What Can you do with $1,400 a Month?

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I don’t know about you, but for me, not much. But according to the Social Security Administration, that is approximately the average monthly benefits that retired seniors were receiving as of December of 2016. This highlights the importance of having limited reliance on Social Security income later in life. It is no longer enough to have something to supplement Social Security, but it is looking more and more like Social Security itself is the supplement rather than the main source of income. Currently, we spend a third of that amount in my household for food per month. It is imperative that we plan appropriately if we want to maintain a decent standard of living. We do not have to live lavish lifestyles, while that would be nice, but it would also be rather unfortunate if we worked for 40+ years and ended up living in squalor in our old age.

Although I am relatively young, I place great value in planning for retirement. After all, due to the effects of compounding, time is not only of the essence, time is our friend, so we must start early. The more time we have, the more opportunities there are both for growth and for recovery in the event of a downturn. The time is now to build that solid nest egg. Barring an accident or illness, I have at least another 30 years of work left in me, 31 to be exact. I have been actively saving for retirement since June 2007. That is 41 years of full time work where wise lifestyle choices and prudent investments will come together to ensure that I live the life that I earned throughout my working career. Note that I didn’t say the life that I wanted. Because when it comes to being retired, you don’t get the life you want, you get the life you deserve. As harsh as it sounds, it is our reality.

Different practices both as a result of changes in our political landscape and employers’ decreased willingness to contribute to their employees lifestyle, has drastically modified retirement outcomes. There are fewer and fewer pension options for people who dedicate their lives to serving the public or helping advance companies. Most of our futures now depend on market volatility. Even those with pensions are now beginning to supplement their defined benefits with additional investments in 401ks or 403bs.

I know there is an older segment of our population that reasonably had expectations for a pension since that was the practice at the time. Unfortunately, things started changing later in their careers and they did not have the time to save enough to bridge the unanticipated gap. There are also changing factors like longer life expectancy that plays a significant role in the “nasty surprise” our seniors face when they began to outlive their funds. For example my former roommate actually told me that her grandmother outlived her retirement funds by 14 years. While she may have planned, she didn’t necessary plan to live to be 90 because back when she was in the working world, that was unheard of.

So we’ve identified the problem, but what steps are we taking to make sure we don’t fall victim to a lack of planning? Here’s what I’m doing:

Traditional IRA: I rolled over my 401k into a traditional IRA from a previous job approximately 3 years ago and today I contribute to it monthly.

401k: Unfortunately, this new job no longer offers a match but I can still save pre-tax so I started out by contributing $25 a pay period and increased it gradually until it reached 10% of my income.

Pension: I am eligible for a pension at age 55 if I work at least 10 years and the amount I am eligible to receive increases every year I work past the 10 years. I will most likely work at least the 10 years to ensure that I become eligible.

Real Estate Sales (Today): Selling real estate is a way of boosting my Social Security Income because the Self-Employment Tax that I pay out of my real estate income contributes to my social security payments.

Real Estate Sales (Later): I also plan to continue doing part time real estate sales a few years after I retire from my regular job. This will supplement my retirement income for the first 5-7 years delaying any distributions I will have to take to allow my investments to grow further.

Rental Properties: They are the gift that keep on giving. They don’t require much effort. As I get older, I will probably spend more money to outsource some of the services so I will no longer have to deal with tenants, but by then, my mortgage will be gone and my rents will likely increase so I don’t anticipate a significant drop in my margins.

Reduce Expenses: I will be doing my best to avoid debt, I will consider downsizing to one car, and my living expenses should decrease significantly as the mortgage on our primary residence will be gone.

What are you doing?

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The Case Against Automatic Payments

Saying that you’re against automatic payment in the world of personal finance definitely makes one an outsider. Most personal finance bloggers or advisers will tell their audiences to set up automatic payments. The common argument is that you’re less likely to forget about a bill than your online banking software. If you tell your bank to pay your mortgage every 1st of the month, the bank is not going to forget. However, you can go on vacation or have a bad day and your mortgage is the last thing on your mind when the first rolls around. That is however just one perspective. I’d like to present my own case against why I oppose automatic payments and you should too.

Reviewing your bill. If your arrange your payments like an infomercial oven using the “set it and forget it” technique, you are likely not going to prioritize reviewing your bill. Which means, sneaky little charges that your providers use to nickel and dime you will get past you and that’s exactly what they want. For example, when Comcast decided to start charging me twice as much for some premium channels, I only noticed because I actively pay my bill every month and immediately saw that the total balance was different from what I was paying before. I went over my bill line by line and saw where the extra charges came from. A call to customer service revealed that my previous rate was a promotional rate and my promotion expired the month before. I got a credit for the charges and changed my bill to a new promotion so I wouldn’t have to pay the higher fee. Otherwise, this would have gone unnoticed. Not having automatic payments forces me to look at my bill and makes me remember what a normal payment looks like.

Ghost charges. Subscriptions for small items that we don’t even think about are what I call ghost charges. You don’t even know they are there. The fee is very low and it’s been so long since you’ve used it that you don’t even remember anymore. But like clockwork, $5, 10, or even $20 comes out of your bank account. In my case, I had a Planet Fitness membership for $20/month. I had it for several years but I eventually moved to a town where there was no PF. It took me 2 months to realize that I was still paying that bill. If it was something that I had to actively pay every month, I would have realized that I no longer had any use for the membership that I was still paying for. The same is likely to happen with magazines (does anyone besides doctor’s offices order those still?), subscription boxes, infomercials that will send you refills “for life” etc.

Overdrafts. When you go to pay your bills, you are aware of exactly how much money is in your account. You also know when you are about to be paid. You can set up your bill payments around your anticipated bank balances. I don’t think anyone should be living like that because it means you’re living paycheck to paycheck, but I also live in the real world and understand it’s the reality of many. If there is ever the possibility that you may not have enough money in your account, the $35 overdraft fee is not something you can afford. And even if you do have enough money, there are other risks, like the time one of my payments did not go through because my credit card had been compromised and my bank closed my card without notifying me.

How we use our Employment Benefits to Maximize Every Dollar

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There is more to your job than just your salary. Most people receive some kind of benefit at work. Whether they are non monetary like a flexible schedule or more tangible like an employee discount, we get more from our employers than our paychecks. Here are four valuable benefits that we use (or have used in the past).

401K Match: For 5 years, I worked at a company that offered a 100% match for retirement contribution up to 6% of your salary. From the first day I started working, I made sure to contribute at least the 6% that would get me the 100% company match. Anything less would seem like I am leaving free money behind. I left that firm over 4 years ago and no longer receive a match at my new place of employment. However, my husband does receive a similar benefit (100% match up to 5% of his salary) and we make sure to take advantage of it. So now, when he contributes 10% of his salary, his account is actually receiving a deposit of 15%.

Graduate School: I often discuss my journey to becoming debt free and instrumental in all of that is the elimination of my student loan debt due to the high interest rate. I graduated 2 years ago in May from a program that cost $75K. However my loans were less than $50K thanks to the tuition assistance I received when I first started the MBA program. I did switch jobs in the middle of graduate school, which contributed to the balance of my loan, however, I am $28k closer to completing my payments as a result of being able to benefit from the tuition program early on in my studies.

Cellphone Discount: We have a family plan with 3 lines for smart phones that gives all the users unlimited data and text. If that sounds pricey, it’s because it is. However, my carrier offers an 18% discount to employees of my organization. Every 2-3 years, I recertify my employment by providing a either a scanned copy of my badge, a pay stub or some other form that would indicate I still work there.

BJ’s Wholesale Club: A BJ’s membership costs $50 a year for 2 people. Given the savings opportunities that buying in bulk offers, not to mention the low gas prices, that is already a fantastic deal. However, my husband’s job offers a discount where the membership costs less and is for a longer period of time: $40 for 16 months. Per month, the discounted price is nearly 1/2 the regular advertised price.

How are you maximizing your employee benefits?

I Create my own Sales

While I have a 9-5 where someone else tells me what to do and how to do it, I like to see myself as a “boss” in every other aspect of my life. I make my own schedule with my real estate work, I set my own prices for my rental properties, I determine what stocks I want to invest in, and sometimes, I create my own sales. I can’t always wait for a retailer to decide they want to unload a product. And while I’m at the prime of my life, I am past the stage of my life where it is acceptable for me to get trampled at black Friday sales. Yet, I refuse to pay full price for anything. So how do I reconcile the two? Here’s a story…

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My husband is an Oakley fan. I don’t know if he was always partial to their sunglasses or if it’s a by-product of his military service, but Oakleys are to him what Hondas are to me: when it’s time to upgrade, you just get a better model of the exact same make and style. So when the lenses of his sunglasses were scratched beyond recognition after 3-4 years of use, we went on the hunt for a pair of lenses (since the glasses are custom built, you can just replace whatever parts are damaged without purchasing a new pair). Unfortunately, the model that he has was no longer manufactured by the company and thus, parts were not available. They had a 2.0 version that was very similar but the newer parts were too big to fit into the old glasses.

I don’t know if most people know this but Oakley offers a trade-in program where you give them your old pair and they give you 25% off any new pair you purchase. So he built a new pair of sunglasses that are very similar to the ones he wished to replaced, albeit a little bit bigger, and the total price came out to $200. With the trade-in discount of 25% off, we got $50 off the price for a total $150. We then charged that $150 to our American Express card which had a $30 cash back for Oakley in the form of a statement credit. That statement credit hit almost immediately (I got a phone alert that it had been processed as soon as the transaction posted), so we ended up paying a total of $120 for a pair of $200 sunglasses, and to top it all off, we got 150 rewards points towards our points balance that we will use as we see fit going forward. Just in case you were not keeping up with the math, that’s the equivalent of 40% off. We did not have to wait in line or get pepper sprayed like Walmart unruly shoppers.

Nothing we wanted at the store was on sale, but we got a great deal anyway because every decision we make and every time we pull out our wallet, it’s a very deliberate move. There are no impulse buys or last minute decisions. Everything is well-planned.  Do you ever hear the phrase: “If you fail to plan, you plan to fail?” It’s not just a cliche.

Loyalty: How We Treat Ourselves for Less

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One of the most common overspending traps that we fall into is the idea that we deserve that (expensive) purse, that (overpriced) gadget, or that trip to Hawaii. While that is a slippery slope to getting off track financially, we should still seek to have balance in our lives. Budgeting can quickly become a chore if we find ourselves giving it all up without receiving anything in return. That’s why it’s important to treat ourselves. But what is the best way to do it?

In our case, we make it a point to maximize our loyalty rewards program. We find a service provider we are happy with in a couple of categories and study their rewards program to see how we could best benefit. In our case, we have the trifecta of travel. My husband is an avid traveler. Personally, I’m not a fan of airplanes so my fear of flying often overrides my curiosity to see the world. However, we find the balance between satisfying his wanderlust and my desire for firm ground. Even with moderation, travel still remains our most expensive hobby. As a result, we have found creative ways to manage costs.

Flights: We stick with one airline as much as possible. That allows us to rack up miles and a certain number of trips in order to gain a certain status with the airlines. We also have the option of buying tickets with our miles or transferring them to partner loyalty programs. We have racked up thousands of miles with JetBlue and are saving them towards a future trip.

Lodging: Although we spend very little time there, a hotel is one of the most important part of any trip. Not only is it the most expensive, but it is a matter of comfort. We are fans of everything Marriott. They aren’t always the cheapest but as Gold members two years running, we enjoy having high speed internet at no additional charge, early check in, late checkout, bonus points towards future stays, complementary breakfast, welcome snack, discounted rates etc. We also like the general consistency that the brand provides all over the world. Sure, we have gone to Marriott brands or properties where the rooms have been smaller, but the service has always been impeccable and there have been no concerns about the cleanliness. And since both my husband and I travel for work, we make sure that we earn points with every business trip by staying at Marriott properties; points we use to subsidize our pleasure trips.

Credit Card: As American Express members who use the Premier Gold Rewards card, we benefit from no foreign fees on overseas purchases and can take advantage of statement credits ($75) for certain hotel spending and in-flight purchases and checked baggage ($100) that all but wipe away the $195 annual fee. That is in addition to bonus points in certain spending category. Using our AmEx for every purchase allows us to earn points an accelerated pace that we can later redeem for statement credits to offset our spending or AmEx gift cards.

This combination of loyalty programs, including our willingness to actively bargain hut, has been our ticket to cheap travel.

Have you thought about how you can treat yourself for less?

Your 7-Day Guide to Financial Discipline

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While you can’t strike it rich in 7 days, you certainly can organize your life enough in 7 easy steps (1 per day) to improve your financial management skills.

Monday: Maximize your retirement contributions, either to the maximum amount you can afford or to the IRS limit. If you have not yet started contributing, do at least the minimum that will get you a company match.

Tuesday: Create a budget. Budgeting is the building block of financial freedom. Start based on the new amount you will have left over in your paycheck after you’ve changed your retirement contributions.

Wednesday: From your budget, you will of course categorize a portion of your income as savings. Set up an automatic transfer that will happen around the same time every month. Saving in autopilot mode is the least painful way to set money aside because you don’t have to think about it.

Thursday: Set calendar alerts of all your upcoming bills. Nothing is more damaging to your finances like late or missed payments. They negatively affect your credit score reducing your chances of getting the most favorable rates and you face the potential of late fees that will chip away at money that you need to hold on to. Having your alerts pop up a day or 2 in advance if you’re paying electronically or a week in advance if you’re paying by check, will make sure you stay on top of everything you owe.

Friday: Clip coupons and know your cash back opportunities. I am not a fan of processed foods so I cannot always escape a high grocery bill. However, even fruits, vegetables and certain grains go on sale, particularly if they are in season. Familiarize yourself with the circulars throughout the week and clip some coupons. It will help you stay organized and maximize your savings.

Saturday: Set some goals for the upcoming week. Having specific goals gives us something to strive for and motivates us to improve on our previous efforts. Whether you want to start small by saying you will make coffee at home every day for the upcoming week to save money, or you decide on something more long term like paying off your credit card debt, setting goals will keep you motivated.

Sunday: Meal prep for the week. The markup on prepared foods is brutal. If you eat out regularly, you will hate yourself when you see how much it costs you monthly or even annually. The easiest way to avoid temptation so you can resist the convenience of prepared foods is through advance preparation. While you may either run out of food or get sick of eating the same thing, bringing lunch 3-4 days a week will still yield a better outcome than buying lunch 5 days in a row.

Adulting 101: Big Girl Money

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Adulting is hard. It’s even harder for the millennials who came of age during or after the Great Recession. It certainly doesn’t help that financial literacy has always lacked in our society. So I decided to put together a list of 10 things you can do to manage your personal finances like a grown up.

1. Have a budget to help you keep tabs on money.

2. Set specific and realistic financial goals to make sure that you not only have something to look forward to but that you also stick with it.

3. Find a money role model who will give you something to strive for. S/he will make you realize that it is possible to get yourself out of debt, they can keep you accountable and they are a much better influence than your friend who says: “YOLO!”

4. Practice the art of ‘No’. Establishing boundaries protects your wallet as much as your sanity. Girls trip to Bali? Matching designer duds for the bachelorette week end? Expensive steak dinner after work? If you can’t afford it, say no & stay firm.

5. Don’t overspend. It sounds simple but if it were that easy, studies results wouldn’t show that 1/2 of all Americans are struggling financially. There’s no greater sign of maturity than exercising self control & being able to delay gratification.

6. Save, save, save. Emergency funds, retirement, short & long term goals. Save for all of them. Saving will prevent you from spiraling out of control under a mountain of debt.

7. Monitor your credit. There should never be surprises when it comes to your finances. Maybe except for pleasant ones like being ahead of your savings schedule or inheritance from a rich long lost cousin. You don’t want to find out long after you’ve started the process that your mortgage has been denied or after your clunker breaks down that you don’t qualify for a car loan. You should show up for credit applications equipped with enough information to negotiate from a position of power.

8. Be properly insured. When I landed in the hospital in late 2009, I couldn’t have imagined my life would change the way it did. In fact, I did 2-hour street parking outside of the hospital. I ended up leaving 4 weeks later & a month after that, I got $50,000 bill. All but $150 was covered by insurance. As a seemingly healthy 23 year old, I could have passed on coverage to save myself the $250 a month I was paying. Instead, I decided I needed to be properly covered like the adult that  I was & that decision saved me from financial disaster.

9. Start learning investment basics. You cannot save your way to wealth. You can only earn your way to wealth either through wages, investments or some combination of both. You don’t have to become an expert stock picker, but you should learn the difference between some key concepts like 401k v. IRA, stocks, bonds & mutual funds, associated fees & tax implications of different investment types, etc.

10. Track your net worth. Your net worth is a measure of your financial progress. It is also a motivating & financial management tool & that is why I began actively tracking my net worth late last year.