The Most Important Financial Comparison: Are You Doing Better Financially Than Last Year?

financial-planning-my-personal-finance-journeyThe following post is by MPFJ staff writer, Melissa Batai.  Melissa is a freelance writer who covers topics ranging from personal finance to business to organics to food.  She blogs at Mom’s Plans where she shares her family’s journey to healthier living and paying down debt.

Experts offer a rule of thumb for where we should be at certain ages. For instance, “Fidelity Investments recently put together an age-based savings guideline with a range of savings goals. At age 35, you should have saved an amount equal to your annual salary. At age 45, you should have saved three times your annual salary. At 55, you should have five times your salary.   When you retire at age 67, you should have eight times your annual pay” (TIME).

Are you discouraged reading this? Do you feel woefully behind?

Or, are you excited and see that you’re right on track or even ahead of the experts’ schedule?

Your answer is highly variable and depends on many factors that the “experts” cannot know or consider.

What Was Your Parents’ Financial Background Like?

As Americans, we like to think that everyone can get ahead and make a name for themselves based on their own skills, ability, and drive. It’s the old pull-yourself-up-by-your-bootstraps mentality.

While there are certainly success stories like that, the simple truth is that if your parents are able to help you as you leave the nest, you’re much more likely to be a success.

I had several friends in college. Some were like me and came from backgrounds where our parents weren’t able to help financially. We took out student loans and may have gone into credit card debt to pay for a college education. After college, we took many, many years to pay back student loans. (It took me 14 years to pay mine off.)

I had two friends in particular who came from wealthier families. One’s dad was an ophthalmologist and the others was a pharmacist. Their parents paid for their college education and gave them a modest subsidy to live off of. When the one, Jake, went to California right after graduation, his dad urged him to buy a house and gave him the money for the down payment. Eight years later, Jake sold the house for double the price he bought it for and bought a larger house when he got married. Today, eleven years later, that house has also doubled in value and is now worth $1.5 million.

I don’t want to discredit Jake’s success because he’s worked very hard and he chose a career in a field that is growing and pays handsomely. However, Jake’s father’s ability to pay for his college education and give him money for a down payment in the expensive California housing market certainly helped him get ahead financially.

What Are Your Priorities?

Another important factor in each of our personal finances is our priorities.

I taught at a community college for ten years before I quit to stay home with my kids. If I had stayed at the job, I expect that I could have made $100,000 a year after working twenty years or so. I left my job just when I was finally earning a nice wage. I gave up a comfortable life to instead stay home with my children. I don’t regret my decision, but it did certainly impact our family financially.

Other people are dedicated to their careers and work long hours. They may find financial success while juggling family responsibilities, or they may forgo having a family. Because they stay in the work force while raising children (or opt not to have children), their salaries continue to grow throughout the years as do their retirement savings.

What Are Your Goals?

Some people retire and want to travel the world. They want to go on a safari and take a cruise. They want to see the world. Others spend time hopping planes to visit their kids and grandkids who are scattered throughout the U.S. Others are perfectly content staying home and volunteering, tending to their home, yard, and garden, and being with friends and family.

What your goal is in retirement will affect how much you save before you retire.

You Never Truly Know How Others Are Doing

What means do we have to calculate how others are doing financially? We make take stock of their cars, homes, and “toys” like boats, motorcycles, etc.   We may guess at how much they make, but very few people broadcast their specific salary. What we have are our guess and estimates, and these are often wildly off.

You don’t know if the neighbor with the perfectly manicured lawn and expensive car is deep in credit card debt or if her home carries two mortgages. You also may not realize that your neighbor in the modest house who drives a 10 year old sedan is a millionaire who spends his money frugally. We never know these things. Instead, we compare against externals without knowing the full financial story. There is no point to this, but we do it over, and over, and over again.

Only Judge Your Finances Against Your Previous Finances

It does no good to compare yourself to others and be discouraged. Jake is a world ahead of me financially. Sure, it’s partly because his dad could help him financially when he was young, but now Jake works long hours as does his wife. They chose to have one child while my husband and I have three.

I chose to give up an income and have more children. That choice is reflected in my finances. If I compare my finances to Jake’s without looking at the choices made, I’ll likely feel frustrated and depressed.

Instead, a much better option is to compare my finances to my finances in the last several years. When I look back from the time I had my third child and my husband and I were at our financial lowest (thanks to the loss of my income), I see that each year since then, our finances have improved. My husband is earning more at his job, and I have a freelance income. Each year, we earn a bit more and pay down more of my husband’s student loan debt. Each year, we have a little more room to breathe.

If you have not yet started tracking your net worth each year, I highly recommend doing so as you can learn a lot about your financial situation, especially whether it’s improving or declining, just based on calculating your net worth. For many of us, finances improve S-L-O-W-L-Y, and you can feel like you’re making very little progress. Tracking your net worth will help you see that you are, indeed, moving forward, even if it’s only baby step by baby step.

Besides comparing ourselves to our own finances, my husband and I also look loosely at what experts recommend. However, we remember that the experts’ rule of thumb for retirement savings is just that—a target to aim for. We’re doing the best to reach that goal, but we also know when the kids are older, I’ll increase my workload and we’ll have more money to funnel to retirement, especially since we’re used to living on one income.

Each of us has unique, complicated financial situations created by our backgrounds and our choices. There is no point comparing to others; simply compare against yourself and your own financial progress year after year.

How about you all? Do you find yourself comparing yourself to others financially? Do you compute your net worth every year to see how you’re progressing financially?

 Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/teegardin/5912231439/

5 Ways To Get The Best Vacation Hotel Deal

hotel-mypersonalfinancejourneyThe following post is by MPFJ staff writer Travis, who blogs at Enemy of Debt where he candidly shares his family’s financial struggles, failures and successes. As a father and husband, he provides a unique perspective on balancing debt, finances, and family.

The point of a vacation is to get away from the stresses of everyday life and relax. Unfortunately, planning the vacation is not a stress free activity. Taking time away from work, arranging travel, accommodations, and transportation can all take their toll on a person’s state of mind. One might think that booking a hotel room would be a relatively easy task. Unfortunately, even once you decide on a hotel getting the best value for your money has a difficulty factor ranking right up their with negotiating the price of a car.

This is especially true when the hotel IS the vacation destination. For example, my family and I are planning a vacation to a water park destination a few hours away from home. The hotel we like to stay at includes both an indoor and outdoor water park, as well as an indoor amusement park. We spent hours navigating their website in an attempt to book our room, and learned a few things that could make a significant difference in our vacation budget.

1. Investigate Room Types

Hotels have several types of rooms. The first thing to do is to familiarize yourself with all the types of rooms available, and identify which ones will work for the number of people you have in your group as well as how you plan to use your room. Sometimes we’ve required a kitchen to do our own cooking, and sometimes we don’t. Some rooms have a pull out sofa that we normally assign to our son. It allows him to stay up later and play video games on the biggest television in the room while the rest of us retire to bedrooms with a door and sleep undisturbed. As we read the descriptions of the room types, I wrote down which ones would work for our family.

2. Collect Information on Packages

Hotels and vacation destinations may have packages available that can help you get the most out of your vacation dollars. We found that the hotel we had chosen were offering special family packages, as well as various types of two night package specials. I again wrote down the packages that best fit our vacation plans.

3. Search For Online Specials

Many web sites, not only for hotels but also many retailers, have a tab labeled, “Coupons,” or “Online Specials.”   Our vacation destination had a “Specials” tab that stated all guests between May and August received free tickets to a water skiing show. I printed off the page and included it with all our vacation information. We had been to the show previously, and would love to see it again.

4. Explore All Options

We wanted to get an idea as to the cost, including taxes and fees, of different room/package combinations. We filled in our information as if we were actually going to make a reservation, selecting each combination of room and package that we were interested in.  Things got a little confusing here, because the website allowed me to pick between “Package Prices” and “Best Rates.” However, the best rates were the standard room only prices, while the package prices were discounted prices. The term “Best Rates” was misleading, as they certainly were not the least expensive option.

The lesson here is to ignore what the words say, and simply get a price for every room and package pair. As before, I wrote down the price of each room/package combination that we were interested in.

5. Call the Hotel Directly

Once I’d compiled a list of room/package combinations that work for us that also fit within our budget, I called the hotel directly. I had to be careful to ensure I was actually talking to the specific location. When dealing with a hotel chain many times I ended up talking to their central reservation office. One can verify they are talking to the actual location, and if not ask for a direct number. Usually the direct number can also be found on a hotel or resort’s web page.   Once I was connected with local hotel, I inquired about any specials they have have that aren’t listed on the website. I also asked a series of questions to find out if they give any discounts for corporate rates, AAA or Costco Members.

The more questions you ask, the better chance you have at finding additional discounts, or having the hotel reservation agent tell you about a deal that you may not have found otherwise.

In my experience with this specific vacation destination there were dozens of combinations of rooms, packages, and specials. I don’t think that the hotel is purposely trying to make it difficult or confusing for potential guests to find the best deal. I think that the hotel adds ideas as they come up with them, as well as matching discounts offered by other hotels in the area.

I also don’t think that my experience with this vacation destination is unique. I believe that there are other hotels and resorts that have the exact same problem with their reservation system. The good news is that by following these steps, you can navigate the even the most confusing reservation system and find that gem of a package that helps you stretch your vacation dollars to the max, and finally get that relaxation you deserve!

How about you all? Have you tried and succeeded in lowering your hotel vacation costs by using any of these tricks? What other tips can you give other readers to lower their hotel vacation costs?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/uniquehotelsgroup/5691503052

Want to Retire Well? Be Healthy

cashier-my-personal-finance-journeyThe following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

Do you know what the most common job was in the 1950’s? If you were alive back then, you probably wouldn’t be surprised to hear that most men worked in agriculture or industrial jobs. In other words, men were working hard. They got up early, used their strength the entire day, and then likely worked on their homes or vehicles at night. Their bodies were getting a work out every single day just through their occupation alone.

Guess what the common job title is today? A retail salesperson. Half of these salespeople likely sit behind their desk all day and greet people while perched on a stool. The other half are, at best, walking a total of five miles each day, and using absolutely no strength during their working hours. Put quite simply, we aren’t the physical specimens that we used to be and it’s killing us.

employment-my-personal-finance-journey

Source: http://www.theatlantic.com/business/archive/2013/04/the-10-most-common-and-10-least-common-jobs-in-america-today/274526/

The Rise in Obesity

Over the past few decades, Americans have really noticed their waistlines growing. In fact, even since the quite recent year of 2008, the percentage of Americans that are considered obese has seen an obvious increase. With our more sedentary jobs today, it is becoming increasingly difficult to keep the pounds off, which in turn, is also making it harder to stay out of the doctor’s office.

Medical Issues Due to Overeating and Lack of Exercise

Nearly 10% of all medical spending stems from obesity. Diabetes, coronary disease, strokes, high blood pressure, and even cancer – these are all diseases that could be prevented if we just ate right and exercised more frequently. The remedy is really quite simple, and you’d think that more people would better their habits to save all that money from escaping their bank account. Perhaps you will be one of the smart ones.

The Rising Cost of Health Care

The cost of healthcare is increasing at an alarming rate. On average, an American individual spends just over $8,500 per year on health care. Isn’t that just insane?!

healthcare-spending-my-personal-finance-journey

Source: http://mercatus.org/publication/us-health-care-spending-more-twice-average-developed-countries

Many people shrug their shoulders and act like there isn’t anything they can do about it, but that is completely untrue. If you are educated about your options, then there is certainly action that can be taken to reduce your health insurance costs both now and in the future.

1) Save Up a Large Emergency Fund

One of the best ways to save on your medical insurance premiums is to increase the deductible. But, before you raise your deductible to $7,000, you need to make sure that you have that much in the bank account (because accidents DO happen – that’s kind of why we buy insurance in the first place ;)). If you’re able to save up 3-6 months’ worth of expenses as a protection against job loss AND an additional $7,000 to cover your high deductible, then you are ready to raise that deductible and start saving some serious money every month. Sure, it might take a while to save up this much cash, but the savings could be as high as $300 a month, or $3,600 a year. Isn’t your retirement just looking better already?

2) Become Fit and Exercise Regularly

Truthfully, the only reason that you’d want to raise your deductible is if you are healthy. It’s a very important variable in this equation of living a long time with money in your bank account. Quality health takes time and effort (especially since many of us are sitting during work all day).

According to Mayo Clinic, our bodies need 150 minutes of aerobic exercise each week, which equates to a little more than 20 minutes per day. It might seem daunting, but a mere 20 minutes a day (helpful hint: turn off the TV a few times each week) could mean the difference between being healthy without a worry in the world and that triple bypass surgery that’s going to cost you $20,000 out-of-pocket (not to mention the risks this surgery has on your life).

If you want to live a healthy, wealthy life, then you’d better start moving and learning more about the potential health care costs in your future.

How about you all? Are you trying to live a more healthy lifestyle? How have these changes affected your health care costs?

Share your experiences by commenting below!

***Photo courtesy https://www.flickr.com/photos/11553519@N03/6220234414/

Even More Ways to Save Money Each Month

money-my-personal-finance-journeyThe following is a post by MPFJ staff writer, Jeff.  Jeff writes about reducing waste, saving money and building freedom at his website, Sustainable Life Blog.

When I first started to try to get my finances in order, I did the usual things. I looked for cost savings in my major monthly bills (cell phone, car, rent, etc) and while that saved me a lot of money, it wasn’t going to get me out of debt as quickly as I wanted to be.

After I let the changes I made to my major cost centers sink in for a month, I dug back in to my finances and went looking for more ways to save. What I found was fairly shocking though very helpful in my quest to spend less money and free up more money to pay down debt.

Looking at my results from the end of the month, it was clear that something needed to change – not with my large expenses, but my constant small ones. I was spending a bit of money here and there on small things like snacks, lunches and dinners out, the occasional beer or wine as well as many unplanned trips to the grocery store. In increments typically under $15 and usually under $10, I was burning a ton of cash every month.

I wasn’t even thinking about this spending, it was money that was simply spent because it’s what I’d always done. It was time to readjust my habits and free up more money to pay off debt. Here are a few things that I did.

Establish no-spend days

The first thing I did was to start having what I called no spend days, which are just days where you don’t spend any money. Just about every single purchase I was making most days was something that I didn’t need at all, or if I absolutely needed it I could wait until later to purchase it on a day that I decided to spend money.

I changed my spending day to Sunday only (when I went grocery shopping) and freed up about $50 per week. This added quite a bit of muscle to my debt pay off.

Cook at Home

This gets said a lot, but it’s one thing you can do that will make a huge dent. Stop spending so much money on eating out, and start cooking for yourself instead. One way that I did this was to start batch cooking on Sunday.

My routine went something like this: wake up, pick up a bit around the house, create a menu for the week, then go to the grocery store. Once I got back from the grocery store, it was time to prep my meals for the week. I would cook big batches of things, then individually portion them out into containers so I could just grab one from the fridge every morning and eat it for lunch. I did this with dinners as well. I was eating the same things quite often, but that didn’t matter to me. I was saving a ton.

If you’re interested in getting started, there’s a great part of Reddit dedicated to meal planning, which you can find here.

Add a time buffer

During my (sort of) research on this, I read a book called The Power of Habit and was astounded by how much people do without really thinking about it at all – and I was one of those people. I made a rule where if I found something I thought I wanted (But didnt really need) I’d wait 15 minutes before I made a buy decision and I’d go do something else. For instance if I was shopping on amazon and about ready to check out, I’d get up from the computer and go for a walk.

Usually by the time I was finished walking, I didnt want whatever I had put in my cart anymore.

These are just a few good habits that helped me pay off debt and get me on my way to healthy finances.

How about you all? What are your healthy or unhealthy financial habits? What ways have you used to help save money every month?

Share your experiences by commenting below!

***Photo by Flickr user https://www.flickr.com/photos/68751915@N05/6355251231/

3 Huge Reasons Why Budgeting Became My Friend

budgeting-my-personal-finance-journeyThe following is a post by MPFJ staff writer, Derek Sall. Derek is the owner of the blog, LifeAndMyFinances.com, where he teaches people how to get out of debt, save money, and become wealthy.

Budgeting was never taught to me when I was growing up. My parents basically functioned like this: my dad came home with his paycheck, he handed it to my mom, she gave him $20 for the week, and then she was the one stretching that paycheck to pay bills for the entire family. Never once did I see a written budget that they adhered to. They simply lived on as little as possible to get through each month with some money.

While this method seemed to work for them month after month, was it really the most effective way to handle the family finances? At this point in my life, I would say, “certainly not”. Many people try this form of handling their money – you know, the “put your head down, work so you can pay the bills, and survive into the next month – but it often leaves them fighting and with very little invested once they reach retirement age.

Why Budgeting Became My Friend

In my younger years, I married a carefree spender (which drove me nuts), and I used the budget as a way to control her spending. It wasn’t fun, it taught us nothing (other than that I was passionate about saving and she didn’t care one bit about it), and the experience actually left me a little bitter. Is this what it means to be responsible with my money? All these money fights and still not much forward progress financially? Budgets seemed like such a waste.

Today, however, I see budgets in a whole new light.

3 Ways Budgeting Became Fun

Budgeting has allowed me to pay off $21,000 of debt in just six months, and then $54,500 in less than 12 months, all while earning less than $75,000 a year. “How is this possible?” you might ask – “Budgeting,” I’d reply.

1) Budgeting showed me my average income and spending

I keep my budgeting pretty simple and use Mint.com to track both my income and my spending. With this simple tool, I can accurately find how much I typically earn each month, and I can also easily discover the main categories where I’ve been spending my money. This simple tool opened my eyes to how much I had (or didn’t have) at the end of each month. Often times, I only saw a couple hundred bucks after each 30 day segment, which meant I either had an income problem, a spending problem, or both.

2) It helped me reduce my bills drastically

In this Internet age, it is so hard to get a feel for where your money is actually going. Many times, money is automatically withdrawn from your account for various bills and you never really feel the hit. Through budgeting, I was finally able to see exactly where my money was going, and it was so much easier to take action on it.

My phone bill, car insurance, food, gas, my home insurance, my PMI, and my escrow – I was overpaying in all of these areas and could finally see it! By taking action immediately, I was able to reduce my expenses by nearly $200 a month in these areas. This never would have happened without seeing all of those monthly expenses in a budget.

3) Living on practically nothing made me happy

My friends all spend like the typical Americans. They go out to eat, they drive nice cars, and they often one-up each other with their purchases. Envy runs rampant among many of us, and in order to satisfy this intense wanting, we buy stuff – nice stuff, and often go into debt for it.

I started getting caught up in this a little bit just before I wrote my first budget. My friend was looking for a new ride, so naturally I had to find a nice car as well. In a short amount of time, I found my dream car – a black Nissan Altima. Man, that thing was gorgeous, and in the first week or two, I absolutely loved walking up to it and taking it for a cruise.

Then, a strange thing happened – it became a normal car.

The excitement of the purchase was gone and this car became my means of transportation and nothing more. A few months later, I sold it and bought a severely used Honda Civic and a bicycle (to save even more money on gas).

After riding my bike almost everywhere I had to go, I realized that my happiness level was soaring. I was spending practically no money, I was able to get places with my own God-given strength, and I was healthier than I had ever been!

I still feel the same way today. By coming to the realization that stuff doesn’t make me happy long-term, I really have no urge to buy much. As my friends purchase bigger and bigger toys (like expensive RVs for instance), I absolutely love my Honda Civic and my tent. It’s simple, cheap, and empowering, and I wouldn’t have it any other way.

How about you all? What about you? Has budgeting changed your life yet? In what ways has budgeting helped you?

Share your experiences by commenting below.

***Photo courtesy https://www.flickr.com/photos/jakerust/17135106706/