How to Live on Less

Women's Southwest FCU ~ PO Box 720207 ~ Dallas TX 75372 ~ Tel. (214) 887-0700 ~ www.feministcu.org

==========================================================

I had studied English Literature in school and written poetry. I'd thought--incorrectly--that art and money couldn't mix.

When I started volunteering for the credit union I was spending all the money that ran through my checkbook. I never planned. I had no savings. I owed money on student loans and had maxed-out my major credit card.

One year I hit financial bottom and decided to get it together. You know what inspired me? That same year Gloria Steinem--the noted feminist and author who inspired the creation of Women's Southwest--asked an audience a question: if a biographer were looking through your checkbook and credit card slips to determine what your priorities in life had been, what would they conclude?

I gasped with embarrassment. I was an armchair feminist who had never paid dues to feminist organizations. I held strong views about political candidates, but had never made any political contributions. And the other causes I believed in? I hadn't supported them either.

While I was at it, I knew that I had to take better care of myself and the others in my household, too. I began to plan--and track--every single dollar I spent every day.

It took me 5 years to pay off all of my debts; it took me 10 years to build up 1 year's income in savings.

If I could do it, you can do it. Here are some techniques that have worked for me along with some suggestions from other Women's Southwest FCU members. Everyone's circumstances are different. But see if there isn't something in this list that could help you out or stimulate ideas that could work for you.

Determine your priorities: it's easier to spend less on some things when you know that your priorities are covered.

Using the "Setting Goals" Worksheet, a blank sheet of paper. or spreadsheet software, set some short-term, intermediate, and long-term goals that you can achieve by setting aside money. If you are a woman, be sure that at least some of the goals are for you, perhaps something you've always wanted to do. Women are conditioned to be other-oriented: saving money to put your children through college is a goal for them, not for you. If you share finances with other people, involve them in household or group decisions on goals and how money will be allocated. If everyone can agree, you can minimize conflicts.

Jot down your goals. Next to each goal write the amount of money you think it will take to achieve your goal. Next, list the date by which you want to accomplish your goal. Write the amount you've already saved. Then note the amount you'll need to save each month (or week) in order to achieve your goal. If your goal is unrealistic, shift things around.

There’s Still Time

Example: you want to save money for a class. Fees and books will total $l,400. You want to start the class a year from now. You've saved $200 toward your goal:

If you decide to start the class in 6 months you'll need to save twice as fast: $200 per month. If you can't afford $100 per month, change your target date to 24 months from now and save $50 per month.

Decide what's important in your life; use at least some of your money to achieve your goals. Review your goals periodically and change them as you do.

Consider separate savings accounts for each goal: normally you will earn higher dividends (interest) on your savings if you leave them all in one savings account. But I find it hard to keep track of what portion of the account is for this purpose and what portion for that. Taking advantage of WSFCU's sub-accounts, I use different accounts for different purposes: my main account #0000 for my emergency fund; #0000-2 for theatre tickets; #0000-3 for health insurance premiums; -4 for the deductible on my health insurance; -5 for vacations; -6 for my tax-preparer; -7 for car insurance; -8 for car repairs; -9 for shoes and clothes; -10 for teeth cleaning, annual physicals and shots not covered by my major medical insurance; -11 for gifts. All accounts appear on the same WSFCU statement. Sub-accounts make it relatively easy for me to keep my money organized. Might sub-accounts work for you? (If so, contact us.)

Track Your Spending: in order to live on less in the future, you need to know how much you're spending now. Start with expenses that are easy to track using credit card slips and copies of checks and money orders you've written. To keep track of cash you've used, keep a Spending Diary for a month. See the instructions for keeping such a diary in the Spending Plan.

Reorder your spending to REFLECT your priorities: once you've listed some goals and kept a spending record for 1 month, revise your spending plan so that you'll be able to accomplish some of your goals.

My spending diary shocked me: I'd been spending as much each day on snack foods as I was spending on bus fare! I 'd been spending as much eating lunch out 5 days a week as I wanted to contribute to causes in which I believed. I began bringing a lunch every day instead of buying it. The money I saved went--once a month--to a candidate or a non-profit organization. Finally, I had begun to live up to my ideals. Finally, I'd begun to put my money where my mouth was!

Did my taste buds grumble? Yes. Did I feel tempted when I walked past delicatessens? Yes. Did I feel a sense of pride--mixed with joy and relief--as I wrote out those monthly checks? Yes!!!!

Where can you cut? Start with the 2 largest monthly expenses most of us have: housing and transportation.

As guidelines, try to spend no more than 1/3 of your average monthly after-tax income on your share of the rent or mortgage payment. Try to deposit 1/10 of your monthly income in your emergency fund.

But this is about setting priorities. If you are willing to eat bread and water for dinner every night so that you can use 50 - 60% of your income on your mortgage payment, go ahead.

If early retirement is a priority for you, maybe you'd like to keep your rent and car expenses low and save 30-50% of your income. If you are the kind of person who likes like to travel on a moment's notice, you might consider renting a room in a big house that someone else manages and doing without a car entirely.

1. Finance charges: stop buying on credit or limit credit purchases to home and car. When you make only minimum payments on credit card purchases you end up paying for the purchase several times over.

2. Maintain a record of on-time payments on loans and credit cards; maintain 2 - 6 months' income in savings. That way you increase your chances of qualifying for loans through lenders (such as credit unions) that charge lower lending rates than finance companies do. The savings account helps you protect your good credit.

3. Refinance your debts at lower Annual Percentage Rates and/or longer terms: Consider cutting up all but one credit card. Use the credit card only for ID when paying with a check. Or, promise yourself that you will pay your new purchases in full each month or stop using the card.

Next, consider taking out a loan to pay off your credit cards. Even if your monthly payment on the loan is the same as the total payments you were paying on your cards, chances are you'll pay off the loan in 3 or 4 years vs. the 5 or 6 years you'd have paid on the cards.

4. If you rent, ask your tax preparer to help you figure out how much you can save in taxes by buying a home. If you pay enough interest each year on your mortgage payment, you could be able to itemize deductions on your income taxes. Because of that, lower income taxes may help offset a mortgage payment that is higher than your rent. Note: this tends to work better if you have a fixed mortgage payment and your property taxes increase only slightly every year. You need to weigh those factors against the likelihood of paying higher rent in future years.

To learn more about qualifying for a mortgage loan, the pros and cons of owning vs. renting, and how to get a better deal on a mortgage loan, click here.

5. If you buy a home, consider a 15 or 20-year mortgage vs. a 30-year one. Find out how much you would save in interest. You might be able to take 10 years off the life of your loan by paying a little bit more each month on your payment. Maybe you could retire sooner, or live better when you do.

6. If you rent--and can't buy--either: move into a home that has one or more roommates or consider having one or more roommates in your present home. If you decide to have roommates, approach it in a business-like manner. Require written applications. Check their credit. Ask for a security deposit. Have them sign a rental agreement. (Be sure it's OK with the owner of your rental to have them sub-let from you. Or, make them co-renters on a new rental agreement.) .

7. If you share a household: reduce the number of cars in your household. Here are some ways to do that:

a. One of you drives herself/himself (and some of the others) to work, school, or daily activities and/or

b. One or more of you joins a car pool. You need not own a car to ride in a car pool. To make it easier to car pool, you may want to consider moving closer to the car pool route and/or

c. One or more of you use public transportation. To make that easier, you may want to consider moving closer to the places to which you travel frequently. Or you may want to move closer to the public transportation that will take you there. and/or

d. Sell your new car; use the proceeds to make a down payment on--or pay cash for--a reliable--and/or more economical--used car. To finance it, apply for a WSFCU loan. Every April issue of Consumer Reports lists used cars with good reliability records, crash test results, and more. Be sure to check their Web site, too.

f. Folks often ask us, "If I live without a car, how will I get around? What about such things as shopping?" You may be able to buy baskets or saddle bags for your bicycle. When the weather is just too miserable to bike in, might you give a friend money for gas to take you with them when they go? Or spring for a taxi now and then? In some cities you can now rent a car by the hour. Living with one less car--or no car at all--can save you hundreds of dollars every month, thousands of dollars every year. Add up the cost of monthly payments, taxes, annual registration, insurance, upkeep, fuel (or the cost of charging your electric vehicle). Then ask yourself, "Is my goal to support auto manufacturers, mechanics, and insurers? Or do I have higher priorities?"

8. Increase your rent: (What???) If it means you can move close enough to your daily activities (such as paid or unpaid work, shopping) to enable you to walk, ride a bike, car pool, or use public transportation instead of driving a car. A rent increase could pay for itself--and more--in the money it saves you on a car you own (or co-own).

a. Move closer to work or school: and rates drop. The number of miles you drive per year affects your premiums. So does the length of your daily commute.

b. Consider raising the deductibles on your comprehensive and collision insurances. Place the money you save on premiums in a savings account--perhaps one of WSFCU's sub-accounts?--to cover the higher deductible.

c. Eliminate unnecessary/redundant insurance: Consumer Reports magazine and Web site has periodic articles on understanding car insurance. Ask your current insurance agent to go over the basic types of coverage. Ask what they are for. Ask, "What is the worst that could happen if I did not take out this coverage? Might any other insurance I have--such as homeowner's, medical or liability--cover a potential loss for less?" Examples:

(1) Rental car: How much you are paying for insurance to reimburse you if you need o rent a car. How much per day--and for how many days--will it actually pay? Will it cover the car rental company you prefer? How many times have you used that insurance? Might it cost you less to save that amount every month in a WSFCU sub-account--and pay for car-rentals out of pocket?

(2) Roadside assistance: do you belong to an automobile club and pay your car insurance company for towing insurance?

d. Make use of discounts for multiple insurance discounts: for instance if you have renter's or homeowner's insurance with your car insurance carrier, they'll sometimes reduce your total premiums.

(1) Compare apple to apples. If Company A quotes you lower premiums, will your deductibles be higher? Can you afford to cover the higher deductibles? Will you be unable to receive help for claims with a local agent? Will claims service be unavailable on weekends? What will your sacrifice? Before switching companies, give your current insurance agent a chance to compare apples to apples and figure out ways to save on your current insurance. Remember, after a few years with the same carrier, you may earn a discount just for having had insurance with them for a long time. If you switch to another carrier, you may lose that discount.

(2) Find out which discounts they have available. For instance, they may offer discounts for safe driving records, good grades in school, or for taking a refresher course to spruce up your driving skills.

(3) Contact the agency in your state that regulates insurance companies. Call to ask--or look on their Web site--for complaints on the companies you're considering, or for ratings of the best and worst companies. Also, check with an objective rating service on the financial health of the insurance companies you're considering.

10. Reduce your health insurance premiums: study Consumer Reports Consider buying major medical insurance or joining an HMO to cover only catastrophic health care, such as hospitalization. Be sure to find out if they have lifetime maximums and how much they are. If you pay for your own routine office visits, you may be able to choose your health care provider(s) and save money on premiums. Set aside the money you save in a separate WSFCU savings account to cover your regular health care and the deductible. As with auto insurance, see how much you can save by increasing your deductibles. If you're employed, see if your company has a plan whereby you put pre-tax dollars into a fund that will be used to pay your premiums and reimburse your medical expenses.

If you co-own a business—or own a business with 1 employee—your business may be ale to buy health insurance--or join an HMO--without health screenings!

Are you on a business, individual plan, or household plan? Consider switching from a plan with low co-pays and/or deductibles to a plan with higher ones.

Why? You can save up to hundreds of dollars per month in premiums! If you deposit the amount you save in an account—hint, hint—how much can you accumulate in 12 months? Over time, your premium reductions may exceed your deductibles & co-pays. But before switching to a higher deductible, consult with your medical team; find out what will happen if you decide to switch back. Will you be required to pass a health screening and qualify all over again? If so--and/or you have expensive, chronic conditions--it may not be worth it.

You may want to investigate taking out a health insurance plan that qualifies you to open a Health Savings Account (HSA) in another credit union (WSFCU doesn't offer them). A Health Savings Account is somewhat like an IRA for medical expenses. To learn more: www.treasury.gov/offices/public-affairs/hsa/. Up to annual limits, the amount you put in an HSA is deducted from your Adjusted Gross Income. That can help reduce your federal income taxes. As this was written, the only credit unions in San Diego offering HSA accounts were Point Loma & North Island . In California : Patelco. Elsewhere: www.ASmarterChoice.org

Higher deductibles and co-pays are not for everyone. Before switching to an HSA, consult your tax preparer; find out how you will pay for health expenses out of your HSA: by check? With a debit card? Will you have to submit to be reimbursed?

11. Cut down eating out: go to less expensive restaurants and eat out less often. Tell your friends with higher incomes that you have only a certain amount of money for eating out. Cook for your friends or cook with them. Too hot to cook? Go on a picnic, or meet your friends in the park with a sack lunch. Maybe you'll help them save money; maybe they'll treat you once in a while just for the pleasure of your company. When you do go out, order a main course only: no drinks, appetizers, or dessert. As any waitperson can tell you, restaurants make anywhere from 50% to 200% of the price of the main dish on such extras. Practice saying, "Just water with a slice of lemon." Many restaurants offer dinner menu items for less at lunchtime. Take advantage of discount meals offered in the early evening. If you save money each time you go out, you can go out just as often and still spend less, or go out less often and have even more money to use toward achieving your goals.

12. Buy new and used cars for less: contact WSFCU for a detailed article that lists steps and techniques. Remember: the lower the purchase price of the car, the more you save on sales tax at the time of purchase and every year on registration fees, insurance premiums, and finance charges on your loan.

13. Reduce the cost of giving gifts: for holidays, birthdays, and anniversaries, consider setting an annual cap, based on what you can afford. Make a pact with friends and relatives that each will spend no more than so many dollars per gift. Agree to give a service of some kind instead of a material gift. Give humorous gifts. Give only those you make yourselves. By making an agreement, you can all save money to accomplish your goals.

14. Save on the cost of food: consider joining a food project: in exchange for work you perform on a periodic basis, you can buy groceries--staples--at incredibly low prices. In San Diego there is a program called SHARE. Or join a food co-op if there is one in your area. Help a friend who has a garden work it in exchange for some fruits and vegetables. Or, participate in a community garden. If you're in a neighborhood where there's no ground to be found, you can grow food in a greenhouse or even in a window box.

15. Save on the cost--and pain--of dying: is there a hospice near you? Why should you or someone you love die in a hospital stuck full of tubes and disturbed every 5 minutes for a pointless test or injection? Hospices help patients meet death with dignity, controlling pain and maximizing comfort. Sometimes they can send a team of helpers to the patient's home so that he or she can die in familiar surroundings in the company of those they love. More humane and much less expensive.

16. Save on the cost of burial and cremation: non-profit memorial societies enable you to plan and pay for your own burial or cremation at discount rates way in advance. This not only saves your friends and family money but it lets them know what your wishes are. You may even be able to sign someone up for a memorial society after their death! Stop being taken advantage of by salespeople who prey on one's guilt--and pocketbook--in a time of grief. In San Diego , contact the San Diego Memorial Society. Elsewhere: http://www.funerals.org/

17. For additional suggestions/resources for saving money--or finding employment--see the "Recession Survival Kit" in our July, 2010 newsletter, (page 1, column 1).

We hope this article will stimulate your thinking. Remember: every time you write out a money order or pull out a dollar bill you hold power in your hands. Use your money to benefit yourself, those you are about, and the causes in which you believe. $$$$$