Done To Zen

Earlier, I promised to go into more detail about what my expenses were for the month of November. Even before I opened the statement for the last month, I knew that I would have something along the lines of $150 - $200 that I should not have spent, and I was right:

And how I wasted the money:

1. The “fast food” spending is so high because I paid for dinner for my family one night. I did pretty well in this area otherwise; I’ve dutifully packed my lunch since the 6th and stayed away from not just restaurants but also shops of all kinds, shapes, and sizes.

2. I obviously spent a lot more in books than I should have. Every single penny of the money could have been saved easily; about three quarters of the way through the month, I ended up subscribing to a technical site, which cost me about $50. (I am, however, going to unsubscribe at the month end, so it’s not a recurring bill.) The rest of the money was spent on a variety of books, of which I only liked about half.

3. It’s kind of funny that $200 is about what I used to spend per month in 2007 and early 2008. Only, then it was on food. Now that I cut down on food, I’m spending it on books, apparently.

4. You might remember that my goal was to not spend on anything that isn’t necessary, but it obviously didn’t work out. I had discretionary spending on the following days:

Of the 30 days in November, I spent on only 8 days. Over half the money was spent on just 2 days, and over 80% of the money was spent on 4 days. If I had exercised a little self-discipline on the 17th and the 21st, the urge to spend would probably have gone away, allowing me to save the money. I can’t say the same about the spending on the 26th and the 28th, though.

I recently talked about how I increased my 401K contribution % way up so I can max it by the year-end. For most of the year, I’ve been contributing very little (less than 10%), though I did up it a couple of months ago somewhat significantly. I bumped it again maybe a month and a half-ish ago and then bumped it for a third time significantly about fifteen to twenty days ago.

Unfortunately, my payroll department apparently didn’t get the memo. The 401K amount witheld from my pay is less than what I was expecting. So this means that I have to figure out what to do with the extra money.

1. Increase 401K contribution % for the rest of the year to compensate
2. Accept that I will come a little bit short of maxing my 401K account
3. Figure out if there is a way to deposit additional funds into my account
4. Take the additional income + money from e-fund to open a Roth IRA
5. Use it to pay for an expense I’ve been procrastinating on for two months

Of the three choices, number three sounds the best to me. I spent a couple of hours looking around in my account to see if there was a way to deposit additional funds into my account (i.e., outside of a payroll deduction), but I couldn’t find anything. I have to wait until Monday to call them up and see what I can do.

If it doesn’t pan out, I’m thinking about doing number four. I currently don’t have enough money to open a Roth IRA at Vanguard (where I want to do it). But if I don’t have to take the whole minimum deposit from my emergency fund, just a part of it, it might work out.

Anyway, this means that I still don’t know what my paycheck is going to look like, which means another 15 days of nail-biting wait.

Can I Get Rich on a Salary talks about an article in the September 15 issue of BusinessWeek that suggests that short-term thinking may be a lot more effective than long-term thinking when it comes to your savings.

In one of their experiments, people were asked how much they would save the following month and reported (on average) $287. This in mind, they then went on to save (on average) $440 that following month.

But when asked to plan ahead four months, people said they would save (on average) $946 over that time. And they then went on to save (on average) a grand total of only $123—which translates to $30.75 per month. If I’ve read the experiment description in the article correctly, people concentrating a one-month savings goal did more than 14 times better than those concentrating on a four-month savings goal.

I was initially shocked with the results, but then after a moment of thought, I realized that the results weren’t actually that surprising.

I always knew that I sucked at making “long-term” goals. I am really good at meeting my savings goals per month, but I’m terrible at meeting my “long-term” goals. That is to say, whenever I sit down to write down my long-term goals, I am always too optimistic, counting on (hoping for?) thousands of dollars in freelancing income and interest.

Can I Get Rich on a Salary suggests the following steps:

1. Set a long-term savings goal.
2. Break up the long-term savings goal into smaller savings goals (such as monthly goals).
3. Look at the savings goal for the upcoming month and make that your focus.
4. Consider specific, concrete steps to achieve the savings goal for the upcoming month.
5. When you consider your daily spending or saving decisions, think about them in terms of the savings goal for the upcoming month.

I just finished creating a budget for September, and it’s significantly different than the one I created for July. I have never lived with a budget before this year (I was saving over 95% of my income then, so it hardly mattered, I guess), so I’m still working on spending according to my budget. Though I always meet my savings goals (I joke to my family that they feel more like bills than like savings), I’ve noticed that I tend to spend more on miscellaneous expenses than I allot. It’s something I have to work.

Anyway, the budget for September looks like this:

If you compare this with July’s budget, the first thing that jumped out at you is probably the significantly smaller emergency fund contributions. I actually have a good excuse for it: I recently upped my 401K contributions. Though I tried to wring the numbers so I could maintain my current level of savings and up my 401K savings, I finally gave in and accepted that there is no way for me to save as much into my emergency fund anymore. I don’t know if it is a good trade-off to be making, but I obviously think it is.

The second change is the money that’s allocated for bonds and a 529 plan. I recently opened both accounts. The contributions to both accounts are very small (and the contribution to 529 will actually go down in the next month).

The third change is the addition of the “sports” category and the removal of the “homeowners insurance” category. I’m also tracking mortgage and taxes for the property as two separate things now, in anticipation of getting rid of my escrow account eventually.

The amount slotted for fun went way down. This is OK with me because it’s a short-term (about 2 - 4 months) deal. After all, the increase in 401K has to come from somewhere. Because I’m not willing to decrease my savings even further, my spending on variable expenses had to go down.

Note that eating out comes under “fun.” However, as I’m going back to my previous 30-day-trial goal of not eating out at all for a month, I will not be spending any money on restaurants.

Finally, the amount slotted for home gas went down from July because the bill has been going down steadily. On the other hand, the bill might go the other direction now that we’re heading towards winter.

Something I noticed over the past couple of months is that I’m getting more and more frustrated with my financial life despite the fact that I’m improving my net worth every month. Maybe I just remember bad feelings more easily than good feelings. At any rate, the lack of concrete goals left me with no clear understanding of how a month went. Net worth went up, but was it above or below expectations?

So, from this month on, I plan on creating goals at the start of each month, so I know at any point in time how I’m doing.

The goals for September:

In other areas in my life, I try to give myself 1 really hard, 1 medium, and 2 easy goals, so I’m going to go with that here, too. Can you guess which of the stated goals are going to be hard for me?

1. No purchasing anything other than fixed expenses. The reason for this is very simple. About a week ago, I once again upped my 401K contribution. This resulted in an extremely tight budget with maybe $10 left for whatever spending. Of course, I would rather that I put the $10 towards a better use. There really is no reason why I should be eating out every day or buying books for the heck of it.

2. Meet emergency fund goals. I have a fixed savings amount that goes to my emergency fund every month. I want to meet it despite increasing 401K goals. Note: if this proves to be impossible, then I’m going to lower my 401K contribution to the previous levels. It’s good to have retirement savings, but not at the expense of liquidity and financial security, IMHO.

3. Purchase bonds. I finally turned in the confirmation application for my TreasuryDirect account, so I should be able to start buying Is it a better idea to save the (insignificant) amount into emergency fund? Maybe, but I want to commemorate my successful battle against procrastination by actually buying something.

4. Maintain my 401K contribution limit for at least 4 pay periods. From past experience, I know that I often think that it’s absolutely impossible until I stick with it for 2 months, at which point it becomes habitual. So I’m going to wait at least until October 31 to make any changes. We’ll see whether I’m right: maybe I just got use to wasting money and require time to adjust.

Stretch Goals for September:

1. Earn income from freelancing: any amount I earn is obviously going to be a plus, but I have a specific dollar amount in mind. To encourage myself to meet the goal, I’m going to give myself 10% of the money to spend as I see wish (the rest is going to go to savings, naturally).

Difficulty Ratings

Ratings are from 1 to 10, with 1 being super-easy and 10 being super-hard.

Note: a stretch goal isn’t automatically a 11 and normal goals can sometimes be 11s.

Stretch Goal #1: freelancing: 11

Goal #1: No unexpected purchases: 10
Goal #4: 401K: 5
Goal #2: Emergency fund: 4
Goal #3: Bonds: 1

There are no 4.5ers this time, but that’s OK. I feel that my hall of famer will more than make up for the loss.

Final Notes

1. I finally have enough in my emergency fund that I’m making more than just cents over the course of the month in interest. What to do with this??? Should I include it in the budget or simply let it accumulate in the e-fund? At this point, the money is small enough that it doesn’t make any sense to expend the effort, I think, so I’ll leave it to accumulate for now.

2. My AC appears to be broken. Though I know nothing about it, it looks like the engine is running fine, but no air is coming out. My home is a fairly new construction, so I can’t imagine that the AC broke down, but I’m wondering whether maybe it did. I’ll have to deal with that, but a broken AC obivously throws a monkeywrench into financial plans.

3. I’m expecting a small payment (around $100) but I don’t know whether I’ll get it in a lumpsum later on or broken up into pieces throughout the rest of the year. Anyway, what should I do with this money? Put it in e-fund or buy bonds or pre-pay mortgage?