I opened up my credit card statement the other day and was surprised by one of the charges that I saw: $115 from AT&T. We get our high speed internet and cable from AT&T and have been quite happy with the service. The cost normally did not bother me because my husband’s company reimburses us for our internet connection (he works in IT), and so the cost to us for internet and cable is much lower than this; however, $115 seemed about $10 higher than usual. In fact this was not the first month that the bill was $115: last month it had been this high as well but I assumed that it was because we had somehow used an extra service and things would go back to normal in the next billing cycle.

Check Your Payment History

Over lunch one day at work I took a few minutes to check my payment transaction history on our AT&T account and the results were shocking. From the time that we signed up, over a one year time frame, our bill had increased by $23 for the same services!

As you can see from the chart below, the change in pricing did not happen all at once, and so it had been unnoticeable to me until it reached the price point of $115. At $115, I knew that something was wrong, but at $96 or $108, I had failed to notice the difference. If it had not reached a price point that I knew was too high, then my auto pay would have continued to suck an extra $276 out of our account over the coming year.

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Because of this, words that are added to the dictionary each year are very indicative of the recent history and cultural changes. Below I have listed financial words that have been included since the Recession. These new entries can be found in the newest version of either the Merriam-Webster Dictionary or the Oxford English Dictionary.

1. staycation, n.: a vacation spent at home or nearby
2. couch surfing, n.: the practice of spending the night on other people’s couches in lieu of permanent housing.
3. state-run, adj.: operated or managed by the government of a country
4. toxic debt, n.: debt which has a high risk of default
5. deleveraging, n.: the process or practice of reducing the level of one’s debt by rapidly selling one’s assets
6. overleveraged, adj.: (of a company) having taken on too much debt
7. quantitative easing, n.: the introduction of new money into the money supply by a central bank
8. exit strategy, n.: a pre-planned means of extricating oneself from a situation

Many of the new words include topics we’ve covered:

• What’s Your Exit Strategy?
• State-Run Cash for Appliances Program
• Couch Surfing as a Budget Travel Tip

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In the meantime, TLC brought back “Extreme Couponing” and sparked a firestorm around the internet. While I didn’t actually watch the show, it sounds like it was pretty intense! One of the things that has come up is whether these people are borderline hoarders – does anyone really need to buy and store 100 boxes of pasta? Couponing and buying things ahead of time to lock in a good deal is one thing – but taking up TWO FULL ROOMS of your house with your “stash” is quite another!

As evidenced with the Starbucks deal, I’m a fan of what I call “pre-buying” – spending money now on stuff you know you will use later. The key is to buy it now and NOT BUY IT AGAIN LATER! To that end, I developed some quick rules of thumb to help you know if you’re making a smart purchase or turning into a hoarder!

Rules for Successful Pre-Buying

1. You would buy it anyway: This is the biggest key – if you wouldn’t buy it “off” sale, you shouldn’t buy it on sale. If you do, you’re not saving, you’re spending.
2. You will use it: Pre-buying 25 outfits for your 3 month old to wear in the fall does not make any sense if he can only wear 10 of those outfits before he moves up a size!
3. It’s in your budget, either now or in the very near future: Do not go into credit card debt or raid your savings to pre-buy! Of course most people wouldn’t do this at the grocery store, but the concept of pre-buying also applies to things like plane tickets. If you can get plane tickets that are usually $450 for $300 by locking them in 9 months before your trip (or by using the 100,000 mileage offer this week), that’s great…but not if you have to pay 15% interest on your credit card because you haven’t finished saving up the cash. Pre-buy only using money you have in hand right now. You can “borrow” from your savings only if the item you are pre-buying is already in your budget for the next few months. I let myself spend $20 a month on coffee – so when I bought $100 in gift cards this month I did it knowing I will have to use my coffee budget for the next 5 months to replenish my checking account!
4. You won’t be able to get the same deal later: If you just flat out can’t get the deal at a later date, you should definitely buy the item now (as long as you have already moved past items one through three above).
5. You’ll use it before you can get a similar price: As a correlary to item 3, you can pre-buy an item if you know the deal comes around frequently – just buy the amount you will use before the sale comes back around. Southern Savers reminds us that most grocery sales repeat every 6 -10 weeks, so there’s no need to build up a stash of any one item that will last beyond that.
6. It doesn’t require storage space: If your pre-buying will not take up storage space, it’s a little easier to legitimize. Examples are my Starbucks gift card purchase, Groupon deals and Restaurants.com certificates. In all of these cases, you are locking in a good price without sacrificing part of your living space.
7. It gives you a benefit you can use immediately: Back in December AirTran offered 1 A+ Rewards credit for every $100 in gift cards purchased. I was hoping to use a rewards flight for some upcoming travel but was a few credits short – buying some gift cards helped me earn those credits, which I turned around and used to book my rewards flight. I could then use the gift cards at a later date and earn additional credits for those flights. So while the flights weren’t any cheaper, they also weren’t more expensive – plus I earned an immediate benefit.

A quick note on charity: As a side note, if you will contribute much of your couponing haul to charity, have at it – that’s not pre-buying or anything bordering on hoarding, that’s just helpful! But be sure that you are making an active decision to make a charitable contribution equal to the total amount it costs you to procure the items, including your time, the cost of the coupons (if any) and gas.

There are certainly times when it makes sense to pre-buy. I’ve listed a few and am sure you’ll be able to come up with more! But remember that there is no need to beat yourself up over getting as much as you can as cheap as you can…nobody needs 100 boxes of pasta!

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As a former graduate myself and the proud girlfriend of one soon-to-be-former law student, I know that this is an exciting time for those finishing high school, college or professional school. I also know that no matter what it is that you are finishing, the build-up to graduation can be an expensive time…and it doesn’t necessarily get any easier to handle your money after graduation! Below I’ve listed some of my advice for celebrating in style…without breaking the bank!

If you’re the graduate

• Don’t rack up debt. If you have fees associated with graduation events, ask your parents (or family members if you’re close) if you could maybe have an advance on graduation presents.
• Lots of events? Shop from your closet. I won’t deny you the “right” to buy a new dress or suit for the big day itself. But if you have other events leading up to graduation, and parties after, see if you can get by with outfits from last summer.
• Speaking of events…take advantage of as many free ones as possible. If your school has events that require you to pay, think carefully about which ones actually matter to you before committing to (and paying for) all of them.
• And if you want to say goodbye to your friends in ways that don’t involve free school-wide events, think of creative ways to enjoy each other’s company inexpensively. A pool party, potluck, board game night, margarita night or even a look-at-old-facebook-photos night are all good ways to celebrate your accomplishments and make more memories.
• Want to acknowledge friends’ accomplishments? Think of fun and personalized gifts like photo tiles instead of expensive gifts.
• Still job searching, or spending some time income-less before starting another degree program or your job? Cut down expenses by considering moving back in with mom and dad, or taking on an extra roommate. Remember that nobody is above working a summer job to earn a few extra bucks.
• …And finally, when you DO start your job, don’t fall prey to the mistakes of new earners!

If you’re a proud supporter

• Plan travel as far ahead of time as possible. Keep in mind our tips for traveling on the cheap.
• If you have a little cash to spare, consider giving your graduate their gift in advance. You might also ask your graduate if he or she might need a bridge loan to help set up their own place - you can charge minimal interest to keep it all business. You can earn a return on your money while saving them from the high interest rates of credit card debt or a bank loan.
• If you want to celebrate your graduate by throwing a party, consider joining forces with the parents/family members of other graduates. If your guest lists would overlap anyway you can save money on each guest by splitting the cost of food and drinks.

If you’re graduating…congratulations! If you know someone who is, give them a gift ahead of time by sharing this with them!

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Even if you can afford something, it doesn’t necessarily mean that you buy it, or that spending the money is a good idea. I could have technically afforded to stay in the very expensive apartment I moved out of last fall - I had enough positive cash flow, was already saving enough for retirement and other goals, and really got value out of living there in the form of a free gym and a walkable commute, among other things.  With that being said, I knew in my heart that it wasn’t the best financial move.

Should you spend the cash?

Whether or not you should buy something it substantially less objective than whether you can afford to buy something. With that being said, I’m going to attempt to help you figure out whether something is a good idea over the long run. In the future, if you want something, know you can afford it but aren’t sure you should buy it, ask yourself these questions:

• What else you could do with the money? If you didn’t buy the item, what would you do with the money? In my case moving to a cheaper apartment allowed me to pay down my student loan faster and sock away more money for future large expenses such as a car. If you honestly don’t have a better use for the money, move on to the next question. But if the money could instead bulk up your retirement savings or go to your child’s slightly-lacking (or non-existent) college fund, maybe you should put off your purchase for now.
• How might your financial situation change in next 6-24 months? Maybe you can afford the item now, because you just got a huge bonus from work for the 4th year in a row – but if your company just announced that bonuses were being discontinued, you might not want to allow yourself quite as much of a splurge. If you think you or your spouse might lose or quit your job, go back to school or do something else that will change your income, it’s likely that you shouldn’t spend the money.
• If you didn’t buy it, how would your life be different? Simply put – can you live without it? Alternatively, is your life going to be substantially easier/better/more rewarding if you do buy it? This question is attempting to determine how much the item is worth to you – not just in terms of tangible/monetary value but in terms of its impact on your quality of life. If you find you really wouldn’t care if you didn’t buy it, you can feel confident that buying it might not be a smart decision.
• Will you get the chance to buy/do this thing again relatively soon? If it’s kind of a one time deal, and you can afford it, and you are satisfied with your answer to the rest of the questions – then buy it! But if you are feeling unsure and know the opportunity won’t go away, put it off for a bit.
• Is the price likely to go down while you can still purchase and use the item? When I was in college, I refused to buy anything from the local GAP for full price. People who shopped in that particular neighborhood were either college students on a budget or older, more established residents who shopped at higher-end stores. For that reason, an item almost never sold out before it went on sale. If I liked something, I could be reasonably sure that I could get it for 20-40% in just a matter of days or weeks. Today, if I see an item I like and there is only one in my size, I might buy it even if it’s regular price. But if there’s a whole bunch of them I’ll wait. Similarly, if I know I am planning a vacation 6 months away I can wait 1-2 months to see if the price will go down. Even when I can afford full price, I always welcome reductions – I know there are lots of things I can do with the extra money!
• Are there acceptable substitutes? Can you live in a similar neighborhood for $250 per month cheaper? Can you stay in a close, cheaper suburb instead of downtown on your vacation to a big city? Can you buy a pair of Nine West shoes instead of the Manolos you covet? And the biggest question – assuming you can afford both the original item and its cheaper substitute, can you get comparable value/happiness from the cheaper item? Be honest with yourself: take the substitute if it really doesn’t matter, but allow yourself the splurge if the answer to the question is truly no.

The Bottom Line

If you can truly afford it, and truly want it, and truly believe that whatever “it” is is worth the cost – buy it. Everyone has things they value – for some it is high-end restaurants, for others it’s early retirement, for still others it’s a vacation home.

But if you can do without it and could possibly be better (financially) off if you skipped it, consider waiting for now. Saving the money today might enable you to afford something even better tomorrow – and with the flexibility of money in the bank, you can always change your mind later!

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In many cases, your ability to afford a given item has nothing to do with the item’s price. If you are 55 with no retirement savings and up to your ears in debt, a $75 concert ticket might be a stretch even if you make $100k a year. On the other hand, even if you only make $40k a year but have no debt, healthy savings and a strong command of your spending, you may be able to afford a luxury vacation.

The point is you must consider your financial situation in its entirety before making a decision about one item. If you’re wondering if Suze would approve or deny your request, answer the following questions.

Do you have…

• A solid emergency fund? Before you even think about shelling out big bucks for a “want,” make sure you have at least 3-6 months of expenses stashed away in a high interest savings account.
• Healthy retirement savings? If you want to retire comfortably, you need to be saving at least 10% of your income (including employer match). Before you consider a big purchase, make sure you have also amassed a suitable nest egg for your age. Translation: if you’re 40 and just starting, contributing 10% is not enough!
• Minimal debt? Suze usually wants you to have no debt besides a mortgage before approving a big-ticket item. If you have very low interest student loans that you are consistently paying on, you can still answer yes to this question.

Will you…

• Get your money’s worth? Don’t purchase an item that you’ll use twice before wanting the latest model. Don’t buy into a vacation package if you can create a similar itinerary yourself. Don’t buy a house at list price if it was appraised for $40,000 less. Whatever the item that you’re trying to afford, make sure it’s a worthwhile use of your money, even if you’re rolling in the dough.
  
• Pay for it in cash? This is a biggie – if you’re taking on debt to buy something, you probably can’t afford it. When you identify something you want to buy, set up a savings plan well in advance of the target buy date. Exceptions: a house, NECESSARY education or transportation (not luxury cars!), or something you could pay for in cash but are financing at 0% instead.
  
• Curtail other spending? If you buy this item, are you willing to sacrifice a bit in the future, and let other wants fall by the wayside for now? If this one splurge is going to kick off a buying binge, you may not be able to afford it.

If and only if the answer to all six questions is yes…you can probably afford it! Of course this doesn’t necessarily mean you should buy it – but that’s a post for another day.

How do you decide if you can afford something? And if you want something and can afford it, do you always buy it?

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So today, I want to look at spending a little differently – by using a pie chart. Your financial health is made of up a number of factors – your income and expenses, assets and liabilities, and future goals/spending plans. But perhaps the biggest thing you can do to change your financial situation is properly allocate your income between saving and spending.

Ideal Pie Chart

When I was taking my financial planning classes, my professor gave us some general metrics to use when assessing our clients’ financial situation. He then used a pie chart to show what the average person’s income breakdown should look like:

• Housing (including rent or mortgage payments, taxes and insurance): 28% or less
• Other Debt Payments: 8% or less
• Taxes: 15%
• Risk Management (life, auto, health, liability and any other insurance):9%
• Retirement Savings: 10%
• Other Savings: 10%
• Daily Spending: 20%

Here it is in actual chart form:

As you can see, only about 15% of your pre-tax income should be used for day-to-day spending! This includes things like bills, food, clothing and entertainment.

Making Your Own Pie Chart

You can use Excel to create a pie chart for you, or you can do one by hand. To use Excel, you can download the ideal pie chart worksheet and enter the numbers that apply to you.

If you want to make your pie chart by hand, do your best to break down your income into each of the categories named above. For each category, divide that amount by your total income, then multiply by 100. This will convert your spending in each category into a percentage. Draw a large circle and divide it in half. Draw four lines in each half to create 10 total sections. Each of these sections represents 10%. Fill in the chart using different colored pencils or markers, filling in portions of the 10 sections to represent categories that are more or less than 10%.

Analyzing your Spending

Everyone’s pie chart will be a little different. The “ideal” pie chart I showed above might not be quite ideal for you depending on your current situation and future goals. If you have 6 kids you want to send to college, you need to be putting more in the “other savings” category. If your house is paid off, you should be spending much less than 28% of your income on just the taxes and insurance. And if you want to retire at 50, you might need to save more than 10% of your income for that purpose! But in general, the chart above is a good starting point for assessing your own spending.

If you can help it, you should actually strive to be under the above percentages for the housing, other debt payments, and daily spending categories. You should strive to be over the ideal percentages for retirement and other savings. Risk Management (insurance) and Taxes will depend on your individual situation, but in general you should strive to spend as little as possible in both categories while maintaining appropriate insurance coverage. To reduce your taxes, consider deferring more toward retirement or education savings. Additional 401(k) contributions will reduce your taxes no matter what you make. Traditional IRA contributions will reduce taxes if you are under certain income thresholds and can deduct contributions. Roth IRA contributions will not reduce taxes now, but will help you save on taxes later. You may even qualify for the retirement savers’ credit! And if you are self-employed, you have a number of options for saving for retirement while reducing taxes.

If your pie chart looks drastically different from the ideal pie chart, check into some ways to increase your savings, decrease your debt payments, manage your insurance costs and cut your overall spending.

What does your pie chart look like? Tell us in the comments!

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As I’ve mentioned before, I set a monthly budget for categories like food, clothing and entertainment. I also set an annual budget for travel and gift giving, and save a fixed amount for those items each paycheck.

Finally, I use SmartyPig to help me save for very specific goals – in 2010 those included flights home for Thanksgiving and Christmas, Christmas gifts, and the costs associated with two separate friends’ weddings.

Reviewing 2010

I use a combination of Bank of America’s My Portfolio tool (which itself appears to use some version of Yodlee) and my own Excel spreadsheet to track my spending and current account balances. As 2010 wound down, I spent some time examining where I came out ahead of my plans and where I fell short.

To start, I calculated a simple average of my spending in each of my major budget categories. I had budgeted a certain amount for each budget category, and hoped that my monthly spending in each category would fall at or below that amount.

I also compared numbers at the start of 2010 versus the end of 2010 for my student loan balance, my savings account balance, my retirement account balances and my total net worth. I had budgeted set payments/contributions to these accounts but did my best to contribute more when possible. My hope was that the account balances would increase (or decrease for my student loan) by an amount greater than I had planned.

My 2010 Lessons Learned

Here is what my brief analysis of my 2010 spending/savings taught me:

• I underestimated travel costs: Every time I budgeted for a specific trip, I came up just a little short. Things happen – you take a few more cabs than planned, you realize your clothes just won’t fit in a carryon and you have to pay checked luggage fees (if you aren’t flying an airline with a bags fly free credit card), etc.
• Life happens: When I moved into my cheaper-but-much-less-nice apartment, I saved a ton of money in rent – and spent a ton of money adjusting to my new space. When you go through a major change that will impact your budget, you might need a little breathing room before your spending returns to normal.
• The market matters: Partway through the year I had made my planned contributions to both my 401(k) and my Roth IRA – but my 401(k) was ahead of where I wanted it to be while my Roth IRA was lagging. Now, things have reversed – my Roth IRA has rebounded while my 401(k) has fallen a little short. These accounts are invested differently for a variety of reasons, and so it makes sense that the market would have a major effect on their account balances. Since I’m years away from retirement, I decided to be content with the fact that I was meeting my planned contributions, and ignore the account balances for now.
• Small gifts add up: I have always lumped charitable giving and actual gifts (birthday, wedding, etc.) into one budget category. I realized that $10 and $20 donations here and there add up, bringing my total charitable giving much higher than I realized, and sometimes forcing me to pull from other areas when a planned birthday or other gift came up.

2011 Budget Strategies

Going forward, I’m going to employ the following to help me keep a better hold on my finances:

• Set a charitable budget: I realize that the time has come to separate gifts to families and friends and gifts to non-profit organizations. Someday I’ll itemize deductions, and it will be good to be in the habit of tracking donations!
• Inflate travel budgets: I’m going to try to do a better job of estimating trip costs, and then save an amount 5-10% over the total. If I end up with money left over, I can always throw it into savings.
• Budget month-to-month: I tend to use a pretty static budget each month, but the reality is that my spending is not smooth over the course of the year. I spend more on clothes at the start of each season, spend more on entertainment in the summer, and spend more on eating out around the holidays. In 2011, I’m going to try to create a new budget each month to allow myself more flexibility and account for spending fluctuations.
• Use automated tools: Since I really like to have a handle on my spending, I track everything in my own Excel spreadsheet. But I want to use either Bank of America’s My Portfolio or my dormant Mint.com account to track my spending at a lower level – rather than know what I spent on food, I want to separate it to restaurants, fast food, and grocery stores so that I can see where I might need to cut back.

2011 and You

You can do the same thing I did by calculating your actual progress towards your 2010 goals versus your planned progress. Use your lessons learned to help create/adjust your 2011 budget.

If you’ve never had a budget, there are tons of resources online to help you find the method that works the best for you. Use your 2011 budget to help set goals for the end of 2011, or use your goals as inputs to your budget.

If you plan to contribute $100/month to your savings account, your balance should increase by at least $1200 by the end of the year. Conversely, if you want to max out a Roth IRA ($5,000 in 2011), you need to contribute just over $416 each month.

And don’t forget to add the extra money you’ll get from the payroll tax cut into your budget.

What new financial strategies are you employing for 2011? Tell us in the comments and we’ll check back next year to see how everybody did!

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This seemed to be the summer of weddings for many of my close friends (and lots of personal finance writers, including Amanda right here at My Dollar Plan!). In April and May, I had weddings or related events FIVE weekends in a row! Two friends who are also brides-to-be recently asked if I could do a post on financial tips for newlyweds. Many of the tips that follow also apply to couples who live together without getting married, or those who choose to combine some aspect of their finances even before sharing a home.

Getting Started

Before you move in together, get married, or otherwise combine your finances, you and your significant other should sit down to have a serious discussion dedicated to financial management. You can even use this post as an “agenda” for your discussion! At a minimum, you should discuss the following:

• Your current financial state: What assets and liabilities is each partner bringing into the relationship? BE HONEST with each other about outstanding debts (even if they are $170,000), including any school or vehicle loans in your parents’ name that you are currently or will ultimately be responsible for. As the start of a marriage often coincides with the purchase of a home or other large assets, this is also a great time to check your credit scores and histories and correct any errors before moving forward.
• How you will handle debt: If either or both partners are bringing debt into the marriage, how will you tackle repayment? You may choose to treat debt payments similarly to or differently from other bills. Each person may be responsible for their own debts, or you may choose to attack all debt together, regardless of how much each partner brought in.
• How you will handle bills: Will you combine income and expenses into one pot, split expenses evenly, contribute a percentage of income to a joint account or something else? For more details on each method, see how to manage money in marriage.
• Spending “rules”: Will you each have a discretionary amount to spend per month? If one partner wants to make a big purchase, does s/he have to run it by the other partner? What constitutes a “big” purchase – $100, $1,000, or something in between?
• How each person will contribute to the financial management: Regardless of how you choose to split expenses,  decide who will actually be responsible for paying the bills, making any necessary transfers into/out of savings accounts, choosing investments, etc.
• How financial disputes will be sorted out: If you have $500 extra at some point, and one partner wants to save it while the other wants to take weekend trip, what will you do? What happens if you agree to a set amount of discretionary spending and one partner goes over? If one person gets into serious financial trouble (e.g., runs up credit card debt, makes a bad investment), will the other bail the first out?  
• Your major financial goals, both individually and as a couple: This point will be covered in more detail in tomorrow’s post.

Setting a Budget

If you’re not completely drained from discussion the above topics, you should next tackle a joint budget. It’s important that you approach this exercise with a fresh and open mind, so do it on a different day if the “getting started” section took you more than an hour or two. A workable joint budget is the backbone of any financial merging. Even if you are keeping your finances completely separate, each of you will have to come up with a budget to ensure that together you can cover all of your new household expenses. Many soon-to-be brides and grooms might find that they still depend on parental support for one or more major expenses – and that support might go away after “I do.” Your joint budget should include all previous individual expenses for both parties as well as any additional (or reduced!) expenses that might come up once you join your finances. Along with the normal budget items like housing, food, etc, you might also need to consider the following:

• Start-up funds: If you are moving into a new place, you may need to spend some time (and money!) to get situated. Don’t make the mistake of trying to do everything at once – do what you absolutely need to up front and budget in the rest over several months.
• Health Insurance: Does one of you have cheaper and/or better insurance that the other one can be added to? I knew someone who saved $160 a month by switching to his wife’s plan after they got married! If one or both of you is covered on a parents’ policy, will you have or want to change coverage?
• Cell Phones: I personally am still a part of a family plan that my parents pay for. If you are in a similar situation, you may need to establish your own plan – and thus an extra monthly bill! If each partner currently has their own cell phone, you may be able to save money by combining to a joint plan.
• Car Insurance: Similar to cell phones, many young people remain on the family car insurance, but will take on their own policies after marriage. Once again, you may also be able to reduce bills by combining two individual policies, and/or by moving homeowner’s and other insurance policies to the same insurer. Make sure to shop around for the best rates!
• Travel: If you and your significant other are settling far away from one or both of your families, you could suddenly be looking at increased travel costs for holidays.
• Spending money:  As discussed earlier, you may want to establish an “allowance” of sorts for each partner to spend freely on individual expenses such as clothes, hobbies and entertainment.
• Taxes: When you get married, your taxes will change. Whether or not the marriage tax penalty will come back next year is still up in the air, but you’ll still need to look at your taxes as a couple and adjust your budget accordingly.
• Savings: Tomorrow’s post will focus more on setting and saving for long-term goals, but it should go without saying for readers of this blog that you will want to include emergency, retirement, short-term and long-term savings in your budget!

The first year of marriage is hard, and finances are never easy to talk about. But since money is one of the biggest causes of marital discord, it is to your benefit to be up front and honest with your partner about your financial goals and expectations. If you can sit down well before the wedding and come to an agreement on the big stuff, the small stuff will fall into place as you get used to living together. And since getting started is the hardest part, give yourself a pat on the back just for reading this post and sharing it with your significant other!

If you’re currently married or living with a significant other, what tips would you share with soon-to-be newlyweds? If you’re about to take the plunge, what other questions do you have?

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© My Dollar Plan

The Peapod delivery concept is pretty simple. You create your shopping order online at Peapod, select a delivery time, and they deliver your groceries to your door.

Sounds great, right? Let’s take a closer look at the Peapod delivery service.

My Peapod Review

Overall, I was impressed with our first order. The Peapod delivery man was prompt and very friendly. He took the time to explain how everything worked and chatted with us about the Peapod service.

Peapod sent along a welcome gift with lots of fresh fruit, so we could try various produce. Everything was fresh, including the bananas, which are always terrible at Costco and our local grocery store.

I was happy with the overall cost, which I saved money on for our first order, but I’m going to have to try it some more to see if the entire order price, with the cost of delivery and tip, can consistently beat our local options.

Peapod Price Comparison

The Peapod sale prices were pretty comparable to our local sales. I went through a few months of old receipts to compare best prices and didn’t find much difference.

The difficult prices to compare were for fruit and vegetables. Our grocery store prices produce by the pound, whereas Peapod prices by the item, so I’ll have to keep an eye on that category for awhile.

Peapod Fees

Since the sale prices were in line, the break even point is going to be based on the delivery and tip. Here are the Peapod delivery fees:

• Spend over $100.00, the delivery charge is $6.95.
• Between $75.00 & $100.00: $7.95
• Orders less than $75.00: $9.95

There was also a fuel charge of $0.58, and we tipped the delivery man $10, (which I have no idea if that is reasonable or not, as we’ve discussed before, how much should you really tip?)

Peapod Discounts

To offset the fees, you can take advantage of various Peapod discount codes. We were able to cover all the fees with the following Peapod coupons:

• Peapod promotional code. Peapod offers a promotional code for $10 off for first time shoppers.
• Facebook. The Peapod Facebook site has Peapod coupons (like the recent $5 off $20).
• Delivery Discounts. Selecting an expanded delivery time is $2 off each order.
• Payment Discounts. Pay by check and get $1 off each order (although it may be better to use a cash rewards credit card).
• Free delivery. After your first order, they give you a Peapod coupon for free delivery for the next 60 days.

How to Save Money with Peapod Groceries

After you factor in all the fees and take advantage of the Peapod promotions, I did find some additional ways to make Peapod delivery worthwhile:

• Sort by Unit Price: My favorite item is the sort by unit price. Always get the cheapest item without having to look at everything in the store.
• Any Coupons: The Peapod grocery delivery man told me that they will accept any kind of coupons, including Target or our local grocery store, etc. I haven’t been a big fan of couponing since I swore off super couponing, but if I can look for the coupons after I place my order, there is much more appeal.
• Upromise: Peapod also gives you credit for your Upromise account.
• Avoid impulse shopping. There’s no need to play the supermarket mind game where you have to walk to every corner of the store to cover bread, milk, meat, and produce and pick up miscellaneous things that catch your eye while you walk by.
• Running Total. While I was shopping, I saw that my total was nearing $120. However, our weekly budget is $100, so I was able to review my list and remove some items I didn’t think we really needed. Try doing that at a grocery store! This was huge for me, because we all know that groceries are where our money seems to leak out of our budget.
• Referral program. You can refer your friends to Peapod and you both get $10 off.
• VIPea loyalty program. If you use Peapod frequently, you can also qualify for their VIP program. I’m not completely sure what this entails, but I’ll ask our driver next time. I’ve heard you can earn free delivery coupons with the VIP program.

My Favorite Peapod Perks

• Smart Shopping. For future orders, you can pull up a list of all the previous items you purchased that are currently on sale. So each week, it should go faster.
• Nutrition. They have filters for food allergies, healthy foods, and weight watchers, so you can sort by price and keep an eye on the nutrition. My biggest concern when shopping by price, is compromising nutrition, so it’s nice to be able to easily do both.
• Cooled Delivery Bins. The delivery man let me know that we can call him if we won’t be home, and he’ll just leave our groceries in coolers on our porch, which is fantastic!
• Change Your Order. If you’re like me, you get home, and realize you forgot something at the store! The best part about Peapod, is that you can log in up until 11pm the night before delivery and change your order! You can add, delete, or change. My husband also liked this option, so he could add in some munchies after I placed our order!

Peapod Overall

Did I mention, I didn’t have to drag 3 small kids to the grocery store? That right there was probably worth it!

Overall, I was really pleased with the Peapod service. If you’re willing to put in a little legwork, it looks like you can make the prices comparable to local options. I’ll have to work on comparing the prices to buying in bulk.

Since we’re going on vacation next week, I’m going to try it again, and schedule a delivery for the day we get home. That will be fantastic, because there’s nothing I hate more than getting home from a long trip, and having to run to the grocery store to restock the fridge!

Have you tried Peapod? What did you think?

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I forgot to take into account the $120 worth of study materials I had to purchase. Or the several extra meals I ate out in the weeks leading up to the test. Or the two times I let food spoil because I was so distracted by studying I didn’t put it away after cooking.

Basically, I did everything right by planning ahead and saving for a large expenditure – but forgot to include the “indirect” costs when deciding exactly how much to save. If you’re saving up for a big purchase in the upcoming months, make sure to consider the full cost.

Why Full Cost Matters

I’m constantly telling people that they should plan ahead and save for the things that they know are coming up. But your savings plan is only as good as the accuracy of your goal amount. If you’re saving up for a $1,000 vacation that ends up costing $2,500…you’re in trouble. During the holidays, I advocated that you include entertaining costs and party contributions to your holiday budget, instead of just considering gifts. Using that same principle throughout the year will help ensure that you always have the cash you need at the time you need it.

Extra costs can have huge implications when making major purchases such as a car or a house. Many people figure out the maximum mortgage they can take on – and forget to include taxes and insurance. Ditto for buying a car and forgetting about title/license costs. The point is, these things matter – and you must take them into account before deciding you can afford something or setting a lump-sum savings goal.

When Indirect Costs Can Save You Money

Considering the full cost of a financial decision can go both ways – it can stop you from making a purchase you thought you could afford, or help you realize that you can afford something that seemed out of reach.

When I was considering moving to a more expensive apartment, I was tempted to skip it even though I loved the layout and could walk to work. A less-nice apartment in a different part of the city would run me about $150 cheaper per month. But then I realized that by living in the more expensive apartment, I would have zero commuting costs – saving me, you guessed it, about $150 per month.

When considering where to live, the full cost of my choice included rent AND commuting costs – by recognizing that, I was able to choose the nicer, more expensive apartment and still feel that I was making a sound financial choice since I was breaking even but saving at least an hour of public transportation each day.

Preparing for the Extras

In my everyday job, I work with clients who have to submit a budget request ahead of time for large projects. They don’t necessarily have 100% accurate estimates at the time they do their budget. So instead, they budget as accurately as possible and then add a “reserve” of anywhere from 5-15% depending on the total size of the project.

If you’re preparing for a purchase and are just not sure of the extra costs, you might consider doing something similar. Sometimes you really can predict the extras if you just take the time to consider all the moving pieces. In a case like my exam, I had no way of predicting just how many hours I would end up studying, and how I’d have to make time for those hours by spending a little more on convenience items. Nevertheless, I should have known that some extras would creep up.

If you save more than you need, you can always redeploy the extra funds into debt payments, other savings goals, retirement plans, or even a nice dinner out or other treat. But if you find yourself with the need for more cash, it’s not always so easy to come up with that cash quickly – especially if your omission was on a large-scale item such as a house or car. By considering and planning for the full cost of every planned purchase, you can make sure that you never find yourself in a budgetary bind.

Editor’s Note: I’d like to congratulate Jill on passing her CFP! She didn’t mention it, but all that studying paid off, even if she did spend a little more on eating out. Congratulations Jill! – Madison

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Now that we’ve had the chance to burn a few fires in our fireplace, plant our fall crop (we live in Houston, TX), and have a party or two with our new grill, we are taking the time to reassess and fine-tune bills associated with our home.  By shopping around for homeowner’s insurance, we were able to get comparable coverage at a whopping $739 less than the plan we originally signed up for.

With such a great savings under my belt, I thought I would next tackle the escrow account, and share with you the benefits of not having one, the conditions you must meet to get rid of your own, and how to make sure you can still pay your homeowner’s insurance and taxes each year.

Benefits of Losing the Escrow

The first benefit is being able to use your money to earn money for you. By paying a mortgage company an extra several hundred dollars each month, you are giving them an interest-free loan (which they are using to earn themselves money) until your insurance premiums and property taxes are due each year. Instead, you can put that money into a savings account, or buy a six month CD, and earn interest for you. Here’s an example:

• Let’s say you need $4800 by the end of the year in your ‘escrow’ account. You save $400 per month into an online savings account, such as ING Direct, with a current interest rate of 1.3% apy. After 12 months of saving $400 per month, you will have earned yourself $33.22. May not sound like much, but if you do this for the life of a 30 year loan, your return would be $996.60. (And let’s hope the interest rates on savings accounts go back up during that time, giving you an even higher yield!) Would you rather that $33.22 per year go to your bank, or to you?

Another great benefit of losing your escrow account is that you can now pay your homeowner’s insurance premiums on your credit card. Charge it to a cash back rewards card, or to a credit card with points/frequent flyer miles/etc., and you have given yourself a discount on your taxes. Just make sure you pay off the balance before incurring any finance charge.

Meeting the Requirements

As far as your lender is concerned, here are the typical requirements you usually must meet to eliminate your escrow account:

• Your mortgage is at least one year old, and you have made on-time payments consistently for the entire year
• LTV (loan-to-value ratio) has to be under 75%
• Loan has to be a conventional loan (VA and FHA loans typically cannot shed their escrow accounts; it is part of the condition of a government-backed loan)
• No taxes or insurance payments can be due in the next 30 days

Please note that lenders vary somewhat in their conditions, so you need to call yours up and ask them what conditions need to be met.

Making the Payments Each Year

Finally, probably the most important requirement of not paying into an escrow account is to be self-disciplined in your saving habits. Create your own escrow account using an online savings account, such as ING Direct, and pay into that account each month the amount that you need in order to cover your homeowner’s insurance premiums, flood insurance premiums, and property taxes each year (see example above). It is best to have this money automatically withdrawn from your checking or paycheck each month so that you do not think about it as much.

Make this account untouchable in your mind. You do not want to be sent a bill for several thousand dollars when you have already tapped your ‘escrow’ account for something else earlier in the year.

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So how can you set goals without feeling overwhelmed and without giving up mid-year? Take baby steps. By taking several baby steps throughout the year, you will lead yourself towards your goal. When mid-year creeps up on you, you can give yourself a checkup and see how far you have come since 2009 on reaching your goal. If you have taken baby steps all along, or even just a few, then the work you have done should provide great motivation to take the next steps needed in the latter six months of 2010.

Roughly 1/3 of resolutions are financial ones and I suspect that this year, that percentage will be even higher. Below is a list of common financial resolutions, and the baby steps that you can take starting on January 2^nd, 2010.

Resolve to Get Out of Debt

Is 2010 the year that you are finally going to tackle that debt of yours? If doing so turns your stomach or feels overwhelming, you can break this resolution down into multiple baby steps.

1. Choose a method to pay off your debts; Suze Orman suggests paying off high-interest debt first, while Dave Ramsey’s method is to start with the smallest debt and work your way up.
2. Go over your budget, and decide how much money you can allocate to paying down debt each month. Multiply this out by 12 months, and see how much debt you can have paid off by December 31, 2010 for extra motivation.
3. Write your first check, or set up your first automatic withdrawal above the minimum payment required. Repeat for each month to come.
4. During your mid-year check-up, see if you can allocate more money to debt payment. This could come from a raise, income tax return, etc.

Resolve to Save up for Large Yearly Expenses

This is one of my personal New Year’s Resolutions for 2010. Every six months, I know that the insurance is due on one of our vehicles…yet I allow it to creep up on me so that I have to scramble for the money twice a year. This year I am doing it differently and will be saving myself a few headaches. For you, the bill could be taxes, association fees, childcare fees, etc.

1. Open up a savings account using ING DIRECT, or other online bank account, and give it purpose by naming it (for example, I will be naming mine “car insurance”).
2. Sit down and calculate what your large expense is likely to be. In our case, it is $544 every six months. Divide this number by the amount of months, or paychecks, you have until it is due.
3. Set up an automatic withdrawal each month, bi-monthly, weekly, etc. so that when the bill is due, your money will be waiting for you. Our automatic withdrawal will be for $90 each month.

Resolve to Increase Monthly Cash Flow

Perhaps you have been feeling pinched in 2009, and would like to increase your monthly cash flow for 2010. Here are a few ideas of how to do this in order to get you started.

1. Pay off your debts (see the first resolution for baby steps). This will not only free up the money you were paying towards that debt, but it will also knock out the interest payments you are making to hold that debt each month. Paul and I will be paying off his car loan in seven months from now. We are currently paying $50 in interest on his car loan each month. By making a large payment on his car loan in the beginning of 2010, that will decrease the amount of the loan going towards interest, and our debt will be paid down even faster, thus increasing our monthly cash flow more quickly.
2. If you normally get a tax return at the end of the year, work with your Human Resource Department to decrease your tax withholdings each month. While you won’t have a large sum of money to look forward to come next April, you will increase your monthly cash flow now.
3. Carpool with a co-worker, or use craigslist/bulletin board/email/etc. to find a person to carpool with. Split the cost of gas, which will automatically give you extra cash each month.
4. Earn between $100-$3,200 extra per month by wrapping your car in an advertisement. You can think of yourself as a Nascar driver being sponsored to go to work and pick up the kids at their activities!

Resolve to Consistently Donate to Your Future Self

This is the year—not next year, not the year after—when you need to open a retirement account (if you do not all ready have one) and consistently deposit money into it. I had the distinct pleasure of seeing Suze Orman live a few weeks ago, and she had something very thought-provoking to say about people who complain to her that they do not have any money to save for retirement right now: If you can’t pay all of your bills now, then how are you supposed to pay your bills without a paycheck?

1. Sit down, and have some fun with a retirement calculator. Try out a few different scenarios, and see how much your money can be worth in 10, 20, 30, 40+ years when you retire. This should help to motivate you for the next steps.
2. Figure out how much you can allocate each month for your retirement savings. Multiply this number by 12 to see where it will get you by the end of 2010, and adjust as necessary.
3. Visit Vanguard.com, Fidelity.com, or another firm, and open up a target retirement account. This account will automatically allocate your portfolio according to your age, meaning that if you are young and have many years before retiring, more of your portfolio will be invested in stocks. As you age, your portfolio will age with you and grow more conservative.
4. After opening the account, deposit each month by linking a bank account to your new retirement savings account and setting up automatic withdrawals as if you are paying a bill.
5. During your mid-year check-up, see if you can allocate more money to retirement. This could come from a raise, paying down debt, increased monthly cash flow, etc. Remember that there are limits to the amount that you can contribute each year.

Resolve to Pay Cash for Everything

Credit cards have wonderful perks for disciplined users, and I personally like to take advantage of this. However, it looks like many credit cards are now going to charge an annual fee to their best customers: the ones who pay off their balance each month and only use the credit card for the rewards. Perhaps it is time for some of us to switch our financial systems over to cash, or for people who use credit cards without as much discipline to switch to cash all together.

If you are living on credit cards now (even with discipline), this means that you are charging this month’s living expenses to next month’s tab. Essentially this means that if you quit cold turkey, then you will have to pay cash for everything in the month you are in, as well as pay off last month’s living expenses. In order to do this, you will need to either pay off last month’s credit card debt/living expenses with your savings, or slowly make the transition to paying with cash so that you do not need to touch your savings at all. I prefer the slow transition, and here’s how you can make it.

1. First of all, you will need to cut your spending on your credit card this month so that after you pay your credit card bill next month, you will be left with some cash in your checking account to pay some of that month’s bills (instead of charging them like you normally do). For example, if you normally budget $250 per month for groceries, eat more food from your freezer and cupboards this month in order to charge just $200. This will free up $50 for next month to use to pay a bill that you normally would charge to your credit card.
2. Decide which bill you can use this extra $50 to pay in cash, check, or automatic debit from your checking account. Call the service provider in order to set up the new payment type, and to cut off your credit card from the account. You have now successfully transitioned one of your bills to cash each month.
3. The following month, cut your budget from another category, or from the same one again, in order to free up some more money. Perhaps this month you can cut your cable bill and use that money to pay a bill in cash the following month. At that point, you will be paying two bills in cash. This method can take you 6-8 months to transition all of your bills over to cash, and you may still need to take some money out of savings for a bill or two in order to disengage your finances from your credit card cycle.
4. Another way to achieve this is to use an income tax return, bonus, or other lump sum of money to pay all of your bills for one month (depending on the amount), and get your finances off of your credit card cycle and into a cash-paying cycle.

Let 2010 be the year that you can look back on with pride for your achievements.

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The 6 “C’s” of Holiday Budgeting

1. Create a plan: Before you do any shopping (or any more, if you’ve already started), get organized. Take a couple of hours to sit down with a pen and paper, Excel spreadsheet, or other tool of your choosing. Make a comprehensive list of expected holiday-related spending. Make sure to think beyond just gifts: include contributions to parties at home, work or school, charitable donations, gift wrapping supplies, seasonal celebrations, and anything else that you tend to spend money on in December. If you don’t have specific gift ideas in mind yet, that’s ok – at least write down the person’s name so you know to account for them in budgeting.
2. Collect pricing information: Do some research to figure out how much each item on your list might set you back. Compare prices at different stores or for different brands of the same item. Make sure to look for coupons in the paper or online, take full advantage of deals on cash back sites, and include shipping costs in any estimates for online purchases. If you do not yet have a specific gift in mind for a person on your list, set a target price point for that person, and then look for gifts that fall within that target.
3. Crunch the numbers: The next step is to figure out how much money you can afford to spend on holiday shopping. “Afford to spend” means the amount that you have saved for the holidays thus far, or any new income that is not earmarked for bills, regular spending, or long-term savings. It does not mean any amount you have to put on a credit card. We’re talking about truly discretionary funds – the money you might use to buy a new outfit or a few extra lattes in any other month, or throw into savings as “extra.” You can also look for places to cut your budget this month. For example, holiday party invitations might mean you eat at home less, and can get away with a smaller December grocery budget. Basically take your income between now and the end of the year, subtract necessary December expenses (be realistic!), and calculate the amount left over. Then add any previous holiday savings. This is the amount of money you have to work with. You should do this step without regard to your list in step 1 – the number you figure out in this step is what you have to work with, period. We’ll figure out how to reconcile it to your list in the next step.
4. Compare costs to budget: Add up the items on your list, and compare the total with your available budget from Step 3. If you were planning to spend more than you have available, you need to revise your list. Either remove a few people/items completely or reduce the amount you were planning to spend on each. An alternative is to squeeze a few more dollars out of your normal spending to use for holiday spending instead. Repeat Steps 1-3 until the money in your holiday budget exceeds the amount of money you plan to spend. It’s helpful to keep a little cushion in case you forgot something or end up spending just a little more on “extras” like shipping or gift wrap.
5. Control spending: With your list in hand, set out to actually purchase your items. Whether you physically go out shopping or choose to point-and-click your way through the holiday season, make sure that you are buying items on your list at or below the prices you planned for. If you buy something and find a better deal later, consider returning the first item if it’s not too inconvenient. Also remember that credit cards are NOT one of the 6 C’s on this list. Resist the urge to buy now and pay later – paying with cash is the only way to truly stay within your means.
6. Conquer your budget: Keep track of every dollar you spend, and compare your actual spending against your original spending plan at least once every couple of nights. Make adjustments as necessary – nobody can be 100% accurate with your planning, and that’s ok. The key is to make adjustments in other areas to compensate. If you truly want to keep your spending in check, going over on one person or item will mean cutting back on something else. Consider this carefully before allowing yourself to spend more than you budgeted!

Final Thoughts

Having a realistic holiday budget is one way to reduce stress and keep your holiday spending under control – but it only helps if you have the willpower to stick to it! Starting early is one way to keep costs down – you have more time to look for deals, and can avoid the pressure of buying because you just don’t have time to wait.

It’s also helpful to have an accountability buddy – maybe you can share this post with a friend, and create your holiday budgets together. Then you can check in to make sure you are both sticking to your budgets, and support each other when one of you is tempted to stray. Whatever you do, remind yourself that the holidays will come again – you don’t have to buy everything this year!

What about you? How do you plan for holiday spending?

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But the reality is, the holiday season comes at the same time every year – and brings with it a lot of stress. During the holiday season, we find ourselves short on time and long on things to do. We spend more, save less, and forget about budget tracking all together. But with some careful planning, a few deep breaths, and maybe just a little bit of luck, you can get through the holiday season (relatively) stress-free.

Holiday Financial Pitfalls

It’s easy to get caught up in overspending during the holidays. Maybe the holiday spirit gets to you, and you become generous to the point of breaking your budget. Maybe you simply have a lot of people on your gift list. If you’re involved in a lot of community groups, or your children are on lots of teams, you can have endless parties that require a contribution of food, gifts, or both.

Adults-only parties might mean shelling out money for a baby sitter and maybe a hostess gift. The end of the year is also a popular time for charities to solicit donations. Extra running round means more gas money. Finally, the stress of your increasingly-busy schedule can lead to paying for convenience in the form of meals out, professional gift wrapping, or housecleaning services. And all of it together means you just don’t have time to manage your budget and make sure all is going as planned.

How to Avoid Holiday Stress

The seven tips below will help you get through the holiday season without negating all the financial progress you’ve made in 2009. Ultimately though, they all come down to the same thing – treat your holiday purchasing and spending just the way you treat the rest of your financial life.

1. Make a list and check it twice: Before the busy season really gets going, sit down and make a list. Write up all the things that could cost you money this holiday season – people you need to buy gifts for, party contributions, and everything else I named above. Use a spreadsheet to make extra notes – where will you buy things, how much they will cost, the timeline for doing it. Keep this list with you at all times and use it to plan out your evenings and weekends – buy everything from the same store in one trip, visit stores on the same side of town on one day, etc. Check off items or make new lists as you go along, so you always have an idea of exactly what you have left. In your life, you plan to avoid surprises – do the same thing here.
2. Consider group buying: If you give gifts to families (like your sister, husband, and their two kids), consider giving one family gift or one parent gift and one child gift instead of four individual gifts. This can cut down on shopping and wrapping time and overall money spent. A favorite gift of mine is a couple of age-appropriate board games and box of popcorn or candy. For parents, you can give a bottle of wine and the promise of free baby-sitting. You can extend this idea to people in the same age group or with the same interests. Consolidate trips and save time by buying multiples of the same item at the same time, and distribute appropriately. If this tip makes you reconsider the list above – revise as necessary. Life is about finding efficiencies to keep us going – this tip extends that idea to gift-giving.
3. Look for coupons and deals: Now that you have your list, start scanning newspapers and websites for ways to bring down your cost. That will give you some extra money in case you go over on some items, have unplanned expenses come up, or fall victim to some of those convenience costs I talked about earlier. You do it for grocery shopping – why should holiday shopping be any different?
4. Set a budget and stick to it: Do not spend more than you can afford – and if you’re putting it on credit, you can’t afford it. Add up the items on your list and decide how much money you can set aside for holiday spending, then set a holiday budget. If the money you have available is less than what you need, rethink your list. This is just like the rest of your life – spend less or earn more!
5. Don’t be afraid to say no: Be realistic about how much you can afford to spend – in terms of both money AND time! Holiday spending should not come at the expense of emergency or retirement savings. Holiday activities should not mean you fall into bed exhausted at 2 AM each night, and neglect the needs of yourself or your family. You should give from the heart in a way that makes sense for you – and if that means some people just get cards or a box of cookies this year, or you miss the “awesome” party your neighbors throw every year, that’s ok!
6. Take five minutes every day to regroup: At the end of each day, take five minutes to regroup. Look over your list and see what you’ve accomplished. Get together a plan for the next couple of days. Look at your calendar to determine what events you have coming up. If you track your budget carefully, record today’s items. Then close your eyes and recharge, even if just for a moment. In life, a little strength goes a long way, and the same goes for the holiday season.
7. Learn lessons this year, and use them in the future: Nobody’s perfect. Even with the best planning you might spend a little more than you’d like. But use lessons from this year to do better next year. Whether it’s planning your spending earlier, saying yes to fewer invitations, keeping more frozen food available for quick meals, or going ahead and hiring that housekeeper, a lesson learned this year is time and money saved next year.

We can all learn something about controlling stress during the holidays, financial and otherwise. Share your lessons in the comments, and help a fellow reader out!

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