Monday, November 30, 2009

Holidays and Gifts

Holidays are tough times for saving. Not only you spend money on gifts but you celebrate with loved ones by going out to eat or do something (most of which cost some money). I have a big family and I would love to get everyone something nice. Am I stretching my budget too thin by buying them all expensive gifts?

While writing last sentence, I realized that something “nice” does not have to be something “expensive” (however, many nice things are indeed expensive). This year, I need to overhaul of my gift giving method. First, I have to go with mindset of getting something “nice”, which I will define later, instead of something “expensive” or around exact value to my allocated budget. By something “nice”, I meant that I have to give what people really “want” rather than what I want for them or what I think they need. So this year, I am giving something that my loved ones really want. Isn’t gifting a wonderful opportunity to give that yogurt maker to someone who wants it but otherwise would never buy it himself?

Monday, November 16, 2009

Money and Eating Out

I love food and enjoy eating out in nice restaurants with friends. Recently, I analyzed my past two years expenses to find reasons that got me into nearly $30,000 in debt (see post how I got myself in debt). I realized that I was spending too much with my credit cards for eat in nice restaurants. A decent meal and drinks worth $30-60 does not seem much but they slowly add up. Eating just two decent meals like that each week (Friday and Saturday nights)  adds up to $5,200 a year (2 x 52 weeks x $ 50). However, I  don't want to give up eating out completely - it's one of the joys of my life. What can I do?

It has been scientifically proven, known as tragedy of the commons, that people in group misuse the common asset even if in a long term they end up paying more. If we equally share the check in a restaurant, usually everyone in the group will order more, thus increasing the price of meal. Also, in a large groups, there will always be someone who orders the expensive meal. Sharing cost equally with credit cards is easy, you ask server to split cost equally. My recommendation is not to use credit card and pay for what you eat with cash. While paying don't forget to add taxes, tip and cost for shared items such as appetizers.  Using cash, instead of a credit card, would be helpful when putting down the exact change. Paying by cash also also makes you realize the actual cost of the meal, which is often distorted in your head if you use the plastic. Sometimes people feel socially awkward when it comes time to share cost of the meal. It's not difficult to politely mention, this is what I owe and pay your fair share. To be polite, rather always pay a dollar or more extra, if needed. Don't jeopardize relationship for a few dollars. Recently, I have been paying my share of exactly what I eat in cash and it works great. I don't order extra and am more conservative while spending money on restaurants.

Photo: Meal in Columbia Restaurant, the oldest Spanish restaurant in the United States, Ybor City, Tampa, Florida.

Tuesday, November 10, 2009

My Debt Roundup - November 2009

This month, I managed to lower my debt by mere $524 to $23,890. With this pace, my earlier estimate of being debtfree by December 2010 is moved back 2 and half years to the summer of 2013. This new estimate also assumes that I keep the same spending habits and my net income doesn't change drastically. So, what did I do wrong this month? First, I went for a major grocery shopping at the local Costco (see what to buy and what not to buy at Costco) and other local store breaking my more than a month and half long sabbatical from grocery shopping. I also bought a dresser to organize my clothes. In addition to that, I went out to eat 3 or 4 times and went out to two birthday parties.

This month's low debt repayment teaches me that it's very easy to stray away from a disciplined financial path. In my mind, I didn't buy anything major or made any stupid financial moves. Still my debt payment was a third of what my last two payments. Being debtfree process seems somewhat like dieting, you need the dedication all the time. You may not binge eat or eat unhealthy at fast food joints, but snacking here and there adds up and ultimately ruins your diet.

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Monday, November 2, 2009

Feeling broke is good

Last month, I did two things that I haven't done for a while. I paid off one my credit cards (Yeah!) and by doing so put my bank balance to nearly zero. Before, even with a huge debt, I left certain amount in my bank account as a safety net. The basic rational for this emergency fund (or balance) was to have enough cash on hand for emergencies. Financial experts recommend emergency fund to avoid more credit card debt or payday loan. However, by leaving a certain amount in your bank, you don't feel broke and consequently lose a sense of urgency to repay your debts. 

This month, having a few dollars in my bank account reminded me of my financial situation at times when I wanted to splurge for a latte or buy that DSLR camera. I did have certain credit limit left on my bank account for real emergencies. But by looking at my bank account, I did not want to use it for things I don't desperately need. In my view, setting up emergency fund without paying your debt is bad in two aspects. First, you are paying extra interest in your debt and more importantly, not feeling broke decreases your drive to be financially responsible. Emergency fund is great idea (and highly recommended) for people who have debts payed off and are in saving mode but for with big debt, it may be counter productive (It was for me).