Tales from the Wallet: Where You Live Is One of the Biggest Money Decisions You Make

how much rent to payOne of the biggest money choices you make is where you live. When you’re renting, the kind of rent you pay can hugely affect your savings and your cash flow. If you’ve bought, your mortgage payment may now be the biggest factor in what kind of job you can take.  (Pictured: Lodis Accessories – Audrey Continental Wallet (Aqua/Orchid) – Bags and Luggage, available at Zappos for $84 (in this color combination as well as a few others).)

Experts generally say that your rent should be no more than 25-30% of your salary. When I first started working right out of college, that was laughable — even with a roommate, I couldn’t find a place that I felt safe living in for less than $X, which wound up being 50% of my salary. Yeouch. On the flip side, when I got out of law school, that math (25-30%) meant I could have spent as much as 3X on an apartment — which a lot of my friends did. For some people, I think they thought they “deserved” to come home to a swanky apartment; for others I think they thought, “I will never see this kind of paycheck again! I’m going to enjoy it!”  But cut to three or four years later, and they suddenly didn’t want to leave that nice apartment or that lifestyle, and it had an affect on which jobs they looked for.  Hello, golden handcuffs. [Read more…]

Tales from the Wallet: How to Live Within Your Means

how-to-live-within-your-meansWe’ve talked about budgets before, but we haven’t really discussed how to live within your means, which is a bit of a different subject. So let’s discuss.  (Pictured: Burberry Medium Nova Pop Dégradé Wallet, available at Burberry for $275.)

I think living within your means is a bit like packing a suitcase: you have to edit and curate what you have in your life right now. Stick with me here — whenever I go to take a trip I pull out everything that I want to pack and have it sitting on the bed in one big pile, usually evoking at least a joke or two from my husband. And then I’ll keep adding things to the pile — a t-shirt here, a bathing suit, a dress, whatever — under the theory that hey, that thin t-shirt is just a little thing rolled up. Or that dress, you know, could just be folded in half and laid flat — it barely adds any bulk at all! And then I’ll go to put things in the suitcase, and the damned thing won’t close, so I have to remove things and figure out what I really want.  It doesn’t mean that I can’t have the things that come out of the suitcase: it just means that they can’t come with me on the trip.

[Read more…]

Tales from the Wallet: When to Save, When to Pay Down Debt

debt payoff vs savingThis started out as a post about how to pay off debt, and I realized as writing it that the huge question is thus:  When should you pay off debt? So let’s talk about it.

As I’ve mentioned before, I generally led a charmed life (as far as debt is concerned) in my 20s — my parents paid for my education (thank you!) and I never had any credit card debt. In the past few years, though, I’ve gotten better acquainted with debt. First, my husband and I got married — when we met, he was finishing his master’s degree at NYU, and he took out some loans to pay for the education; they are now my responsibility as well. Then, we bought an apartment in NYC — we kept our loan in the “non-jumbo” category, but we still now owe six figures to dear old Wells Fargo.  (Pictured above: Lodis ‘Cairo Diva’ Clutch Wallet, available at Nordstrom for $68.90 (was $138).)

I think there are three cardinal rules for debt.
1. Do what you can to avoid accumulating it.
2. REALLY do your best to avoid credit card debt. Live within your means, and spend less than you earn. Pay off what your balance every month.
3. For all your other loans, pay at least the minimum every month, on time — your credit card report will be severely affected if you don’t.

Easy peasy, right? Questions still remain — how much should you be saving versus trying to pay down debt? If you’re paying down debt, which ones should you pay off first?

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Tales from the Wallet: Setting (and Sticking to) a Budget

sticking to a budget - our best tips!2017 update: we still stand by this advice on sticking to a budget; we’ve also updated links below. You may also want to check out our more recent discussion of how to make a budget

iconReaders got into this discussion a bit in the comments to Monday’s resolution post, but I thought I’d continue the discussion here, because I think it’s a worthwhile one.  So let’s talk about setting and sticking to a budget… (2017 update: the pictured wallet from Comme des Garcons is sold out now, but Nordstrom still has a ton of great wallets from the brand.)

First, I would say that not everyone needs a budget.  Your goal should be to spend less than you earn, and sometimes you can accomplish this — easily — without really keeping track of expenses. For example, if you’re making more money than you know what to do with (lucky you!), setting a general monthly goal (such as moving the second paycheck of every month into savings) should be fine, after maxing out your 401K and taking a close look at your debts.  But maybe you’ve recently switched to a lower-paying job and want to keep a closer eye on your finances — or perhaps you’re setting new goals for yourself this year, such as paying off debts, saving a greater amount, or saving towards a goal like a house or car.  Or maybe that goal of “spend less than you earn” has been eluding you for quite some time.

How to determine your budget? Everyone has slightly different methods of this, as you’ll note from the reader comments on Monday.  Personally, while I use Mint.com to generally keep an eye on our accounts and to track trends, I have always just used plain old Excel to keep track of a budget.  My own tip for budgeting is that I like to get ahead of the ball, so last month’s income goes to pay for this month’s expenses. If the end of the month draws near and the money starts to dwindle, we do our best to stop spending (and, for example, opt to eat in rather than head to a restaurant, or I don’t buy that pair of shoes I see online, or I bring a can of soup for lunch instead of going out for soup).  (Disclosure here:  My husband and I have totally combined our finances, I’m in charge of the money, and I’m also the primary spender — so this may be easier for me.)

More specifics:  On my chart, I first have the total combined income from last month (after taxes and whatever else is taken out).   Then I have different lines for fixed expenses — and for me these are only non-negotiables:  mortgage payment, common charges payment, debt payment, various insurances (amortized over 12 months if it’s something we pay yearly).  Then, I have our goals for the month — usually it’s a set amount of savings for retirement, but it might also be savings to pay off  a particular student loan, or something like that.  And then I subtract — income minus debts minus savings.  And whatever’s left is the budget for the month.  I generally just keep track of cash withdrawals rather than cash expenditures (so if we get $100 out of the ATM I’ll track that rather than whatever we spend the $100 on), and in general I use Mint to keep track of what money is spent when.  (Then I just have to log into Mint and copy the latest expenditures to the chart.)  I don’t include things like credit card payments on the “budget” (as the expenses should have been individually included when they were incurred).  As far as extra income goes, I’ll keep track of some of it — money received after returning a purchase, for example, a Christmas check from my grandmother, or interest from our savings account — but other stuff (e.g., paychecks) don’t get counted. As the month goes on I’ll bold things that are deductible — business dinners, charity contributions, etc. — and copy them into a separate column, which makes taxes a breeze at the end of the year.  When the month ends, I start a new sheet in Excel.

If you adopt a system like mine, I’d suggest giving yourself a few months just to get used to tracking your expenses and seeing where the money goes.  (And Mint can be great to keep track of spending in categories — it’ll even let you set budgets for the category and track them.) After a few months, take a look at things and try to get a better sense of where it’s “too much,” either because you’re spending beyond your means or you’re spending more than you really care to. For example, you may have a souped up internet/phone/cable TV package, but a) never watch 95% of the channels you receive, and b) never use your landline.  You may be able to significantly reduce your monthly bill every month without feeling any pain with the cuts.  You may also realize that you have leftover savings every month that should be allocated elsewhere — instead of leaving it to chance it might be time to put that $200 or $300 towards a student loan, or in a fund for a savings goal.

Personally I prefer to just have a general “bucket” budget rather than a category-by-category budget, but that’s just me.  Readers, do you believe in setting and sticking to a budget? Have you always had one, or were there times in your life that you haven’t kept track of money?

setting and sticking to a budget - our best tips!

Tales from the Wallet: Negotiating a Great Salary

salary negotiationReader A, a CPAA with 12 years of experience, writes with some great questions…

How does one negotiate a good compensation package? I have only ever worked for local firms. The salary data online seems to reflect “big 4” or equivalent pay scales. I have talked to a few headhunters and they all seem to think I should be making more than I am. What do I do when a prospective employer asks point blank what I am making now? I don’t want to lowball myself.

This is a particularly apt question in light of this post on the Bucks blog, calling attention to another blog posting wherein the author admitted to “bumping” her current salary up $5,000 when her interviewer asked what she was paid, and then asking for another $5,000 when they offered her the job with a “matched” salary.  Long story short:  it’s illegal to lie about your salary in job interviews! So… don’t try that tactic.

Pictured:  Fossil – Weekender Checkbook Clutch (Bright Orange), available at Zappos for $48 in orange, black, camel, espresso, green, and fun florals. Love the colorful insides and all the pockets.

Our recommendation would be twofold.  First, let’s say that you’re at Company X.  if you can get TWO job offers from Company Y and Company Z, you can sometimes play them against each other — we would probably avoid naming names, at least unless pressed, and see if company Y will increase your salary to match what company Z is offering.  Don’t leave Company X out of the mix, either, unless you’re looking for a new job because you hate your old one — rather than quitting outright, talk to the Powers that Be at Company X and say, “Company Y has offered me $__ to jump ship!”  And see if Company X will match it… and then go forward from there.

A second recommendation would be to really look at what your lower-salary job is actually giving you.  Do you get four weeks vacation?  How are your health insurance benefits?  Are there other perks, like discounts to a local gym, or on-site daycare?  We would factor that into the discussion, once the interviewer raises the issue.  For example: “I currently make $__ in dollars, but there are a number of perks that I’ve enjoyed for years and that you don’t offer.  To be honest, I would probably put a pricetag of $5K on those perks.”  Be totally honest — and KNOW what perks the interviewer does and does not offer.  In fact, this discussion might be a good time to assess those intangible perks.

This great article from CBS MoneyWatch also suggests classics like asking for a signing bonus, a performance bonus, stock options, or asking for more perks.

Readers, what are your best tips for salary negotiation?  Any great victory stories to share?

Tales from the Wallet: The Emergency Fund

Picture 22014 update: you may want to check out our latest discussion of emergency funds.

We noticed that our post on savings seemed to be a popular one, so we thought we’d start another discussion on money and investing. Today we’re wondering, dear readers, about your emergency funds: how did you calculate the amount, how do you store it, and how often do you reevaluate the amount and the storage situation?  (Pictured: Comme des Garcons Large Zip-Around Wallet, available at Saks.com for $325.)

A caveat, at the beginning: we are not experts in financial advice.

The emergency fund, though, is one of those basic topics that you read about.  If you’re in debt, they say, save for your emergency fund first, and then begin paying off debt.  If you’re not in debt, they say, save for your emergency fund — and keep it liquid — before you start investing in the market.  The emergency fund is supposed to be there as a a cushion in case you or your spouse lose your job, or if some other emergency comes up, such as medical needs or a car accident. [Read more…]

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