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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The union of two people in love, the birth of a new family member, the birthday of a person we hold dear to us; these are the times when we want to show our appreciation and gratitude for having these people in our lives.

What we wish to express is priceless, but we like to express it through purchasing gifts at costs that can bust our budgets. Fortunately, there is a way to generously express our emotions while keeping inside the realms of our budgets.

Anticipate Purchasing Needs

Some events are predictable, such as your best friend’s birthday, your anniversary, or Christmas. Take a moment to sit down and write a list of all of the predictable special occasions over the next year that will occur.

Chances are you’ve seen something while shopping that you thought might be perfect for “so-and-so”. Start filling in this list with the gifts you have seen already that would be perfect for a person and an occasion. Keep your occasion list around to refresh your memory before heading to stores.

Build Gift-Purchasing into Your Budget

One reason why special occasions can be budget busters is because they appear as unpredictable expenses in our budgets. You can get around this by building them into your monthly budget.

It is helpful to know an approximate amount you want to spend on occasions throughout the year, so sit down and come up with a rough estimate. Then divide this by 12, and you have the amount of money each month that you have designated towards making gift purchases.

Time is on Your Side

By knowing what gifts you want to purchase and for whom (from the list you made in the first step), and by designating an amount you can spend each month (from step two), you can now shop at the most opportune times throughout the year.

This puts you at a huge advantage. Not only can you spend longer picking out the perfect gift for that special someone, but you now have built-in time to wait for the item to go on sale! There are always large sales and deep discounts at the end of a season. For example, purchase camping equipment at the end of summer, or sweaters at the end of winter.

Designate a Space for Your Gifts

Now that you will be shopping year round for gifts (how fun!), you will need to designate an area to hide your gifts so that loved ones will not find them and ruin their surprise! Try an attic, box in the basement, pushing them under the bed, or any other forgotten area in your home.

Using these steps should take the stress out of shopping for special occasions and holidays because you have given yourself the gift of time and an allocated budget. This will allow you to freely enjoy giving of yourself, which is the true idea behind giving gifts.

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Fast forward to adulthood. At one time my spending got out of control. No matter how much I earned, I spent more, so I used credit cards to make up the shortfall. Credit cards charged interest, which led to more debt, which meant I had to borrow more…  Sound familiar?

If you are having trouble controlling your spending you might want to consider giving yourself an allowance. This worked wonders because it taught me to control my spending and build up my savings. Painlessly.

Give Yourself an Allowance

Here is how it can work for you:

1. Give yourself a set amount each week. In my case I withdrew $50 in cash every week. I arrived at that amount by tracking my incidental spending over a period of two weeks. Whatever the amount, it should be reasonable and an absolute limit.
2. Use your allowance for all incidental spending. Incidental spending might include any meals or snacks out of the house, movies, books, unplanned purchases, etc. Don’t include items that are already budgeted for such as groceries, gas, etc.
3. At the end of the week save what is left over. Deposit any excess into a savings account. This could be your emergency account or just a “fun” account you set up for this purpose. If there is nothing left over that is OK too!
4. Make it a game. At first it was tough to control my spending and keep it under the limit. Over time I rose to the challenge by making it a game of sorts. Every week my goal was to save as much of the allowance as I could. The reward was that at the end of the year I could use what I had saved for anything I wanted. At the end of the first year I had over $600 in the savings account (which I applied towards my debt).

Advantages of an Allowance

The advantages of putting yourself on a weekly allowance are:

1. Freedom to spend within reason. One of the best aspects of having a weekly allowance is it eliminates the need to micro-budget every aspect of your financial life. Budgets often fail because people feel they are too constraining and don’t allow for any flexibility. An allowance gives you some flexibility with a limit attached.
2. Teaches you to control spending. Habits are a huge factor in the way humans behave. By getting into the habit of only spending so much a week you set yourself up to maintain this habit even if you eliminate the allowance later.
3. Reinforces the habit of saving. Saving the leftover allowance is a way of teaching yourself that saving money is just as easy as spending it. Once you start saving on a regular basis it becomes another habit that is difficult to stop.

Allowance Tips and Tricks

Don’t Cheat! The only way an allowance will work is if you are 100% honest as you use it. If you cheat, you are cheating yourself of the opportunity to relinquish bad habits for good ones.

Save even more! Do you have a budget for other types of spending, like for groceries or gas each month? Treat it the same way and deposit any leftover amount into a savings account. Make it a game and reward yourself in some way. My guess is that seeing the amount you saved over the course of the year will be reward enough!

After the allowance. Now that I am out of debt I no longer have an allowance because it isn’t necessary. Interestingly, I still spend $50 or less a week on incidentals. Having an allowance taught me that I don’t need to spend, and that saving is something fun and worthwhile to do.

Have you tried giving yourself an allowance to control your spending? How did it work out for you?

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Checking account overdraft fees now account for more than 75% of the fees banks charge on consumer deposits. The median overdraft fee is $26, and can be much higher. Worse, the fee can be assessed each time you overdraw your account, up to several times a day according to the report. Disturbing news if you happen to have a checking account, isn’t it?

The good news is that overdraft fees can be easily avoided with a little forethought on your part. These tips work whether you keep your check register manually or electronically:

How to Avoid Overdraft Fees

1. Keep your Register Updated. Simply put, if you don’t know how much money is in your checking account right now, then you are at risk of overdrawing your account. Many people think keeping a check register up to date is a hassle. Instead, make it a habit by entering each check or debit card purchase as it is made. Set aside time when you get home to balance the register. Do this every time you spend, and soon it will be second nature.
2. Don’t Forget ATM Withdrawals. One of the easiest ways to lose track of your money is to forget to record cash you withdraw from an ATM. It happens to people all the time – they forget to record the withdrawal and when the bank statement comes they find out they have $50 or $100 or whatever amount less than they thought they had. Nip this potential problem in the bud by always getting an ATM receipt. Place the receipt in a safe place. When you get home refer to the receipt to enter the withdrawal into your register.
3. Remember to Record Automatic Payments. Having your utility or insurance company automatically take payments out of your checking account can be very convenient. Overdrawing your account because you forgot to record an automatic payment is decidedly inconvenient.
4. Review your Statement. The best way to keep tabs on your checking account is to compare the monthly statement to your check register. Any discrepancies need to be taken care of immediately. If you have done a good job keeping track of your money there will never be a discrepancy – and that is the goal.
5. Cushion your Checking Account. Having a little cushion in your account is probably the most effective way to stop overdraft fees when all else fails. To create a cushion, record a withdrawal in your register of $100 or whatever you want the cushion amount to be but leave the money there. Try to forget about the cushion and carry on as usual. If you get into trouble and accidentally spend more than your balance that $100 (or whatever amount) will be sitting there to take up the slack, and hopefully prevent a nasty fee.

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The System

I use an Excel spreadsheet to manage my budget, track my spending, and monitor my savings. To use this system, you must have a budget already in place. If you don’t, you might want to start one and return to this post at a later date.

My spreadsheet has 5 tabs: Summary, Checking, Savings, High Interest Savings*, and Budget Tracking. Below I’ll explain each tab in detail. I recommend you download and open the full spreadsheet to follow along. I’ve entered some sample transactions to help you see how everything fits together.

In order to maximize rewards, I pay for everything I possibly can with a credit card that I pay in full every month. This system helps me make sure I stay within my budget AND have enough money to pay my credit card each month. If you don’t use credit cards (or are sticking to cash while you get out of debt!), you can still use this system.

Summary

This tab shows your budget and balances in your checking, savings, high interest savings, and credit card accounts. You’ll also notice a section called “Direct Deposit Totals.” My company lets me direct deposit into multiple accounts, so I split my check based on my budget categories.

All my budgeting is based on pay periods: I split monthly costs such as rent and my student loan payment and take half the cost out of each paycheck. Money that will be spent in this pay period goes into my checking account, money that will be spent in the next month (like rent) in my savings account, and money that will be saved indefinitely (e.g., emergency fund), spent irregularly (e.g., gifts), or spent in more than a month (any long term savings goal) in a high interest savings account. If you can’t direct deposit to multiple accounts, you can achieve the same thing through auto-transfers each time you get a paycheck.

You’ll notice my budget categories are pretty simple. “Food” is both eating out and groceries. I basically incorporate anything not named (e.g., entertainment, haircuts, small household purchases) into “Personal.” “Savings” is a fixed amount that I split into different categories in the “High Interest Savings” tab – we’ll get there in a bit. You can choose to have more or less budget categories – this is all about finding a system that works for you. Please note that the numbers here are just a sample and not an indication of what I think you should spend in each category!

For each account, there is a line called “according to me” and a line called “according to them.” “According to me” is an auto sum based on the information you enter in the other tabs (Checking sums all the categories in the checking tab, Savings sums all the categories in the savings tab, etc.) “According to them” is what the bank or credit provider says your account balance is – a number you can get by logging into online banking. The number in each “difference” line should always be zero – if anything doesn’t balance, either you made a mistake in your tracking or your bank made a mistake when calculating its balance.

You can adjust this sheet to include as many budget categories and accounts as you wish, as long as you include new tabs and/or update the existing ones as necessary. If you need help, please let me know via the comments and I’ll get back to you.

Checking, Savings, & High Interest Savings

I’ll discuss these three together because they are similar. This is where the actual tracking comes in. Within each tab are sections for each of the categories that are held within that tab. For each category there are columns for date, place, deposit, and withdrawal. Each time you get paid, you “deposit” the correct amount in the first line of each category. Each time you spend money, you enter the transaction in the “withdrawal” for the appropriate category. Each category gives you a running balance at the bottom, which feeds the total balance on the “Summary” tab. In order for this to work, you must enter every transaction – I recommend doing it at least every 3-4 days if not more often.

If you do your spending on a credit card like I do, you can use the “credit card” section within each tab to hold the money until your payment is due. Every time you make a withdrawal from one category, simply “deposit” the same amount of money in the “credit card” section. Your account balance stays the same, but the amount you have available in your spending categories goes down. You’ll see some examples within the spreadsheet. If you don’t use a credit card for your spending, you can delete this section or just ignore it. If you frequently withdraw cash, do your best to assign it to a category when you withdraw it. You can always adjust if your actual spending is different from your predicted spending.

A key section in each of these tabs is “holding.” This is for when you transfer money that will only sit in the account temporarily. For example, I transfer my rent money from my savings account to my checking account each month. I record it as a “withdrawal” within “rent” in the “savings” tab. I then make a “deposit” equal to the amount of the transfer within the “holding” category of the “checking” tab. Once the check clears, I make a withdrawal from the “holding” category. This ensures that all account balances are accurate at all times, even when you have money flowing in and out.

In the high interest savings tab, you will notice I split my savings into several categories. At the top of each category, I include the target amount for each paycheck and/or the overall goal. The “other” account is used for any unexpected expenses, like a donation if a friend is participating in a charity event. I also use it as a cushion if I go over my budget in a pay period.

Budget Tracking

This tab allows you to monitor your spending over time. You can track your spending in each category and see where you’ve gone over budget. This is the only tab that isn’t 100% automatic. The food, transportation, clothes, and personal lines add automatically for the current pay period based on the withdrawals in the “checking” tab. You have to manually enter your spending (which should be pretty fixed) for the other categories, including the categories that reside in your high interest savings account.

The spreadsheet will sum all lines to give you a total and compare it to your total budget for the month. It uses conditional formatting to compare each number to your budgeted numbers and turns the cell red if you are over in any category or in total. If you see lots of red, it may be an indication that you need to adjust your budget or reign in your spending.

To continue the tracking over time, follow these steps:

1. At the end of each month, take the current amount that is left in your budget for the period (found in line 12) and transfer it to your high interest savings or wherever you would like the surplus to go.
2. Copy the numbers in the current period (in this example, cells G2:G12) and paste them into the next period.
3. Then copy the current column, place your cursor in the first cell (G2 in this case) and use paste special -> paste values to get rid of the formulas and leave just the numbers.
4. Save work to this point under the current file name.
5. Save a new version (I use dates in my file name such as “Budget Tracking July 15-31”).
6. Delete all spending/withdrawal entries in the three account tabs.
7. Start tracking for the next period!

Conclusion

This is a way easier system in practice than it might seem on paper. It’s always harder to explain something than it is to do it, and I’m still new at this blogging business! If you have trouble with controlling your spending, I challenge you to try it for one month and report your progress in the comments. I’d be happy to answer any questions via the comments or in separate emails. Thanks for reading and happy tracking!

*If you don’t have a High Interest Savings account, you should! Check out Madison’s page for referral links.

Budget Tracking Spreadsheet

Download the Budget Tracking Worksheet to begin.

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As many of you may have heard, the government recently released the rules for its Car Allowance Rebate System (C.A.R.S.), also known as “Cash for Clunkers.”

The program’s goal is two-fold: to get older, less fuel-efficient cars off the road and 2) to encourage sales and leases of new cars in order to stimulate the struggling auto industry. Cash for Clunkers does this by allowing auto dealerships to offer a credit towards a new car to owners who turn in their “clunkers.”

Cash for Clunkers Features

• Fuel Economy: To qualify for the credit, your “clunker” has to have a combined fuel economy of 18 mpg or less and your new vehicle must get 22 mpg or better. You can calculate the fuel economies of both vehicles here. Remember: the comparison should be done between the “combined” values.
• Rebate Amount: The credit amount is either $3,500 or $4,500. It is calculated based on the difference in fuel economy between the “clunker” and the new vehicle. For cars (not trucks), if the new vehicle is 4-9 mpg better, the credit is $3,500. If it is 10 or more mpg better, the credit is $4,500.
• Your Vehicle: To see if your vehicle qualifies, you can use the Cash for Clunkers calculator or check the eligible vehicle trade in list.

More Details

Timeline: The program applies to trades that occur July 1, 2009 or later so if you traded in a car in July and didn’t receive the credit, you may still be eligible. It ends November 1, 2009, or when the funds are exhausted, whichever comes first*.

Combining Credits: You can combine this rebate with other dealer and government incentives. The Cash for Clunkers credit can be used in addition to any other rebates that the dealerships normally offers, and can’t be used by dealers as a replacement for their usual incentives. It can also be combined with government tax credits, like the one for hybrid cars.

Taxes: This credit will not be subject to income tax. However, whether it is subject to sales or local tax or not will vary by area.

What happens to my “clunker?” The Cash for Clunkers program requires that all “clunkers” be destroyed so that they can’t be resold, though some parts may be.

Is this Program for Me?

The Cash for Clunkers program should help the United States encourage automakers and consumers to move towards more fuel-efficient vehicles. For the right consumers, it can be a great way to save money on a new vehicle purchase they were going to make anyway. However, don’t let this credit sidetrack you from still doing your research and properly negotiating the best price for your car.

In addition, those who aren’t already in the market for a new car shouldn’t necessarily now make a purchase because of this program. A car may be worth more in a private party sale or worth more to its owner than cash. For example, a 2002 Ford Explorer with 75k miles could sell for about $6k on Craigslist and, if in good shape, should last another 3-5 years without many major repairs. In either case, its value to its owner is worth more than the government’s $4,500, especially if he makes an effort to improve its fuel efficiency.

If you’re ready to buy, be sure to get a free copy of your credit report before applying for a car loan.

Will it Last?

*Because of the popularity of Cash for Clunkers program, there was mention last week that the program had used up all the funds; then the House voted to inject an additional $2 billion to revive the program. No matter what Congress does, if you make a purchase, the rebate will be honored through Tuesday, August, 4.

For more information, see the Cash for Clunkers FAQ.

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Establishing a Budget

When I first became interested in personal finance in the fall of 2007, one of the first things I did was create a budget and tracking system. It allowed for savings, Roth IRA contributions, housing, and other categories such as food, transportation, clothing, etc.

Unlike many people who find that their first attempt at a budget is not realistic, my budget was actually pretty accurate and usable from the very beginning. Over a year later, my monthly budget is only slightly different from the very first one! So, post over, I’m awesome, right?

Wrong.

Blowing the Budget

I would say that I actually stick to my budget 100% perfectly (that is, come in on or under budget in every category) only about 10% of the time. Another 50-60% of the time, I might go over in a few categories, but still keep my total spending under the planned total.

And then there are the times where I just fail – for one reason or another, I allow my total spending to exceed my planned spending for the month. I always know when this is the case – my very detailed tracking system allows me to see how much money I have available at any given time.

When I know I have $20 available and then I spend $35 at a dinner I felt I couldn’t say no to, I have officially gone over. Even that wouldn’t be so bad, if only I stopped there.

But I recently noticed a recurring problem – once I complete the transaction that pushes me into the red, I cease to remember I have a budget at all. I spend, spend, spend: new dress here, extra dinner out there, and on and on. The initial $15 over budget turns into $50, $80, even $100 or more. Once I relinquish that first bit of control, I unleash a spending monster!

Getting Control of the Budget

Here are three things I’ve done recently to tame the spending:

1. Increase my budget slightly. This seems counterintuitive, but I realized that when I go over budget, I go way over. In general though, I work hard to stay under budget. Giving myself a little breathing room so that that one extra expenditure is still within my planned spending actually ends up saving me money in the long run!
2. Institute no-spend days/weekends. When I realize I’m running low in certain categories or overall, I institute no-spend days. This means no money physically leaves my bank account; I am still allowed to use things I have already paid for like gas and cable. Other than that though, I can’t spend a dime, so I have to make meals using existing groceries, watch TV or movies that I already own, and only go out for free entertainment such as museums (I live in DC).
3. Be honest with those around me. In the past one of the reasons I’ve overspent is because I don’t want to look like I either don’t have money or like I am too obsessed with saving money. After all, I’m only 23, not a very popular age to say “I’m going to stay in tonight.”

   But I have recently started discussing my financial goals and current status with my boyfriend and closest friends. After a particularly expensive weekend last weekend, I flat out told my boyfriend, “I have only $20 until my next payday. I can’t spend any more than that. Period.” It was the first time I had been quite so frank.

   I also make an effort to tell my friends that I am saving for things like an upcoming licensing exam, new furniture, and an eventual car, so that they understand when I have to turn down expensive outings.

These things aren’t easy, especially the last one. But in the end, they’re better for my bottom line. Everyone goes over budget every now and then. It’s what you do next that matters. The trick is to focus on spending as little as possible after the budget-buster occurs.

What do you do to keep your spending under control?

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Microsoft Money Plus Home and Business is the center of my Financial Organization detailing almost 200 accounts in multiple files for all my family members and our business.

Microsoft Money Expiration Date

They didn’t give much notice on the end of the product. The last day to purchase Microsoft Money Plus is June 30, 2009. All purchased Money Plus products must be activated prior to Jan. 31, 2011.

However, even if you already have a version installed, like I do, you may need to act quickly. The online services expire two years after initial activation or Jan. 31, 2011, whichever is earlier.

I checked, and my copy will expire on December 22, 2009, which means I only have six months left. I am purchasing another copy so that I will have service until the end date in January 2011. I’m glad I checked right away since the purchase deadline is Tuesday!

To find your expiration date, look under the help menu in Money Plus, and select About MS Money. The expiration date appears by the serial number.

Expiration Information

If your product is already activated, you don’t have to quit using the product when it expires, however, online services will no longer be available. That means that online quotes won’t work anymore. Neither will direct online banking and bill pay. Microsoft says that Money will “still process bank statements imported from your bank’s Web site (if available), and quotes can be manually updated.”

I ran a version without online quotes when my old version expired two years ago. After 3 weeks, I was more than annoyed. It would take hours to update my portfolio. I won’t do that again. If you are tempted, don’t forget that support will also end. So if you encounter a problem, don’t expect it to be fixed.

More Information

I’m a big fan of the usenet group. Lots of users have very helpful information, including information on the discontinuation from the unofficial microsoft.public.money FAQ.

Alternate Tools

Switching to a new product will be the next step. Here are some of the products that people have mentioned that I’ll consider over the next year.

Quicken. Quicken, which used to be the main competitor for Money, is already offering a discount for Microsoft Money users and created a FAQ on discontinuation, but they don’t anticipate having a complete solution for a few months. I’ll wait until I see that people are having success transferring all their data; I would hate to lose years of information. (Suggested by a reader, Ross, via Facebook.)

Other Personal Finance Applications. In addition, I’ve heard of multiple personal finance applications mentioned by others in the usenet group that I’ll plan to explore. They include GnuCash, Moneydance, and AceMoney. If you’ve used any of these, I’d love to hear about it!

Online Products. In addition, I’ll see if some of the online products will be able to play a role, like Mint (suggested by reader, Nitin, via Twitter), Quicken Online, and the recently reviewed You Need a Budget. However, these applications probably aren’t robust enough yet to manage a complete financial picture, including business and tax data.

Action Plan

I made sure to purchase my next version of MS Money by the June 30 deadline so that I’ll have service until January 2011. That should give me enough time to wait and see how successful people are in migrating gigantic files. In the mean time, I’ll just wait and see how it goes.

If you use Microsoft Money… what are your plans?

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One popular program is You Need A Budget (YNAB), a tool that promises simple, easy-to-use software and a money management methodology.

I recently took a look at YNAB Pro and really liked what I saw! You Need A Budget has four main principles that it encourages as a way to financial peace:

1. Stop Living Paycheck to Paycheck
2. Give Every Dollar a Job
3. Prepare for Rain
4. Roll with the Punches

YNAB Basic Versus Pro

One of the first things you’ll notice on the You Need A Budget website is that there are two versions of their product offered, Basic and Pro. The YNAB Basic version is $24.95 and the YNAB Pro is $49.95 and you can either download the software or request a hard copy. Unfortunately, Mac users will have to stick with the Basic version for now because the Pro version is not yet available.

Some advantages of the Pro version are that it allows you to import transactions from your bank and automate recurring entries, and also offers unlimited budgeting categories and auto-suggested budgeting features. It also has built-in reporting and lets you enter a single receipt and split it up among different budgeting categories which can come in very handy.

Register

The first YNAB section is the “Register,” which allows you to store all of your financial transactions from multiple accounts, including checking and savings accounts, and credit cards.

You can download data from your financial institution and import it here or you can manually add entries, which may be most effective for cash transactions. The most important part of this section is correctly categorizing your entries (i.e., Food: Groceries, Food: Restaurants, Recreation: Entertainment), which is the basis for the rest of the You Need A Budget program but unfortunately can take quite a bit of time at first.

(click on the images to expand them)

Budget

Once you have organized and categorized all of your transactions in the Register, you can click over to the Budget tab to see your total expenditures from the time frame that your data encompasses. What’s so great is that every individual transaction is now rolled up so that you see the total amount you spent in each category for each month, i.e. total “Food: Groceries” in April. Having this information from the past couple of months is a great way to form a budget that you want to stick to for the coming months.

Now, for upcoming months, you can establish a baseline budget of the amount you expect to spend in each category and mark it under the “Budgeted” column. You Need A Budget will automatically calculate the “Remaining” amount that you have left to spend in each category and overall for the month. As each future transaction is registered and categorized, your monthly surplus or deficit is clearly displayed.

Scheduler

The “Scheduler” section of You Need A Budget is a convenient way to lessen the amount of manual entries you have to make. Recurring elements of your budget, i.e. a paycheck, a mortgage payment, car insurance, etc., can be scheduled here so that you don’t have to enter them each time they actually do occur.

Reports

And now for the fun part! You Need A Budget lets you take all of this information that you’ve entered about your spending and income and make some sense of it in pictures: charts and graphs. I thought this section could use some flushing out in terms of more ways to view your data but I think the “Spending by Category” pie chart is awesome. It’s such a great way to see where your money is going each month. The “Total Spending (month-to-month)” is also a great way to see fluctuations in your monthly spending, both overall and by category.

You Need A Budget

You Need A Budget is a great tool for anyone looking to get their finances better organized. Those who are familiar with Microsoft Excel will especially like the familiar format of the “Register” and “Budget” screens.

YNAB will also appeal to those who feel uncomfortable giving a budgeting tool access into their accounts and prefer a program that sits on their desktop. However, because YNAB does not receive a feed from any financial institutions, the process of entering every single transaction can be very manual.

This provides very good encouragement for keeping track of every penny though!  I also found the “Help” menu on the left-hand side of the screen very handy.

Do you use You Need A Budget? How do you like it?

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Money Management Styles

There isn’t one right way to manage a couple’s money. It’s largely dependent on your personalities, how you were brought up, your values, and your expectations about money.

The best way to find out what works for both of you is to have an open discussion about your money, goals, and money management styles, preferably before you get married. Try out your plan, and if it doesn’t work, make adjustments.

1. Joint Finances

This is how Scott and I manage our money. All of our earnings are combined in one account. All of our expenses are paid out of the joint account, and once money comes into our house, there is no division of who it belongs to.

We contribute to retirement plans, benefit packages, and savings by evaluating the best offer. For example, when we were saving over 50% of our salary for retirement, I took almost his entire paycheck and deposited it into his 457 and 403b plans, because they were better options than my 401k I had at work.

Tips for Success:

• Agree on a joint budget.
• Include spending money for each spouse in the budget.
• Determine a threshold, and discuss purchases over that threshold.
• Set joint savings goals.
• If one person manages the money, have regular discussions about the status of the family finances.
• Be open to change if it isn’t working.

2. Yours, Mine, and Ours

There are two different methods if you want to manage your money independently from your spouse, but share the joint household bills.

Even Steven. This is the college roommate style. Deposit your paychecks into separate checking accounts and share the cost of all your bills evenly. You’ll each contribute half to the mortgage, utilities, groceries, and other monthly bills. With the leftover amounts, you can save or spend as individuals on your own interests and hobbies.

Proportional Contribution. This strategy is similar to the even contribution for a couple, but works well for a couple who have vastly different salaries. You each determine what percent of income you bring into the household, and contribute that amount to the household expenses. For example, if one spouse makes $80,000 and the other makes $20,000, you’ll contribute 80% and 20% of the cost of the bills.

Tips for Success:

• To ease bill paying, you may want to calculate a total contribution each month required by both of you for bills and transfer that amount to a joint account.
• You both will need to contribute to savings and an emergency fund each month for the long term.
• Be aware that one of you may be saving all your leftover money, and the other spending it.
• You still need to discuss your long term goals together and plan for retirement.
• At tax time your money will be combined on your tax return; plan for this to avoid frustration.

3. Independent Finances

You can also manage your finances separately without contributing to bills together. And it does work successfully for some couples. I watched my parents practice this method of money management all my life and it works for them. They split their bills into his and hers. For example one spouse may pay for groceries, cable, and insurance and the other spouse pays for gas, clothes, and electricity.

As long as you find a way to divide the responsibilities in a way that makes you both happy, it can work.

Other Impacts

In some cases your money management is largely influenced by where you live or who you work for. For example, we live in a community property state, so all of our income is viewed as 50/50 by law. While it doesn’t matter for your day-to-day money management, it does impact your taxes, and if you ever divorce. It’s something to be aware of if it applies to you.

Another example is working for the military, which is subject to different laws. I don’t pretend to know anything about military laws, but if it applies to you, you may want to check out the Military Finance Network.

Tips for Managing Money with Your Spouse

No matter which strategy you choose, there’s bound to be bumps in the road. When that happens, keep some of these tips in mind.

Cool down. If you have a disagreement about money, try not to discuss it in the heat of the moment. Let some time pass and be prepared to discuss it when you both are calm.

Establish guidelines. Even if you decide to use one of the more independent money management strategies, you’ll still have to discuss money with your spouse. For example, if you have kids, you’ll need to agree on your plans for spending money on them. Setting up guidelines ahead of time, will avoid conflict down the road.

Give credit for good things. When you have a disagreement about money, keep your perspective. I have to admit that 11 months out of the year, my husband is exceptional at managing money. We always discuss large purchases and he tries really hard. It’s probably a challenge for him, since personal finance isn’t an interest. I try to remind myself of this if we ever have a money matter that we don’t agree on.

How do you manage money with your spouse?

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