A Personal Introduction, & Tracking Every Penny

Living Consciously In Our Financial Lives

The Year Of Extreme Frugality

The Debt Crash Diet

Never Buy A New Car

From I'm In Debt, Over 40, With No Retirement Savings. Help!

Retirement & Your 401(k)

The Dollar Stretcher

First off, allow me to introduce myself. I'm Fred, the new volunteer newsletter editor for The Simple Living Network. The website is currently in the midst of a major revamp, due to go online within the next month or two. As Dave has been deeply immersed in that project, he agreed to delegate the newsletter to me. I hope to publish a newsletter for your perusal about every other month, or more often if article submissions allow. Please contact me at fredx@pobox.com for more information on writing for our newsletter. We're always looking for new voices!

That said, now I'd like to get into the topic at hand in this essay...

Tracking Every Penny

I spent $15.80 on coffee out last month. I find this level to be about "enough" for me. I enjoy a delicious hot coffee or double espresso a few times a week with friends or on the way to dance class, or whatever. Any more, and it wouldn't be a treat. Any less, and I'd feel deprived.

The important thing is that I know what I'm doing. In my efforts to live consciously, I track every penny that comes into or goes out of my life. I've done this for over eleven years, after first reading this idea in Your Money Or Your Life.

In conversation with others, I've come to see what a roadblock this little thing is. All we need to do is write down every financial transaction, but somehow this presents a major barrier to progress toward financial intelligence, integrity, and independence. I'm no different; the hurdle was big for me. It's embarrassing! I started out by hiding what I was doing, furtively writing things down when no one was looking, or keeping the figures in my head until I went to the restroom or was alone later. I didn't want to explain myself, for fear of being viewed as a skinflint, a cheapskate, a penny pincher. Even today, I still won't always do this openly, because I may not have the time or energy for explanation. Usually though, it's now a conversation piece, opening avenues into dialog about how we live, the choices we make, and why.

Many of us at the outset thought this exercise in accounting to be tedious, onerous, time-consuming, or just plain silly. Why would we do it? Because this is our way of opening our eyes to precisely how we are spending our life. This is how we live in alignment with our values.

When we go to work, we exchange our life energy for money. How we spend that money is how we spend our lives. To make conscious choices in our lives, we must make conscious choices in our finances. But first, to make conscious choices, we have to know what we're doing. That's why we must track every penny.

One common misconception is that we do this to cut our expenses. Let me be clear: This is not about cutting expenses. Repeat: This is not about cutting expenses! Rather, this is about living our daily lives in alignment with our values. We may find that we cut some expenses, but we may discover that we increase others. It's a matter of what is most valuable to the individual.

Imagine a company that didn't do any cash flow accounting. Wouldn't that be strange? I think we can agree that such a business would gradually lose its assets and subsequently fail. Why would we imagine our own lives to be any different? Certainly, we should at least hold ourselves to the same standard as any business. We need to record our cash flow, and review our results regularly. This enables us to choose how we direct our assets (our life energy) to accomplish our goals in life.

Unlike a business, our goals and values will be complex. A business only wants to grow and make more money. We want to enjoy our relationships, share time with our families and friends, strengthen our communities, engage in personal growth, and take the dog for a walk on a sunny afternoon.

Robert Pirsig's Zen and the Art of Motorcycle Maintenance proposed a way of inquiring about our lives.  He asked the question, "What's good?" This is how we evaluate our monthly cash flow. The question we ask isn't whether we can cut our expenses or increase our income, but rather, how do our financial lives appear in relation to our personal values?

About The Author

Fred Ecks (on the web at www.pobox.com/~fredx) was a full-time software engineer for many years. He happened upon Your Money Or Your Life in 1994 and started saving a large percentage of his income. He ultimately stopped working for paychecks in 2001. He now spends his time helping others who strive to simplify their lives in addition to bicycling, running, taking classes, and volunteering for non-profits.

When we sat down to make a plan for getting out of debt, and building up our savings, we wanted quick results!

The debt crash diet was conceived because, once we made the decision to act we wanted to get on with it.

We even gave our debt crash diet a nickname. The Year of Extreme Frugality.

After much discussion, we decided that if we got really serious about thrift for one year we could pay off our $17,000 of debt, and put $12,000 in to savings.

See why we call it extreme?

There are three parts to the debt crash diet. Plan well, earn more and spend less.

Plan Well

Pre-teens are notorious drama queens. (The girls and the boys equally!) There is no easy way to tell them things are going to change drastically.

Giving them a couple of months heads up helps.

Kevin and I gave ourselves three months to plan for our Year of Extreme Frugality. During those months, we eased our kids into the changes that would affect them the most.

We also took a good hard look at our spending habits. We kept a record of our spending and our earnings. With that information in our hands we were able to define Extreme Frugality for our family.

We will live on $28,800 next year, $14,700 of that will be spent to continue to rent our house.

(We considered renting an apartment for year, but decided that with the Las Vegas housing market in such turmoil, to stay where we are. Our rent is fairly low for our city.)

During the three months prior to the start of our Year of Extreme Frugality, we also got our food budget under control and built up a good stockpile of staples.

The most important thing you can do during this planning period is dream. Dream big, and out loud. Do it in front of your kids, and you might have an easier time getting them on board.

Earn More

In order to meet our goal of paying off $17,000 in debt and saving $12,000 in one year, it was clear that we would have to earn more money. To bring in more money, we can earn more per hour, work more hours, or sell something. We plan on utilizing all three strategies during the next year.

For three years I was a paralegal with a home-based business preparing divorces and bankruptcies for my clients.

I found the work depressing, so last year I started a different business, an online vintage clothing store.

As much as I love my store, I can earn at least twice as much money per hour as a paralegal, so I've hung my shingle back out again. I can do anything for a year, right?

Kevin already works at a fairly high-paying casino on the Las Vegas strip. There are a small handful of very-high-paying and hard-to-get-into casinos that he will apply for work at this year. In the meantime he's taken a part-time second job.

We will also be selling my vintage clothing stock and a collection of memorabilia that is a throw-back to Kevin's bachelor days.

By using these strategies, we'll be able to raise our income from $45,0000 to about $60,000 in 2006.

Spend Less

In the book Your Money Or Your Life, author Joe Dominguez makes the point that money is really an exchange for your life force.

Every dime spent, represents the time and energy you spent earning it. So, being good stewards of our money really means being good stewards of all of our resources.

When I was preparing bankruptcies for a living, I was constantly surprised at the amount of money people throw at their cars.

My clients were sitting in my living room discussing their impending bankruptcies. And for many, their biggest concern was holding on to their $600 a month SUV.

Occasionally, if a client seemed interested, I would mention that our entire ugly, elderly mini-van cost $600.

This statement was universally met with blank stares, followed by an awkward silence. The fact that I was dealing daily with people who would file bankruptcy before driving an old car is one reason why I stopped doing it.

Kevin will be working a full-time and a part-time job away from home during our Year of Extreme Frugality. I'm very aware of the sacrifice he's making, especially considering the amount of time he will miss with Ruby.

I consider it my job to make sure that every penny we earn is well spent.

We will be living on less than half of what we earn. That's a big change for a family that has been living on every penny we earn, plus some that we borrow.

If your goal is to live on one income when your debt crash diet is over, start doing that now and use the rest for debt repayment and savings.

About The Author

Shaunta Alburger publishes a monthly print newsletter, The Penny-Wise Journal. Visit her on-line at www.pennywisejournal.com.

Other Related Resources

• Your Money Or Your Life

Note: The following article is an excerpt from I'm In Debt, Over 40, With No Retirement Savings, HELP!

Other than their house, probably the next biggest expense people have is their car payment. If you're thinking about buying a new car, I want you to do something before you pull the trigger. Go out into your back yard right now and dig a deep hole. Then, take several thousand dollars in cash, drop it in and cover it up. Better yet, put the money on your barbecue grill, soak it with some lighter fluid and put a match to it. Maybe if the money was packed tight enough you could at least grill some hot dogs over it. That's what you're doing when you buy a new car.

Let's examine the positive aspects of buying a new car:

Status/Vanity

I can see it now: you glide into your driveway behind the wheel of your brand new vehicle. The new purchase sticker is conspicuously displayed on the side window for all to see. Of course you've made sure that you pick up the car on Saturday, so the neighbors will be outside doing yard work and perhaps will get the opportunity to witness your shiny new purchase. As you open the door, you anticipate the crush of your neighbors rushing over so they can drool over your shiny new car. With a feeling of sublime satisfaction, you bask in the glow of celebrity of the block status. However, after your 15 minutes of fame, you need to ask yourself: was it worth the several thousand dollars less that the car is worth now that it's officially a "used car?"

Less money spent on maintenance/repairs

Yes, you should spend less money initially on maintenance and repairs with a new car. But you need to weigh that against the additional monthly outlay you will have on your car payment. An extra $150 to $200 every month adds up. Do you really think you will rack up $1,800 to $2,400 in car repair bills annually on your used car? Or put another way, assuming a four year car payment, do you think you will spend $7,200 to $9,600 fixing the used car? If you buy the right used car, you won't. I have driven used cars for years and have never exceeded that amount. I think the maximum I have ever spent on car repairs in one year was around $1,000. And I have never even come close to the four year total of $7,200.

Conversely, with the new car you know you will be spending the extra money each month, it's not a matter of guesswork. Whereas, if you buy a decent used car, you'll have some repairs, but not every month. There will be many months when there won't be any extra repairs. In order to be able to handle the months when you do get hit with a repair bill, set aside some money every month on a regular basis anyway (you would have spent it on the new car). If you don't have any major repair bills, you can just add that money to your retirement fund.

The new car smell (my wife's favorite reason)

This is one of those intangible factors that no doubt has a real pull for some people. However, it lasts about the length of time it takes your kid to get sick and puke in the back seat.

So, do you still think it makes more sense to buy a new car instead of a used one?

About The Author

John L. White is the author of and founder of Everlove and Bohannon Publishing. He also works full-time as an IT professional for a large International Company. He can be reached at EverloveBohannon@aol.com.

Resources By This Author

• I'm In Debt, Over 40, With No Retirement Savings, HELP!

Other Related Resources

• Your Money Or Your Life

How will my money be given out to me from my 401(k) when I retire? Monthly, lump sum or will I have that decision? I would like to get a big wad as soon as I retire for a new home in a new location. Thanks, Owen

Owen's not the only one asking this question. According to the Wharton School of Business, in the next 10 years over 10 million people will reach age 65. So quite a few folks will be looking for an answer.

First a disclaimer. Before making decisions that could significantly affect your taxes, it's wise to see a qualified tax professional. This is a big decision. Don't risk making a big mistake.

The distribution options on your 401(k) are governed first by the tax laws and then by the plan's rules. Some plans don't offer every option that's available by law.

If Owen really wants the money, he can get it now. Either through a loan or by taking a distribution. You can take money out of your 401(k) anytime you want. It's just a matter of whether you want to pay the penalty.

Withdraw money before age 59 1/2 and you'll pay a 10% early withdrawal penalty. There's an exception if you leave your company after age 55. Then, a lump sum distribution is not subject to the penalty. But, it will still be taxed.

On the other end of the calendar, you must begin withdrawing part of the account at age 70 1/2. The amount will be determined by life expectancy.

Next, let's look at what choices Owen will have when he retires. The decision will largely be his.

The law allows for five different alternatives for a 401(k) account at retirement. The options are: lump-sum distribution, continue the plan, roll the money into an IRA, take periodic distributions, or use the money to purchase an annuity. Owen's particular plan will allow for some or all of them.

The fastest way for Owen to get his 'big wad' of money is to take a lump-sum distribution. He'll get the money quickly. But there are two disadvantages. First, he'll pay ordinary income taxes on the entire amount withdrawn. Second, the money will no longer be growing tax-free.

If Owen does take a lump-sum distribution he'll be subject to 20% withholding. That means the IRS will take 20% of the money distributed now and apply to his tax bill next April. Owen can thank the "Unemployment Compensation Amendments Act of 1992" for that idea.

Owen could decide to leave the money in the account. It will continue to grow tax-free. That can make a big difference in how much is available to him during retirement. Many retirees choose to spend taxable accounts first saving IRA's and 401(k)'s until they need the money or are forced by law to begin distributions.

Another possibility would be to roll the 401(k) into an IRA. That would give Owen the largest number of investment options. He could still withdraw the money when he wants or choose to let it grow tax-free.

Owen may also choose to take a regular, scheduled distribution from the 401(k). Scheduled withdrawals are not subject to the 20% withholding. Most plans allow for a monthly or quarterly distribution. The amount can be adjusted annually if you choose. That can be handy if inflation causes your expenses to increase.

The final option, an annuity, takes the investment work out of the equation. An annuity can be purchased with part or all of the 401(k) money. It would pay Owen a regular income for the rest of his life.

Owen's goal is to buy a home. Depending on how much he has in his 401(k), he has a couple of possibilities. He mentioned the first option. Taking all the money, paying the taxes due and paying cash for his new home.

But he might want to consider withdrawing just enough from his 401(k) for the down payment. The balance of the account could be set up on regularly scheduled distributions. He could control the investments and distributions. Or Owen could choose to buy an annuity and let them do the investing and checkwriting.

Those regular distributions would cover the mortgage payments. The advantage for Owen is that he won't have a spike in taxable income. Also he might be able to take a tax deduction for the mortgage interest at the same time that he is earning money without taxes within the retirement account.

Owen should speak with his accountant to find our which choice is best for him. Hope he enjoys his retirement and his new home!

About The Author

Gary Foreman is a former financial planner who currently edits The Dollar Stretcher www.stretcher.com website and newsletters. If you'd like to save time or money, visit today!