhere. Not a good habit to get into. Just sayin'. What do I mean by this? Welp, since we moved to North Carolina, Matt has done yard work, handy work, & various odd jobs in addition to his regular 9-5 & school gig. It would be easy for us to "forget" to claim this income on our tax return since he's paid in cash & there isn't a paper trail. In fact, I've heard some of my really bright friends tell me "I don't have to pay taxes because I'm paid in cash." Now, I don't believe my friends are inherently dishonest so I'll give 'em the benefit of the doubt. The truth of the matter is, just because you don't have an employer who withholds federal, state & payroll taxes on your behalf doesn't mean that you don't still owe them. Think about it - if you're claiming deductions from your income (e.g. itemized or standard deduction) or credits against your tax (e.g. first time homebuyer credit, education credits, etc.), is it really fair for you to electively omit your income? I don't think so. Nor does the IRS, so if you're employing this strategy, I'd recommend praying you don't get audited. All the law-abiding, tax-paying citizens will appreciate your honesty. Promise.
3. Do GIVE! I truly believe that your savings & giving habits start early. So for young couples, look for opportunities to be generous, because it'll be hard to redirect your giving tendencies down the road. It's easy to make excuses as to why you can't give ("We're paying off loans," "We're saving for school, a home, etc," or the classic "We don't make enough."), but I'd encourage you to take a look at your current situation & reevaluate whether your "excess" could bless someone in need. Most of us enjoy lots of little luxuries, and if we cut back a bit, we could find ways to give regularly to our churches, sponsor a child, & support any "cause" that you believe in! Matt & I have made a commitment that as long as we have an income, we will give. And we have been blessed one thousand times over & have never thought at the end of the month, "if we hadn't have written that check, we could have done X, Y, or Z." I don't tell you that to boast, but to encourage you & demonstrate that it is entirely possible to be generous no matter what your circumstances are! 
4. Don't neglect retirement savings! Yes, I know we're young & retirement seems ages away, but it is never too early to start. You are ultimately responsible for your retirement & an early start will help your retirement savings compound many times over. From a practical perspective, if your employer matches your contribution to your 401(k), at least put enough in to get the full match (for both of my former employer & current employer, I need to put in at least 6% to get the full match). I'd recommend putting at least 10% into a retirement account (401(k) or IRA). Further, I'd recommend that if you have the option, put it in a Roth IRA or 401(k). Why go Roth? You contribute to traditional 401(k)s and IRAs (that's "individual retirement accounts") on a pre-tax basis. That means what you put into the account is excluded from your income until you begin withdrawing (a.k.a. in retirement). At that point, you pay taxes. You contribute to Roth IRAs & 401(k)s, on the other hand, on a post-tax basis. So you'll have to include the income you contribute in your taxable income the year you contribute but the bonus is that your distributions are tax free. So if you anticipate being in a higher tax bracket in retirement (which is what I'm assuming for purposes of this recommendation), it's advisable to pay the taxes now (e.g. Roth) at your presumably lower rate. Don't have a Roth 401(k) option at work? Put in enough to get your employer match, and then put the balance of that 10% (or more!) in a Roth IRA.
5. Do consult your spouse! Self explanatory, right? If it was really that easy, then why do you think so many marriages end in divorce? In fact, a huge source of marital strife for most couples stem from finances! Be on the same page. For us, that means that we consult one another before any major purchase ($50+).  I'd venture to say that nailing down your financial philosophy before you tie the knot is a "must-do." Don't wait until you've said "I do" before deciding how you'll handle your money in marriage. We live by the philosophy that "what's yours is mine," & leave everything comingled (besides our separate retirement accounts at our respective employers). I have a hard enough time keeping track of our joint finances that separate would throw me for a loop, but if being accountable to your spouse for all of your spending eeks you out a bit & you want to maintain some level of financial autonomy, maybe set up individual bank accounts in addition to your joint account where you each get a little "fun money."
6. Don't forget to indulge in a few favorites! You are going to think we are the cheapest people on the planet after you read the rest of this post, & although we may be in the running, I can assure you, we do allow some wiggle room for things we enjoy. For us, that's travel, our camera (our biggest splurge to date), seeing family, our health, good running shoes, education, steak or fresh fish for dinner on occasion, Tide detergent (it's expensive, but I love it) & giving (in no particular order). Many 20somethings want the same standard of living as their parents, but they forget that it took their folks 20-30 years to save up & establish the lifestyle they currently enjoy. Take your time. I'd rather have a healthy retirement account, a modest home, the ability to pay for our kids college & little or no debt by the time I reach my parents age instead of having a big screen TV, fancy car, & clothes I'll wear only once now. Your sacrifices will be totally worth it & you won't even notice them once you make room in your budget for a few splurges (emphasis on "few") & stop comparing your situation to everyone else. Truth be told, your friends with all of the toys may be drowning in debt.

Okay. Now that we have some ground rules laid out, here are some really simple ways to trim your budget & boost your savings. We've implemented all of these at one point or another, & we really don't feel deprived at all! We've foregone some "extras" so that we can give generously, establish an emergency fund, save for retirement, dental school & a future home, & still enjoy a few little luxuries along the way.

• Cancel your premium cable. Drop down to basic or get a pair of rabbit ears! You'd be amazed by the savings! If you primarily watch the major networks, you probably won't even notice.
• Cancel your internet. I know this sounds extreme, but we did this for 2 years in Chicago & we spent so much more time together! Both of us had internet at work & if we needed to get online at home, we went to the library, and kept our internet sessions pretty brief.
• Drop down to a basic phone plan. Our total monthly Verizon phone bill (that's for 2 lines) runs about $70 a month. We don't have text or data on our plan, so when we want to chat with our friends or family, we pick up the phone. If you have a land line, consider ditching it & using just cell phones.
• Line dry your clothes. Almost all of our laundry is air dried (we make a few exceptions for towels & whites). Give it a try! Your clothes will last longer, your sheets will be crisper & your electric bill will be lower! If you're worried about wrinkles, just pop your clothes in the drier for a few minutes, pull them out when they are damp & warm & hang 'em up immediately.
• Change your air filter. It'll improve ventilation, trap some of those nasty allergens & improve your HVAC efficiency (a.k.a. save you $$$).
• Open the windows. We keep our energy bills in check by opening the windows & turning on our ceiling fans in mild weather. Resist the urge to turn the A/C on at the first sign of an uptick in temp. Nothing beats fresh air.
• Turn down the heat. The flip side to opening windows...in the winter, adjust the heat when you leave. We've also done this with our hot water heater when we leave for an extended vacation. We don't turn it off (don't want the pipes to freeze), but we'll dial it down a bit.
• Trim your entertainment budget. To give you an idea, we budget $40 a month for entertainment (that includes any meals eaten outside of our home, movies, ball games, etc). Most months, we spend a few bucks at Redbox. We have friends over for dinner, play games, go to cheap/free events at UNC, hike & bike on the weekends for fun. We have a great time!
• Bike or take public transportation to work. Matt rides his bike to work & will take the bus to school next year. (I work off a major highway, so unfortunately, biking is not in the cards for me). He gets his exercise, & we save more than just gas money. Plus, his bike ride allows us to.....
• Be a one car family. My in-laws did this for years & I know several people who have made it work. For 3 of the last 4 years, we've survived on one car without any major inconveniences. On the rare occasion you need two cars, you can borrow or rent!
• Brew your own coffee & pack a lunch. We've never paid for lunch (or coffee) since we started working & we've probably saved thousands over the past 3.5 years. I'm not exaggerating. I've done the math. It takes a little planning when you go to the grocery store, but it's easy peasy & probably way more nutritious than whatever fast food you pick up.
• Meal plan. I've blogged about this before, but it really & truly helps you keep down your grocery budget. You buy what you need, avoid impulsive stuff you wouldn't normally buy anyhow, & save a few pennies (especially when you plan your meals around sale items at the grocery store).
• Coupon. This post says it all.
• Go easy on the electronics. We're still rocking the same laptops & TVs that we had in college. We're due for an upgrade (our TV is getting to be a bit fuzzy & our 2003 Dells are about to kick it), but we made sure to get our monies worth out of these relatively major purchases. We get our basic phones for free every 2 years & our only "sophisticated" gadget is our camera.
• Put yourself on a shopping diet. As in, don't do it. For me, that means not putting myself in front of temptation (a.k.a. the mall). I have tons of clothes, & I pride myself in getting compliments for outfits from the archives! When I receive monetary gifts (thanks, Gram!), I'll treat myself to a little shopping trip, but I limit it to the amount of the gift. I find that I get a little shopping "high" when I buy something, but that it usually wears off after wearing my new outfit one time. 
• Cut down on primping. Cut your own hair (like Matt), or have your mom cut it (like me). Or check out a beauty school in town (Aveda has great schools) where you can get a cheap cut or color by a supervised student. I'm pretty simple when it comes to beauty - I've never dyed or permed hair (too annoying & expensive to keep up), I refuse to pay $40 for someone to cut my hair in straight line, & mani/pedis are definitely only for special occasions (as in, I've had 3 in my lifetime).
• Graciously accept hand-me-downs. A lot (as in most) of our furniture, as well as both of the cars we've owned, were handed-down by family & friends or purchased on Craigslist. Of course I drool when I flip through a Pottery Barn magazine, but I also adore our "well-loved" pieces. I'd rather save up for the "good stuff" down the road & enjoy our hand-me-downs (which also frequently get compliments!) for the time being!
• Consider "alternative" gifts to your special someone.  We don't exchange birthday, Christmas or Valentine's gifts. Gasp! It started after we got engaged & were saving for a honeymoon. We decided to forego Christmas gifts that year so that we could splurge on a few things on our honeymoon. We've kept the tradition going & I'll admit, I breathe a little easier when the holidays come around because I don't have to dream up a gift for Matt (he is impossible to shop for) & viceversa. We opt instead for "gifts" that we need or want. One year we "bought each other" some sweet North Face sleeping bags, last year we bought our camera, & this year we're planning on getting a new computer.
• Negotiate. My brother-in-law is the poster child for this (cars, jewelry, mattresses, appliances). He's not afraid to negotiate & we've learned from him & developed some confidence in this "art," as well. In fact, Matt talked down our landlady in our monthly rent without even breaking a sweat. When you're facing a major purchase, see if you can get the price lowered, more preferable terms, etc. If you are willing to walk away from a purchase & the seller sees that they might genuinely lose your sale, all of the sudden your price & terms become a whole lot more flexible. Give it a try.
• Pick up the phone. I am not afraid  to pick up the phone & call a manufacturer (or email or write them) if a product doesn't live up to my expectations. I've done it for everything from our car to some "natural" deoderant that gave both Matt & me a rash (got a $5 check in the mail after taking 2 minutes to fill out a complaint on the internet). I'm really polite about it & usually the company will reimburse me, send me a replacement, or at the very least give me a "good job" for trying.
• Roadrip & Camp. Want to travel? Need to do it on the cheap? Campsites usually run less than $20 a night & at typical hotel rates, you can sleep for a whole week for the price of one night in a hotel! and Visit amazing places! Breathe fresh air! Truly "disconnect from it all." Okay, maybe we're just crazy outdoor lovers, but seriously, it's awesome. and cheap. and opens up a whole new world of destinations that you couldn't or wouldn't afford as young, broke travelers.
• Get a library card. I could not have kept up my 2-4 books a month habit in Chicago without my library card. If you read the book, love it & truly think you'll read it again then buy it. Otherwise, don't feel guilt about returning to the library that book you just couldn't get into because you didn't pay a dime!
• DIY. From Christmas cards to home decor, I'm a DIY dabbler. You can create the look you're looking for on the cheap if you're up for the challenge. There are tons of DIY blogs out there, so I won't bore you with my DIY-tales.
• Rethink your gym membership. Although I'm ready to rejoin, our 2 year gym hiatus saved us somewhere between $1500 and $2000. If you live somewhere where you can exercise outside all year round, or if you have space in your home to workout there, or if you pay for a gym you never visit - maybe it's time to take a break from the gym (note: I did not say stop exercising! see the next bullet point).
• Take good care of yourself. Exercise, a healthy diet, and preventive health care are more than good for your body. They're good for your pocketbook. 
• Don't overinsure. If you are like us and have minimal health care costs right now, consider high deductible health insurance coupled with a health savings account. No need to pay for a cadillac health insurance plan when you only go to the dr. for routine physicals.  In fact, your high deductible plan may even cover routine preventive care 100% (ours does!). For other health care costs, although your deductible will be high (which means you are responsible for your health care costs up to your deductible instead of paying a small copay when you go to the doctor), you can sock your premium savings in a tax deductible health savings account! Your employer may even make a contribution to your HSA as a perk of selecting a HDP. Then when you do have a medical bill to pay, you've got the money set aside. As your family grows & your health care costs rise, consider making the switch out of the high deductible plan.
• Marry an accountant. That friendly tip was courtesy of the Mister. He's a pretty smart man.

If you read through this entire post, I commend you. It took me a whole lot more than the "few minutes" I had when I got started (in fact, this post was developed over the course about a week). If you want more personal finance resources, check out these great web sites:

• The AICPA (American Institute of Certified Public Accountants) has an excellent consumer education site called 360 Degrees of Financial Literacy. No matter what stage of life you're in, 360 will help you make sound financial decisions.
• FeedThePig.org is also the brainchild of the AICPA, which was created to help 20somethings "think about your spending and saving habits, identify ways you can start saving and commit to making changes that will reduce your debt and grow your savings." You'll find a lot of savings tips (probably some repeats of the ones above), & tools to help you get started.

Happy saving!

Sorry.... My anal retentive side is telling me this is necessary: Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. federal tax advice contained in this blog is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in this document.