When 2014 began, I had no idea what this year would have in store for me. Just like many other people, I made a New Year's Resolution; I wanted to get my finances under control! More specifically, I wanted to figure out a plan to get my student loans paid off sooner rather than later. When I came across the opportunity to apply for Project Money, I knew this challenge was something I wanted to be a part of. Now, just a few days shy of the end of the challenge, I can confidently say that I've succeeded in my resolution- I've significantly changed my spending and savings habits and am well on my way to being debt free. Here are some of the most important lessons I've learned over the past seven months:
Review your budget every month: Since I get paid on a monthly basis, I analyze my budget at the start of each month so that I can anticipate how I will use each dollar. At first, it was a daunting task, but it's become easier with each passing month. It's also been helpful to estimate my annual spending in certain areas, like car and animal expenses, so that I can set aside a specific amount each month in anticipation of future needs. In fact, I've set up five different savings accounts and two checking accounts (one for bills and one for monthly expenses); it's amazing to see how quickly your savings can grow when you set aside a little bit each month and are careful about how you spend this money.
Look at the big picture and then take small steps towards your goals: When I first began this challenge, I wanted to try to make a dent on my student loans. However, my coach Adam was able to help me see that it was more important to establish an emergency savings and focus on eliminating my credit card debt first. Since the start of this competition, Adam and I estimate that I've paid off nearly $10K in debt, about $8K of which was credit card debt. This leaves me with only $3K of one credit card balance left to pay off, which has 0% interest until July, so I'll just be paying it off in equal increments until then. This will then allow me to focus on increasing my student loan payments, so that my original goal can be attained.
Find great deals: Many of my blogs these past few months have focused on the great deals I've found. Now that I've established a more firm budget and learned ways to cut costs, I don't think that my spending habits will be changing that much (although there are a few things on my "to buy" list that I've been waiting to purchase). I will continue to be a bargain hunter and scope out great deals!
Learn to say no: This has been of the most difficult things to do over the past seven months! I've always tried to be frugal, but I've had to say "no" a lot more during this competition to purchasing non-essentials, going out to eat, or spending money on entertainment. Instead, I've tried to be creative and find free or less expensive alternatives.
Surround yourself with cheerleaders: Of course, the previous lesson was also made easier by having great family, friends, and coworkers who understand why I'm making the choices I am. I have been so fortunate to be surrounded by cheerleaders who have supported me throughout this challenge! THANK YOU! A big "thank you" also to my coach, Adam, and all the individuals at Summit Credit Union that have supported me and the other teams!
As I was driving to my parent’s this weekend, I passed a company who had a sign displayed with the message, “kindness begets kindness.” This message ended up ringing so true this weekend and I wanted to share it with you.
Yes, money is important; there’s no denying that fact. These last few months have challenged me to focus on my budget, financial goals, spending habits, and strategies for eliminating debt. But our relationships and kindness shown towards others is what matters most.
On Saturday afternoon, I received a phone call from a friend who had just gotten some devastating news and needed someone to be with her. Without hesitation, I left my parent’s and drove to spend time with her. Yes, it required me spending a lot more on gas this weekend than expected. And, yes, we ended up going out to dinner to get out of the house and focus on something else. But, was it worth it? Absolutely. I care more about her than $50.
Aside from this event, this past week has been very joyful and required almost no spending (aside from some groceries). My friends and I had a Sunday Night Dinner, where we each brought a small dish and spent the evening enjoying good food and each other’s company. I mentioned last week that I received $30 in Kohl’s cash for an issue that occurred and I was able to use them to “purchase” a holiday dress for $1.65. Tomorrow, I am fortunate enough to have the day off and I’ll be taking my cat in for grooming (he gets a haircut twice a year); every sixth groom is free and tomorrow is his sixth! And, next weekend, I am coordinating a volunteer event at a local homeless shelter; my goal this week is to figure out a low-cost craft to share with the residents.
As I mentioned in my blog last week, I was not very good about my budget last month. This is mostly attributed to one thing: the temptation of early holiday shopping deals for both necessary and unnecessary purchases. I wanted to spend this blog discussing what I see as the pros and cons of online shopping.
Pro: Convenience and Efficiency of Purchases- I purchased the majority of my holiday gifts on a Saturday morning, all from the convenience of my couch. It helped that I made a list (and checked it twice) for each of my family members, so I knew what I was looking for.
For a few gifts, it required a little bit of research to decide which version/brand/model/etc. I wanted to purchase. But, in total, I only spent about four hours shopping, including this research. To do this in the non-virtual world, it would take many more hours of travel and standing in lines to accomplish this same set of purchases.
Con: Inconvenience and Inefficiency of Returns- Although purchases are convenient, returns aren't so, no matter how much a website might advertise "hassle-free returns." I recommend everyone read the fine print of the return policy, especially when purchasing holiday gifts.
Many have a short return period, thereby possibly eliminating the ability of the gift-recipient to return the gift if it's the wrong size/color/etc. And, even if a company allows "easy" returns, they may charge a restocking fee, charge for return shipping, or require you to pay for return shipping out of pocket. I recently made this mistake; I bought a pair of boots online and had to pay nearly $10 for return shipping when the boots didn't fit me. This was about 1/3 of the cost of the boots in the first place! So, while they would have been a good deal had they fit, I ultimately paid $10 just to try them on!
Pro: Excellent Discounts and Incentives- There's no denying that there are some excellent discounts that can be had when shopping online. While I may have exceeded my November budget, I actually have not exceeded my overall holiday spending budget for gifts.
In fact, I will likely come well under the amount I budgeted. I knew early on what I wanted to get for many people in my family and I have been watching prices. I also bought a number of gifts from Kohl's on Black Friday, which not only resulted in good prices on those items, but also $30 in Kohl's cash , which I used on two additional gifts a few days later. (On a side note, I went to exchange an item today and the manager had such difficulty with figuring out how the handle the exchange that she gave me an additional $30 in Kohl's Cash for the hassle!)
Con: Discounts and Incentives to Make Unplanned Purchases- Unfortunately, this is where I am my weakest- succumbing to deals that are "too good to pass up" or making purchases to meet a spending minimum (i.e. "Get free shipping if you spend $50!") I've been wanting a new pair of boots, but had decided to wait until next year to buy them.
But, last month, I came across too many "good deals." I spent about $110 to purchase three different pairs (with the intention of keeping only one). In the end, I didn't keep any of the pairs- all were ill-fitting- and I ended up having to spend gas money to take them back to the post office and, as mentioned previously, $10 in shipping for one particular pair where shipping wasn't included (I didn't realize this until after the purchase).
My suggestion to reduce unplanned purchases is to keep a want vs. need list on your phone or computer. This way, you can watch for price drops on more expensive items and also delay gratification, since you may realize after a while that something you "really wanted" isn't something you're interested in any longer. I also include smaller items on the list that need to be purchased regularly (like filters or pet food), similar to a grocery shopping list. Then, when I need an additional item to receive free shipping, I add something from this list so that I am not tempted to make unnecessary purchases.
Back in July, I wrote a blog about how I had become a foster mom for dogs. Between then and then end of October, I fostered 11 pups and helped my parents find one to adopt, making it 12 puppy lives saved in about four months. I had to stop fostering once the cold weather arrived because I have Reynaud's Disease (basically bad circulation in my hands) and can't be outside for very long. While I still walk to work, I can't take the pups on a walk, therefore ending my fostering abilities for the time being.
Anyway, in that blog, a response was posted about the hidden costs of fostering. And, I hate to admit it, but they were right. While I incurred relatively few expenses during that time, after I was done fostering, I really missed having a dog around and therein lies the expense… I decided to start looking for a dog of my own. I decided to look for special needs dogs that I could work with indoors over the winter. I received a call a few weeks ago from a rescue that had an unsocialized puppy and, after meeting him, I decided to adopt him. Meet Bodey!
The last four weeks have been quite a challenge; he's extremely scared of people and only within the last two weeks has he begun to approach me on his own and play. He's not leash trained (which is some ways is perfect because it means we can't take walks) so my dad and I have built a pen in my backyard to let him use the bathroom. It's also been more of a challenge than I expected financially. I fully expected there to be some expenses to come along a new pet (food, supplies, and vet); I estimated about $100 for food/supplies and $200 to cover initial vet expenses. As it turned out, Bodey had very little veterinary care prior to my adopting him, so he needed everything: all shots/vaccines, neuter, micro-chip, etc. His first vet bill came to just about $150, which my parents covered as a Christmas present (thank you, Mom and Dad!). I was able to purchase a discounted neuter and rabies vaccine through Elmbrook Humane Society ($140), as well as puppy classes for $50. So, when I took Bodey in to get neutered on Tuesday, I thought the appointment wouldn't cost anything more. As it turned out, I left with an additional bill of $129.55 because he needed a microchip, an ear culture, and medication. Ugh.
I love this pup to bits already, but this definitely was a much more expensive endeavor than expected. In fact, it's been a much more expensive month than expected and I totally blew my monthly budget by purchasing holiday gifts early and succumbing to some online shopping temptations (more on that next week!) My goal is to try to minimize my expenses for December to "finish" this challenge as strongly as possible. (I use quotes because it's not as though the lessons and goals I've made over the last seven months will end… I fully intend to achieve the goals I set out to accomplish!)
Exciting News #1: I paid off one of my credit cards this week! This was a Lumber Liquidators card that I used to purchase my basement flooring last year for 0% financing. While it wasn't accumulating interest, it is nice to say "bye-bye" to this debt and snowball payments to my next one. This leaves just my car loan (which I took out to pay off a high interest Chase credit card) and my Discover card balance!
Exciting News #2: Adam and I calculated that with my last paycheck of the year and the money I'll be earning from tutoring before the end of the year, I should also be able to pay off my entire car loan ($1935). So, this really leaves only my Discover balance at the end of the competition!
Exciting News #3: I have 0% interest until June on $2800 of the Discover card balance and 0% interest until December on the other $900, which means if I pay $400 a month, I can have the entire card paid off by August! Then, I get to snowball all these payments towards my school loans.
Exciting News #4: I have a new roommate, so this means I'll have rent income again! It's so exciting to see the light at the end of the tunnel. When I began the Project Money challenge, I thought I had 14 years left of student loan payments; now, I'll likely be able to pay it off within 3-5 years (depending on how much I throw towards it each month). I'm also feeling so much more financially secure in terms of my savings and how I budget my money. Thank you Summit Credit Union for giving me this opportunity!
When I began Project Money in June, my coach Adam encouraged me to think about ways to increase my income. While I was open to having rummage sales or selling some of my extraneous items collecting dust in my basement, I was adamant that I did not want to take on a second job. In the fall, my work schedule increases and I have two classes to teach. I had two major reason for this: first, I didn't want to over-extend my time and commitments. Second, I didn't want to get used to an increased income. I believe we learn to live into our income, so I didn't want to get used to a temporary increase and then struggle when my income went back to its normal level.
That being said, two weeks ago, I was asked to tutor a few nights a week at a local boarding school; despite my adamancy about a second job, I decided this opportunity was too good to pass up. Not only will I be able to work with students in a different capacity than I do on a day-to-day basis, but I get to dust off my math skills (I was a math major in college). This opportunity will bring a substantial increase to my weekly income, so I immediately began pondering how I will handle this change in finances.
The pondering was relatively short lived, since the decision was relatively easy: I've decided to save 100% of it. My goal is to be able to max out my Roth-IRA contributions for 2014. I also don't want to succumb to temptation and spend any of it or change my budget. I've been doing really well with my current budget and I want to continue with this pattern of saving and debt-elimination. This new opportunity just allows me to save even more!
Anyone who's seen my house knows that I like to decorate, but also like do so as cheaply as possible. When considering what I wanted to focus on in my 6th Project Money video blog, I looked around my house and realized the answer, literally, surrounded me. While I have a few pieces that were more expensive and have invested in some higher quality bedroom furniture, most of my decorations and furniture are hand-me-downs that I've received from family or items that I've purchased at resale shops or rummages. I like to think of them as diamonds in the rough! After a little TLC, such as cleaning, staining, or painting, many of these items look brand new!
Pinterest.com is a great website to get ideas; I also love Houzz.com. I've also mentioned in a previous blog that I am a member of a number of local Facebook rummage pages. While I haven't purchased any furniture yet off these sites, I do get ideas from some of the postings and you can get some very affordable pieces that can be refinished.
This week is a final blog about "things I wished I had known" (or wish my students knew) about repaying their loans after college.
You have a six-month grace period and then must begin repaying your loans. Obviously, this time is intended for securing employment and establishing your financial bearings. Use this time wisely to also begin setting up an emergency fund to have as a back-up for paying your loans.
You must complete exit loan counseling, but try to actually speak with someone to decide which repayment plan is best for you. I completed the exit loan counseling on my own, but I wish I had discussed my options in person or over the phone with someone. You need to identify which repayment plan you can afford, but also make sure you are selecting the correct repayment time-period you desire. I'll explain more in the last paragraph of this blog, but I did not select a repayment time-period and it defaulted to 20 years; little did I know that I was supposed to have selected a 10-year repayment plan.
Consolidate, if possible. If you have multiple loans at different interest rates, compare the total costs of repaying the loans separately versus paying them under consolidation. Consolidation can also lower a higher interest rate (although, alternatively, it can also raise low interest rates). So, check out all your options.
Sign up for automatic payments. In most cases, if you sign up for automatic payments, you will qualify for 0.25% reduction of your interest rate.
If you are experiencing financial hardship, there are deferments and other forbearance options available. So, please explore these options rather than letting debt pile up which can lead to your loans going to collections agencies or having your wages garnished.
If you are trying to take advantage of a special program, make sure to read all the fine print. This was the hardest lesson learned by me. When I came out of undergraduate, I had a Perkins Loan that could be forgiven for teaching in an under-served area. I knew the rules quite well: it had to remain separate from the consolidation and I need to send in my documentation after every academic year of teaching. After graduate school, I knew I was eligible for public-service loan forgiveness and I began (so I thought) working towards having my loans fully forgiven. Last year, I called to inquire about my status and was told that my loan didn't qualify for the program- SAY WHAT??? I had been paying regularly for six years and thought I was four years away from loan forgiveness. As it turned out, I hadn't known about the "fine print" in which you could not accept the default time frame when consolidating, but rather needed to call and tell them to change it to 10 years. Therefore, while this program is technically still available to me, I will actually have the loan paid off prior to the expiration of the new 10-year time period (they would start "the count" over again). This was devastating news to me!
Lesson Learned: Read the fine print and ask A LOT of questions!
I'm taking a break from talking about student loans and finances this week to share with everyone about my struggles lately. I'm hitting "that" point in this competition when I'm beginning to wane in my motivation. I think I've been very, very good about curbing my spending habits and trying to live on a strict budget. But, there usually comes a breaking point and I hit it this week.
It started when I went out to get a gift for a friend. While shopping at TJ Maxx, my love for boots began to pull me from my primary purpose (buying something for someone else) to "just looking" for items for me. I was able to leave without making a purchase for myself, but all week long I fought the temptation to return for a pair of boots I had found. A few days later, I was out to dinner with some girlfriends, and they convinced me that $50 was not going to end the competition for me, plus I "had earned it" for not having bought any clothing or shoes since June. I was an easy sell. That evening, I returned to TJ Maxx to buy the boots I had wanted. However, once I had them in hand, two other items caught my eye: a jacket and a top. The temptation bug was biting hard. Ultimately, I decided to play the spending "trick" my parents used to use on us when we wanted multiple items: "Ok, Katie, I'm allowing you to spend $50 on something new and that's all you're allowed What do you want more? The boots or the jacket and top?" And so I bought the jacket and top. I figure I can wear my current boots for a while long and, while they probably won't last the entire winter, they'll at least last a few more months (whereas I don't know if I'd ever come across a similar jacket and top).
1. Sometimes you need to reward yourself to encourage motivation. This is something I always tell my students about studying: don't be afraid to take a break and give yourself a little bit of a reward.
2. Beware of letting the "reward" mentality get the best of you. It's easy to say, "oh, I deserve this" and rationalize away a purchase. But, if we say this to ourselves all the time, it can really be damaging to our spending habits. And, let's be honest, we really don't ever "deserve" something; this is a "first-world" mentality that we've convinced ourselves of to rationalize our culture's obsession with materialism.
3. When you decide to splurge, set a limit and stay within that limit. Just like above, it can be easy to rationalize away an over-budget purchase. But, if we do that too often, a lot of over-budget purchases put us back into debt or break the good habits we've established.
After writing my last blog, I realized that I still hadn't covered all of my suggestions for financial management DURING college (or graduate school):
1. Live within your means. It can be difficult to transition from high school (where much of your money is disposable income) to college (where you need to live within a budget). As I mentioned last week, financial aid shouldn't be seen as "free money." When it is considered such, students can fall into the same pattern that people with credit card debt do: it's easy to spend money if it seems "free" or "not real." Therefore, it's easy to get into bad money habits- making daily Starbucks stops, renting a more expensive apartment than you need, buying new clothes more often than necessary to stay in style, etc. College is a time to start good financial habits as an adult, so do it!
2. Know the realities of loans. Last week, I talked about interest and how it accrues and gets added to the principle. The other reality is that loans must be paid back. Perhaps this sounds obvious, buy many students don't realize that if they do not graduate or decide to "take a break" from school, they get a six month grace period but then have to start paying back the loans. This can come as a big surprise; many believe that they don't need to pay them back if they don't get their degree. NOT TRUE! If you bought a new car with a car loan and then crashed it a year later, you'd still be responsible for paying back the car, right? The same goes for school- you still owe for the money you borrowed!
3. Know the realities of your EFC (Estimated Family Contribution). If you are receiving grants, it's important to think about how your income will affect your eligibility for grant aid. Sometimes, students think that it's best to work a lot during college to raise their income after high school. While I support working, I caution students to not work too much. First, I want you to be able to focus on school and do well. Second, if you make too much, you can bump yourself out of grant eligibility because your income is calculated into your next FAFSA and can raise your EFC. A student was recently told by a family friend that he should stop going to school after he receives his associate degree (before going on for his bachelor's degree) and work a lot for a year or two and save up money for his bachelor's degree. What the person didn't realize was a) this student was eligible grant aid and if he saved up enough money to pay for his entire bachelor's degree, he would not qualify for grant aid and b) that he would need to begin paying back his loan aid (which was subsidized) after his six month grace period. In this student's financial situation, it would be best for him to continue straight through his bachelor's degree and not take his friend's advice.
4. If you're experiencing financial difficulty, ask questions. You may be surprised to learn there are "un-advertised loopholes." For instance, you may be able to ask for a book deferment, which allows for early disbursement of financial aid funds to buy your books. If you're commuting a certain amount of miles, you can request a mileage adjustment to be added to the estimated cost of your school expenses (which affects how much financial aid you receive). If your family experiences a job loss or medical expenses, there are forms you can fill out to show how these changes affect your EFC (even if last year's taxes don't reflect the same information on your FAFSA).
5. YOU are responsible for your financial aid. As an academic advisor, I hear students say all the time, when referencing financial aid, FAFSA, or tuition payments, "oh, I don't know anything about that. My parent's take care of it." While, yes, parental information is usually needed to process the FAFSA, financial aid and tuition information normally falls under FERPA (Family Education Rights and Privacy Act) law and therefore, parents do not have access to that information. Many students get fines for not paying their tuition on time or do not get their financial aid processed because all the information is sent to them (the student) in their email or is housed in their student online account (neither of which parents have access to). It's important for students and parents to establish good communication regarding college finances and for students to recognize that all things related to financial aid is actually THEIR responsibility, not their parent's.