Credit Cards are another Tool in your Financial Toolbox

Firstly, welcome to all the Master Your Card readers wandering over here to take a look round. And to all my readers, go and take a look at Jonathan and Kristy's blog, it's a great read.

Today, as a lovely Christmas present I suspect, I've been featured as a guest blogger over there with a post entitled 10 Tips on Using your Credit Card Wisely so have a read of that article there before coming back here.

As a follow up post, I'd like to just take a few words to discuss a topic I alluded to in my guest post over there, a topic I fear is usually put into the "that's bad" basket without much further thought than that.

All Credit Card Usage is Evil (or is it)?

Photo: bike

I asked in my guest post whether I was a bad person for using a credit card. In fact, what I really said was:

I’ll admit it. I’m a credit card user. I use it a lot, not everyday, but a lot. Am I wrong? Am I a bad person? Should I be slapped with a wet haddock for my sins?

There has been some discussion as to whether credit cards are evil or just dangerous and there are definitely people sitting on the fence too. But I'd like to make an argument that your credit card is actually a valid piece of equipment in your financial life and something which has quite specific and advantageous uses.

Another Tool in your Financial Toolbox

In reality, credit cards are just another tool in your financial toolbox. They can be used just as much or as little as you like and like any tool, must be used with care and precision. When was the last time you just blindly hit a hammer against a piece of wood to knock a nail in? That's right, you never did! Instead, you position the nail carefully with one hand and precisely strike it with a blow from the hammer in the other hand. It's all lined up, you know exactly what you're doing and you know the consequences of hitting the nail with the hammer.

And that's how a credit card should be used. You should know exactly how much you're spending, what you're spending it on, when that interest-free period stops and the date by which you need to pay your balance.

By using this particular tool in the right way and knowing exactly how it should be used, then you can actually maximise many of the advantages of using a credit card.

Using the Right Tool for the Job

Sometimes you need to do something for which you don't actually have the right tool. In woodwork, this is prevalent and in a lot of cases the job can be improvised by using other tools. In your financial toolbox, you also have other options if you don't have or won't have a credit card.

However I believe that there are certain benefits you can gain by using a credit card which you can't get from any other tool in your financial toolbox. For example, that interest free period on your spending is something you don't get elsewhere, nor do you find 1% cash-back offers from your debit purchases. (P.S. I don't use interest free periods when buying large items, instead I save up for them and pay it off in full right there and then.)

You really do have to weigh up the pros and cons of getting and using a credit card and like all decisions in your (financial) life, your own investigation into this area is extremely important.

And Finally ... It's Not For Everyone

Friends of mine point-blank refuse to own - let alone use - a credit card. That's okay with me since I think it is everyone's own personal choice. I also know of friends who have used credit cards before, gotten into debt and now never touch the damn things! Again, that's fine since obviously it wasn't for them.

From my own personal experience, I have had times in the dim and distant past when I carried a balance on my credit card for almost a year! Up to £4,000 in some cases. Pretty crazy stuff when I think about it now.

However, the advantages I gain by using a credit card nowadays far outweigh the risk that I would again carry a balance for so long (if at all). I have learned from my mistakes and now use the card to my advantage and in a sensible and very restricted and restrained way. I know exactly what is going on the card and I know exactly when it needs to be paid. It is completely and utterly 100% under my control.

So for me, I'd never do without my trusty credit card and in fact my life, and my personal finance life, is better for it too.

What's your take on the matter? Do you or do you not use a credit card?

Are You Throwing Away Money? 5 Tips to Save You Money

Everytime you buy something with packaging, you're buying something only to throw away. Sounds crazy doesn't it but it's true. And for everything you have to throw away you also have to pay the council to come and take it away too so you're getting a double whammy against your wallet right there.

Think about it. You buy a six pack of yoghurts, or maybe a one litre container, and where does the packaging end up. That's right, in the bin. So firstly, you paid for the plastic to make the container and secondly you're having to pay to take it away again! (Unfortunately where I live, the council doesn't recycle that kind of plastic, so it has to be thrown out.)

That was just one example, but let's look at some others and some possible solutions.

1) Replacing 'Use Once' Kitchen Paper with Multi-Use Cloths

Photo: roland

Back in October, I realised that I used a lot of kitchen paper. Usually because I use it for the cat's bowls so I don't have to use my normal tea-towel. I don't have a huge amount of space in my kitchen so I prefer to have as few things as possible in there. Then I read an article which made me wonder why I was doing this.

Two months on, I'm just about running out of kitchen paper and last weekend I bought 4 facecloths (30% off of course) of about the same size as kitchen paper to be used instead. So let's look at the maths.

Two rolls of kitchen paper lasted me around two months. At about $1.50 per roll, that'd be something like $18 over the space of a year. The 4 facecloths I bought cost me a grand total of $5.54, just a bit below four rolls of paper towels. Each paper towel roll has 80 sheets, but these cloths will keep going for years. In fact, within less than 4 months the facecloths (now multi-use-cloths) will have paid for themselves.

Let's add to the equation that paper towels add to your waste even if this is insignificant. Ok, to be fair, I will have to wash the cloths every now and again (dependent on function) but this won't add up too much either. Certainly not as much as $12 in the first year and $18 for every subsequent year. Overall I'd say this was well worth it, not just because of money but for reducing waste too. Remember the paper towels also come in plastic bags whilst the tea towels just had a small paper tag.

2) Not Accepting Plastic Shopping Bags

No matter what you think about free plastic bags, whether you use them for lining your bin or otherwise, you still have to pay for them in one way or another. Usually they are counted as overhead for the shop so it's almost like everyone has to pay a 'plastic bag tax' when shopping at that particular store.

This 'tax' can be easily avoided by shopping at places which charge for giving out plastic bags. Therefore, only the people who use them have to pay for them. I presuming here that you won't pay for them because you're cleverer than that and instead use re-usable bags.

I myself have two cotton bags which I try and use every time I head to the supermarket. I must admit, every so often I forget and have to unwillingly take a bag but every time it makes me feel sad so this is something I really need to fix and stop doing.

An example of a place in New Zealand which charges for plastic bags is Pak'n'Save. They even advertise the fact that they charge for them to keep prices lower for everyone. Good on you Pak'n'Save! Unfortunately I believe all the other supermarkets still give out free bags, which is crazy because they also try and sell reusable plastic ones too! Let me know if you know of other stores here in NZ which also charge.

(Side note: when I was in the UK back in 2001, one of the supermarkets, Sainsburys', used to give me money every time I used a bag of my own! Granted, it was only 1p but forward thinking such as this innovative and also proof of the plastic bag tax.)

3) Composting your Organic Material

Almost every bit of your organic material can be composted and again this helps in many different ways. Firstly, your volume of waste reduces and therefore lowers the amount of money you spend having it taken away. Secondly you can use the compost on your garden the following year to create a rich soil in which to grow your vegetables - another source of food at a lower cost to you.

Finally, composting also prevents the organic material from going to the tip, in which conditions, instead of breaking down aerobically (with oxygen) it breaks down anaerobically (without exygen) and produces methane. In some landfills this is captured and used as an energy source but in most cases it leaks out into the atmosphere and is a significant contributor to the greenhouse effect.

What not to compost also helps when deciding whether something belongs in the compost or the rubbish bin. You'll have to figure out which plants are classed as weeds in your local environment since I think that article was written for a North American audience.

Even if you don't have a compost heap, you can (and should) just throw your organic waste onto your land anyway so that it can decompose naturally. This is something I had not heard about before, though it makes perfect sense and seems to be called Passive Composting. Quite a few things to gain for not that much work.

4) Shop Around the Outside of the Store

The science of laying out a supermarket is very well known to make shoppers buy impulsive purchases. Those tempting and scrumptious chocolatey or sweety things (as well as other fast but processed food) are all laid out in the thin aisles in the middle of the store. When you're stuck in a trolley-jam in the middle, your eye gets tempted by all those processed foods.

Generally you don't need these items but sometimes you want them. That right there should stop you buying them since they are a want, not a need. That's the first reason not to shop in the middle of the store and to limit your trip to around the outside.

But think about this too. Not only do you not need many of those items, you're also not even getting value for money since most of these things come in layers and layers of packaging. Take a simple block of chocolate. It is firstly covered in metal foil, then has a paper sleeve. A packet of individually wrapped sweets has got to be one of the worse culprits (think individually wrapper foil, with a sticker on, stuck to a frilly cup, all enclosed in further plastic). Even something better like a jar of pickle means you're paying for the jar and lid.

Next, think about the items of food which are better for you, especially the fruit and veg. I rarely use any bags in that section and instead put my purchases directly into the basket and then directly into my cotton bags at the checkout. Occasionally I think the cashier is a little annoyed since individual tomatoes can be trickier to handle than a bag but in reality, that doesn't bother me too much. Bananas are cool since they come in their own packaging and one which can also be recycled!

In reality this point doesn't always hold true (milk cartons for example) but the majority of items in the middle of the supermarket have an excess of packaging you just don't need. Also remember that when you do need something, buying in bulk also helps reduce your waste per unit item if this item can't be avoided.

5) ... and Back to Those Yoghurt Pots

In September, I was buying those 6 packs of yoghurt for around $3.00 when they were on special. (I refused to pay the normal astronomical price of over $5!) One week when none of the brands were on sale, I progressed onto buying a one litre container for around $3.50. It had less plastic (by my unprovable calculation) and more yoghurt per 100g than the multipacks. In both circumstances, I was still throwing away a fair bit of plastic.

Recently, I have taken my yoghurt maker out of retirement. I bought it a few years ago ($20) and stopped using it, mainly for the fact that my supermarket (New World) was charging over $3.50 for a packet which makes one litre. Ignoring the packaging for now, that in itself didn't make financial sense to me and more especially so since I think the normal yoghurt is a little nicer.

It turns out that after speaking to a friend of mine, the other brand of make-it-yourself yoghurt can also be used in my maker - and why I didn't think about this before, I don't know. Also, the Pak'n'Save (to which I shall now be making regular bike trips) was selling that brand for around $2.50. Overall a $1 saving on sale yoghurt and probably about $3 on regular priced yoghurt. In fact, it's nicer than the other make-it-yourself brand too. I usually go through just over one of these yoghurts a week, so within year one, I'll be saving over $30 and over $50 annually after that.

And did I mention that the packets the yoghurt comes in are just thin packets which scrunch up into a small ball. They take no space at all and could probably fit 100 of them into one of the one litre containers above. Yet another saving on waste collection.

You should also try it and see how it goes. You'll find that a bit of pre-planning means that you can make that yoghurt (12 hours wait), chill it and have it on the table ready whenever you need.

The Challenge is On!

This post was inspired by a challenge I read about a few weeks ago. EnviroMom blogged about the One Can a Month Challenge which I think means, in non-US terms, one trashcan/bag a month.

As I mentioned earlier, I have already noticed that the volume of waste I produce was lowering. There have also been some recent changes (such as the yoghurt and paper towel techniques) which will also reduce my waste levels and there are still some things I want to try to reduce it even further.

In trying out this challenge I decided to start when I last put out a bag for collection. That was two weeks ago and already I can see an improvement. In fact, I haven't even put my kitchen bin into the outside bin yet and usually it takes two of those for a full bag.

So far so good. I would say wish me luck but with these techniques, I won't need it!

Why don't you trial 'One Can a Month' and see how you go. Let us know how you get on or if you're already doing it.

Non-Cash Based Envelope System - The Bead System

Earlier in the week I talked about the Envelope System and how it can save you money. I also mentioned in that post that I am not a cash type of person. My transactions are almost exclusively on plastic, whether that is debit or credit, or completely electronic when banking online.

In fact, the only cash transactions I seem to do at the moment are at the Sunday Market for my fruit and veg every Sunday morning. I realised that last Sunday I still had the $8 change in my wallet that I'd received the previous Sunday. No cash entered or left my wallet for a week.

The Envelope System Without Money

Photo: orangeacid

Instead, I have come up with an envelope system that you can use without money. It's not as accurate or as flexible but it'll do for my needs. It goes something like this.

Collect yourself a set of jars, containers or some other smallish holders. You need as many jars as you would envelopes i.e. as many jars as you have categories for your spending. I have a number of old empty spice jars which I am going to use.

The Bead System

Then get a number of counters, be it beads, tiddly-winks or any other kind of small item which you can use for counting. Each of these represents $1 each and it is these you will use instead of cash.

At the start of the month, if you're going to spend $250 on groceries each month, then you would count out $250 beads into that particular jar. Maybe you'll also count out $50 into the Entertainment jar. Trust me, this doesn't take as long as you think and it's only a once a month job. After a while, you'll probably get to know how far up the jar 250 beads go (or maybe if you had good scales, you could use them - yes, I jest).

Then, when you're entering your expenses into your accounting program at the end of the day, you can just take out the number of beads per dollars spent from the appropriate jars and put them in a special spent jar. Since you're keeping good track of your expenses, this is not much more overhead than having to remember envelopes each time you go out and buy something. It is also easier for those transactions which have expenses in two or more categories.

Rounding

When using this system, you should consider that those beads represent full dollars and that you can't actually split a bead up any more than it's whole. In which case, if you have an expense which ends in a fraction of a dollar, just round it up to the next dollar and shift those out to the spent jar. The reason to round up is so that you don't actually go over your budget.

Even though the system isn't wholly accurate, it doesn't matter. Hopefully you track all of your spending in an accounts package so this system is just for a general idea rather than for exact detail.

Advantages of Using the Bead System

The bead system is a very visual one, especially so if you have bright blue glass beads in clear jars. It also doesn't require you to either count cash or load up your accounts on the computer just as you're heading out to the shops.

Just a quick glance can tell you approximately how much you have left in any jar. It's very easy to mentally take note of what's left in your most important jars and after a while you'll know approximately how many beads it takes to quarter, half or fully fill each jar. Knowing at a glance when you go to the supermarket how much you have left in your groceries budget is very powerful.

I'm sure that there will be times when you completely forget how much is left in any jar but in reality, most of your spending wouldn't be big enough to go over by a huge amount, unless you were doing it on purpose. If you were going for your weekly shop at the end of the month, you'd be pretty likely to find out how much you have left in the grocery jar before you left, ie. only when it's important. If you ended up getting milk on the way home from work, then I suspect that's not big enough to worry about even if you did go over.

Finally, the last advantage of the bead system is that it works without actually having to store all your cash in envelopes for the most part of each month. Instead, that money would be sitting pretty in one of your accounts earning interest instead of just sitting there not working at all.

December is Trial Month

I shall be trialling this system in December and I'll let you know how it goes. I should be able to find any deficiencies in it and then change it to make it work better. Let me know if you spot any problems or have any suggestions.

Are you going to try the Bead System? Please share your experience with our readers by leaving a comment below.

How the Envelope System can Help Save you Money

The envelope system is a well known and much practiced system in personal finance to help stick to your budget. It's a simple system and is especially suited to those people who wish to primarily deal with cash (rather than plastic debit or credit cards).

I feel that it is falling out of favour since many transactions are now electronic but I'll present a modified version in a future article which I shall be trying out in December. This will hopefully help for people like me who hardly ever take out or spend cash.

Funnily enough, even in some high tech countries, cash is still king for normal everyday purchases so it's interesting to note that this is a very common technique in Japan, even to the extent that almost everybody does it (and not just those who are careful budgeters).

The Envelope System

Photo: ashevillein

The first thing you need is a budget. Without it, the system won't work. Then once you have that, you need to figure out which items on your list (whether they are broad or narrow) are those ones for which you can going to use cash. This wouldn't include things like automatic rent deductions or paying your utility bills online.

As an example, let's say you have 4 categories (a very much simplified month) for which you are going to budget cash for this particular month:

• food - groceries and tops-ups like milk and bread
• household requirements - detergent, soap, shampoo, bin-bags
• clothes - socks, shoes, jeans, skirts, dresses and tops
• entertainment - cinema, CDs, eating out with friends, hobbies
• gifts and charity - presents and donations

Take yourself 4 envelopes and on the front of each, write that particular categories' name. When I tried this system, I also wrote on the front how much I had allocated to it too. e.g:

Entertainment - $75

At the start of every month (or the start of every pay-month), you take out your total alloted money for all these categories from the hole-in-the-wall and divide it into your envelopes as specified. Each and every time you want to spend money on a particular category, you should take that envelope (or a part of it) out with you when shopping. You can do this since you've planned your purchases - right?

If you didn't plan your purchase or you had to buy something then you should re-arrange the envelopes at the earliest opportunity. If you had $20 in your wallet from the Food envelope but you had to buy a pairs of socks, then shift the correct amount of money over from the Clothing envelope to the one that was compensating it.

Easy Peasy

The great thing with this system is that it is very simple to do and fantastically easy to see exactly how much you have spent and more importantly, exactly how much you have left in each of those categories at a single glance.

There would be no need to log on to your internet banking and no reason to wonder whether you're within budget for the month since you have all the information you need right there.

It is also simple because once that particular budget is gone, it's gone and there's nothing left in there to spend. If you really desired that new top you saw in the shop today but later found out that there is nothing left in the Clothing envelope for that month, then you're completely out of luck.

Re-Budget

If you find yourself in this situation, try not to siphon some cash out from any of your other envelopes since then you'd just be cheating. In the case whereby your clothing budget is dry for the rest of the month, I'd say live with it.

However, if you are consistently running dry out of your food budget then you may wish to re-budget what you think you need for that category. This might involve spending less, changing your eating habits or it would be quite normal to increase the budget you had previously considered ok (you may well have under-budgeted by accident). So don't be ashamed if you have to increase your Food budget and of course, be more weary if you want to increase your Clothing or Entertainment budgets. Remember the differences between wants and needs.

Snowflake what's Left

Another great advantage of using the envelope system is that when you arrive at the end of the month, or the time you need to replenish your envelopes, you can use it to save a little extra money. Since you have budgeted to spend a particular amount, yet you didn't spend it all, then pretend it did all disappear and snowflake off what's left into your Emergency Fund, Freedom Fund, savings or retirement scheme.

By doing this, you wipe the slate clean every month and this helps you not accumulate extra money in your envelopes which you'll probably eventually spend anyway. If that's the case, then you're doing a disservice to the time you spent putting your budget together.

The non-Cash Based System

I have briefly played with the envelope system but I almost knew before I started that it wouldn't be for me - though please note that this is a personal preference. This system is being happily used by many people to keep their spending in check.

Firstly, I am not really a cash person though I guess I could be if I wanted to be. Secondly, I wasn't that great rebalancing the envelopes if I had spent money from one envelope on something from another. I found this strange, since I'm very particular about entering every single transaction into my double entry accounting software.

In December however, I shall be experimenting with a new system I have brewing in my head. It doesn't use cash and it amounts to much the same as the envelope system. I shall write a further post detailing this system in the near future.

I have chosen December as the start date for this trial since by that time I will have my budget in place. As I described on my budget post, I have been keeping a record of all of my expenses and by that time it will have been three months. I have noticed that my knowledge of where my money goes is increasing and therefore I'll have a greater idea of what I need to budget for and how much.

It's going to be interesting whatever happens and I'm looking forward to it already.

Do you use the envelope system? Leave me a comment noting any tips and tricks you use.

Are you Managing Your Lifestyle Inflation?

Have you ever heard the one about the graduate student who ate beans on toast for 4 years whilst completing his degree, accepted a top-class job with high prospective pay increases but even after 10 or 15 years of working never seems to have any more money in the bank than he did when he was studying as a poor lowly student?

Okay, I made this person up but the reality is that most of us know one or two people who are exactly like this. They are earning lots of money, in some cases more than you, but they never seem to actually have any. Yes, they have great cars or a big fantastic house but they always complain about owing so much on maxed out credit cards.

This could also happen to you if you're not careful. You see, these people are victims of Lifestyle Inflation.

What is it?

Photo: sis

Lifestyle Inflation is something that happens to all of us at one time or other. It happens when we start working, it happens when we get a pay-rise and it can happen at almost any other time of our lives too if left unchecked. It's that function of our income which makes us say "Hey, I can afford that because of my new pay-rise" so you go out and spend the extra money on that new 'thing'. Because ... you know ... you're worth it!

It also has another phrase, one that is probably more well known than Lifestyle Inflation. It is also know as:

The more you earn, the more you spend.

You've definitely heard of that one.

Now, I want you to sit back, relax and have a think about what you did the last time you got a pay rise. I'll wait right here until you come back. Think of a few things. To help you out, you might want to consider whether you:

• treated yourself to a nice meal out
• splurged on new clothes, make-up or shoes
• subscribed to another magazine
• raised your cable subscription to the next level up
• increased the amount you set aside for socialising
• went out and bought a new car

If you can tick a few of these or maybe you have some of your own, then you are inflating your lifestyle.

So what? I deserve it

Of course you deserve it, you work hard for that money. That increase didn't come without having put those extra hours in, being good at what you do and finding a good position within your company. All that extra work you put in for that pay rise was worth it in the end and therefore you feel you deserve to spend it on whatever you like.

By all means treat yourself but do something low-key as a one off rather than expensive and continuous. That way, at least it is somewhat contained (and also, you need to treat yourself every now and again, otherwise you'd probably go a bit mad).

The Paradox

But here's the crunch. Yes, you put all that extra work in, your skills have increased and you're worth much more in your field of expertise but how does that benefit you if you spend all of that extra? Especially all that extra on something you have to pay every month for a very long time.

Think about it. Your employer is paying you more as recognition that you have improved both yourself and the company. But you're not recognising yourself. If you go out and spend that extra money in your paypacket every month, then you're not actually giving yourself a pay-rise.

Those extra car payments per month might come from your pay-rise but it's basically wiping that pay-rise out. What you end up with in your pocket is the same - or possibly less - than what you were getting before!

This doesn't make any sense. It means you're more valuable, you're earning more and you're being recognised but the end result is that you come out the same at the end of the month.

That doesn't make sense to me (and yes, I've been guilty of doing this in the past).

How to Stop It

Essentially you need to stop it by not allowing yourself to spend that increased pay-packet. Much like the old phrase PF bloggers like - Spend Less than You Earn - another one can be added to that list:

Don't Increase your Spending at the Same Rate as your Pay

There may be one or two things you want to spend extra on, possibly those things you've been holding out for for years but be careful not to spend every single extra penny you take home. If your expenses increase at a lower rate than your pay-rises, then you'll be doing well.

Of course, if your expenses don't increase at all when your pay increases, then you're doing even better. This is easily done by not altering any of your expenses budget but instead adding that pay-rise straight onto your savings budget.

Lifestyle Deflation

Recently, I have been a victim of a lifestyle change but happily for me, it is in the other direction. I have no idea if there is such as thing as Lifestyle Deflation but I think this is what I have been doing recently.

I recently chose to stop, cut out or cut down a number of my expenses and hence, even though I didn't get a pay-rise at the time, it sure has felt like one. It was a random time to do it but after almost three months I am already feeling the benefit of it.

To finish off, you might also want to consider what areas of your life you can downsize, cut out, do without, sacrifice or even just spend less on. You'll be surprised at how just a few things here and there add up to a fair amount of saving each month.

Oh, and by the way, the first places to look are those things you recognised earlier as contributions to your Lifestyle Inflation. If you didn't have these things before then you can probably still do without them now.

What is on your 'Lifestyle Inflation' list? What can you cut out to help with 'Lifestyle Deflation'?

The Key to the Future: Zero Dollar Days

Here's a simple question for you. Can you get through a normal day without spending any money at all?

How about 2 days on the run, or even 3 or 4 days a week without spending anything? If you baulked at the first question, I'm sure the answer for the second is just laughter.

Does it seem too hard to do? Maybe it even seems alien. No matter what you think of these questions, I'm here to tell you that Zero Dollar Days are the key to your future.

A Day Without Spending

Photo: diamondjoe

When I first wrote in 10 Little Sacrifices that I'd had three Zero Dollar Days, I was absolutely shocked and stunned that I had even had one. For me, my previous daily routine was to spend money, maybe a little, maybe a lot, but essentially I would spend something every day. Now I try to have three Zero Dollar Days every week.

You should try the same. You mightn't think you can do it, like I couldn't, but it's actually easier than what you think. Your habits will have to change, but if you follow those 10 Little Sacrifices (and maybe some of your own), you'll find that you've already eliminated most of your daily spending - which at the end of the day are non-essentials anyway.

It's harder to create those Zero Dollar Days when you have essentials to buy; like breakfast, lunch and tea, or maybe journeying to and from work. In those cases, giving up isn't feasible so you have to do it another way. Yet again though, it is relatively easy since all it takes is planning.

For travel, all you need to do is pre-pay your train or bus ticket or fill up the car at the start of the week. Of course, if you walk or bicycle to work, you're already on to a winner.

For food, you just need to figure out what you're having and when. Breakfast is usually at home so that's already been paid for when you last went grocery shopping. Evening meal is also similar and as usual lunch is the hardest thing to figure out. Being able to get home for lunch (like I do) is a little privilege but brown-bagging it surely is the cheapest option though it requires the most planning.

Other than those two things, you can probably get through a work day without spending anything. Weekends are hardest but even they can be Zero Dollar days too. Work on the weekdays first and move onto the weekends later.

For the Future

All of those savings you're making to get those spend-free days should be whipped straight out of your account and put into your debt repayment or into your savings. Just get it out of your current account so you can't spend it on anything else.

You'll find that these savings really start to add up and once you start earning interest on the amount saved, you'll be happy with the results.

My Progress

In the past two months, I haven't kept a complete check of my Zero Dollar Days but I will do from now on. Sometimes it's hard to figure out if you had a Zero Dollar Day - for example what if your utility bill came out of your bank account but you didn't spend anything else. I'd still consider that a Zero Dollar Day since that payment was pre-planned and didn't come out of your wallet (either cash, debit or credit). I'd also say the same for a grocery shop of essentials, especially if it's pre-planning all your food for the next while (but not if it contains any of the non-essentials you promised to give up)!

At a guess though, I think I've been doing either 3 or 4 Zero Dollar Days a week during the past two months. I definitely think it has made a big difference to how much I'm spending. I'm going to the supermarket a lot more but that's because I'm making and eating much more of my food at home. The cost of the supermarket (or Sunday Market) is still much cheaper than paying for someone's labour making it when you buy those take-aways, deli sandwiches or cafe food.

As I mentioned at the start, if the idea of going through a day without spending doesn't fit with you, then just try it for one day and one day only. Once you've done that, you'll be able to do it again and again and again. Good luck with your new spending habit and enjoy your new increasing balance in your savings account.

Do you have any tips on how to attain more Zero Dollar Days? What do you call them? Let me know below.

The Long Slow Road to Financial Independence

As I've stated before, "it seems more likely that you can become financially independent by literally spending less than you earn than you can by winning the lottery".

And that is exactly how I'd like to introduce myself.

About Me

Photo: 14337663@N06

As it says in my footer: Retire-at-40 is a personal finance journey of a regular guy, with a regular job doing regular things. I earn well though I've never been a saver. Then I started getting serious at the start of September 2008 and in just over a month I know my life has drastically changed.

I can see myself spending less. I can see myself saving more. I can see myself working less. And I can see myself enjoying my life more. In fact, all of these things are already happening. Why? Because they lead me to my goals and they make me worry less.

The Long Slow Road to Financial Independence

It didn't take me long to figure out that it was a long road from starting work to stopping it completely. My initial problem though was that I never did anything about it. Until now. My journey on the road to Financial Independence has well and truly started with a bang. The changes in my life are already great and I have a nice shiny new blog to boot.

You'll notice along the way that I use certain phrases over others. Take for example the phrase "The Road to Financial Independence". I like it, it makes sense to me so I use it. Now consider the phrase "The Road to Wealth" or "The Road to Riches". I don't use these because I don't like them. They promise too much and deliver almost nothing. "The Long Slow Road to Financial Independence" may seem a lot less razzmatazz (almost boring) than those other phrases but then, if you know me, you'll understand that I like to be realistic and I like to understate things. And I also like to be sensible too.

Which leads me on to another phrase "sensible spending and saving". I like it. It makes me happy.

Both of these phrase describe how I'm undertaking this journey. There are no quick solutions. There is no point hanging out for a lottery win. Just a plain and simple way of life, of decluttering, of making things last, of creating things and of being sensible.

Promise less, deliver more!

Even though I'm still new to this game, I've already realised that anyone can do what I'm doing. I know this because I used to spend up every month. I wasn't living paycheck to paycheck but I would usually spend what I earnt.

By promising myself that I can be a saver, I can be frugal and I can invest wisely, I have realised that my future looks a lot more rosy now than it did just a month ago.

I've always been sensible with my money and sometimes clever but now I'm learning even more tricks of the trade. For example, the way the Simple Dollar is creating a Savings Ladder (with fixed term investments) is pretty intelligent. It's almost one of the best posts I've read since reading a number of Personal Finance blogs.

I just wish I were that clever. Except, I don't have to be. You see, I'm just a regular guy. Instead, I just inform myself of the things other people are doing and in doing so I hope that I can make my money work for me rather than me having to work for my money. Makes sense doesn't it?

Signing Off

I realise this post has been a slightly roundabout way of an introduction but I wanted to give you illustrations rather than just plain facts. Illustrations how you can also do the same as I am. Even today, I was told by a friend that they "were not that type of person" to do what I shall be doing.

I just asked "Well, have you tried?"

The answer was "No".

All I can say to that is to take your first step on the long slow road to financial independence. I promise you, it will interesting, fulfilling, happy and hopefully rewarding.

The Gift of Giving

Over the years, I have somehow reached the stage that no matter who gave me what, for Christmas or Birthday, I either already had it, didn't need it or didn't want it. In the past 3 years or so it has become ridiculous in that people are still buying things, sending them over large distances, and almost immediately after opening they are unwanted.

Yes, this sounds like I'm ungrateful of these gifts but it's not true. What I would prefer is that someone who actually needs something should get something. I have told my family and friends that, instead of buying me anything (anything at all) that they should give something to charity. This could be food gifts, old clothes, spare time volunteering and of course, cash will work too. All I ask is that I am told which charity they gave to - I don't care about the amount - just my curiosity at work wondering who people enjoy giving to.

Photo: judson

I also be happy if they just kept the money for themselves too. That's a personal choice. What I'm saying is, I'm doing okay, don't worry about me.

Lately, I have also been giving charity gifts to family (with one exception). The past couple of Christmases, I have bought a number of gifts from World Vision and sent the family the card saying so. It's a charity that I like and I feel the cause is good. There have been chickens, school uniform, school desks, garden equipment and other things given to families on my behalf to those that need it. I'm not sure my family approved but they shall be getting a similar gift card this year too.

I mentioned an exception and that is for children in my close family group. Birthdays and Christmas is for children so I shall probably get them something until they are 18.

I also sponsor a child in Malawi and each month a certain amount of money is taken from my account. Again, I'm sure a number of you would wonder if that is the right thing to do, especially since I have plans to Retire at 40. Well, that's just something I see as an actual expense and it is (and has been) a part of the budget that I just can't see myself stopping it. Granted, it does add up over the space of a year, but remember, charity donations are tax deductible (in New Zealand) and at the end of the year you can claim back the tax you'd have originally paid on the donations. In fact, I got a healthy figure back from the government just last week.

In conclusion, I prefer not receiving anything to receiving something that is unwanted. I also prefer giving charitable donations as gifts to those that are not in need themselves. I make an exception for kids.

And yes, all my gifts are now accounted for in GnuCash so I know exactly how much I've given to family, friends or charities over the space of a year.

What do you do? What do you like giving, what would you like to receive? Any exceptions?

(This post was inspired by Frugal Dad's talk of Why Cash Offers More Flexibilty Than Gift Cards.)

10 Little Sacrifices which make a Big Difference

Photo: wordridden

By just cutting out those little things here and there, you can make a big difference to your future savings or your past debt. Either way you'll be much better off. Also, by starting now you can help reduce both the time you'll need to pay off your mortgage and the time you have to wait to retire. Sounds good doesn't it and in all honesty, it almost sounds too good to be true.

ECRD - Or "Little Sacrifice" to You and Me

So what's an "ECRD?" I hear you say. Well, it stands for Expensive Coffee-Related Drink. What it means is those habits for which there are easy but cheap substitutes or which you can cut out entirely. You know what I mean, that takeaway coffee you get from the cafe mid-morning. That chocolate bar you buy on the way home from work. That magazine you really just don't need (and contains no redeemable information in it anyway). It turns out for each of these things, you are paying exorbitant amounts of money for something you can conjure up yourself for pennies.

As for the acronym, ECRD, I think it's a terrible phrase so instead I shall call these new habits "Little Sacrifices". Why? Because it fully describes what you're doing, rather than what they are. It also keeps them in perspective a bit more in your head; they are both a sacrifice but in reality they are only little.

My 10 Little Sacrifices

This is a copy of my list which I drew up a couple of weeks ago. It might be a good starting point for yours:

• Takeaway Coffees: at $4 or $5 a time, these babies can add up to something over $1,000 a year
• Fast/Takeaway Food: at $6-12 a pop the cumulative amount adds up real soon
• Magazines/Newspapers: which you can probably read on-line anyway
• Chocolate Treats: already expensive at $1.50-$2.00 a go, a snack each workday afternoon adds up to over $400 a year
• Breakfast on the Go: buying on the go eats into your paycheck

And possibly some more controversial ones:

• Going to the Cinema: adds up over time, especially with added snacks
• CDs/DVDs: think about renting rather than buying
• Books: these too can be gotten at the library
• Satellite/Cable TV: think about how many channels you actually watch and then how many you actually need
• The Car: I'm not (yet) saying do without but consider walking or riding for those little journeys

All For the Win

I'm sure you don't agree with my list above, after all it is quite specific to my circumstances but this is what I recently came up with to stop me spending all those extra dollars every day.

My typical day used to go something like this...

Get up late and grab breakfast on the way into work ($3). Takeaway coffee mid-morning ($4.50). Eat out lunch ($8-15). Chocolate in the afternoon ($1.60). Supermarket or take-out for evening meal ($5-$15). That's about $30 spent, every single day, excluding anything else. How does $7,500 a year sound?

And add in the odd purchase of a DVD, CD or book on the way home, watching a film on TV in the evening and maybe a beer or two at night (oh right, I didn't mention alcohol!) and it all adds up.

Zero Dollar Days

The best thing about all of these Little Sacrifices is that none of them are too big to say that you can't do them. Since I started my plan to Retire at 40 I have gone without (or substituted) a number of these things for other, cheaper options.

I always eat a healthy and filling breakfast at home. I have Milo or coffee in the office mid-morning. I've been walking home to have lunch (double benefit of exercise too), no afternoon snack and instead of paying lots for cable, I have joined an all you can eat DVD service to get films sent to my house. I've also been making healthier - and cheaper - evening meals.

This leads me on to my next plan, which is to have more Zero Dollar Days. So far, I have had three of them and the first time I had one I couldn't believe that I had gone through the entire day without spending any money whatsoever. It didn't feel real. Now that I've had three, I want more. It feels a lot more real now.

Your List

My challenge to you is to go and make your own list of Little Sacrifices and see how many you can stick to over the next two weeks. You'll probably realise as I have, how much you've already saved in just two weeks. It shall be my two week anniversary tomorrow and already I can see a healthier me and a healthier bank balance.

Let us know some of those "Little Sacrifices" you have also made in your life.

Tired of Expensive, Depreciating and Wasteful Cars?

Would you just love to get rid of yours?

Well, that's pretty much what I'm going to be doing later this year. I am living in town now, I walk everywhere (and I mean, pretty much everywhere) and have used the car just a handful of times in the past four months or so. Could I do without the car completely?

Absolutely, yes. I might still have to hire one every now and again but let's look at the list of things I won't be paying for:

Photo: bogdansuditu

• the car itself
• road tax
• Warrant of Fitness
• insurance
• petrol
• repair and maintenance
• breakdown cover
• Christmas Tree air-fresheners

(Okay, I've never bought one of those Christmas Tree air-fresheners but you get my gist.)

That's a lot of things to be paying for when you really don't use the car much. As I said, I've been thinking about getting rid of it for a while but the past three days have pretty much confirmed to me that I'm done with cars. I never really liked them in the first place (I only learnt to drive when I was 28) and I'm pretty convinced I'll be better off without one. Here's why.

Three days ago, I got my car back off a friend of mine who had been borrowing it (better someone's using it than no-one). It was probably about time I filled it up so I whacked a full tank of petrol in.

BANG! $71.67

Not much compared to some people, but it is a small car after all.

The back brake had been rubbing slightly and of course, since I now live in a narrow street in town, someone had knocked and shattered the driver's wing mirror (why do people do this and not leave a note). So I took it in to the garage yesterday. "Nothing wrong with the brake " I was told, "But we got the wing mirror done."

BANG! $168.19

Lovely.

I had a quick chat with the guy. I wondered how he liked Japanese cars compared to European. Then he came out with it "I took it for a test drive, the brake was fine as I said, but you need a new clutch."

Woah there. What? Right, well you better keep the key then. "Just do it" I muttered. About $400 he reckons.

Got there tonight to pick my wonderful Latoya up. Straight away, took him longer than expected, blah blah, I'm a mechanic (actually, he's a pretty nice guy and I like to think I trust him) this, that and the other.

BANG! $634.27

"I'm sorry. Baking powder. Come again! Just once more for me. I'm not sure I heard you right. I'm afraid I have poor hearing these days, you know, being almost 33."

In just three short days I have spent almost $900 on a car I hardly ever use. My friends who tell me I might need the car in the future are wrong. She's getting sold. I shall keep her a little while longer but really I no longer need a car and I hope that whatever I do in the future, that will still hold true. Once sold I shall be buying a pedal bike and the accessories I need to go with it. At least if something goes wrong with the bike, the most you're ever going to pay to fix it is to buy a whole new bike (which in itself is unrealistic in the short term).

And when I need to hire a car those few times a year, it won't bother me that I'll have to pay slightly more to get all the above things included since I know I'll still be saving money over the space of a year compared to owning one.

Could you do without your car? On what occasions would you need to hire one?

Budgeting

Over the past few years, I've been taking more and more steps to spending less money, though I realise now I can do a lot more. It all started when I bought the house, I guess my spending naturally declined on certain things. Having to pay my mortgage, rates and all the other expenses that go along with that made me think about what I'd been spending my money on.

Whilst I stopped spending on some things, I didn't actually take a step back and take stock of my entire spending habit. As I said earlier, buying the house made me think a lot more even though I didn't action it as much as I could. My plan back then was to pay the house off by the time I was 40 which I now see as step 1 on the road to financial independence.

Photo: jojakeman

My ideas have changed somewhat recently in that I've decided that I actually want to both pay the house off by the time I'm 40 and not have to work either. I've recently made this harder on myself by going down to a four day work week instead of the usual five (a story for another time). The funny thing is, it is this decision that has finally made me start to really do something about my spending. Don't get me wrong, my spending isn't out of control ... I am currently debt-free (apart from the obvious mortgage) ... but I'd just like to spend less.

The more I read various Personal Finance blogs, it seems more likely that you can become financially independent by literally spending less. Let's put it this way, it is many times more likely to happen that way than it is to invent a new product, win the lottery or create a massively successful business. And therefore, the most important thing to spending less is to create a budget.

Currently however, I'm not in the position to create a budget since you can't make one if you don't know what your expenses are. Recently I started to use GnuCash to track my expenses. I had spoken to a few people about this and have even played with it in the past. As Stephen says "Gnucash is a very sophisticated double-entry accounting package" which is perfect for this exact cause. The best thing about GnuCash though is that it's free and there's nothing better than free. Not only do I track all my accounts but I also track my cash expenses too however small they are. (Luckily in NZ I rarely have to carry cash.)

That's the expenses sorted so what about the budget? Well, I'm going to give myself about three months before I actually make myself a budget so that I have something to compare it to. I'll then be able to figure out which expenses should be decreased or even cut. By then I'll have at least a little history to make and back up my decisions.

I'd just like to note that already something weird has started to happen. Even though I don't have that budget yet I've already noticed my spending has gone down. I think the act of carefully recording every expense has meant two things: (1) that I think more about it and whether I actually need it, and (2) the more I spend, the more admin I have to do inside GnuCash each evening. I know you can automate some things but the act of balancing the books is quite a relaxing and happy one. Thanks to Donovan for suggesting that one to me.

Note: in my first few posts I'm going to be giving background on why I'm doing all this. In future posts I shall be giving information on how I'm doing it. I'm sure my tactics will change over the years after learning more things about PF and about how other people do it but that's no different to all areas of life.

To help me along (and other reading this blog), tell me in the comments some good PF blogs that you read and that we can all learn from.