How Minimizing Your Paycheck Can Maximize Your Savings

As beautiful as Ben’s smile may be, whisk him away into savings and you’ll be happier than ever. The old man himself agrees with me: “A penny saved is a penny earned!”

You just got that big promotion, or that new job, or that solid yearly raise. “Score!” you exclaim. “Now I can buy all the junk I ever wanted!” But taking a step back, you realize that while a small amount of that money can be used to buy that fancy new video game or purse, most of it should probably be saved toward the bigger things in life. But it’s so tempting seeing those extra couple Benjamins hanging out in your checking account…

In this post, I’ll show you how to shrink your paycheck so you’re never tempted to spend money you should be saving. Make yourself feel poor so you can get rich!

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When a Car Loan Might Be Ok

Should you take out a loan so you can look as cool as this guy? No, but there might be another reason to do so.

Conventional wisdom re:car loans in personal finance literature is “DON’T DO IT!!” This overexcited and often underinformed knee-jerk reaction is a result of the typical scenario everyone has heard about. Young guys or gals going off to their first real jobs, getting starry-eyed after seeing their first real paycheck, running to the dealership and buying that flashy new Mustang/Mercedes/Tesla/whatever. I’m not saying this doesn’t happen, in fact I’ve seen it with my own eyes. Don’t be one of those guys. That said, there are situations where a car loan might be a good idea. Read more to figure out if yours is one of them.

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My Experience with Personal Capital

I'm kind of a sucker for pretty user interfaces...
I’m kind of a sucker for pretty user interfaces…

Personal Capital is another of the great personal money management websites out there. It pulls information from all connected bank, investment, and credit card accounts to give you an easy-to-digest summary of all your financial activity. I just started using it two weeks ago, deciding whether to switch to it from Mint, and wanted to write a little about my experience with the tool. Being able to visualize the distribution of your money in colorful graphs–whether that’s income, spending, or investments–is a fantastic experience that will help make managing your money easier and more intuitive. With a great companion mobile app, Personal Capital could be a great option for you… but not for everyone!

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A Nice Mint Mojito

Mint.com is not always as good as it could be, but there is hope on the horizon!

If you don’t already use the Intuit web software Mint.com, you should strongly consider it. Mint is the best tool I have found, by far, to keep good track of your spending in a relatively hands-off manner. The highlights are:

  • It automatically pulls data from all your accounts (credit cards, checking, savings, investments) and allows you to view their balances all on one page
  • It auto-categorizes all your transactions, and is pretty O.K. at it.
  • It offers beautiful visualizations of all your spending
  • It allows you to set budgets and goals that it helps you track

Mint, however, often leaves much to be desired. Sometimes the interface is a little clunky and doesn’t do quite what you want, and the developers don’t update it as often as the users wish. As an avid Mint user, I was excited to find the Google Chrome Extension, Mojito. It has several awesome features, like allowing you to sort your accounts from highest balance to lowest balance, hide credit cards that have a zero balance, and pulls your recent transactions onto the homepage. He also finds ways to make the ads on Mint less obstrusive, and combats Mint’s way-too-short page timeouts. It’s a really great extension and makes my frequent Mint-using experience much better!

The developer is just one guy, he even has a wordpress blog (though it’s a little stale), but he put his code up on github which means we might see even more active development. One can only hope. It seems from the comments on the extension that it is being actively updated. What he has done thus far makes Mint infinitely more usable and beautiful.

Short-Term vs Long-Term Goals

Sorry for the delay on this latest post, I had some exciting real-life stuff happen: I got engaged! My conversations with my fiance (still so weird using that term!) regarding how to save for wedding expenses are actually what spurred this post.

Balancing your goals is never easy

So often in life, and especially in finance, we are asked to put off our short-term desires in favor of long-term goals. It can take a lot of effort not to buy that fancy Starbucks latte and save your dollars toward that new car instead. Self-control when it comes to finances is something that many find extremely difficult, but without it, you can never achieve big goals. However, big goals can vary in their “bigness”–for example, you may want to save for a house, and also save for that sexy new gaming rig; or maybe you know your car’s going to kick the bucket, so you need to start saving for a newer model, but you also really want to upgrade that college wardrobe of bad T-shirts and that one hoodie you wore for a whole semester straight once.

Sometimes two desired spending goals present themselves at the same time. One might be bigger and longer-term (on the horizon of a year or few years), and the other may be shorter-term (a few months) and a little bit smaller in scope. How do you balance these goals?

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Reducing Restaurant Spending (and February Update)

My February spending, visualized by Mint.com
My February spending, visualized by Mint.com

As you may have read in my orginial status report, I like keeping this blog updated with the amounts I spend on various things. Here’s my February check-up. Last month, I spent:

  • $600 on Rent
  • $160 on Groceries – pretty standard
  • $200 on Restaurants – Oops, this is a little high
  • $46 on Car-related expenses – Gas and parking for class
  • $78 on Shopping – needed a pair of jeans, some miscellaneous items
  • $29 on Bills – Didn’t pay electric or water yet for Feb. usage

=$1113 spent
For someone who claims to be frugal, $200 is a lot to spend on restaurants in just one month. My excuse is that I went back to my alma mater to visit friends, and being away from home really messed up my usual routine. This is definitely one area in which I need to do some damage control in March, and a challenging aspect of the budget for many people, especially young people. You want to be able to go out with your friends (or maybe you just don’t want to cook), but the costs add up pretty quick.

How do you get a handle on restaurant spending? Keep reading for my suggestions.

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Financial Independence – My Current Status

I shouldn’t lecture you about personal finance without practicing what I preach. In the interest of honesty and transparency, here’s a little bit of information about my own financial situation.

Financial Independence? What’s that?

For those of you unfamiliar with the financial independence movement, it is a radical new way of thinking about early retirement that involves living below your means, saving the extra, and exiting the rat race at a young age. The basic, driving principle is: if you can save 25x your annual expenditures, you can live off the investment returns from that money indefinitely and never have to work another day in your life. When I started my job, I began reading blogs about financial independence and became fascinated with the concept. Looking over my accounts, I realized that financial independence could easily be a reality for me! As a natural saver, I have always put away anything I don’t spend into my savings account, and get a warm fuzzy feeling when I see the numbers in it rising. Having a more concrete goal in mind for all those savings would only motivate me further!

While some followers of this movement tend toward extreme frugality in order to retire at the age of 30, I found that I didn’t really buy in to that lifestyle completely. While I definitely believe in living below your means, I’m fortunate enough that my means are a lot higher than rice and beans for every meal, and I want to be able to enjoy some creature comforts in life. I also feel really passionate about my career, like many others who work in technology. My goals are more moderate–I’d like to commit to a solid couple of decades of rewarding work, and retire around age 40.

My Spending

Part of having healthy finances is keeping an eye on your expenditures. This is especially important for someone interested in early retirement, like me, because increased spending extends the time I will have to keep working! I consider myself a pretty reasonable spender, though I do have my vices. The chart below illustrates some data I’ve collected on my spending and saving habits:

Where every dollar from my paycheck goes
Where every dollar from my paycheck goes

This shows where every dollar I take in as monthly income goes. You can see from the chart that I invest heavily in my 401k, and also put money into a Roth IRA. The “Other Savings” category includes my savings for my shorter term goals, which go into a regular savings account. I haven’t quite figured out what those are yet, but this is something like a “House Downpayment Fund.”

Taxes are what they are. Uncle Sam must have his share! My major expenses that I control more directly are food and rent. Which makes sense! I gotta eat, and gotta have a roof over my head. I have tried to keep my housing expenses low by picking a reasonably-priced apartment and sharing my living space. Lucky for me, Texas rental prices are nowhere near as sky-high as the Bay Area! I’ll be honest, I’m not nearly as frugal with my food spending as some other finance bloggers, but I’m not totally crazy with it either. I get a lot of value out of sitting down with a good friend over a hot meal, and though I often try to host parties at my apartment, sometimes it’s fun to go out!

The remaining categories are things like “Shopping,” which includes clothes, electronics, and other semi-necessary purchases, and “Miscellaneous” which could honestly be retitled as “Travel”. Utilities aren’t huge, I keep my bills as low as I can without freezing my butt off or boiling in the Texas sun. Car expenses can get annoying, but I keep them pretty low.