Consumption junction: the outlet mall

Posted by Matt

Did any of your mothers tell you that you aren't supposed to buy anything for yourself during the holiday season? Mine did, and it is a pretty good tip. If you buy everything you want, then people don't have anything to get you and you end up with generic gifts that you don't really need.

We all know how difficult it is, though, to put the blinders on when you are at the mall. My suggestion is to look and even try on, but keep your hands off of your wallet/purse. Keep a list of things that you like and let a close friend or spouse know about them. Chances are that others will be asking that person for input on gifts for you.

Okay, so hopefully that helps you limit your spending on yourself during the holiday season, but what if you didn't get everything you wanted, and now you have a handful of gift cards or cash from grandma to spend?

You can do what we did this year: head to the outlet stores. Not everyone has these close by, but if you are anywhere near a big city, you should have several. If you've never been, outlet malls are similar to regular malls and have most of the same stores, but usually bigger and more remotely located. In the past, it seemed that the outlet stores were dumping grounds for last year's styles, uncommon sizes and blemished merchandise. This can be true, to an extent, but these days so many people are looking for deals at outlet malls that the retailers started mixing in the new and good stuff, too (at full price). As a result, you have to be careful to make sure that don't end up driving 50 miles to buy a new sweater for the same price as you could have got it from a local store.

Here are the tips my wife and I came up with after our visit.

• Don't go too frequently if they are out of the way (consider gas and time costs)


• Look for deals as many prices are the same as at the regular retail store


• Make sure that the inexpensive items aren't irregular or damaged


• Check return policies...sometimes you have to return to the outlet


• Comparison shop ....Leah found a pretty good deal on a pair of shoes at one store, but kept looking and found them at another shop for $10 less


• Go with a list!

For me, the best of these tips is the last one. It is too easy to convince oneself to buy something because the price is just "too good to pass up." I passed up a $15 sweater that I thought I wouldn't wear nearly as often as the $30 sweater that I'm wearing today. My clothes shopping list isn't actually something that I write-up for each trip, either. I started a list last year of what I think constitutes a complete wardrobe for me and I'm still trying to fill it. Eventually I hope to get to the point of only having to shop for replacements when things wear out.

How did I do? I bought 2 nice new merino wool sweaters and 2 new polo shirts for about $80, all of which was on my wardrobe "need" list. Definitely a savings over what I would have spent locally.

Article: Capital Ideas

Posted By Paul

Wow, what an odd coincidence. The article that Matt just posted about was also sent to me by my sister and I wrote a similar "how I stack up versus the rules" article, I thought it would be cool to have both of our articles, so here is mine:

My sister sent me this article recently that I thought was interesting:

Capital Ideas

I thought the article was really interesting since it gave some guidelines for where you should be financially. I thought I would summarize the guidelines in the article and see how I'm doing relative to them.

"$10,000 is now about the average credit-card debt per household, according to cardtrak.com."

How Am I Doing?
I'm doing great here, credit card debt is 0.

"At 30, you should have your highest levels of debt (including mortgage, student loans and credit cards) to earnings, with total debt double your annual earnings. As you age, that figure should get smaller, and stay below 1:8. At the age of 45, debts should equal your annual salary."

How Am I Doing?
Since I'm sort of half way between 30 and 45, so I guess following the guideline would imply that I should have about 1.5 times my annual salary in debt. Assuming that since I'm married I should consider total household salary, then my calculations say that my debt to income ratio is almost exactly 1:1, so it sounds like I'm a bit ahead of schedule there.

"You should also aim to be saving 12 percent of your income annually, and the savings you amass should exceed your annual income in your 30s, says Farrell. By the time you are 40, you should have 1.7 times your income stashed away for retirement, and by 50, aim for three times your earnings."

How Am I Doing?
My wife and I actually save more like 15-20 percent of our salaries. It says that by the time you are 40 you should have 1.7 times your income stashed away for retirement. Currently my wife and I have about 1.85 times our salary in retirement accounts, so it looks like we're ahead of schedule there.

"Lenders (at least the sensible ones) like to see borrowers keep their housing expenses—including mortgage payments, insurance and property taxes—to 28 percent of gross income."

How Am I Doing?
I think a rough estimate is that our total mortgage, insurance and property taxes are about 10% of our gross income.

It looks like according to this article my wife and I are living a pretty savings heavy lifestyle. It looks like we're ahead of schedule as far as our savings and that our cash flow situation looks pretty good.

In fact my stats would look even better if the stock market hadn't taken such a beating in the last month or so.

Modern financial rules of thumb.

Posted by Matt

By now most everyone knows WHAT they should be doing financially; things like watching your spending and saving for retirement. The questions that arise usually center around HOW MUCH?

Am I saving enough for retirement and how does my nest egg look so far?
Am I carrying too much debt?

These are the kinds of things that can be explored in-depth with complicated financial spreadsheets, but most people aren't that interested. If you want a quick rule of thumb, check out the Newsweek article a friend of mine passed along. I thought it would be fun to see where I stacked up.

Household income: I learned from the article that our household income is safely above average, although I don't think that people should really be that concerned about where their income is compared to other people's. It is more important to make sure that your spending is appropriate for whatever income you have. At least the article didn't list an arbitrary income goal, although they did mention an outdated rule of thumb that suggested your income in thousands should equal your age.

Minimize credit card debt: We pay off our full credit card balance every month, but I didn't take any pleasure from learning that that put us $10,000 ahead of the average US household. It is more than a little scary to think that so many people owe that much on credit cards.

Debt equal to twice earnings by age 30: I was amused to read that age thirty is supposed to be the debt high-water mark. That was probably right about the age where I finally got back to absolutely ZERO debt after paying off my student loans and car (and before buying a house). Our current debt is WAY past the "double our earnings" mark, but only until we sell our previous house. After that, we should be about on track as the mortgage on our current house is the only debt we will have. The article recommends getting to zero debt by age 65, but I hope we beat that deadline!

Saving 12% of income: check. I got there a year or two ago and just bumped up to 15% in 2007. That's probably a good thing as my retirement account only surpassed my income less than six months ago. I'll probably need the extra boost if I'm going to get to 1.7x by the time I'm forty (I'm 36 now).

Housing expenses below 28% income: Not currently; that darn second mortgage payment again, but we should fall under the wire after selling the house and paying it off.

The eat and sleep test: This was a quaint little idea, although I have to point out that you can eat well and sleep well; you just have to put them both near the top of your priority list. And shouldn't they be?

Energy budget leveling

Posted by Matt

Paul wrote a post about budgets previously, but I just wanted to share one more bit of information that can make the budgeting process easier.

From Paul's post:

After a while I discovered that many of my utilities varied, but only a little each month (like my phone bill). Once I realized this I included the average amount as an expense in my budget and if my bill was less than the average one month I'd add the extra into my surplus and if it was more I'd subtract it.

Great idea, Paul. But our readers might point out that one category of utilities varies by more than just a little. If you're thinking "yeah, energy bills", then I feel your pain. The monthly gas bill in our last home went from the $20/month range in the summer to the $200/month range in the winter. That's an order of magnitude change! Having a nice cash reserve in savings keeps us from having to worry in months when our spending goes up, but if you need more stable expenses, check with your utility companies to see what kind of billing programs they offer.

Our electricity provider provides a couple of different options for paying an average payment each month, as does the local gas company. Check them out!

Catching up from holiday spending

Posted by Matt

Happy New Year, readers!

I hope everyone is ready to get back to Frugalizing in 2008 and that you didn't miss us TOO much as we took some time off for the holidays. Let me tell you, it was a bad time to be posting anyway. I think any advice I could have given for saving money last month would have felt hypocritical, as we had a huge spending month at our house. There were the usual gift expenditures, sure, but we are also still getting little small things here and there for the new house.

One small thing we still need: fireplace tools. We've had gas-only fireplaces in our last few houses, so we didn't think about them until our furnace went out on Christmas Day and we tried to tend to burning logs with our BBQ tools! We were trying to save on the furnace repair bill by not calling someone out on the holiday and paying triple-overtime, but if I had only known then what I know now, I could have saved even more (and not scuffed up our spatula).

Apparently there is a simple part called an ignitor in gas furnaces that burns out every three to four years. The furnace repairman that came December 26th spent about three minutes pulling out the old one and putting in a replacement (no tools and just one wire to disconnect). Total bill: $163. I might try to get the jump on it burning out again by picking up a spare ignitor at a local appliance parts store (the same one that sold me parts to side vent my dryer, incidentally) that sells them for $50 to $60.

That unexpected expense was actually more painful than a much larger one that we had planned for that same day. We finally got our attic and crawlspace insulation installed! I have a detailed write-up in the works, but I'm waiting to see how much incentive money we get back from Energy Trust. Stay tuned....just a little while longer!

Oh yeah, and our old house hasn't sold yet (RMLS#8000353, in case you know someone who is looking), so we're still making double mortgage payments. (Sigh) But, just like in 2007, we're still doing our best on a daily basis to try to save money on the things we do decide to buy, so keep reading. We'll share whatever tips we can!

Article: Retirement Plan Interrupted

Posted By Paul

An interesting article on CNN Money about how stretching your housing expenses too far can put you in a tight situation:

Retirement Plan Interrupted.

Happy New Year!

Posted By Paul

Hi Everyone,

Happy 2008! I'm back from the holidays and eager to tackle 2008.

As I mentioned in a previous article "Adviser Or Not", 2008 is going to be a year where I handle all of my financial decisions myself.

I'm excited to see how this effects my household net worth. My basic goals for the year are:

1) Don't chase returns - by this I just mean that I plan to avoid the idea of trying to move your money around a lot hoping to chase "the latest thing".

2) Save, save, save - I also hope to continue to save a lot of money. I've got this idea kicking around that maybe I need to worry less about making great returns on my investments and worry more about saving so that I have more to invest. The idea is that maybe I can save $500 and find a risky investment that might return 8%, but maybe with some work I can save $1000 and find a safer investment that will return 4%. This is something new I've been thinking about and it will probably comprise a post of its own, but I thought I'd mention it.

3) Invest smart - by this I want to really try to take the time to ask myself "What am I investing this for?". My hope is that by answering this question I'll be able to make better decisions in my investments.

Well, more posts to come, but I wanted to wish everyone a happy new year. Are there any readers out there with financial resolutions for 2008 that they would like to share?