David On Finance

Well, my wife and I just got the exciting news that we are going to have a baby this August! While we have a healthy fear about this, as the person responsible for our budget, I have a very real fear about how much this will cost. Put simply, babies are expensive! From the moment you conceive, plan on spending some major bucks the rest of your life. In my research and planning, I’ve arrived at some conclusions, and figured I would share them with others who may be fretting.

1. Talk It Out

The first thing you really need to do is sit down with your spouse and make sure you’re on the same page about taking care of a baby. While you envision a two income household and childcare, she may envision being a homemaker. While you may want your children to earn scholarships to college, your spouse may want to save money for them. Hopefully you discussed these topics before marriage, but if not, definitely spend the time to do it well in advance of the due date. On a non-financial note, it’s also time to make general plans of how you feel about punishment, babysitting, names, religion, nursery decor, etc.

2. Plan Healthcare

The fact is a baby can cost you a lot before you even see it’s pink cheeks for the first time. Monthly prenatal visits, vitamins, maternity clothing, healthier foods, and the delivery costs add up tremendously. Now would be a good time to make sure you have health insurance, and be aware of your deductible and covered expenses. Depending on your level of insurance, plan on spending anywhere from $1000-9000 on your entire pre-birth experience. Also, be aware that you will need to add your baby to your health insurance almost immediately, which can increase prices significantly per month. If both spouses have access to insurance, you may choose to hold two separate policies to save costs. Also, you should now consider increasing your life insurance benefits; if you or your spouse were to die, how would the remaining spouse be able to care for the child?

3. Budget, Budget, Budget!

It may go without saying, but you seriously need to go ahead and plan what it’s going to cost per month and find where that money is coming from. For us, we just finished off paying my old debt, which means we now have that $400 extra to spend. We were going to put it toward a house, but it looks like that will have to wait now! You may need to find ways to cut other categories down. Maybe less entertainment, or less eating out (especially since you will likely not be going out much anyway). But plan now so you will know what to expect! If you are totally clueless to the expenses of a baby, don’t worry; I was too. As a general rundown, I will give some basic monthly costs for you to consider:

1. Disposable Diapers (200-300/month) – $100
2. Wipes (4 boxes/month) – $15
3. Formula (30 cans/month) – $110
4. Childcare ($125 per week) – $500

Obviously, you may be able to cut costs in these categories, but do your research. You can save money by breastfeeding and cloth diapering, but those have very big drawbacks, especially for working couples. You may also be able to work from home, and save on childcare for awhile (while they don’t demand 100% attention) Also, this does not include the larger purchases such as equipment, nursery items, clothes, bottles, etc. that will be needed. And you may want to work on increasing that emergency fund! Now, you have one other member of the household that may need something unplanned!

4. Get Family & Friends Involved

You may have one untapped resource right nearby, and that is your friends and family. Maybe they will throw you an amazing baby shower that provides all your needs for the next year. Maybe someone is planning to have permanent birth control soon, and is getting rid of all their baby stuff. Maybe they will offer childcare. The point is, now is not the time to be proud. It does take a village to raise a child, and you do not have to do it completely alone. Allow them to help you out, and you will not be sorry! Even in a bad economy, family and friends will come through for you. As an example, my dad is going to build a cradle that will be both useful and become an heirloom of sorts. Our church will throw a shower, and one family member has offered up lots of gadgets, clothes, and equipment (car seats, swing) from her previous babies.

5. Cut Corners

This is where you decide what you really need. Does a baby need a a whole new changing table, or would an existing bed or dresser suffice? Do you need 3 strollers, or would one good one work? Do you need brand-name diapers, or would more generic brands work? Do you really need to outfit a whole new nursery, or would the baby be just as happy with the basics? Let’s face it – babies only use half of this stuff for a few months of their life and then it is worthless. And I’m not here to judge you if a decked-out nursery is what you want to do; it’s all about discovering what you believe is most important, and cutting corners on the rest. But at least explore your options – go to a baby consignment shop, or visit some garage sales in nicer neighborhoods. Research how to select quality, sturdy equipment.

6. Start now!

I use the toilet paper analogy – it is very expensive when you wait to buy until you need it. But if you use sales and coupons and stock up ahead of time, you can spend much less! Diaper coupons are common, but do not run all the time. Start saving coupons now, and you will appreciate it later. Even better than that, start buying them! Go ahead and start stocking up when they are on sale and you have a coupon. Look for free samples of baby products online. If you start deal-hunting now, you can be well stocked up when the time comes, and spend much less per month on the essentials. It’s also ok to start buying clothes on sale; post-Christmas we found several outfits for just a few dollars each! Be clever and wise, and you may get away without much budget increase at all!

Having a baby almost guarantees you will be spending more than you anticipated, but with some advanced planning it does not have to be a bad thing! Some smart budgeting and deal-hunting may make the transition almost effortless. The main point is to start talking about it with your spouse, and the two of you getting creative to find ways to give your baby a great childhood without ruining you financially! The more you plan now, the easier it will be when the time comes.

UPDATE: Evan from My Journey to Millions has featured this post in the 241st Carnival of Personal Finance. Be sure to check it out; there are several great articles in the carnival this week!

We got bad news at work last week. There’s an issue with cash flow, and our pay has to be cut in half for the next month, maybe two at most. While the economy is finally improving and we have work coming in, we’re simply out of money. Perils of a small business, I suppose. But since it’s small, we can adjust and make it out, instead of losing our jobs!

I’m just happy that half pay is not going to kill me! I’m down to my last 2 grand or so in debt repayment, and my monthly expenses are noticeably less than they used to be. While I won’t have any extra money and my debt repayment will be on hold, I’m not freaking out. I have an emergency fund in the bank, my expenses are down, and by using coupon shopping the past month, I am well-stocked on enough groceries to supplement me for a month!

So in light of many people having to adjust to similar situations, or possibly having to adjust in the future, here are the things I’ve done to help me weather what would otherwise be a dark time in my financial life:

1) Build an emergency fund. A month’s income is about right. That is enough to fix a car, pay for small medical bills, keep you afloat for a month in case of job loss, etc. Since I’m at half salary, I could easily live at my current means for two months before I felt an impact. That’s a long time, and enough time to find a small side job or take on small projects.

2) Reduce expenses. It goes without saying, but the best way to reduce debt is by spending less. Now that my budget is way below the money I make, making less is not going to kill me! I won’t be able to put as much extra money towards my remaining debt, but I can survive on half salary, possibly without even dipping into my emergency fund! The money is there if I need it, but now that my expenses are low, I won’t need much of it. Now, this isn’t easy to do. You’ll have to become frugal…

3) Become frugal. There is a “cheap” person, and there is a frugal person. The latter is pretty much the same, just less annoying. Don’t go to a restaurant with people and bring grapes and crackers to eat – that’s being cheap; just pick something that doesn’t cost much, or don’t go at all. Frugality is a mindset in which you don’t spend more than you have to on the things you need, and don’t buy the things you don’t need. Chances are, you don’t need a lot of things. You probably don’t need digital cable or satellite, a netflix subscription, and internet. Most TV is available for free online. Use the library for books, which can provide hours of entertainment per week. Borrow DVDs from a friend instead of buying them all the time. Use coupons when you shop (google The Grocery Game). Check for better prices on phone, insurance, and utilities. Research online ways to get those services even cheaper.

4) Calm down. Stress is evil. If you freak out about losing pay, then you will not sleep, your productivity will be down, and you might even lose your job! Just keep calm, and plan for these situations ahead of time. If you are well-planned, you have nothing to fear. Calculate a worst-case scenario, and find a way to live through it. My worst case scenario was temporarily moving back home, and lately it is moving up to get married earlier. Yes, it would be terrible to have to do things that way, but it is the worst case.

5) Build relationships. We’re in a new era, and people are starting to go back to relationships. In the end, the government won’t be able to help you, your boss won’t be able to help you. The people you can trust to keep you afloat are your family and friends. Build a network of close friends that can support you. Then, the worst case becomes bunking on someone’s couch for a few weeks. I have volunteered at a lot of soup kitchens, and the common thread among the poorest among us is that they didn’t have family or friends to fall back on. When you’re building a career, it’s easy to sacrifice other people along the way. The problem is that careers are fickle. People will stand by you forever.

I hope this helps some people. A year or two ago, this would have nearly done me in. I likely would have had to move back home. I probably wouldn’t have met my fiancee, and things wouldn’t be going this well at all. Get rid of your debt today! You’ll gain peace of mind, financial freedom, and the ability to weather small storms in life, like this one. It’s tough, but if you persevere, there’s nothing that will be able to take you down!

The past month has taught me some difficult lessons. In the same way working through college made me grow up faster than classmates who had the parental free ride, losing my job 2 months after starting to get my finances in order has taught me a lot, very quickly. In short, I did find another job that seems to be the perfect opportunity, but I will wind up losing a full paycheck because of the transition. This is my first week working full-time in 3 weeks.

First, I learned that even if I think I have things figured out, but don’t account for major shifts from the very onset, I’m doomed for failure before having tried. I started getting my finances in order in June. In August, I lost my job. Two months could have been enough time to get at least a basic strategy ready just in case something happened. Granted, I thought things were stable, but I still should have had at least one exit strategy.

Second, I’ve learned that it’s possible to be extremely frugal given the correct circumstances. I can say no to going out with friends, I can refuse to drive extra miles, and I can even eat off $100 for two weeks (when I normally spend $100 per week or more). I’ve cancelled every little subscription I had, and tried my best to find every spare dollar I had. If the money is simply not there, I cannot do that stuff. Translating this into my path out of debt, my goal will be to make debt payments first, and live off of what’s left. This means I’m forced to be frugal, where thus far I’ve tried to be frugal on the front-end. It’s hard to be frugal when the money is sitting there waiting to be spent, but much easier when you don’t know when the next check comes in.

Third, I’ve learned that some creditors are sympathetic. Within reason, of course. A few credit cards allowed me to not make payments this month, and resume next month. They are still charging me interest this month, but will not charge me for two months later, will impose no late fees, and will not report me to the credit bureaus. While it doesn’t completely save me from the lack of funds, it will be an immense help, and one less thing I have to worry about right now. It took a lot of time and talking to get it done, but a few hours work to save me peace of mind during this transition was well worth it.

Fourth, I’ve learned the real cost of not having my finances in check already. In June, I wanted to do it for peace of mind and looking to the future and marriage/family. I assumed the job was stable, that I would always have an influx of money, etc. By sabotaging my own future self financially, I made this thing much more difficult than it should have been. After all, I’m only missing one paycheck, not even a full month, much less half a year like some people do. I’m extremely happy I was able to quickly find another job, but if missing two weeks worth of pay messes me up this month, I’m in a very bad condition. If I was not motivated before to get out from under this debt, I sure enough am now.

My new job will be paying me a few hundred more per month than I am making now, but will not be paying my school expenses. After thinking long and hard about it, while school is important, I really need to build up some financial muscles. After this semester, I may put school on hold temporarily if I cannot find financial aid to help me out. At this point, I may even take out additional student loans to cover the cost, and use my extra money to get out of debt even faster. With a few hundred extra per month, and living more frugally, I should easily (or rather, difficult-ly) meet my target of next December. Even more, I should have a decent emergency fund by then. While it may put my education in somewhat of a bind or cause me to gather more debt in student loans, I’d much rather trade my credit card debt for student loan debt! And with the increase in salary, once my debt is paid off that gives me that much extra money to either invest or put towards those student loans, which is nice. Once I have my degree, that’s an immediate $10-15k bump in my value as an employee apparently (though personally I feel the caliber of my work is not affected by a piece of paper), and I’m all set.

And while it’s fun to think about the future, it’s taking everything I have to make it through September. I’ll probably be posting very rarely until money starts coming in, but know I’m getting some good life experience that will give me much better perspective on my posts. I hope I learn some more lessons worth sharing, but until then…

Well, I only thought that going back to school was a major lifestyle shift. Little did I know that there are much bigger shifts that can happen, such as, say, losing my job. Yes, I’ve not been posting for the past week because I have been using every spare second searching for a new job. Luckily, I was given plenty of notice, and it isn’t due to poor performance on my part; they are divesting the entire R&D arm of our company and about half of us will be lost in the shuffle.

On a not-so-side note, I finally learned what not having a degree means in terms of job availability. Even though I don’t feel the degree really means you know more (and personally will never hire people as if that were true), a lot of companies weed out potential candidates based on that little piece of paper. Oh, if only this were happening two years from now when I will have finished school.

So, this is a pretty shaky month. I had to start working part-time immediately, which reduces my cash flow quite a bit. I’ve made some big cutbacks already, and have more to make. If by next week I do not have a job, I’m going to have to call creditors and see if they’re willing to give me a break while I find a job. I do have a few prospects, and if worse comes to worst I’ll have to move back home and work fast food or something. So I’m not sweating it too much; worrying about it will not get me anywhere. I am, however, allowing it to motivate me to keep looking for jobs. Unfortunately, out of about 500 jobs I’ve looked over, only 2 seemed appropriate for me.

I’m also at a disadvantage because I won’t be able to make what I’m currently making at a lot of places, without that degree. In a small business, I provide a lot of value. In a large business, I’m just another programmer, and the pay scales accordingly. I’m hoping I can transition into a position that pays what I’m making now, and also pay for school still (or put school on hold for the immediate future).

So, some lessons well learned about life and how it throws you all sorts of curveballs. Don’t worry, I’ll come out of this stronger. I now see even higher levels of importance in being debt free and having plenty of savings stockpiled. That will motivate me to try even harder.

On a side note, I’m not allowed to talk about it in detail yet, but let’s just say that Mint.com is going to be an incredibly awesome tool, and will blow every other finance tool out of the water easily.

Note: If you came here from NCN’s Carnival of Debt Reduction, here is the post he was talking about: Backbone Growth.

Today I start back to school. For those new to my story, I have a full time job and am also going back to school full time to finish my degree. I’ve had the summer off, which has helped greatly in terms of getting back on my feet financially. However, since I’ve had plenty of time to focus on finances thus far, not to mention getting in 40 hours at work every week, going back to school will be a major shift.

The shifts are not inconsequential and many of them are things that got me into trouble in the first place. First, the sheer amount of time school takes up leaves me unable to easily take time out to handle financial matters. Yes, I can still find an hour on weekends, but things like calling creditors, looking through statements, etc. seem like much more of a hassle when the grades start dropping. It shifts my entire daily schedule forward (since class goes until 11:30pm or so), which forces me to do things like eat at fast food places or the campus food court for dinner, and go into work later. I get in fewer hours of work per week on average, usually 35-38. Not to mention I spend about $50 more on gasoline per month. As you can tell, these little things really add up when you combine it with debt reduction.

However, I refused to be caught by surprise this time! Here are some things I did to keep this from being a major burden on my life:

1. I thought ahead. Really, this is the only thing it took, but I sat down and really analyzed what each semester costs me in terms of money, time, and sleep. I then re-budgeted all three of those to make things work. I made a new financial budget incorporating food and gasoline costs. It will be more difficult to get out of debt, but at least I won’t be getting in any deeper!
2. I got supplies on sale. I caught the back-to-school sales along with the high schoolers, and got things like pencils, paper, and printer ink for much cheaper, and tax free! Better yet, I kept it within my budget for July, so it didn’t even hurt me. I may even have enough supplies for Spring semester as well.
3. I didn’t take a vacation this summer. Because of that, I have enough annual leave left to where I can take 4-5 hours off work each week and not have to worry about losing money! Yes, I sacrificed a week off, but when big tests come up I don’t have to worry about finances on top of studying.
4. I arranged my classes to be all in two big blocks on Mondays and Wednesdays, at the expense of taking 4 difficult courses all at once. I will probably have up to 4 tests on some nights, but this saves me money on gasoline, and makes the food problem only apply to two days per week. Not to mention, it makes scheduling work and study time much easier.
5. It is my goal to have a 100 average in every class by October, or at least high A’s. This means that when things get most stressful, I can maintain all my schedules without having to take even more time off. Even if my grades drop a little at the end, I don’t have to worry about it because I’m pretty much guaranteed an A or B by that point. This is so much better than slacking off at the beginning and then having to step up the studying and time later on, when you’re already too tired. This also applies to any area of life; work twice as hard when you still have the energy, and then don’t feel bad about slacking off a bit later.

Most of all, I just had to sit down and think about what was about to happen. The worst mistakes that happen are almost always the result of poor planning, or even no planning at all! I wanted to make sure I had the bases covered. I feel pretty good about it. Not to mention that even though I have 4 difficult classes right now, my final semester will pretty much be History, Music, a math course, and a final computer science course. Like I said, work hard now, slack off later.