Sunday, June 22, 2014

Pack half the clothes, and bring twice the MONEY

Traveling ain't cheap!
So, as you're probably aware, traveling isn't cheap. Even when you do it on the cheap, such as backpacking, staying in hostels, cooking your own meals...the costs still add up. And the older I get, the less I'm inclined to backpack, stay in a hostel, cook my own meals on vacation....and most of my traveling companions want no part of that. This blog could be just about traveling-it is called "Melanie's Travel Bug" afterall. But, I want to write more often, and if I'm only writing about traveling, I won't be able to accomplish that. Which brings me to my point: Traveling costs money. Not only that, but plain and simple living costs money!

So I wanted to write a little bit about this topic that everyone avoids talking about. If you know me personally, you'll know that in the past year or two, I've gotten very interested in all aspects of money: debt payoff, emergency funds, living on a budget, saving for a down payment, retirement savings, etc. It has been a struggle for me the past few years balancing my travel bug, and the reality of what it costs to live. When I first started working full time, I saw my job as a great way to work for some time to save up for the next big backpacking trip. I had just returned from four months in South America, and my mind and heart were full of a dozen other awesome backpacking ideas. Little did I know...I had some maturing to do!

I'll touch on a few ideas here-I'll try not to geek out too much and lose the crowd. (Is there a crowd?! Anyone?!)

Dave Ramsey. Personal finance master. My financial guru. His book, "The Total Money Makeover" really changed my outlook on finances. He has seven baby steps which he teaches:
1. Save $1,000 in a beginner emergency fund.
2. Pay off all debt.
3. Put 3-6 months of expenses in savings.
    3b. Save your house down payment
4. Invest 15% of your household income.
5. Save for your children's college.
6. Pay off the house early.
7. Build wealth and give!

So, I began following his plan (but not exactly). I adopted some of the principles, but not all. I had Step 1 accomplished-$1,000 in savings. Next was to pay off all my debt-school loans, car loan, and personal loan to a family member. However, Dave teaches to use any savings you have above the $1,000 and put it towards the debt. I had a little nest egg that I didn't want to touch because my job is contractual and I needed that cushion for peace of mind. Also, Dave suggests holding off on retirement savings until your emergency fund is fully funded, and I just couldn't bring myself to stop saving for retirement.

However, I can totally see how accomplishing all these tasks before investing is a good plan. This is just my two cents. Anyway, sooo in 2013, I began living on a written budget. What this means to me is, EVERY.SINGLE.MONTH I do a written, pencil and paper plan of where my money for that month is going to go. I "spend" the money on paper before that month has begun. Do I always stick to the budget? No, but I try every single month. The nice thing about it is, every month is a chance to start fresh-to live below your means, accomplish goals, etc.

Living on a budget made it possible for me to pay off all my debt in 2013! It was a difficult process, and I changed my lifestyle and my spending, but month after month of both successes (and failures) led me to accomplishing that goal. . I didn't save a cent during that time, and practiced saying "No" over and over again  to fun invitations. I didn't take a trip in 2013. (Clearly a challenge in self discipline for me). Obviously this all depends on your income, your debt, your bills, etc-but I believe anyone can find success by simply finding a really good budget form and adopting this mentality with their money.
Right now, I'm a few months away from fully funding my six month emergency fund. If you saw my list of what my emergency fund consists of--typicals like rent, utilities, groceries, insurance, etc--but even down to six months of flea medication for Ava! :) Haha.

After this, I begin my down payment fund. And I'm PRETTY excited because all along up until about two weeks ago, I thought the condos in the area I may buy someday were $200K, but recently saw some decent ones for $ perhaps I can be a home/condo owner much sooner than I may have imagined. First things first though, complete the emergency fund.

I've also adopted a crush on sinking funds. (Yes, my love life is wild!) A sinking fund is best explained with Christmas gift costs. Let's say it's January, and you think to yourself "Christmas is so expensive, this year I'm going to save each month, so when Christmas comes around, I'll have saved money to buy gifts with." Let's say you spend $1,000 each year on gifts and you have 11 months to save. Divide $1,000 by 11 months, and you'll learn you need to save $90/month for 11 months to have $1,000 saved by Christmas. Ta-da! Basically, it's planning ahead for purchases. If I can be successful if adopting that for all purchases in life (other than a home), hopefully I won't need to take out another loan ever again.

I'll leave you with one pretty amazing tidbit: If a 30 year old saves just $263 a month and invests this money with a 10% return...he/she will be a millionaire by age 65. (I heard this on "The Money Guy Show" podcast).

I think that's enough financial talk for now....and I think Ava agrees.
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Ava says: "This budgeting stuff is tiring"