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Monday, 21 October 2013

Elder Money Part 1 – Conserving What You Have

UPDATE 8AM: Okay, apparently from the early comments, I was monumentally unclear in this post. It's beyond minor mistake - it's total screw up. A mess.

If I have explained it any better in this short update, it would be nice if anyone else who comments today could stay on this topic. It helps me later - and therefore many other people - to find the information they want if it vaguely matches the headline.

Sorry to have been such a dunce at clarity.


Last week we had a lively discussion about Elders and Their Money, how most old people – indeed, most people of every age – don't have money to risk on investing.

Investing is exactly like gambling and just like casinos, the markets are rigged in favor of insiders - in business and government - not just on the level of returns, but also on the tax end. So it is not for people like me and the majority of elders who cannot afford lose any money.

If anyone reading that last paragraph wants to refute it, go somewhere else to do that. If you are not an insider and have done well with investing, it is far more likely your success is weighted on the side of luck than smarts and luck is not a useful financial strategy.

Today – and one or more days following – we will be more practical here. On that money post last week, TGB reader Jim Harris who blogs at Auxiliary Memory left this comment:

”I'd like to hear advice on cutting costs, living cheap, enjoying free stuff and making do with what we got. I start my retired life next Wednesday.”

Congratulations, Jim, on your retirement and what a good idea – to crowdsource our knowledge of frugality.

Like the majority of elders, I live on much less money than when I was working. The total - Social Security and a small amount of other income – is almost exactly one-fifth of what I was earning during the last few years before my forced retirement nearly a decade ago.

That means I have a lot of practice now at living within dramatically reduced means without scrambling to get by and not feeling deprived. That last part is important to me as I don't want to spend my final years constantly thinking about money – although I am careful. So a plan is needed.

Over these ten years, I have taken what I learned from money mistakes and 50 years of frequent fluctuations in my income together with the best of what other people – experts and ordinary folks - advise and have adapted it all to what works for me.

So you will get that information plus, from past discussions of this sort, I know TGB readers are smart, practical people who have a lot of advice to pass on too.

In reverse, remember that not every idea works for every person so take what you like and leave the rest.

As I was making notes before writing, I discovered that this is a huge topic so I'll spread it over two or three days and please – please stay on topic each day so that my information and yours is organized and easy to find again later.

We will consider not the big issues of down-sizing one's home or moving house or mortgages, etc. Instead, this is about day-to-day living – reducing costs, saving, spending and making do. We start with conservation of funds.

BUDGET
If you don't have a budget – that is, if you do not know what your fixed monthly expenses are compared to your total income - make one now or you might as well stop reading. None of the rest of this will be useful without a budget.

Don't forget to include in your budget annual expenses such as insurance and property taxes and work out how much you need to set aside each month to have the cash to pay them when they are due.

You can save some money here by paying taxes, insurance and, sometimes, even Medicare Part D premiums annually rather than semi-annually, quarterly or monthly.

For example, I get a three percent discount on property taxes for paying in full each year. If I did not pay my auto and homeowners insurance in full, I would be charged between $24 and $60 above the premium for choosing installments.

Be sure to include in your budget any automatic deductions from your checking account and/or automatic charges to your credit cards.

Generally, I don't like checking account deductions because it makes disputing charges more difficult if that should become necessary. But I get a $24/year discount on my Medicare Supplemental (Medigap) policy by allowing that deduction and I am unlikely to need to challenge that insurer.

I keep automatic, monthly charges to a credit card as low as possible. Currently those are Netflix's streaming service, a newspaper and the company that supplies my blog statistics.

The list of fixed expenses lets you know how much money remains for other necessities and extras. (On another day we'll discuss how some other fixed expenses might be reduced.)

HANDLING MONEY
Some of this stuff I'm including today seems simplistic but it is amazing how many people I've come across who don't know or haven't thought about it and who get by only hoping everything comes out even at the end of the month.

Everyone's different, but I would be terrified to live that way especially because there is no one for me to fall back on if I run into financial trouble; I know I'm not alone in that.

If you have credit card or other revolving debt, make a plan now to pay it off and stick with the plan until you have done so.

Pay all bills on time and in full. That way you don't get dinged with interest or carrying charges.

Pay credit cards in full every month. That means don't charge more than you can pay off each month.

I use my main credit card mostly for online purchases and a few other conveniences such as gas for the car. Everything else, I pay cash.

Pay cash whenever possible. Okay, this doesn't work for everyone but it does for me. Here's why.

Every two weeks I withdraw the amount of cash I have determined I can spend over that period of time for food, household and personal items, cat food and litter, entertainment, etc. It works because I can always see how much money is in my wallet and loosen or tighten the purse strings depending on that.

Many people use debit cards for these daily expenditures but I determined a long time ago that I could not track what I was spending and too often overspent.

Use a cash back credit card. Or whatever reward system you like – it's free money. I buy a lot of different kinds of items from Amazon so my card of choice gives me points to use at that website. Just yesterday, I reduced a $26 purchase to less than $11 because I had accumulated 1566 points worth $15.66.

Also be sure you have a no-fee credit card. There are zillions of them to choose from if your credit rating is good or even just decent.

Every week or two, put your extra change into a jar. It adds up to more than you think and before it gets too heavy, I drag mine to the local bank that has a change counter.

I just checked my statements and so far this year, I've deposited $352.54 to my savings account this way. Given my income, that's a lot; maybe it's because I buy so much with cash and get a lot change.

Keep a savings or other kind of account separate from your regular checking account as it will make it at least slightly more difficult to spend more than you should.

I use mine to set aside the money I need for annual property taxes and insurance premiums plus as much extra as I can save as an emergency fund. It's also for my long-term project to renovate a bathroom. (That's not going to happen any time soon but the amount grows steadily if slowly.)

Now it's your turn. Remember, today's topic is budgeting and conservation. Tomorrow we'll expand into cutting costs, living frugally, finding free or discounted stuff, and making do.

This is important because we won't get much help from Social Security next year. The announcement of the cost-of-living adjustment (COLA) for 2014 has been delayed due to the government shutdown but it is understood by experts to be about 1.5 percent.


At The Elder Storytelling Place today, Marcy Belson: The Honeymoon


Posted by Ronni Bennett at 05:30 AM | Permalink | Email this post

Comments

I love your cash idea and have tried to use cash only---but in today's society it is being made more difficult every day.

Remember the ads on TV showing how the person paying in cash was a slow -hold up the line -unwelcome person?

I know it was manipulation of behavior by the card companies. They want you to use the cards for the very reasons you mentioned--you charge more because you can't really keep track.

The new alternatives for paying are just too easy ---grocery store--give them your card, gas station-insert your card--On-line buying --one click away--

I think there is real danger ahead for us old people.

Okay, here goes with my plan. I pay my fixed, mandatory expenses online, then divide the rest into weekly sums. I have a dollar store envelope with dividers and divide my cash into gas/food/entertainment/personal/clothing/gifts/savings (for things like travel or house projects) - So far this works really well for me, even though it is tight. And I always save my change for that extra tight week. Oh, and I have 3 months in an emergency fund and nothing in the stock market at all. Hope this helps some people?

Hope this is what you mean, Ronni.

Here's how I save $...

Bought a quality used bedroom dresser for $35 at the VON used furniture store, refinished it in my garage, bought new drawer pulls. Perfect.

Did the same thing with 4-5 other pieces of furniture. You should see how cool these pieces look now.

Made split pea soup last night. Five containers full, put them in freezer we bought this summer. Freezer was on sale under $200. Can load it up now.

Landscaped our entire 15,000 sq. ft. property on my own, using riverstone, rocks I picked up one by one while walking, or checking building sites. Traded plants, etc.

Saved a ton of $ on that.

I like to re-purpose found items.

I buy some clothes second hand. Good quality, watch the labels. Better than the cheap stuff we see in the stores.
Good cotton, not itchy synthetics.

I make my lunch every day and bring it with me. My favorite thing is to park by the lake, turn on Sirius radio and eat in my car.

Sirius radio is not cheap, but I call it my Christmas gift. It's worth it if you are on the road a lot and like to hear your favorite oldies.

I have a cheap cell phone plan. $35 a month.

What else?

We eat out once a week, but living in Montreal, we can walk into so many excellent but low cost restaurants.

We often use public transportation to go downtown even though we have 2 cars.

I'm a good hard saver.

My grocery store has senior day on the first Wednesday of the month. That's when I do my major shopping. It's also the day I take all my coupons, so with the coupons and the 10% off everything senior discount, I save lots of money.

I do charge everything for two reasons. I find it easier to keep track of my expenses and I get money back on purchases made. Luckily, I have no problem with overspending using my card. I need very little any more.

I seem to only use cash for "gambling" - - card games and mah jongg with friends. A few dollars a week, which I'll then win back the next week, and it's something I LOVE.

I was raised with the notion that I should never spend any money I didn't absolutely need to spend -- my parents had married at the height of the Depression and they lived that way, never acquiring the habit of consumption.

I didn't completely take on their world view, but I've always been extremely inclined to ask myself "do I really need that?" Thanks to my parents' frugality and my own, I am aging with a (little) more than I need for survival and have lately decided to use some of this to travel. What's the point of hanging on to it now? (No kids here.)

Spending at all feels profligate to me. This mindset has served me well, even though a lot of friends have thought me "cheap." To cultivate the instinct NOT to spend (if circumstances allow this luxury) is deeply counter-cultural.

I know my spending habits wouldn't have served me if my parents and I hadn't lucked out by time and place -- "the greatest generation" in the US also enjoyed prosperity seldom experienced so broadly anywhere and some passed some on to their offspring.

Following on janinsanfran's comment about "do I really need this":

Sometimes I put an item I find online that I think I want on a wish list when the website has one.

Usually I forget I've done that and if/when I run across it later when I'm at that website again, I've usually lost interest.

Amazing how often that happens and I wonder, "what was I thinking?"

I use credit cards almost exclusively and get FFlyer miles. This and my part time job allows me to travel. My only cost is the yearly fee for the cards. I want far less than I used to, so over-spending is not an issue. I live in Memphis, which is low on the cost-of-living index. My daughter and I make a game out of going to the dollar store, Aldi's grocery, etc., to see how much money we can save. In summer we buy food at the farmer's market. I am fine now, but I worry about the future and the rate that groceries, insurance, (earthquake, fire), taxes, and other fixed expenses are increasing. I would like to stay in my house for the duration, but that may not be possible.

1. I love my "Keep the Change" savings account...anything I put on my debit card, the "change" from rounding up to the next dollar is automatically deposited in my savings account. Example - if I spend $35.22 on groceries, use my debit card, the 78 cents "change" from $36 is now in my savings account. so far this year, it's almost $300 of "free" money...the modern version of the change jar:)

2. When I think I want to buy something online, I leave my cart full, then wait at least 24 hours before actually clicking on "complete this order." I surprise myself with often cancelling the items, finding a way to make do, or make up, a solution using something on hand. And there is always the Do Without/Wants vs. Need. 2nd bones here is that some companies will come back to you in 24 hours, and offer you a discount, for not "abandoning your cart."

3. A few years ago, my husband's company all of sudden cut off his salary, and decided to pay him on 100% commission. His option was to not let the door hit him in the rump on the way out. (He's been with this company for 35 years.) Out of the follow 12 months, only 2 brought a paycheck of more than $600 a month. (No typo, $600 a month..90% less than before.) I got seriously creative with leftovers, eggs, clothing repairs, etc. My cooking and budgeting skills have both blossomed from this. When we ran out of soap and shampoo, we hit up our travel supplies..those little sample bottles kept us going for a few months!

I am the opposite of you, Ronni, when it comes to using cash. I was once robbed of cash (a sizeable sum) and discovered that insurance does not cover cash so now I rarely have more than $50 in my billfold. That's enough to pay for a haircut and any other unexpected item that can't be charged.

I do have a cash back credit card and charge everything that I possibly can on it. I use a computer program to keep track of the charges.

If you are a low income homeowner I advise checking with your county Assessor. In my case I am able to have my property taxes deferred. I also get a discount for low income. The taxes will be due when the house sells or is financed. I do not have a mortgage, so my kids will still inherit the house and when they sell the house the amount they inherit will be reduced, but they don't care and I sure don't.

Hi Ronni and Readers,
We are on a very low fixed income and we do have a fixed budget-plus. We pay the fixed budget things online or by phone ASAP. Then we like to divide the cash into little pockets to use for groceries, gas, and all the expenses that are variable. I like one readers idea of using a divided envelope for that purpose. (I am constantly using change purses and pockets in my purse for this.) It does get confusing which little fund is for what. It is so important to pay the fixed budget bills immediately every month. It feels so secure knowing it is taken care of. I also like to see what is left for us to spend on other things and entertainment too. I am sure we will have some good reading in this series about cutting entertainment costs. Thank-you SO much for doing this series. I absolutely love it and think it is so needed for many of us.

Jessie...
Enjoyed your noting "It is so important to pay the fixed budget bills immediately every month. It feels so secure knowing it is taken care of."

I felt like such a dork a long time ago admitting to a friend that I loved paying bills each month - that I felt clean and even with the world for awhile.

I was so relieved when my friend enthusiastically agreed that she too liked that feeling.

I don't have a credit card and haven't for a number of years. They are too seductive and to easily misused.

Though we don't keep a strict budget we to keep a close eye on our expenses. If one of our normal expenditures goes or down we want to know why so we can bring it back down or keep it down.

We found out that there are some things you shouldn't go cheap on. We reduced the amount we spent on meat by going to a meat market that sells very good quality meat. We haven't found a bit of it to be inedible. What we got from the supermarket was cheaper but up to a quarter of it was not useable. That eliminated the price advantage for the supermarket.

We slashed our overall food bill when we eliminated prepared and packaged foods. It is far cheaper to cook from scratch and it tastes much better. Besides you can eliminate most of the preservatives, salt, and sweeteners.

Regarding budget -- I use a monthly Excel spread sheet and check it about every day. If you can't use Excel, just draw yourself a grid, make 12 copies at your local Kinko's and use one a month.

I will only use a credit union for my banking (no hidden penalties or fees) and use my credit union debit card to buy most everything, It requires a 4-digit PIN and is very secure. I also have a credit union VISA if and when I need it, and have written "Picture ID required" on the back where my signature would have been for more security.

To buy on line, I use PayPal which takes the money directly from my bank.

Also save my change in a pint jar, and when it's full it usually provides a week's worth of groceries when I take it in and run it through the change machine at my local grocery store.

Also, buy clothing only at Goodwill, VFW and other such. Hint - If you shop at one near an affluent neighborhood, the quality of the clothes sold there is much better.

The above are my favorites. Am learning more and more from this blog and your comments. Thanks!!

Thanks for this topic, and crowd-sourcing here is a GREAT idea.

I have ONE credit card and my take on it is that it is a way to get free one-month loans since I pay it all off EVERY time it comes due and use it only for web purchases or when I happen to run out of cash when I am shopping.

I also use cash generally and checks only for cyclic bills.

The comment about talking to the tax assessor had not occurred to me, but I will be sure to follow up. Thank you Darlene.

I had to pinch every penny for so many years after I was divorced, that, now after my ex-husband's death tripled my Soc. Security,I hardly know how to spend.When I was so strapped, my biggest frugality was food. Up until I was diagnosed with Celiac Disease 10 years ago, I bragged that I could eat like a queen on $100 a month--and I did! I'm still frugal, but not to that extent--gluten free food is pricey, even if you cook from scratch.
I almost never buy any clothing, except underwear and socks, anywhere but thrift stores, and now a clothing swap in my subsidized senior housing complex supplements the thrift shop items. I find expensive brands for 2-3 dollars. I'm facing a big money-saver, but not willingly. I am not able to drive due to health issues (still have hopes that will change)so gas, insurance, and car lease fees are ending.I will have to take some taxis, in addition to friends' rides, but I live close to all my medical people and grocery stores so it won't be too bad.

I don't use my credit card for anything that will be used up before it's paid for (gas, groceries, etc.).

I do use a debit card as an alternative to writing checks or carrying and paying with cash. It all comes out of the same account anyway, but with the card I get itemized statements, so can see where the spending is (and download it into Quicken). Cash doesn't lend itself to such easy tracking.

My supermarket sends out coupons every month for the same items I routinely buy (they track my purchases through my courtesy card). Same brands and everything. These I use. I generally ignore other coupons because they are for things I wouldn't otherwise buy. The same grocery purchases also accrue points toward significant discounts on gasoline purchases.

For online shoppers, there are websites that provide the numbers, code words, etc., for discounts, coupons, and promos at retail sites. Many may be out of date, but I've saved a few dollars here and there.

I do most of my shopping on line and frequently check my favorite retailers for specials or sales on things I need, since many of the specials are just for a day or two. If I have a choice, I opt for the retailer who offers free shipping and, even better, free returns. Plus, although the situation is changing and depends on where you live, many online retailers don't charge sales tax.

Saved roughly $500 a month by refinancing my mortgage last winter. Rates are still quite low if you haven't done this yet.

My credit card pays down my mortgage. I refinanced in 2012. I have a separate savings account for property taxes. I call Comcast when my contract is almost up and renegotiate the price. I have lists showing each monthly payment and monthly income. I refer to them frequently. I had whole life insurance policies and I have had to cash out two. Have one left. Good for a new roof when needed. The car is paid for. I would be in real good shape if my mortgage was paid up. Alas, I will give myself 5-10 years in this house and then sell and downsize to a condo. Will use leftover monies for future assisted living expenses.

My biggest savings probably comes from driving my car into the ground. 225K miles and hope for half million. All of my cars last a long time because I am committed to their maintenance along the way, keep the oil changed, and drive gently, a winning combination. I dug deep to find an on topic post and I think I was successful?

Good suggestions, many of which my husband and I follow--under usual circumstances. Although I realize that moving is not part of this discussion, we just did and WOW! Talk about a budget-buster!

We were fortunate to make a profit on the condo we sold; however, the manufactured home we moved into was built in 1977. Although the cost was reasonable, there's a lot of work that needs to be done--some we can do ourselves but we aren't experienced DIYers so we've had to hire contractors. Pricey!!

Our budget is kind of "blowing in the wind" for now. As soon as we've done the basics necessary to make our new place a home, we'll get back on track.

I thought I commented on here--one of my favorite subjects--but maybe I didn't hit the post button as I often don't.
I just wanted to comment on my two best frugal accomplishments through the years: food and clothing. I have always cooked from scratch and eaten healthy foods, and before I knew I had Celiac Disease I was fond of saying I ate like a queen on $100 a month. Gluten free foods are pricey even if you cook most of them yourself, so I can no longer say that. But I still buy everything I wear, except for underwear and socks, in thrift shops. It is possible to get designer clothing for $2-3 a garment, so I have a closet full of great garments, plus our senior housing where I live has clothes swaps once a year, so if I lose or gain 10 pounds, I can just switch pants sizes.
2nd comment: I had managed to hang onto a little nest egg to cover emergencies, or to have a little bit left for my kids, but I got nervous with what I've been hearing about the economy, so just today arranged to have my mutual funds, all but my IRA, transferred to my checking account in a local small bank. I feel safer even with it under the mattress than where it was. My needs are simple at this age.
The greatest help, however, is that I live in subsidized senior housing, having been a musician and never well-paid, so that my rent goes down when I have higher medical costs, and it's always way below commercial prices for housing--and beautiful, too.

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