I Discover That All Kinds of Useless Spending Indicates My Financial Common Sense Also Is Locked in My Storage Unit
So, in the first installment of my “Grand Experiment” series, printed right there in the Monday issue of The Detroit News for all to see, I missed my $100 savings goal by $58.39 right out of the gate. This, I thought, must be what it felt like to be the guy behind New Coke.
All I could do was take comfort in the inspiring words of the great American inventor Thomas Alva Edison, who flopped time after time trying to invent the lightbulb. Said Edison: “I have not failed. I’ve just found ten thousand ways that won’t work.”
Admittedly, I’d only tried four ways to save, but I had nine more weeks to take the other 9,996 shots at it.
Looking for a quick success for my second column, my eye fell on the “miscellaneous” category of my budget, the metaphorical junk drawer of family finances. My real kitchen junk drawer is filled with useless stuff I haven’t gotten around to throwing out—broken rubber bands, dried-up tubes of Krazy Glue, and a spare trunk key for my long-gone ’76 Plymouth Volare.
The same goes for my financial junk drawer. It included an unused subscription to Weight Watchers Online, a forgotten e-mail account, an old life insurance policy, a subscription to an online baby-sitter directory, legal insurance, and a storage unit that hadn’t been opened since about the time Geraldo ventured into Al Capone’s vault.
What they all had in common was that they were automatically charged to my bank account or credit card. This made them easy to overlook each month and, I imagined, hard to eliminate. I’d have to plow through a bunch of papers, find contact numbers, and then call to cancel the services on top of deciding whether the family really needed any of this stuff. But there was the potential to save a lot of dough: there was a total of $181.42 in this category, so surely I could cancel enough stuff to hit my goal of cutting $100 for the second week of my series and make up some of the nearly $60 shortfall from the first week.
Your own “miscellaneous” category of recurring monthly bills is going to include lots of charges different from mine. Anything that you don’t budget (assuming you have one) or pay as part of a larger set of expenses usually lands under the miscellaneous label. You can choose to recategorize things to their proper places, as I did with the old life insurance policy, or as I could have done by moving the baby-sitter subscription service to the child care portion of the budget. If you track your spending and categorize the transactions, just keep it consistent so you can easily figure out how much that subscription to Cat Fancy is costing you, even though Fluffy passed on to the Great Litter Box in the Sky two years ago.
No matter how you track an expense, your job right now is to decide whether you can cut it, and if you can’t, whether you can find it for less. Don’t get all tangled up obsessing about whether your auto insurance is part of your insurance category or your auto category. By the end of this whole process, you’ll have the pretty good basics of a budget, having nailed down your top ten biggest monthly expenditures, and you should continue to refine it from there.
Right now, we’re here to cut spending and free up cash, not create an elegantly color-coded, beautifully formatted spreadsheet that tracks every penny you spend with the ruthlessness of a Kardashian searching for a new husband.
Automated charges
If I had been getting a bill in the mail every month for an e-mail account I hadn’t used in more than two years, then had to sit down, write out a check, dig out those nifty return-address labels that I just know are around somewhere, then look for a stamp, then go buy stamps, then remember where my wife keeps the stamps and realize I’ve wasted $12 buying stamps, I would not have been paying the bill for that old e-mail account for very long. So how did that account, which I was going to maintain for just a few months after we moved, live on, leeching my money for two years?
Easy. The charge, along with all the others, went on a credit card. Which was a great convenience when I needed the e-mail account. The bill got paid automatically, so there was no danger of the account being closed or of having late charges added, plus I had a convenient record for my taxes, and I gave the whole thing less thought than I devote to the World Indoor Soccer League. That kind of convenience works against you, however, when you no longer need what’s behind that easy monthly charge.
Usually these kinds of charges spring from momentary good intentions that end up placing another brick in the road to debt hell. People want to lose weight, so they sign up for the ongoing gym membership at $29.95 a month. Or the healthy cooking Web site with a $9.95 monthly charge. After a few months, your self-improvement initiative loses steam, but canceling those charges seems like an admission of failure that would get piled on top of the guilt you already feel every thirty days when you see that charge on your credit card statement and realize you haven’t hit the gym or whipped up those egg-white omelets for breakfast. Instead, you’re back to sitting in front of the TV plowing through carry-out pizza, getting nearly as bloated as your credit card balance. The only thing getting thinner is your savings, as you cough up a couple hundred bucks a year in some kind of psycho-financial anorexic binge and purge.
Of course, that’s assuming that you even stop and look through your monthly card statements. There are more than 600 million credit cards in circulation today, which works out to more than three for each U.S. household. Nearly one third of U.S. cardholders admitted to paying only the minimum balance at least once in the past year, according to the Federal Reserve Bank of Boston, and more than half were carrying a balance. I’m betting that plenty of us feel bad enough about our balances that we furtively open the envelope, look at the minimum payment due, and send out the check or online payment as quickly as possible to avoid dealing with the details of our debt.
But that’s how a subscription here and a membership there pile up to weigh down your finances. And, as I sheepishly found, it’s not all that tough to root them out. I hadn’t touched my old e-mail account or the Weight Watchers subscription in years (wish I could say the same about nachos), but they were instantly canceled with just a few clicks on a Web site and a single phone call. What was really stupid is that I already got Weight Watchers help at work, complete with diet and food guides and recipes, which was why I never used the online service. My company’s health plan paid for nearly all the cost of weekly Weight Watchers meetings conveniently located right in our office, including weigh-ins, or, as I called them, “Tuesdays with Shame.”
The initial thrill of seeing that I had just saved close to $400 a year was wiped out by the realization that I had been an utter fool to let those expenses run unchecked for so long. But there’s no sense in crying over spilled milk, especially when it’s full-fat Grade A and you’ve known all along that you should be drinking skim.
The legal insurance was a keeper at $19.92 a month, especially since Mrs. Funny Money and I needed to update our wills. Plus, the coverage more than paid for itself when we hired attorneys to handle the purchase of Grandpa Verne’s condo and the new place in Michigan.
One way to consider whether to keep or cancel this kind of recurring membership or service fee is to get away from the low, “E-Z monthly payment,” which often doesn’t feel like a lot of money, and look at your annual cost. Balance that against how often you use the plan or service, plus any expense you might incur in either canceling or restarting the membership if you need it later.
In this case, $19.92 per month adds up to $239 a year. Getting a simple will prepared would cost at least $250 for one person, and likely more in the case of me and Mrs. Funny Money, since our wills will be complicated by the need to provide for Li’l Money and the guardians lucky enough to get him (though they may feel differently if our untimely demise occurs during his teenage years). So, even if I carry the insurance for another two years, it should more than pay for itself, even if we don’t experience any unforeseen legal hassles. Finally, the plan is a holdover from the benefits package at Mrs. Funny Money’s old job and isn’t offered at my workplace, meaning we’d have to sign up for a new, more costly one if we were to cancel it now and restart it in the future.
The same issues don’t apply to the baby-sitting directory, since we have a roster of dependable, caring sitters for our boy and, if we cancel, we can simply resubscribe anytime down the road. So, Mrs. Funny Money agreed to add a couple of backup baby-sitters to our roster and then cancel the subscription. As for the e-mail account, I’d kept it open after the move so that I could stay in touch with freelance clients and professional contacts. But, more than two years later, everyone had my new e-mail address and I never checked the account, which was stuffed with spam and notes from sexy Russians who had inherited fortunes from a Nigerian prince. It was canceled with a couple of phone calls and a few additional pangs of guilt about wasted cash.
Freeing up cash
No matter how much money you make or how comfortable your cash flow may be, there’s no excuse to let forgotten recurring payments pile up. Like bank fees and late charges, it’s understandable how this happens, but you’re simply wasting money. If you don’t go over your card statements in detail every month, start by reading through one statement this month, and cancel any unnecessary charges. If you only have one credit card, it’ll be easy. If you’re allowing some services to automatically debit charges to your checking account, do the same.
(I personally don’t like to allow anyone to debit my checking account automatically, since it’s much more difficult to dispute or reverse mistaken or inaccurate charges than it is with a credit card. If you don’t qualify for a credit card or don’t want the temptation of having one around, set up such payments as a recurring automated payment you make through your online checking account, where it’s easier to monitor activity and cancel charges.)
When it comes to deciding whether to keep or cancel gym memberships and similar subscriptions, you can try to balance convenience, guilt, and good intentions against a few extra bucks per month, but that’s not the best approach. Instead, try this: calculate the annual cost of your membership to, say, the discount buyers club at Shoe Lace Depot. (Their motto: “We’ll help you tie one on!”) At $12.95 a month, that’s $155.40 a year plus, God forgive you, any interest charges that treacherously inflate the tab if you aren’t paying off the new charges each month.
Now think about your biggest financial goal: at the end of the year, you can be more than 150 bucks closer to that goal, or you can fritter away the dough thinking you’ll save a little money on designer shoe laces and shoe lace accessories. If your goal is paying down debt, you’ll also save the interest charged on the $155.40 you can pay off in the next twelve months, and, if your goal is saving or investing, you’d get the interest or investment gains that money would generate.
Which would you rather have? As they say at Shoe Lace Depot, that decision’s a tough one—knot!
Making ends meet
If your budget is really stretched, making decisions is easy: money beats convenience. Any subscription or service that you can get for free with online research, a trip to the library, or working with friends and neighbors needs to go. Take my Weight Watchers online bill: you can find Weight Watchers books and the monthly magazine at the library, or see if your company health plan offers a discount to attend the meetings (I promise I won’t peek when you weigh in). As for the baby-sitter directory, you can find sitters by aggressively polling your friends, the parents of your kid’s classmates, and Craigslist. Yes, it’s a hassle to do the background checks on your own and track down each sitter’s references, but your time is free (especially if your budget is tight because you’re unemployed or have lost hours at work). I know many parents would be loath to give out the name and number of their favorite baby-sitters, but the next time you’re cooking, make up an extra tray of lasagna and I’ll give up the digits for Audrey. Just use ground turkey, not beef—weigh-in is tomorrow.
When it comes to canceling recurring charges that could cost more money to reinstate later, such as with my legal insurance, consider just how unknowable the future can be. A lot of things can happen between now and “someday” when I’ll get around to updating my will, but if you really need to cut spending now, it’s better to have cash in the hand today and solve any future needs later.
In fact, the more I consider that legal insurance, the closer it comes to violating my big $1,000 Challenge rule against spending money now to achieve some vague future savings. The best solution would be to get organized, get the will done now, and cancel the insurance. Then I get the best of both worlds: the necessary legal guidance and saving nearly $240 a year. So getting off my butt is a better strategy than spending and waiting. Especially in this case, where instead of a will I’ve had a won’t.
That’s not to say that more ambitious plans aren’t worth keeping. As soon as my boy, Li’l Money, was born, his mother and I signed him up for Florida’s prepaid college tuition plan for about $75 a month. That translates into a fully paid four-year college education at a discount of tens of thousands of dollars. That’s one household expense we won’t cancel for anything short of a zombie invasion.
If you can’t make that kind of strong, bottom-line argument for small conveniences and mental indulgences, like an abandoned diet plan or health club membership, then it needs to go. If you feel hassled driving to the community center to work out instead of going to your fancy gym, just think about the money you’re saving.
I understand that many people will balk at sacrificing their physical fitness routine for fiscal fitness. While it’s not hard to maintain a healthy weight, it’s just so much easier to pack on extra pounds. That’s particularly true during the holidays, such as Arbor Day, Canadian Thanksgiving, and International Day of Peace. (Especially if, like me, you observe International Day of Peace at the International House of Pancakes.)
In my case, I skip the pricey big-name gym for a local workout studio run by a chipper young woman whose idea of fun is a five-mile sprint. Kerry’s group training classes are less expensive than a session with a personal trainer or a monthly gym membership, and she gives me a discount for buying ten classes at a time. The prepaid classes don’t expire, so if I miss a session, I’m not out any money.
But that doesn’t mean I don’t pay in other ways. Kerry recently had me sit on a huge rubber ball and commence a series of sit-ups. This was to work my abs. Or maybe my bicuspids. I huffed, puffed, and ooffed, trying to work around my swollen gut.
“I know just how you feel,” Kerry sympathized, before adding just the encouragement a middle-aged man is surely paying a personal trainer to provide. “I had the same problem when I was pregnant with my daughter.”
Pinching pennies so hard that Lincoln gets a headache
Unless it’s an essential service that you absolutely need now, and you can’t replace it or live without it, cut it. Check the library, see if you can pool a purchase with friends (say, for example, splitting the cost of the sitter service subscription with other families that just had babies), or find a way to live without it. Another example: instead of holding on to my old e-mail account for years, I could have kept it for one month, sent out a weekly e-mail blast to everyone in the address book giving them my new e-mail address, and then canceled it. Other than sheer laziness, I can’t recall why I didn’t do that in the first place.
The sad truth is that if you’re really up against the wall when it comes to money, you’re going to have to learn to do without a lot of luxuries and everyday conveniences. Once you’ve finished going through the big categories of your spending as you work through this book, keep going through every dollar of recurring expenses. In my case, a little here and a little there added up to $1,000 of savings per month. I was, quite frankly, embarrassed at how sloppy and wasteful I’d been, although, as any physics major will tell you, it takes effort to overcome inertia, whether physical or financial. For a whole host of reasons, it’s easier to avoid digging through your finances, but it pays off, especially when you’re in trouble.
When times are really tough, consider the advice of Mary Hunt, founder of DebtProofLiving.com: “If it isn’t necessary for the preservation of life or to keep Mommy and Daddy out of jail, don’t spend it.”
Storage unit
It’s often said that you can’t put a price on memories, but I do it every month: $76.
That’s the tab for a storage unit packed with childhood books, stuffed animals, and at least one old baseball glove. It was the biggest charge every month in our miscellaneous spending category. At least I wasn’t alone: according to the Self Storage Association, in 2011 10.8 million households spent $22.45 billion (yes, with a “B”) to store our stuff.
It’s not about the stuff, but what that stuff represents, whether it’s Grandma’s china or the trophy for “Most Improved Camper 1969.” We don’t want Grandma’s china—we want Grandma. I have a much nicer fishing rod than the old fiberglass one in storage that my late father gave me. And even if I did use the old one, it would never reel in what I really want—my dad.
Hanging onto those memories comes at a cost: more than $900 a year for me. That’s the price of a nice weekend getaway with Mrs. Funny Money, summer day camp for Li’l Money, or a solid contribution to our retirement account. Instead, I’ve got old, useless stuff and bills to store it.
What I needed to do was take a lesson from my friend Judy Kelner, who decided to pull her late grandma’s good china out of the attic and put it to everyday use. When one of her grandkids drops a plate, Judy lifts her eyes and briefly prays, “Thank you, Grandma.” Then she gets out the dustpan and pitches the broken pieces.
So, it was time to cancel one more recurring monthly charge and take my boy to clean out that storage unit together. There’s an old baseball glove that’s been waiting for him a long time.
Freeing up cash
If you’ve got a lot of stuff, you can take the time to sort out the unit, sell off anything that can fetch a decent price, clear out space at home, and donate or trash the rest. If you’re a pack rat like me, ask yourself this question before you keep anything: This thing has been locked in storage for X years and I’ve managed to live without it. Do I really need a spare Veg-O-Matic? Even if it’s the baby blanket Great-grandma knitted for you, you’re better off taking a nice picture for your scrapbook, then sending it to your cousin’s pregnant daughter and making sure it continues to circulate among your family rather than allow it to gather dust. And it’s cheaper.
Making ends meet
Time is money, and the more time you keep that junk in storage, the less money you are going to have. Get over your inertia by gathering family or friends and setting aside an afternoon to empty that locker. Set it up like a moving party. You can distribute things you don’t want among your helpers, haul the rest back to your place, and then buy a couple of pizzas and bottles of cheap red wine for a celebration of your newfound fiscal responsibility. Going through your personal belongings may unearth a few unflattering details about your life, so make sure these are your real friends, the kind of friends who will, for example, pledge to forget that you were paying good money to stash the entire collected works of Captain & Tennille.
Pinching pennies so hard that Lincoln gets a headache
Haul it all out ASAP. Then try to squeeze every dime out of your detritus by selling your stuff on Craigslist, the consignment store, or eBay (or through an eBay consignment shop). Anything you can’t sell you donate, making sure to snap some pictures and write down detailed descriptions so that you can take a tax write-off later. You can estimate the value of your donations at SalvationArmyUSA.org.1 Even though you may not have much income to be taxed, more write-offs will lower your taxable income and can help you qualify for refundable tax credits that will prompt the Treasury to send you a check at tax time.
Because you’re financially stressed and it seems like a big hassle to deal with all this stuff—along with any emotions attached to belongings left behind by a divorced spouse or deceased loved one—you may be tempted to stop paying the storage bill and just forfeit your goods. Hey, maybe your junk will end up starring on an episode of Storage Wars, right?
While it’s true that the laws in all states allow storage companies to auction your stuff if you’ve abandoned it, the storage company can come after you for any unpaid rental balance—along with late fees and penalties. You’ve got enough problems, so don’t add to them by having your credit dinged and a collection agency hounding you. Better to gather your friends (one of whom, ideally, has a pickup), schlep the stuff, and get it over with. If you can’t swing the pizzas, turn it into a potluck. Good friends will not only understand, but they’ll want to help. Although, when you all get back to your apartment, they are going to insist that you refrain from playing “Muskrat Love.” Let’s face it: friendship goes only so far.
Life insurance, part I
Although the storage unit clearly needed to go, whether to cancel or keep my old life insurance policy wasn’t so obvious, so I turned to a few experts. This is going to be just a brief foray into the wonderful world of insurance and risk management, with a more extensive discussion of life insurance, disability insurance, and more coming in chapter 9, so try not to die or get yourself dismembered before then.
Cutting life insurance coverage is a risky play, said Peter Bahner, a certified life underwriter who also heads the Great Lakes–area practice for Prudential Financial. Bahner told me that he’s seen clients cancel a policy for a year or two, then run into a health issue that makes it very costly—or impossible—to get coverage later. Even reducing coverage on a policy, which can lower the premiums, may require a new medical review that could turn up issues that would raise your premium instead of lowering it.
“You never want to cancel a policy until you have replacement coverage in place,” Bahner warned. “I don’t think that risk is worth the savings.”
On the other hand, the $100,000 policy is a small part of my life insurance and would produce only $5,000 or $6,000 of income a year for my grieving family. In this instance, Bahner said, it might not hurt to cancel it. But on the other other hand (like economists, personal finance experts usually need at least three hands to make any decision), $28 a month for $100,000 in coverage is a pretty good buy according to Fran Twiddy, a certified financial planner who runs Independent Financial Advisors of Redford. “That’s a cheap policy,” she told me. “I would hate to give that up.”
Twiddy added that as we get older, insurability can be an issue. If I really want to save, she said, I should take a page from my auto insurance playbook and go from monthly to annual payments, which could cut from 4 percent to 8 percent of my annual cost.
Calculating all our insurance needs showed that the $100,000 policy was necessary to reach the total annual income I’d need to leave behind for the Widow Funny Money. (Arriving at that number is an entirely different equation we’ll discuss in chapter 9, when I tackle our overall insurance bill.) So that monthly expense was a keeper.
The Bottom Line
Goal: $1,000
Week 1—Transportation . . . $41.61
Week 2—Miscellaneous . . . $132.89
Total monthly savings . . . $174.50
Left to cut . . . $825.50
So, the insurance stayed. The grand total: $132.89 of spending eliminated by canceling an old e-mail account, Weight Watchers online, a subscription to an online baby-sitting directory, and the storage unit. That hit the $100 goal for Week 2 and pushed the total savings to $174.50 a month, knocking down the first week’s savings shortfall to a mere $25.50.
This meant it was time to celebrate. I decided to splurge and open a good bottle of wine. Or at least I would have. I’d swear that corkscrew was somewhere in the junk drawer.