Are Monthly Savings Goals Best?

Just got to thinking...

Every month we do our round-up of the past month’s goals… check off how we did, and make new goals for the next month. And a lot of folks make long-term (annual) savings goals for themselves. But are these the right time horizons?

Studies have shown that people who think they’re saving for the next month think they’ll save LESS, but actually save MORE. And the people who think they’re saving for four months away think they’ll save MORE, but actually save LESS.

Implication: Short-term goals are more motivating, actionable, and set you up for success.

But what is the BEST short-term time horizon? Is it a month... or a week? Most of our financial transactions (housing, utilities, credit card payments, etc.) group up into a month’s time span, so that makes sense why we default to the month. But I’ve been noodling over whether it makes sense to have ANY shorter term goals as it relates to other expenses. After scanning my expenses, the only thing I’ve come up with is ‘eating out’ costs. The last time I tried to budget by week on my eating out costs I didn’t do very well. I tend to spend my budget in four big outings, rather than space them out over the month with more economical dinners. So maybe I could split my savings in two and try to budget over two week periods there.

Another area I haven’t really touched yet is the money I spend on food and other items at work when I use my employee badge. To date, I haven’t really worried too much about how much I’m spending on my card. It’s usually small dollar stuff on things like food. I could try to institute a weekly cap on my ‘badge spending.’ That would definitely work… although I don’t like the sound of it!

It's a miracle.

I actually kept my October Goals. They were....

Wrap up all of my Business School applications: Check. They'er all in. Note the uptick in posts and sanity.

30min of exercise 5 days a week: Check! The Guy and I have been on a rampage to get fit for Argentina so we're in shape for hiking. It all started when we went for a nice fall run together and we had to stop to walk every 5 minutes. Neither of us are overweight, but we could just use some discipline. So, we decided to do something about it. We started Weight Watchers and we got a personal training session at our gym (surprisingly economical for a joint session: $70 total. He picked up the tab for this one, and I'm getting the next one when we want to refresh our routine). We've been sticking to it for the most part. I've gotten off track a bit on keeping track of my Weight Watchers 'points' (wow, that's hard...) but I've stuck to the fitness regime.

-Keep to my budget to the dime: Yep! As of now, I'm $5 under budget! What helped? My "no spend" days skyrocketed this month! It really makes a difference when you just stay home, eat at home, and don't find excuses to go out and buy things... even small things, like the alluring weekend Target run or evening stop-in for "one" drink.

Woohoo..... I'm actually motivated to start thinking about my November goals!

Grad School Financial Aid Action Plan... and GO!

After culling all of the best ideas from fellow pf bloggers, I’ve devised an action plan for financial aid. Some good ‘ole generic discipline is in order.

+ Reference Websites of 3 Schools I’m applying to…. CHECK.
+ Investigate two outside scholarships from Columbia…. THIS WEEKEND.
+ Subscribe to all Financial Aid blogs/updates….. NEXT WEEK.
+ Cull list of all potential scholarships / sources of funds…. NEXT 3 WEEKS.
+ Work on & Complete 1 Scholarship Fund etc. per 3-wks…. BEG. DEC. 1
+ Meet with Financial Adviser… MID-DEC.

Later… fill out a FAFSA form, fill out a CSS Profile Application, i.e. doing all the fun government stuff.

Any other big advice or secret hints?

October Book Review: Gilead

I haven’t read much lately. I just realized I haven’t had one of these recaps in quite awhile. But I finally finished Gilead. I warmed slowly to this book. At first it seemed like exactly what it was billed as… the ramblings of an old Iowa preacher. Having been raised in a pretty conservative family (my dad is the head deacon at their Southern Baptist church), I am generally pretty skeptical of the truth and beauty of 'spiritual writings'. It’s just become too familiar (stale) for me through the years. But I was gradually and reticently moved by this book and these characters. Even the Guy enjoyed the passages I read aloud to him (he’s Jewish)… because they transcend anyone’s religion and say a lot about the awe and wonder of simply being human, and what that means. It is a book that makes you feel your very delicate and precious mortality.

I think my best endorsement would be to re-write this passage:

“You didn’t wait until this morning to realize that I am old. I don’t know what it was I saw, and I’m not going to think about it anymore. It didn’t set well with me…
If I live, I’ll vote for Eisenhower.
How I wish you could have known me in my strength.”

Future Financing Rules

In case you haven’t noticed, it’s not the grandest time to start a business. But because the Guy and I are always dreaming up new business plans, this article on venture capital caught my eye. Reading things like this makes me realize how long my to-do list is to even be able to articulate what a business plan would look like. The basics of the capital structure are crucial, I’m learning. A few guiding principles I took away:

1) Ensure that you maintain control from investors with a controlling stake.
2) Even Institutional investors may demand a different CEO, even without a majority stake – so be careful about terms.
3) Start-up capital is precious. Do not deplete working-capital reserves until the venture is kicking off positive cash-flow.

In essence, watch your (company’s) back and your bottom line! I guess I’ll just tuck this one away for now….

Why is enrolling in health care benefits so damn confusing?

I finally re-enrolled in the same health plan I had last year… but I still don’t feel completely confident in my choice. Mostly because I still don’t feel like a very savvy consumer of my benefits. I work for a company that has great, comprehensive health care, so I can supposedly breathe easy.

What I did differently: Upped my Health Care Spending Account $300 (I didn’t fund this at all last year). That means my monthly premium will go up $25, but hopefully I can maintain my very minimal out of pocket costs. For me, I would much rather stagger my spending in a predictable way. Nothing worse for me than having an unexpected medical bill dropped into my monthly budget.

The Deductible Details: My effective deductible is $600 annually. I technically must pay full-sticker for health care until this deductible is met. High, but reasonable for my annual budget, in my view. Then, I pay copays for everything afterwards - $15 for a doctor visit or prescription, etc. etc. Then in the details there is a different figure: Maximum Out of Pocket Costs: $2,600. I guess that means there is a $2,000 cap on all copays that I would pay in the course of a year over my deductible.

What I don’t understand: The impact of my Health Care Spending Account on my taxes. I get that these dollars are tax-free. But I really don’t understand how it effects my April tax return on a dollar basis.

My Health: Being in my mid-twenties and a relatively healthy person with no chronic conditions, I have to say my health is good. But I’ve had a few issues that I could see escalating. I’ve had some eye issues that don’t seem to be getting better, and I’m also having some semi-serious medical testing conducted this week. I also decided to get the HPV vaccine Gardasil this year.

What I’m not sure about: Under this Health Plan last year, due to employer pre-tax contributions in my personal health account, I never paid any significant out of pocket costs. Once I had some pricey dental work done, which was a chunk, but I knew that wasn’t covered in my insurance – so it was separate. I guess what I worry about is that this year, I will start really nicking into that $600 – and I’m guessing that would happen in several high-dollar due-all-at-once incidences. That worries me… but I still think this is the best plan.

Sigh. Why is Open Enrollment for Health Benefits so damn confusing?! I’m linking to an article on tips for evaluating health care coverage. It is very basic, but does give you a good checklist of things to think through as you decide.

It's All the Same Money

Even though I have specific goals on what I want to save for, and that motivates me, I really understand that no matter what you nickname the ING account or what you’ve purposed certain funds for, it’s all the same money. Up until this point, I haven’t had my emergency savings fund in a separate account – it’s generally the sum of my Money Market account as well as what I have in my account with my employer’s credit union. I know it’s not ideal, but that’s just how it worked out initially. Now – whether it’s the financial chaos or what I wake up to on CNN everyday – I’ve decided I have to reach my Emergency Fund goal as soon as possible, that’s the most important priority. So I’m going to work towards getting my B-school savings account up to $9,000 so that I can call that my emergency savings fund, finally meet this goal, and keep moving forward with my other goals. Sadly, I don’t think I can do it without seriously ratcheting up my savings. As it is I have $4,800 invested in b-school savings, I’m saving about $175 a month all told, including interest and direct deposits, but if I ratchet that up to $350 a month, I could add another $1500 before the end of the year. And, I’m selling a bunch of my stuff on Craigslist because I’m moving in with the Guy…. So I’m committing that all of that money will go to the Emergency fund.

Which will all feel great….

Vesting 401(k) Quandary with soon-to-be "Former" Company

Doh. Truly a Homer Simpson moment for me today. When I was checking my company-held 401(k) balance the other day, I suddenly had what shouldn’t have been a shocking revelation. There were two little lines there.

Current Balance: $12,765.66
Vested Balance: $8,658.28

Suddenly the financial-speak scales fell off and I saw what it meant for me:

Vested Balance: my money
Current Balance: NOT my money YET

Somewhere the HR aside of a “5-year-vest for company matching funds” came trickling back into my ear. Oops. I do plan on leaving this company when I go to business school. And that will mean walking away from, at this point, $$4,107 of what would have been my money. Certainly not something that would sway my decision. In fact, because my company will sponsor me for business school if I so choose to come back for three years afterwards, I will in fact, probably be walking away from $10,000+ dollars (when I subtract the difference I’d probably get in financial aid anyway). But I will never let money make choices for me that could make me much less happy in the long run. And that’s the point of money anyway, right? Allowing you the freedom to do the things that make you happy.

Now that I’m on the subject though, I’m wondering if, knowing now that I won’t continue with the company (I wasn’t sure of this when I first enrolled in the 401(k) plan of course), if I should lower my contribution on my work 401(k) and put more money into the Roth. I didn’t invest the maximum contribution last year, although I might come closer this year. Seems like a reasonable thing to do… just to make sure I’ll contact my advisor. But if anyone has made a similar choice – please leave me a comment!

A Different Kind of Risk Aversion

Like many of you also in your twenties, I've been watching the DJIA plummet with concern, but not panic. All of my money is staying right where it is in my Roth. And if I have extra dollars, I'll be plunking more in there to lock in these bargain basement prices for index funds. But, I think these kind of tumultuous times have made me realize I'm much less tolerant of risk in other areas of my life.

For example, an opportunity just came up for me to leave my current safe, bottom rung of the ladder, corporate job to do something I really care about with a social enterprise on another continent. Despite the perfect fit, these times make it too scary... instead I'm choosing the safer* step of staying here in the States with a Guy I love, continuing to apply to business school, and trying to get excited about new things in my current job, rather than risking it abroad.

I think it IS the right decision for me, right now. But I wonder if I'd made a different decision were the market not disintegrating...


*Looks like getting an MBA is not the safest option right now either: NYTimes: Credit Crisis is Bad News for MBA Students

Moving-In Landmines

So the Guy and I are thinking about moving in together.

Something that I have wanted and been ready for – for months and months. I never spend time in my place as it is. I get so frustrated shuttling clothes back and forth. And now I can help him pay his mortgage rather than spending a thousand dollars in rent for a place I sleep in once a month. All sounds good, right? But I know there are landmines I’m not seeing. Those of you who made this choice fairly recently – any warnings or advice before I sell all my stuff? The Guy and I definitely do not share the same sense of frugality, but we are very open with each other, and I think we are comfortable with some push and pull. He likes it when I help him grow and learn about his finances, and I know when to back off and just let him be him.

I think. Help… What are those moving-in landmines you don't see coming?

September / October Goals Round-Up

My Emergency Savings fund just keeps slipping… but I am making progress on my travel fund and business-school goals. Argentina is only 6 weeks away, so hopefully I’ll have enough squirreled away at the end of next month so that I won’t feel a major dent afterwards. I won’t make the $2,500 goal, but I have been buying flights and travel in advance, so hopefully I won’t need the whole sum to go.

September Goals:
-finish planning Argentina trip: definitely, almost everything is done and booked!
-yoga everyday of my membership: Nope, only about half of the days did I make it.
-increase no-spend days: I only had three no-spend days in September, so I guess not… but committed to picking this up in October.

October Goals
-Wrap up all of my Business School applications
-30min of exercise 5 days a week
-Keep to my budget to the dime.