State of the me part 2: Frugal is the new black

[electricland]

Finances are on my mind of late, thanks to the global economic meltdown, which is having its effects on my workplace and on some of you as well. (Much sympathy.) I'm fortunate: my job, thank goodness, is safe for now, and is nice and stable at that. I don't think I'm temperamentally suited to be a freelancer -- I like knowing where my next paycheque is coming from and how much is going to be in it.

It always strikes me -- not in a good way -- that although I make more than twice what I did in my first "real" job 10 years ago, and am living in a lower-tax jurisdiction, I seem to be perpetually at the edge of my bank account. There's a good reason for this, of course: my apartment in Montreal was cheap cheap cheap, whereas my house takes roughly half of what I make after tax. When we started off this grand adventure, Jen and I set up a joint bank account, which we use for mortgage payments, tax, utilities, renovation expenses, and all the other exciting expenses that you come in for once you own a house. We each have a set amount we pay into it every paycheque, and Jen administers the funds (giving me a free ride). There's a complicated spreadsheet that she uses to keep track of it all. Anyway, my share is almost exactly half my paycheque. With that and the other regular payments I make (see below), I often wind up with... not a whole lot of money, actually, even on payday. (I should really stop ripping open my pay stub every other Friday and getting all excited. The number on it is totally illusory.)

There's also a bad reason: it's shocking how much I manage to spend on frivolities. After my trip to Italy last year I stopped updating Quicken. (Out of fear, I think, although actually as overseas trips go I don't think I've ever had a cheaper one. Or maybe I just don't like entering foreign currency transactions.) In January, as part of Operation Make My Life Better, I ploughed through the giant stack of receipts and statements and managed to catch up. This gave me an excellent opportunity to look at 6 months' worth of expenses in one go, and something I noticed was how few items seemed like a good idea months after the fact. There were a very few items of which I was able to say definitively, "Yes, I'm glad I bought that. Spending $X on it was totally worth it." There were quite a few necessities -- groceries, obviously, and vet bills. And then there was the alarming list of expenses of which I had to ask "What was I THINKING?"

I was also shocked by how often I'd paid off my credit card with my line of credit, which has been steadily inflating all year. I'd thought it was maybe once or twice; in fact, it was every other month. (Now I know WHY it's been inflating.)

As I mentioned yesterday, I really need to keep track of what I'm doing or things get completely out of hand. And I hate the feeling of being financially out of control, always have. (Unfortunate about that reluctance to look at my finances, then... I know, I know. I'm better now.)

There is good news. I'm enrolled in a defined-benefit pension plan at work, which is a chunk out of my paycheque but also means that my unused RRSP contribution room isn't accumulating quite as fast as it would otherwise... and defined-benefit pension plans are thin on the ground these days. I've been saving steadily into an RRSP since that first real job (I'm now paying back what I took out for the First-Time Home-Buyer's Plan), and that's an automatic payment from every paycheque. I also have an automatic payment into an ING account on every paycheque, so I do have a bit of an emergency fund. And my line of credit isn't yet out of control.

Still, it was time to take things in hand. What I'm doing:

• Continuing with savings and RRSP payments. Savings are going into a tax-free savings account.
• Paying a set amount to my line of credit each paycheque. Once it's paid off, I'll divert most of the money to savings.
• Keeping track of expenses and updating Quicken every 2 weeks.
• Trying to stick to a budget, and really considering every purchase carefully before making it. (So-so results so far, but at least I'm more aware of what I'm spending and what I should be spending.)
• Writing down major purchases I want to make (which in the past would have gone straight onto the credit card), together with approximate cost, why I need it, and how I plan to pay for it.
• Taking out only $20 in cash per week.
• Nothing on the credit card unless it's going to be reimbursed (e.g. dental work) or I have no choice (Internet and mail orders) or it's a known quantity every month (gym membership).
• Pretty much everything paid by debit. (Downside: I had way more transactions last month than my account allows. I'm going to have to pay slightly more for an account with unlimited transactions. I've also had some overdraft fees thanks to inept juggling of funds. Hopefully these hiccups are now behind me.)
• Tax refund goes to debt repayment.
• No more dipping into the line of credit except to cover short-term cash-flow hiccups.
• Tracking my progress on a graph, so I can see I'm actually getting somewhere.
• Finally, a slight stroke of luck: our mortgage came up for renewal, so we got a variable-rate closed mortgage at a lower rate (at least for now) than we were paying before. Our payments are going to drop a little, and if interest rates get too high, we'll lock back in to a fixed-rate mortgage. So that will help.

Inspirations: I've been watching a lot of Maxed Out, which is inspiring in that horrified "well, at least I'm doing better than that!" kind of way. (The website has budgeting tools.) I also found Going Broke, which I believe fairoriana recommended, really fascinating and illuminating, and am trying to put some of its conclusions (build in a waiting period; keep your long-term goals in mind; treat windfalls as real money that you earned) into effect.

So yeah. That's how the Great Financial Crisis helped kick-start me into doing a bunch of stuff I should have been doing anyway. How about you?

Comments

[pretentiousgit.livejournal.com]

Switch your chequing account to one that doesn't bill you for unlimited interac transactions. PC Financial is actually raving amazing for this exact reason. Keep your other account going if you REALLY need to, but I started saving something insane, like $20 a month just by doing that last year. If it's good enough for my self-employed gazillionaire boss, it's good enough for me.

I've been more or less in Financial Crisis Mode for my entire life, because Mum's a freelancer and we had no money at all growing up. It can be very scary, so go you on the taking charge.

[electricland.livejournal.com]

hmmm, that does sound like a good idea! And I could drop to a lower-cost account at TD and just keep it for the basics -- paycheque in, automatic savings out. *ponders*

What does PC Financial do about US and overseas transactions? (It could hardly be more expensive than TD at this point, but it would be good to know.)

Thanks!

[pretentiousgit.livejournal.com]

I keep a no-cost-per-month CIBC account for anything that HAS to be done on the Plus System, and my Visa for that. I believe you can do US currency transactions, but have not had much reason to find out.

[kerlin.livejournal.com]

Well, I have that horse, so I am pretty much constantly in a financial crisis state.

I use Quicken Online instead of the full quicken, which automatically links to all my bank accounts and updates transactions for me. I adore it. I plan out upcoming transactions down to the penny, and it really helps me get a longterm snapshot for my finances.

My trick is also this: I have little to no credit history right now. So I put EVERYTHING on my credit card, but I have a personal budget for the card. I'm allowed to spend a certain amount of money on it each month, and that amount is broken out into a budget. I know ahead of time the maximum amount I'll have to pay to clear it completely. I keep that amount in reserve at all times, and the day I get the bill, I pay it off. That way I get all the points and the credit history, but I am as secure as if I were paying debit.

I also have a separate account for Tristan. A certain amount is direct deposited into it each month, enough to cover his board, lessons, and basic medical expenses. Anything more and I'd dip into savings, which I keep in a couple of levels and try to add a little bit to every month.

I'd also recommend reading Get Rich Slowly and The Simple Dollar. I like them both enormously.

[electricland.livejournal.com]

cool! I like the separate-account-for-the-animal idea a lot. Need to start doing that; his expenses are not steady. (I was thinking about getting vet insurance, but am not sure it would be any better than just saving a certain amount per month.)

Will check out those books!

I was much better about planning my spending when I was in university and had no money, or earning a pittance. Somehow getting raises has encouraged me not to think about it so much. Definitely need to recapture the frugal me.

[kerlin.livejournal.com]

The separate account was actually something I arrived at after repeated frustration in dealing with unsteady expenses! Tristan can cost anywhere from $600 to $1500 a month with no warning. So I basically took a monthly average of a year's worth of costs and direct-deposit that each month. It's linked to my regular checking and savings accounts, so I can put more money in if I need. But it ironically helps me spend *less* on him - before, I would look at my checking account and think "I have some extra money, he can definitely have a massage AND chiropractic this month!" when really, he couldn't.

[fairoriana.livejournal.com]

I would also recommend the blog -- it has an LJ RSS feed. It can be slightly repetitive sometimes (I mean, really. There are a few thing you need to know in order to do this.) But I think the very repetition helps remind you.

http://www.getrichslowly.org/blog/

[electricland.livejournal.com]

oh cool, thank you! Added.