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Taking Action to Meet Our Savings Goal

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Taking action to save money

Lately I have been talking a lot about the importance of deciding exactly what you want for your money, setting goals, and making sacrifices to reach them.  This week I wanted to show that process in action, to provide an example of how this can work.

My savings goal

This year I set a goal for myself to save $22,000 toward the purchase of a home.  In order to do this, I have to set aside $875 from every paycheck, while still paying all my other bills, and saving for expenses such as health care, auto maintenance, etc.  So far, I have managed to stay on track, and have saved over $5,000 since January 1st.

Our savings goal may be too lofty

While I have been making excellent progress, keeping up with my goal every month has required all of my surplus income.  I have a $10,000 emergency fund, so this is not a critical problem, but it does mean that if I had to draw on my emergency fund, I would not be able to replenish it and stay on track with my goal.  Additionally, surplus income allows me to budget for discretionary purchases.  What this means, is that if an emergency occurred, or my wife and I wanted to buy something, we would not be able to meet our goal.

Our sacrifice to meet the savings goal

My wife and I talked it over, and decided that we would make a change in housing to free up extra money.  Most areas of our budget are already pretty tight, but we spend $700 month for our apartment, which is a little steep.  We have lived here for a year, and have no complaints, but we initially chose it simply because it was easy to find, which was important when we moved into the area.  I was sure there had to be better deals available, and a little research revealed an apartment of the same size for only $495/month.  After a phone call, and a visit, we decided to make the change, and are now just waiting for our move in date.

Sacrifices and Gains

There are pro’s and con’s to every decision made.  Here are some of the things we had to give up, and some of the things we gained by making this move.

Cons

  • Location.  Our current apartment is right across the street from where I work in a prestigious area of town.  The new one is not in a bad area, but it is older, and will add 5-10 minutes to my commute.
  • Perceived Security.  Our current apartment is a gated complex; the new one is not.  However, we have noticed that the gate to our current complex is frequently left open for long periods, either because it is broken, or to allow for deliveries.
  • Laundry.  This is probably the biggest one for us.  Our current apartment had a washer and dryer in the unit; the new one has an onsite Laundromat.  The actual cost is negligible, but we both enjoyed the convenience of not having to leave our apartment to do laundry.

Pros – Savings!

  • Rent.  We will save $205/month just on the face rent.
  • Water.  Our new water bill is included in the price of the rent.  This will save us $12-$15 dollars a month.
  • Gas Bill.  Our current apartment has a gas water heater.  This was the only gas appliance, and the monthly base fee for gas hookup is $15, making for an average $17 month bill (even though we only used $2 worth of gas).  Absent additional gas appliances, it makes sense to have only one utility bill, and the new apartment has all electric appliances.
  • Internet.  Our current apartment required that they provide any Internet service.  They charged us $45/month for the slowest service.  The new apartment allows us to get out own contract, and due to a sale, I will be getting faster internet for only $30/month (price locked in for 1 year, same as my lease)

Pressing on toward the prize

I have previously written that sacrifice is made meaningful by having a goal.  This is a perfect example, because my wife and I both hate moving.  It is uncomfortable; a lot of work, and there are some not inconsiderable downsides.  It would have been far easier to simply maintain the status quo.  However we do have a goal, debt-free homeownership, and because we kept that goal firmly in mind, we have the motivation to make a sacrifice that should net more than $3,000 dollars a year to propel us toward our objective, while also returning a surplus to our budget.  Additionally, this lower rent means we are more able to choose to stay in an apartment until we are prepared to buy.  Even with some annual increase in rent, we will avoid paying “as much as a house payment” every month.

Final Thoughts

I hope this helps illustrate how a concrete goal can lead to saving money, and maybe motivate you to meet your own goals.  If you have taken action to reach your goals lately, or plan to, we would love to for you to share your story with us.

Saving Money – An American Virtue Reborn

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Saving money is trendy again

I recently read a magazine article talking about how the recession has brought saving money back into style as people found themselves short on disposable income and easy credit.  The article went on to explain that part of the “new” saving trend was buying more expensive clothes that don’t wear out quickly, and I agree in principle, but would steer clear of “name brands” found in many magazines advertising sport watches in excess of $300.  While the article had some great info, it felt like they were mostly trying to sell overpriced goods and convince customers they deserved a pat on the back for “saving money.”

What really captured my attention was the article’s focus on how this saving trend was “new”, “fresh”, “exciting”, and not “cheap” like saving money has been viewed in the past.  Apparently people believe that for any idea to be good, it has to be new.  Saving money has never meant “cheap,” and there is nothing wrong with saving… however one may view it.

Saving money is virtuous and logical

Saving is a synonym of the word frugal which comes from the Latin root frugalis and is closely related to the words for both fruit and enjoyment.  Nothing cheap about those terms!  Saving money was actually one of the old Roman Virtues, and in times past was also an American virtue.  Somehow, over time, the modern American virtue regarding money has been closer to irresponsible spending than saving.  For many years in America it seemed anyone who paused to think before spending was quickly characterized as a penny-pinching cheapskate.  Thankfully, that trend has reversed again due mostly to the recent financial crisis.

While not buying stuff you cannot afford is part of of what it means to be a saver, it is only half the meaning.

Webster tells us that saving money is about economy and the use of one’s resources.  A mindset of saving will often lead you to avoid spending even if you have the money saved, perhaps because you are saving for something else or you just feel the purchase would not be worth your life energy.  The essence of saving is simply spending less than is necessary to get what you want, which is hard to do if we are unaware of exactly what we want.  As strange as that may sound, most people never set savings goals for themselves.  Have you set savings goals for yourself?  What are they?

Saving money for specific goals helps you avoid pitfalls

What do you really want in exchange for your life energy?  I’m not referring to the general stuff like food, a roof, some wheels, and a few vacations… I’m more interested in the specifics.  Where exactly do you want to live and in what type of home?  What toys do you want most?  What is most important to you in a vehicle?  Where do you want to go on vacation and when?  Do you want to retire and at what standard of living?  No one can have everything, so we all must decide which things we want most.  If you never ask yourself such questions, there are a couple of financial pitfalls we tend to run into.

First, without focus on what we really want we tend to buy whatever we see… simply because buying new stuff is fun.  We might even buy good stuff, but if it is not what we really wanted, it runs the risk of sitting unused and the life energy we spent to attain the stuff gets wasted.  Without specific savings goals our resources may get unnecessarily consumed, and we eventually miss out on something we would have enjoyed more.  That is not very wise, but most of us have done it more than once… myself included!  🙂

Another common pitfall… not saving as much as we could have had we set specific savings goals.  Without specific financial goals we become comfortable with the status quo.  If our bills are paid and we have some savings… we may never think to save more.  Absent any definitive goals (and the sacrifice necessary to reach them) it is much easier for careless spending to rob us of the things we actually wanted the most but never took the time to define.  The difference between deprivation and sacrifice has been described as the presence of the goal which a sacrifice is made to attain.  Visualizing the purpose of your sacrifice will give you the strength to see it through, to save for it, and is likely to make others wonder how you are able to accomplish so much with the amount of money you earn.

I’m bringing saving back

Finance writer Joe Dominguez looked forward to a time when we would speak of savers with awe and respect (hey, he was writing in the 70’s.)  I think now is the perfect time to bring back the saving trend, but without the $300 watches the magazines are pushing!  🙂  People focused on saving money are typically willing to make sacrifices to meet specific goals.  I set a high goal to save $22,000 towards a house this year.  For me it is attainable, but requires having to say no to some of the fun things we like to do.  My wife and I stick with it knowing that every penny we save brings us that much closer to the house we both want.

Are you bringing saving back?

Have you made a list of which things you want most, and thought about what things might be getting in the way?  Where could you save more and what sacrifices could you make for the things that matter most to you and the things that will help you meet your savings goals without feeling deprived?  We would love to hear about any goals you have set for yourself, or that you have recently achieved.

Debt Reduction While Planning a Career Change – Beckey Answered

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Need help with your situation? I offer free personal finance advice.

Visit the Ask Matt Jabs page and fill in the form to ask your question for free.

Can I change careers with loads of debt?

DFA reader Beckey asked:

I need some advice. I am currently working the IT Support field but am finding myself bored and tired of the work. I’ve always wanted to become a Veterinarian so now I’m thinking of a career change. I’ve been looking around at some local schools and one of them has a 2 year Veterinary Technician degree that I think would be great for getting my feet wet to see if I in fact would love this field. I’m thinking of going part time, so I can still work either part time or full time to help with the income. The only problem is, between my boyfriend and I, we have almost $50,000 in debt (both had bad breakups with exes, he has school loans). We have been aggressive with paying off our debt and actually paid off 4 credit cards last year. We have our plan in place to become debt free, by October 2012, so we are both full speed ahead on paying off our debt. I’m not sure what to do here. I don’t really want to stay in my current job but can’t afford to not have that income.

Work hard

Hi Beckey… let me start by saying that I love your question.  It conjures visions of a happy optimist with shackled dreams – held back by poor financial choices from her past but eager to do things right this next time around – an all too familiar story.  After carefully pondering your situation I think you have a good idea of what needs to be done… so my advice should ring true as we work to help you devise a solid strategy.

The single best advice I can give is to work harder than ever.  You still need the income from you IT support job until the $50,000 debt is repaid so do not quit.  If you absolutely cannot stand your job just be sure to find another with similar compensation before leaving; perhaps grunt labor in the field of veterinary medicine?  🙂

If you can pay for classes without going into more debt then go ahead and follow your desire to start school while working.  More on this later.

Set, prioritize, and achieve your goals

Speaking of goals, what are yours?  Have you ever written them down?  Let’s try to help you set your first goal so you can effectively prioritize your actions.

It sounds like you biggest desires are:

  1. Debt reduction
  2. Career change

What do you despise more… the debt or the IT support job?  Will it feel better to pay off the debt or to get out of that job?  Before you answer remember that the debt is what’s keeping you in the job.  😉

It sounds like you have a solid understanding of debt slavery and are eagerly working a plan to get out.  You desire a career change but your debt has you shackled to a position you dislike only because delivers a way to repay the debt.  Sounds like slavery to me!  Therefore debt reduction should be your first order of business.

Note: a second job would accelerate debt reduction and the ability to follow your dreams – whatever they may be!

Here is what I would do:

Pay off debt before going into more debt

You do not mention how you plan to pay for Veterinary school.  Can you pay as you go or will you need to take out student loans?

Since debt is what got us into this mess in the first place it only makes sense to avoid further bondage until existing debt is gone.  If you must borrow for school then do so after October 2o12 or whenever your existing debt obligations have been met.

I am not saying you cannot borrow money to fund education – though I usually advise against it – I am saying you should not add to existing debt with more debt.

Assure yourself before making large life changes

Also… are you absolutely sure you will love the work of a VT?

To be completely honest with you, it does not sound like you are entirely sure veterinary medicine is the cure for your career discontentment.  Read your sentence again, “I’ve been looking around at some local schools and one of them has a 2 year Veterinary Technician degree that I think would be great for getting my feet wet to see if I in fact would love this field.”

Are you convinced that veterinary medicine will make you happy?  How long have you worked in IT Support?  Make sure that you are not trying to project dissatisfaction in other areas of your life onto your current career.  Also, make sure you are not suffering from The Grass is Always Greener Syndrome.  I bring this up because it is very important.  The last thing you need to do is spend thousands on education only to wind up right back where you started.

In closing

Focus on accelerating debt reduction while assuring yourself of the best career move.  Consider working a second job to speed debt reduction and freedom.  Once you can confidently vouch for your passions consider getting a grunt job in the field so you can get an everyday working feel for the industry.  After your debt is gone… go do whatever your little heart desires!  Well… within reason of course.  🙂

What do you think?

What are some tips I may have missed that Beckey should use to get out of debt and into life?

photo removed at the request of Mareen Fischinger
If you need personal finance advice… ask Matt Jabs.

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