Here’s my take to that statement.  You always have to save for retirement.  You have to get used to living on less than you make.  Say you save 10% for retirement, if you keep using that 10% to pay off debt, build EF, etc, when do you get used to living on 90% of your income?  I thought even when paying off debt you have to get used to living your income?  And is your income 100% or 90% of what you make?

How do you get into the habit of budgeting on 90% of your income if you are using 100% to pay off debt?

Plus I always wonder, when you stop retirement contributions to pay off debt is it really worth it?  I mean you are losing compounding, tax breaks, etc.  So the after tax dollars is usually less than say the 10% you are contributing to a 401k, let alone if there is a match.  But in most cases, everyone agrees if you have an employer match, then don’t pass it up as 100% FREE money.

My next reason behind not stopping retirement is have you really cut your budget?  Are you not eating out?  Not renting movies, watching cable, buying clothes, no car or home repairs, turned the heat down to 55, only using coupons to cook, etc?

I mean are has the budget really gone bare bones that it justifies stopping retirement contributions?  Where you’ve given up all other luxuries first and continuing the trend to spend less you stop retirement contributions.  But if you go on vacation, eat out, have fun, why are you sacrificing retirement for debt instead of luxuries for debt?

I guess I sort of feel stopping retirement contributions to pay off debt is the easy way out. You don’t necessarily change your lifestyle, you just alter it for awhile and use the extra money you shouldn’t be using to get out of debt.  Plus once you finish paying off debt, how do you know you’ll still be able to afford those luxuries?

So what’s the reasoning behind stopping retirement contributions to pay off debt?  I understand if you are in debt and not making ends meet everything needs to and should GO.  But otherwise?

Well on one of our cards, I just redeemed $273 in cash and applied it to the balance of the card.  This our primary credit card and we use it for most everything.  Which card is it?  It’s a really old card the Citibank Simplicity Cash Back Card.  It maxes out at $300/year in cash back, but we have other cards we also use when we are close to maxing out the rewards.  What are the incentives?

5% back on gas and pharmacy purchases, 1% on everything else flat off the top.  So every time we spend on something big we earn 1% back and it adds up.  This year alone we charged $13k in tuition for my DH’s degree alone.  That’s $130 on honestly stuff we’d have to pay either with a check or a credit card.  Does it mean much?  No, but boy it adds us.  Like I’ve previously mentioned we will have paid $70k for his degree and 1% cash back is $700 on tuition we couldn’t negotiate, plus for some of it, I actually earned 5% cash back with Discover Card.  Did I really spend money above and beyond?  No.  Was it necessary?  Well not really, my DH didn’t have to go to school, that was a choice.  But once that choice was made, we DID have to pay.

So what’d I use the cash for?  Nothing, just applied it to the balance.  I usually redeem my rewards once a year, usually in the spring. But since this particular card was close to maxing out for the year I decided to do it earlier.

Personally I don’t spend money to get rewards. I get rewards because I spend money I already planned and budgeted on spending.  Now if contractors would take CC, then I’d be raking in more rewards.  I still another another $500 coming from American Express, Discover, and Costco next February.

It seems like a lot of money to pass up for moral judgment of being able to say I don’t use CC.  Do you redeem CC rewards?

Oh and I never pay an annual fee or use cards that charge them. Nor do I use airline rewards cards because I don’t travel enough, I just like the flat cash back rewards to keep it simple.  Perhaps I’m not maximizing my usage and gaming the system like some, but it works well enough for me.  One card for most everything, and American Express and Discover for certain stores.

Definitely this year was a pretty big spending failure for us.  I don’t even have to wait to the end the of year to determine that.  I read a message board, where a woman was upset and crying because she had spend $50 more than she had budgeted for the YEAR!  Not month, not week,  not quarter, but YEAR!

My deal is if I’m withing a 5% range of my budget at the end of the year I’m happy.  My budget is always done annually with monthly breakdowns.  Why?  Because I know that spending fluctuates.

To give you an example, this year I budgeted $300/month on groceries, and according to my budget I’ve spend an average of $261/month on groceries.  Broken down thus far I spent $452, $345, $122, $188, $403, $161, $309, $268, $233, $344, and $100 in November.  As you can see some months I went way over budget and other months I spent less than half my budgeted amount.  I don’t sweat it because by the end of the year I predict I’ll be close to having spent $300/month on groceries.

Ideally I should spend $300/month to the penny.  But I’m guessing some of it was due to stockpiling, guests visiting, and some just due to socializing more by either inviting people or going out to eat.  This is pretty much how our whole budget works.

So why’d we blow the budget?  Well we normally spend around $5-6k on home repairs.  This year it was over $10k.  So I know we blew our budget as soon as we kept on going with home maintenance, some ourselves and some through contractors.  Was it wrong? No. But it means that the money had to come from elsewhere and we had to realize that we were spending more than we had planned.

Do you stick to strict budget?  Do you freak out if you go over?  Is there a flex rule you implement?  I think my 5% give in categories works out best because you learn what you really spend annually.

The rest of the article talks about other people in the same situation of getting laid off and not cutting their lifestyle.  Then running out of money and realizing they should have cut their lifestyle sooner.

There is a lot of interesting things in the article.  The easiest to point out is that all these different families should have cut their expenses sooner.  It also mentioned how everyone thought the unemployment situation was temporary and they’d find other jobs.  But another very interesting point, is the guy making $200k didn’t sell his home, his investment properties, cut private school for his kids, or move.

I can definitely see Grace and FZ’s point about cutting expenses immediately and saving while times are good.  I fully agree.

But I wonder, the guy’s home and private school could have stayed, but would he have more cash if they’d had sold their 2 “investment” homes at losses earlier and taken a loss?  Is it a bigger financial drain than it needed to be?

Second, I don’t have children (yet), but is it easy to say “take any job and move”?  Did the man make the right decision to stay put and turn down a job without a severance package?  Or should he have just taken the job no matter what?

These are really hard questions and there are twofold problems.  Problem one is living a very posh lifestyle according to their incomes.  All these people were living way beyond their means without any savings.  So it’s easy to point out they should have cut expenses earlier.

But their problems are compounded by not taking any job offered.   Which on the surface seems like a no-brainer right?  But then how do you balance the risk of moving and getting laid off again?  This time without severance and having spent a lot of time and money moving?  This area of which job to take seems to be a lot more of a gray area.

I guess this recession is harder than others because it’s lasted so long.  And the truth is that rather than dealing with cuts when unemployment occurs, perhaps the answer is to make lifestyle decisions when life is good.

Have decent savings.  Don’t live to the edge of your paycheck.  Decide if you are willing to relocate for a job?  What is your timeline for accepting a job which requires moving or traveling more than you’d like?  I guess just discuss and plan for the worse case scenario.

What do you think these people could do or should have done?

We pretty much sold at the peak of the market, and while other condos in our complex were getting ~$275k after 6 months on the market, we didn’t want to wait, so we sold in 1 weekend.  Turns out it was  great move, because right after we sold the market tanked.  Also our moving package included the closing costs of selling our condo, so dumping it while we still could sell was in our best interest.

At the time we weren’t sure if we were making the right move.  The woman who sold to us had just bought in 1999 for $80k!  Doubling her money in 3 years, but she was moving to a senior living community.

So why’d we make the choice we made?  We couldn’t afford a 2 bd condo at the time. Most were running closer to $200k-$250k and that just was too much of a stretch.  $150k worked out to $700/month 1st mortgage, $150 HOA, $150 property taxes, $25 insurance, and $100 HELOC or less.  Meaning we were going to be spending around $1100/month to buy our place.

Did it make sense?  We were currently renting a 1 bedroom for $1200/month, which was super cheap for the area.  But realize as homeowners, we weren’t just responsible for $1100/month, but also all repairs and maintenance of the property.  Estimating a conservative 1% = $150/month annually, bringing out monthly costs closer to $1300/month.  For us it was well worth the risk.

Why?  We were very young 22 and 24, and we knew we weren’t having kids so buying a 1 bd condo made sense.  We wanted a dog and less moving.  We also considered the tax ramifications.  Not much, but around $75/month in taxes, leading us closer to the break even point of renting versus ownership.  But it still was a huge gamble.

What really pushed us was the fact that we were not able to save more than $2k/year into a Roth IRA for me.  My DH didn’t qualify as a non-resident, and I only had a Roth IRA.  Thus we decided we might as well “save” what we could into a home rather than a taxable account.

Was it a mistake?  Yes and No.  We might have made more in the stock market, but having a home was nice.  Even better was not moving and getting a dog.  So we really didn’t “invest” our money, rather we bought something emotionally secure.

I might add, during this time we constantly refinancing our 1st mortgage and HELOC because of the rapid increasing value of our condo into one primary mortgage with a ridiculously low interest rate.  Looking at my documents we were paying Prime + 0% for a year and then 3.25% fixed for 5 years, knowing we were moving within the next 2 years.

So while I didn’t track it 100%, I’m pretty sure we ended up paying less than $850/month in mortgage payments which would have made the ownership side of the scale be heavily favored during those 3 years.

Would I change it in my current townhouse?  Maybe, I haven’t seen what we’ve sold it for right now.  But then again we’ve stayed put a lot longer, and where we currently live the market hasn’t really tanked so it’s possible that we’ve just been “breaking even”.

There is a 30% off Border’s Coupon off one item.

Plus all Border’s Members get $5 in Border’s Bucks off to boot! Do you know what that means?

The book I wanted is the Sears Baby Book $21.99.  With the 30% off it’s $15.39 – $5 off and I’m going to pay $10.39 + tax for a new book.  On amazon it’s $14.39 new and $6.75 used + shipping.

So go print off the 30% off coupon and snag the $5 coupon from being a Border’s Rewards member!

The first tip is to spend wisely, meaning that you don’t need a bigger car or house for kids.  Probably not.  But if you were already living in a bigger place I will say it is nicer than trying to stuff us and our newborn into a 1 bd condo.

Second tip was to wait until after birth for spending.  To figure out what you really need.  Good point, but I think you should wait to see what freebies you’ll get as gifts and hand-me downs as well!

Third tip check out your benefits.  Unfortunately my DH’s benefits are changing in 2010 so we’ll be paying $250 to take our baby home from the hospital, whereas in 2009 it was $0.  Thus we upped our flexible spending account to pay for this.  Not a big deal.  My DH also knows he has 30 days to add her to his medical insurance.  While the change in benefits we just found out this month, the other costs and changes we immediately investigated after I hit the 12 week mar.

Fourth make trade offs, the example is cutting retirement savings.  I think this is a mistake.  Rather the family should look at cutting spending first and all extras like cell phones, cable, etc before cutting retirement savings.  That $100-200 month on extras can be used for other stuff.

Fifth plan ahead by getting a smaller mortgage or  baby fund.  Even without kids I think it’s important to consider your budget as a whole, not just when you want to have kids.   Sixth, practice budgeting.  What can I say to this?  Everyone should have a budget including single and newly minted graduates.  This should not start when you get pregnant.

Think creatively about ways to save money and take the plunge are tips 7 and 8.

I can only say the article I wonder if people actually read this and follow it?  I mean seriously.  Even before kids how do you buy a home without a budget?  Or figure out what you can really afford?  And since when does living within your means only start when you have kids?  Shouldn’t it start asap?

I guess this is why I’m finding the idea of parenthood easy.  All these simple lessons were things I thought “adults” living on their own, paying their bills dealt with.  Budgeting, savings, retirement, etc.  Yep, I have no idea what a baby will cost, but at least I have a handle on our finance pre-baby and not struggling to get it organized post-baby.

First off, I think a 3 month EF can be more than adequate for some people.  A single person with few expenses and responsibilities who can live lean?  Will get unemployment and probably work a part-time job while looking?  It might be able to stretch for 6 months.

But for a one income family?  Maybe not.  A two income family?  Maybe it works because the salaries are equal, so one person being laid off still allows the family to make ends meet, but the second income was all gravy.  It depends on how many children or if it’s a DINK couple as well.

Second, it depends on what you build into your EF.  Is it 3 months of bare bones expenses?  Or 3 months of living the lifestyle you are used to?  Is it 3 months including extra medical premiums or unexpected expenses?  For us it’s a luxurious 3 months of everything.  There is a ton of fat in the budget with eating out, cable, cell phones, etc.  So theoretically it could stretch out maybe 5-6 months if we went bare bones.

Third, do you have other savings?  Do you save for things like property taxes, annual insurance, vacations, home repairs, car repairs, pets, gifts, etc?  We do, thus we have quite a little pot outside our emergency fund in cash for known and budgeted annual expenses.

However if we were laid off, I wouldn’t hesitate to use some of these pots of money for living.  I doubt we’d be going on vacation or paying someone to do home repairs.  We might have to put off known medical expenses until we get another job and regular health insurance versus COBRA which might not cover as much.  We probably would send a card instead of a birthday gift or attending a wedding.  While I wouldn’t touch property taxes or car insurance, I would definitely do minimal car maintenance and pet maintenance unless absolutely necessary.

This would easily add another 2-3 months cash to our emergency fund because we save so much for home repairs and vacations annually!  And that’s our “fat” emergency fund, not the bare bones, pared down budget.

So I think a 3 month EF could be enough for many people, depending on their budgets and lifestyle. I also believe it’s better to stockpile cash if you are worried.  But it’s better to pay off debts first, before building a larger EF than 3 months. I think 3 months an absolute minimum, 6 months better, then after that start investing in taxable accounts.

Why taxable accounts?  Because if you run through your 6 month EF, it doesn’t matter if your investments dropped, you REALLY need the money, so why cry over the loss?  It’ll go to your expenses anyway.

How big is your EF?  What does it include?  How much do you think people should save?  Is 3 months enough?  Should people just keep building a 1 year EF then pay off debt?

Is it worth my time and effort to list things on craigslist and ebay for sale versus just donating it to Goodwill or the Salvation Army?

Should I take the time to list each individual book and actually mail it out?  Do I set a time limit for things to sell and if they don’t sell then just dump them at a donation center?  Why not do a garage sale?

Here’s what I decided to do as I make it my mission to declutter our home.  I’m listing things and if they don’t sell, then I relist them substantially cheaper for 1 week on craigslist.  Then I donate them period.

I donated all unused clothes because they weren’t expensive, mostly old navy, costco, etc.  I also donated all very worn books to the library, since I bought a lot of my books at garage sales or used book stores.  The new hardcovers I’ll try selling.

I can’t have a garage sale because I don’t have that much stuff to sell.  Plus I know you usually don’t make as much through a garage sale as listing it online.

I have to admit, it’s  a bit draining, and I’m getting to the point where I will just start dropping off bags of stuff like old dishes, old bags, etc at Goodwill rather than deal with it.

How do you determine if reselling something is worth it versus dumping or donating it?

But then this year happened and we ended up hiring out more than expected.  The biggest money saver though was asking for a referral from a friend and joining up with our neighbors for a bigger “project” and discount.

Our insulation was quoted at $1800, but since we got our neighbors to do it, we were given a discount of $150 to $1650.  Not bad for just telling our neighbors how great the deal was!  And yes you have to use a “Certified and approved” contractor to get the 75% cash back rebate. Our neighbors got the same deal, and didn’t have to hassle with negotiating or meeting 3 different contractors.

Our painter had done a friend’s place and we could see the quality of his work for his price.  It wasn’t the cheapest, but when all was said and done, he did fantastic work.  And we rehired him for more work, and he is willing to give us another discount.

Finally, our painter referred our HVAC guy and again we got a discount.  He quote came in a little under our lowest quote.  Probably because we were referred and he needed the work.

I’m not saying this always happens, but was a very unexpected perk for us and in some cases, pushed us into doing a lot more repairs than we budgeted because these projects came in cheaper than expected.

Have you found the referral discount to be worth it when doing repairs to your home, car, or health?