Money Obedience

Yesterday I was loading the dishwasher. It was already filled with lots of containers that we use for leftovers, and I was getting frustrated because there was little space for what I wanted to put in there. I practically had to run the dishwasher with half of its space filled with these stupid containers. Then I caught myself analyzing some of our household expenses. I was thinking, “What a waste!” We save all these containers (the “disposable” kind that my wife and I never throw away), and then spend the money to put the things in the dishwasher.

On top of that, many times, instead of using even these containers, my wife has started using plastic bags to store some of the leftovers in our fridge. She uses them to store bread (which she bakes gluten free, and these have to be stored like this or they dry out easily). Plastic bags are hard to reuse, and yes, we reuse them, but that drives me batty also. Sure, you can wash them out, it is a pain, and it probably never gets the bags very clean again.

Well, when I was in the process of loading these containers in the dishwasher, I was wondering to myself which option costs more money, plastic disposable bags (and things like tinfoil, plastic wrap, etc. that are not really reused, although we do our best with these things also), or the reusable “disposable” containers? But then, I had to cut my thoughts short. I said to myself, “This is a ridiculous thing to contemplate.” Imagine how much effort I’d exert just trying to get a really good handle on the various costs involved with storing food in reusable containers instead of disposable things, and vice versa? Then, what would the benefit be once I know the cost of either? Would that really change my habits? Would I stop using bags? Would I throw out take-out containers instead of reusing them? Even if I knew the potential benefit of such an analysis, making all that effort was really not worth it. That is why I stopped myself.

In turn I realized though that you can drive yourself crazy trying to be frugal all the time. I think it is ok to chill out once in a while, and to even splurge once in a while. (And yes, I know I’m talking about splurging on a plastic bag!) As with all things in life, it is important to strike a good balance between the cost and benefit of anything. But what really matters in the end is the quality of one’s life. We want to live green, and we want to save money, but it’s quite another thing to waste time and stressful energy and nag my wife who also lives frugally, when our happiness and how we care for the planet and ourselves matter much more. Precious energy should not be wasted on driving yourself crazy with all kinds of obsessions including excessive frugality and living on too strict a budget. As I had to tell myself: relax, and live a little!

We all know that we need to save for some unforeseen emergencies like health expenses or unemployment, but we are often lost about the amount we need to save. So, how much should we save? As with so many things in personal finance, there is not one number that fits all. As a matter of fact, there is not even an exact amount anyone can calculate for him- or herself. Often, the best we can do is to find a range for which we might aim.

One useful rule of thumb is that you put away between 3 and 6 months of your monthly household expenses for emergencies. This is a pretty wide range. Actually, most of us are saving at that range already, without even knowing the rule.

Still unsure of which end of the range to aim for? You can narrow down your target a little depending on your personal circumstances. For example, find the answers to the following questions. Is there only one breadwinner in the family? How many kids are in the family? How old are the children? How secure is your income? Answers to these and similar questions will let you know how vulnerable you are to losses in income – and the more vulnerable you are, the more you may want to aim higher (or for a greater number of months of replacement income).

There are other rules out there that people think are useful here. Some say that we should set aside at least $1000 for emergencies. That seems like an odd number to me. What good can $1000 do? You will not be able to financially survive a real emergency like high hospital bills or long term unemployment on that figure. At least I know that $1000 would not make much difference to me – but I am one to always prepare for the worst-case scenario, and my worst-case scenario comes with a much higher price tag. Still, $1000 is better than nothing. If you’re at the $1000 with your rainy-day fund, it is a great start as a down payment for a larger future emergency fund.

Yet another idea is to add one month’s expenses to your emergency fund for each 1% increase in the unemployment rate. That way, if unemployment is high, you save more, on the assumption that you are more likely to dip into your savings if you lose your job because it will be more difficult to find another one. This sounds like a pretty good idea, generally speaking. But what if you’re one of the first ones facing job losses when the economy has a downturn? You wouldn’t have enough time to respond to the up-tick in unemployment rates because you’re one of the folks contributing to that up-tick! Thus, there’s no way this strategy can work for everyone. You’d have to be one of the lucky ones who kept his/her job when things got dicey in the labor market. And in the current environment you would have to save pretty aggressively to keep up with the quickly rising unemployment rate.

Even though there is not one single correct solution to this problem one thing remains the same. Emergency savings are meant for, well, emergencies. You cannot know what type of emergency will strike, or when it will occur, which is why you must be prepared. Being prepared surely worked for me. I have less than 9 times of monthly expenses in my emergency fund, but it helped to have that much, because I lost my job and had no time to respond to the increased unemployment rate because I was one of the statistics, as they say. And now I am working for less income than I did before, which does not allow me to boost my emergency fund aggressively to keep up with the still-rising unemployment rate. But this does not matter, since I was prepared before a financial emergency hit me. And that is really what it boils down to. There’s no “one size fits all” here. You just need to be prepared for financial emergencies in a way that works for you individually. Be sure to think about it before the emergency strikes!

When they are handing out cash on the street, do you just duck your head and walk by? If you don’t know what I’m writing about, you must be one of those persons who always remembers to turn in your receipts for reimbursements. I’m talking about receipts for work-related expenses you made that your employer will reimburse, or those tax-deferred accounts with balances you must consume before the calendar year ends. If you’re more like me, you forget about these things. Forgetting makes me feel like I’m leaving money on the street since our family budget has to cover these expenses. Worse, I feel like I’m the one standing on the street handing out money, and my employer is getting the handouts. I think the employer (or is it the government, in the case of tax deferred accounts?) makes out like a bandit.

With business travel reimbursements, the idea is that I’m supposed to keep all the little pieces of paper I get when I’m traveling - a nearly impossible task for me, it seems. I’m lucky if I don’t lose my passport! Then, I’m supposed to organize all these into some kind of order – for example, one that corresponds to the allowable daily payments my employer is willing to make (the per diem). Then, I have to make sense of the form that is to be turned in with these little pieces of paper. Last, I turn it all in, but I have to stay on top of things to be sure that I get my reimbursement check, and not misplace that check before I cash it.

Is it becoming evident to you how many opportunities I see to mess up this whole thing? To me, it feels like the chances for me to fail to be reimbursed for money I spent are terribly high.

I’m embarrassed to say that I’m just as guilty of failing to efficiently use my employer-supported tax deferred accounts. I have good news, though. Last time I was at the pediatrician with my sons, upon checking out, they asked whether I need a “detailed receipt” – the kind one needs to turn in to get your money back from one of these accounts. I said, “Yes, even though I’ll probably lose it before turning it in.” That passing comment got me a bonus – they told me that they’re happy to print out all my receipts at the year’s end so that I can submit them all in time. I bet I can ask the dentist to do this for me too! At least my lack of organization won’t be so bad in this case.

I see two problems with this whole situation, and I have control over the solution to only one of them. First, I admit I’m not well-enough organized. I need a receipt-keeping system that can make these different reimbursement programs work for me. (I have four kinds of work-related receipts to store: travel; office supplies; medical/dental; research related travel and supplies. Plus, I acquire these receipts at all different times and in different places. Sick child? I get receipts while near home, when I’m preoccupied with calming and comforting toddlers. Conference travel? I could be out of town, or out of the country! Office supplies? Sometimes I’m neither near home nor work!) Any ideas about how to work this? I’d love to hear them!

Problem two: is the government/employer taking money they don’t deserve? They don’t hand out cash and let us decide if/when they should be reimbursed. Why do we have to have it the other way?

The only exception is in the case when you get a generous travel advance. And really, is there such a thing anymore? My employer, for example, advance you a maximum of 80% of the per diem rate. What happens to the other 20%? See paragraph one, above – if I don’t have the receipts, I don’t get it. And we all know that per diem rates are not spectacular. Can anyone report that the reimbursement for trips by car has kept pace with the ups and downs of the price of gas? I think not!

So, how do I conclude? Don’t be like me – be organized and get back all the money you deserve to. Otherwise, it’s as if you’re standing out on the street, handing out your own money to people who don’t likely need the charity. Better to get it back – you can donate it to the charity of your choice if you’re in the giving mood!

Once you have set up a budget, you want to make sure that it works for you and your family. Things change in life and the family budget got to adapt. Sometimes big things change (like if you have a child), at other times only little things change (like your preferences). I just experienced one of the latter changes.

We used to have a service that was cleaning out our gutters twice a year. Cleaning gutters seemed to be a fairly involved job to me. Our house is tall, so one section of the gutters is pretty darn high up on our house. How the heck am I supposed to get up there? Well, you guessed it: with a ladder. As it happens I own a big enough ladder to get up to the highest sections of the house easily. But I’m “kind of” afraid of heights.

When I paid the last bill for gutter cleaning I was shocked how expensive it was. Come on! I witnessed how much work was actually involved. I was at home when the guys came in to clean the gutters last spring. It took two of them less than an hour. The bill was $186! Ok, I understand that they need a truck, ladders, etc., but still, the price I was paying was a little steep in my mind. It irked me to shell out that much money for something I could do myself.

I just cleaned my gutters last weekend, with my wife holding the ladder so I wouldn’t kill myself. The spring cleaning is a lot easier than the fall cleaning, but I am pretty sure it took me a lot less than 2 hours to do this all alone. Part of the gutters were actually clean! Plus, unlike the gutter cleaning service, I also blow off the roof the other debris – after all, it’s sitting on the roof waiting to clog the gutters again. That took some extra time, but since this is my house and my property I am careful about what I do with the debris. The gutter guys don’t care. They either throw it on the grounds or leave bags strewn around my property. I do a much neater job if I may say so myself.

Believe it or not, but I get another benefit from cleaning my gutters and being on the roof of my house besides saving money and keeping my property neat. I like mountains and climbing. Getting up on the roof gives me a little sense of climbing. I know it is not like actual rock climbing but it is better than nothing. If you were an ocean lover you would probably still prefer sitting by a lake to not seeing any body of water in front of you at all, right? A lake is not as good as the ocean but better than nothing. So, as it turns out I not only save money doing the gutters myself, I actually enjoy some aspects of doing the work. What could be better than that?