Thursday, January 15, 2009

Amazing feedback... so here's the encore.

So in the LDS church, we don't have a preacher/priest who gives us a sermon each week. The way it is run is a bit different. Each Sunday we have speakers. Those speakers are most often just other members of our congregation. (I promise I am going somewhere with this) A member of the bishopric (the leaders of each small congregation) will call on 2-3 people each week to speak on a set topic. We are almost always given about a week to prepare. Most LDS members will be asked to speak many times throughout their lives, and most of those talks are between 5 and 20 minutes long. (Stay with me!) We start this process at the youthful age of 3 with our children. Last year, Lilia gave her first talk. Joe wrote it, and I helped her give it. It was about 30 seconds long and it was great. WELL- a few months ago Joe and I were asked to speak. (Oh the horror!) We were given a very (VERY) broad range of topics. Instead of asking us to speak on Faith, or Charity, or any other number of topics they asked us to speak on anything that President Gordon B Hinckley had spoken on. Now to give you an idea here, President Hinckley was the Prophet and President of the LDS Church for almost 13 years. Before that he was a member of the first presidency for 14 years, and before that he was an apostle in the Quorum of the 12 (like in biblical times) for 12 years. All together that is 47 years of speaking in conferences, meetings, publishing articles in church magazines, and writing books. As I am sure you can imagine there are probably not a whole lot of topics that this incredible man hasn't covered!

Well it has now been almost 3 months since we gave our talks and I am STILL getting positive feedback for what I spoke on! Talk about a great feeling! My talk was on Family Finances. Basically, I just told the story of what Joe and I have done with our money.

Today I read a blog posted by someone on how they save money grocery shopping and they asked for feedback on how others save money. Which prompted me to think about it some and I decided I would put it out here for all the world to see... I am not gonna post numbers, but I am gonna give you the basic gyst of how Joe and I are working our finances at this time. Now to be fair, I am no guru. AND I am also not perfect (heaven knows!)... But this process that Joe and I are using has been pretty helpful to us, and successful for us. So- for any of you mild risk takers out there- this blog is for you!

For the most part I am gonna cut and paste parts of the talk I gave. Adding tidbits and current changes here and there....

I am a HUGE fan of budgets. I guess you could call it a quirk. I actually enjoy doing the finances and tweaking the numbers until I come up with a good budget for us. There are many ways to set up a budget. A good friend of mine uses a cash method. She has a purse that has pockets sewn all over the inside. Each pocket is a section of her budget. Groceries, Utilities, Dining Out, Family Entertainment, etc. Each month she pulls from her checking account the money allotted for her budget. She then divvies it up and puts her budgeted amounts in each pocket. Once the money is gone. It’s gone. There have been times where it has been necessary to borrow from a less necessary pocket the money needed to pay a larger than usual bill, or to take money from Family Entertainment to pay for a pricey dinner, but as long as she doesn’t remove anymore money from her account she stays within her budget. Now this method works well, but it may not be right for you. For Joe and I we use Quicken on our computer. Quicken will make a suggested budget for us based on our regular spending habits. It is a good way to see where we spend most of our money! It is also a good way to see where your financial weaknesses lie. For Joe and I, it is definitely eating out. We LIKE to eat out. A LOT! We also tend to spend a decent chunk of money on Groceries… what can we say? We like food! Anyway- I use the suggested budget quicken sets up for me and I make almost every category a bit more uncomfortable. If it suggests a budget of 100 for a category, I cut it back to 85. And so on. By doing this I am trying to spend less than the year before. I am trying to make excess from a budget that last year seemed tight. Now this doesn’t always work, but I tweak the numbers for a month or more before I finally have us in a reachable budget that is tough, but not impossible. One of the categories I think is an absolute MUST? Fun Money. It’s our allowance for lack of a better term. Money Joe and I take from the budget that we don’t need to explain, or get the okay from our spouse. We can use it wherever we want (Joe’s is usually used to buy himself lunches out at work, mine is mostly book purchases…).

Joe and I have found that our Fun Money has given us the freedom of being frivolous without going over board. I want a new, and very unnecessary pair of shoes? I save up until I have enough personal money to buy it. Joe wants a better, newer, nicer, more fun cell phone? He saves up until he can buy it outright.

Another part of our budget that is important to us is savings. The hardest part for us when we were newlyweds was to take the time to transfer money from our checking into a savings account- the saddest part about that? I worked at the bank! But it still never got done! So- we got smart. The bank I worked for allowed me to split my paychecks through direct deposit. I had a small portion of each paycheck directly deposited into savings! It worked like a charm. You don’t miss money that never hits your checking account right? If your job doesn’t offer that luxury, another way around it is to see if your bank offers a CD or Investment account that will automatically withdraw money from your checking account each month. Once again, hard to miss money you never touch… And it’s amazing how fast it can add up! Just setting aside a small amount each month and it just sits and grows and grows until you look a couple years down the road and find you saved up enough for the down payment on a newer car! Or to pay for a semester of college, or maybe to help pay for your child’s wedding…

Also, another trick Joe and I use? We got ourselves a Discover Card. Now this card is not used to buy things on credit. We ONLY use it to buy our gas (as in fuel). This specific card gives us 5% cash back bonuses on gas! That 5% cash back sits in a separate account until we request it. We can then cash it in for money, or gift certificates to any number of stores. And that is our Christmas money. We get a nice chunk of money sent to us each November to help pay for gifts, and to earn that money we didn’t do anything more than use a different card at the gas pump and then pay off the card each month as though it were a bill.

Joe and I used to teach the Marriage and Family Relations classes at church. One of the lessons we loved to teach was on Finances. It suggest a way to reduce debt that Joe and I are using. We tweaked it a bit to fit our circumstances, but the main gyst of it is to use a snowball effect to payoff debt faster. Lets say you have 5 debts. Those debts total 500 a month in payments (for the ease of explaining this, lets say each debt has a 100 payment). The smallest debt is paid off after only two payments, and thus frees up 100 dollars of that monthly debt! Now instead of spending that 100 dollars elsewhere, you take it and apply it to the 4 remaining debts. By adding an additional 100 dollars to the next smallest debt you pay it off twice as fast! When the second debt is paid off, you then take those 200 dollars you were paying and apply it to the next smallest debt, paying it off three times as fast! I am sure you can see where this ends up. By not spending any more money that you are currently paying, you end up paying off your debts much faster. Granted it is an idealistic situation suggesting that no more debt comes your way, but just keep applying this plan and it will keep working for you.


The last thing Joe and I have started doing is kinda hard to explain but I will do my best... Everything we are doing seems so BACKWARDS for saving money, but it is working SO WELL for us! This is where the risk fits in. Joe's boss told Joe of a way to pay down his house faster that intrigued us, and so we took his idea, tweaked it a bit, and put it to work for us. What this will require is a Home Equity Credit Line (HECL) and a credit card. Yeah- two huge pieces of debt! But hear me out. We went to our bank and had them refinance our mortgage and throw a chunk of the mortgage into a HECL for us. This HECL is attached to our checking account. So basically, if we want to frame in our basement, instead of going to the bank and requesting a check from our HECL, we can write the check from our regular checking account and it will pull the money from our HECL, put it in the checking, then clear the check! (You with me so far?) Well- because it was set up on our checking account, if we ever go overdraft in our account, it will pull the money from the HECL to cover it. We then started depositing Joe's paychecks directly into the HECL and NOT our checking account. The next step was to find a credit card with some bonus something or another (doesn't really matter what- if you like to travel get a card that gives you points toward flights, if you like to shop get a cash back card, etc.) We then make ALL our daily purchases with that card. At the end of the month we pay the WHOLE balance off in full. So for ease and convenience and to explain better the benefits of what we are doing, I will throw some fake #'s out there.

Bob has a HECL holding 10,000 of his mortgage on it. He gets paid 1000 twice a month (so that 2000 a month) He puts his paychecks on the HECL paying it down to 9000 for the first half of the month than 8000 for the second half of the month. One of those deposits count as him monthly payment, so he never needs worry about coming up with the minimum payment due. All the while, with that money sitting there he is paying LESS interest on it because he is paying such LARGE chunks at a time. If his minimum payment is 100, he is paying an extra 1900 a month in Principle! Thats not bad! BUT- Bob's gotta live right? So he has a budget each month of 1500. He is good at staying within his budget. He has a few auto pay bills totaling 500 that come through his checking account (and get pulled from the HECL), but for almost everything else he uses his Capitol One card. He eats out, he grocery shops, he goes to the movies. It all goes on his Capitol One card. He racks up a bill of 1000. When that bill comes due, he pays it off in full with one check from his checking account. Which pulls the money from the HECL. Because he is paying it off in full each month, he is never charged interest from Capitol One. So as a breakdown this is what it looks like:

10,000 bal.
1,000 deposit leaving 9,015 balance (gotta pay some interest)
ANOTHER 1,000 deposit leaving 8,030 (more interest)
Withdrawl of 1500 to pay monthly expenditures leaving a balance of 9,530.

That means overall for the month he paid down his HECL by 470.00 That may not seem like much to you, but if you consider that he is still paying his mortgage as well, that is a significant chunk to pay down. The savings comes in by having interest work for you. Instead of having his excess sitting in his checking account it is sitting on his debt leaving him with less money to pay interest on. It is a pretty obvious fact that the smaller the debt, the smaller the interest (not the smaller the RATE- just the smaller the AMOUNT of interest paid). So- by letting his paycheck sit untouched on his HECL all month he is paying interest on a chunk that is 2000 smaller than the amount he would be paying on if it were in a checking account. Does that make sense?

The tricky part here is that if you can't stay within a budget, this plan is not for you. If you frequently spend more or the same amount as you earn, this plan won't work- at least not as effectively. Now the REASON this is risky. Right now interest rates are low. REALLY LOW. Our mortgage from a few years ago is higher than rates are now by about 2-3%. Well- a HECL doesn't have a fixed rate. So we are risking the idea of the rate jumping higher than our current mortgage rate. Our rate changes monthly. As prime raises, so does our rate. So it is very likely that eventually we will have a higher interest rate than our mortgage, but we will still plug along because we can see the bigger picture and eventually those rates will drop again.

If this last part just totally confuses you, go ahead and ignore it. Or email me. Or call me. I don't mind explaining (or trying to explain) again.

ANYWAY- I know this is long, and if you read to this point, KUDOS FOR YOU! You are awesome! But if you don't read this far, I still love you! I would love to know YOUR tricks for saving money. Even little stuff. Bring it on!


~AnnaMarie~ said...

Funny, I just posted a blog about what I did for Savannah's school shopping for next year. My grocery shopping is where I save a TON of money! It's kind of a long explanation on how, but I can feed all 8 of us, pretty easily, and add quite a bit to our food storage each month on $250-ish. I used to spend upwards of $800 a month and that was with 1 less child.

Sariah in Vancouver said...

Pam, I've never heard of that before but it sounds really interesting. You're right that it's a little risky, but often in fincances there is risk. I am going to share it with Ryan to see what he thinks. I don't know if it's something we would do, but it's definitely something to think about! :)

Ben and Heidi said...

Ben and I use a method called the money book manager if you are interested ever I would be happy to show it to you and explain it. It is basically kind of like the cash method but I actually have a book for it so I don't have to have all that cash at all times. We also have an american express credit card that we pay everything we can on and we also pay it in full at the end of the month which gives us lots of points to use in various different ways. I have always been one to budget my money so it is always fun to hear what others are doing to makes their works. Thanks

Janna said...

Wow, that is an interesting way to pay the bills. It sounds like it would work really well for people who are able to really control themselves! :)