Hung up on clothes | First quarter reflection

I’m sitting here looking at three dresses on Target.com. They’re super cute. One – a flirty, mint green number – would be perfect for spring and summer. I could wear it to my cousin’s wedding over Easter weekend. The other is a simple elbow sleeve Little Black Dress. The third is a royal blue version of one of my favorite fall/winter dresses.

The total cost $60.80. They’re on sale, and shipping is free. Good deal, right?

I can’t deny it’s a good deal, but I can deny that they are necessities. They’re clearly wants. I already have three or four LBDs.

After the financial fast, I promised not to buy any clothes until April 1. I succeeded. Now, it’s April 8, and I can’t bring myself to buy the dresses. Then I said that I would not buy clothes unless they were high quality. I think they are.

But I could spend that $60 elsewhere. On a medical bill I didn’t expect to be so high. On reducing debt. On gas. On anything but these dresses. I have Michelle Singletary’s voice in my head saying, “If it’s on your ass, then it’s not an asset.”

I did perfectly fine wearing what was already in my closet from January to March. What is my hang-up now? Do I think the deal is so good that I have to get it? Do I think these dresses should be a reward for not shopping for three months?

This week, I started looking into the movement to work with a closet of 30 or so items. I was amazed at what these folks accomplished with a clean and lean closet. This woman’s capsule wardrobe of 33 items suited her just fine (pun intended). This woman’s minimalist wardrobe was full of fun pieces, including the Target dress I’m trying to get in blue.

Image

She wrote: “Wouldn’t it be great to open your closet and LOVE every single thing in there?  Yes, it would!  And we do that by filling it with just that – things we love, not things that are cute.”

If anything, I need to purge my closet. Not add to it.

I’ve done a lot over the first quarter to get on the right track. I’m grateful for those tiny successes – paying off a few charge cards, not using credit cards and amassing half of the $1,000 emergency fund.

But I need to do more.

I need to freelance more. I’m not really sticking to a budget as much as I’m tracking my expenses and not going all willy nilly with spending beyond my bills. The envelope system is looking pretty good right now.

Let’s see what this second quarter brings.

Advertisements

How “Saving is Like an Oak Tree” | Three Bucket System

This is the first week without attending the personal finances for women workshop with Teacher. It was only three weeks long. I knew the day would come, but still I loved hanging with the ladies.

In our penultimate session, we discussed savings strategies. Half of U.S. households don’t have $2,000 in case of emergencies or to cover the deductible on car and health insurance. I bet very few people seriously think about that when they choose the low premium, high deductible plan. I know I hadn’t until this year.

Teacher’s recommended savings strategy includes:

  1. Emergency savings
  2. Savings to Spend 
  3. Long-Term Savings

Image

As a financial advisor, she prefers that her clients to invest debt-free dollars. So she recommends filling up those three buckets first, then look into investment vehicles, like stocks.

“You always want your money to be making money,” she said, so always factor in APY rates and understand the wonder of compound interest (Well, it could work against you in terms of carrying debt.)

I was reading Dave Ramsey’s chapters on savings and investments simultaneously. His advice was the same on Teacher’s three savings buckets and understanding compound interest.

“Saving is like planting an oak tree,” Ramsey said. “You cannot keep pulling it up by the roots to check its progress.”

“Saving is like planting an oak tree. You cannot keep pulling it up by the roots to check its progress.” – Dave Ramsey

If anyone talks to you about a “guaranteed investment,” then RUN”, Teacher warned us. All investment comes with risks; there are no guarantees. That’s why it’s best to use debt-free dollars or the excess you have after filling up your three savings buckets.

Investment is for the long-term, so don’t go into it knowing there’s a possibility you’ll need money in a few months or so, Teacher said.

Then she went on to give the best analogies that I’ve ever heard in my life. She likened bonds to a window with one pane, and mutual funds to multi-pane window. If someone throws a rock into the single-pane window, then you have to replace the whole window. So if all of your money is in the Pepsi stock, then all of your investment goes down. If someone throws a rock into the multi-pane window, then you only need to replace one of them. With mutual funds, you have several investments – maybe Pepsi, Coca Cola, Apple, Facebook, Exxon and Twitter. If one goes down, then you could mitigate the risk with the others. Brilliant explanation!

Image

In the last session, we discussed asset protection a.k.a. insurance. Insurances transfers the risk if something happens to you, Teacher explained. She says your biggest asset is your ability to earn an income.

Can you afford not to have health insurance? The No. 1 cause of bankruptcy is medical reasons.

We went over the major types of insurance:

  1. Health
  2. Life
  3. Auto
  4. Home
  5. Disability
  6. Long-Term Care

I was super sad about this being our last session because we could have talked on and on about all of the nuances involved in insuring your asset. I’m so happy they she provided a great foundation on which to build our knowledge. I hope all four of her pupils leave better than they way we came.

We ended our time together with a group hug. I’m a hugger, not a fighter. Seriously, I love hugs. While we were encircled, I joked and said “Now, put your right foot in…” They giggled.

We left on a high note. We left with hope.

More Resources: Sente Mortgage’s Tips on Savings Buckets

Good Read: The “Three-Bucket System” for Managing Money

Feeling dumb while setting S.M.A.R.T. goals

So S.M.A.R.T. goals isn’t so easy for this Wise gal. (Corny, I know.) Actually, I’m over-exaggerating a bit, but setting goals that are specific, measurable, attainable, realistic or relevant, and timely requires a good amount of effort. I just spent the last hour or so trying to detail my short-, intermediate- and long-term goals to complete Teacher’s homework assignment for Thursday’s session.

Setting-Smart-Financial-GoalsAs I was thinking of my goals, I poked around on the Internet. I mean, all great ideas come from the Internet, which turned 25 years old today. HBD, WWW). I found this great survey, albeit an old survey, that featured financial goals of non-retirees and retirees. It seems that I think a lot like my counterparts.

SecurianFinancialGoalsStudyResultsMy goals seem to align with those survey takers as well as MoneyUnder30’s 6 ½ Steps to Financial Stability and Dave Ramsey’s Seven Baby Steps.

My immediate priorities are to:

  • build an emergency fund of at least $1,000
  • eliminate debt
  • save $500 for my summer vacation
  • start saving for retirement to take advantage of compound interest

With further poking, I came across this great post about creating S.M.A.R.T. financial goals from Wealth Informatic$.  It’s one of the most comprehensive, step-by-step breakdowns I’ve seen. Check out this chart:

SMARTfinancialgoalsThe chart motivated me to create a color-coded Google spreadsheet of my own. I added a “Reason” column to remind myself of why I’m doing this. I also added monthly amounts I needed to save (or spend in regards to debt goals) in the “Need to Save” column to know the specific actions I need to take immediately to achieve them.

It won’t be easy, but as Teacher said in our first session, “If you fail to plan, then you plan to fail.”

Working toward a plan

Over the past few days, I feel as if I’m making good progress toward creating a solid financial plan.

financial_planning_process

On Monday, I couldn’t wait to put one-third of my tax refund into my main savings account – the Emergency Fund. Seriously, I jetted off work to make sure I arrived at the bank before 5 p.m. closing time. It felt so good to save that money, although I hated seeing my checking account deplete because of it. It’s so funny how I used to spend, spend, spend until I was near zero by the next paycheck. Not anymore. I like seeing stuff grow now.

It was tough to figure out what to do with the refund, but I followed this one-third rule. A writer on greenpath.com suggested that we consider using your tax refund in three areas: save, pay and spend. Solid advice. I had to get a balance and this was perfect for me.

On Tuesday evening, I did the overdue homework of completing the spending plan Teacher, the personal finance adviser who’s teaching the free workshop at the local women’s center, has been using for years. She said she can track down every expense. Nothing slips by her.

When I was done, I thought “My goodness! Crunching numbers really does lay it all out there.” I didn’t have to do too much work because I already started tracking my expenses and adding them into my Google spreadsheets. The exercise reiterated the point that you can’t know where you’re going until you know where you’ve been.

On Wednesday, March 5, I had the pleasure of participating in a “How To Budget” Google Hangout with Michelle Singletary. In the Q & A Session, I asked her if I should cut down on spending on insurance and my Roth IRA in order to cut down debt. I also asked if I should have term insurance.

When my picture and name appeared on her screen, she smiled and said “Hey, girl.” It felt so great that she recognized me even if she pronounced my name as Dionne, as in Warwick. Just the week before, I tweeted her that I had given my “21-Day Financial Fast” book to one of my best friends and bought another for my mother’s birthday gift. Michelle agreed that I should cut down on spending for the future to reduce debt now.

So yesterday, I asked the same of Teacher. She concurred. Teacher and my classmates commended me – the baby of the group – for even putting money toward those vehicles.

Later that day, I called Insurance Man and told him about my plans, the nearly $6,000 in credit card debt and all of the school loans. He agreed to stop the Roth IRA payments until the end of the year. Then we’d reevaluate my situation.

He said, “Now, I want you to promise me that you’ll put that $88 toward debt…”

I cut him off. “Oh, I’m already excited about creating an automatic transfer.”

“Dioni, you rock!” Insurance Man said laughing.

He said he’s proud of me, and believes in my plan and ability to budget. Well, I’m glad somebody is. It’s hard out here for a pimp.

As soon as I hung up the phone with him, I set up that automatic transfer toward the first credit card balance I wanted to kill. That extra money is an addition to the minimum payment, so I should knock this out within 4 months.

I’m so excited. I can see the light at the end of that tunnel.