Living frugally to retire early - is that possible?

by Wendy Wedum, Pondera County Extension

The past couple of years I’ve been participating in a book club with MSU and North Dakota Extension Agents.  It is fun to get the perspectives from others during our weekly chats and to learn new information that I might not have read about myself.

This year’s book is How to Retire the Cheapskate Way by Jeff Yeager. Over the next several weeks, I’m going to share the tips he’s learned from other frugal savers and his own experiences along with the comments from other experts in the field of financial management.

From a former colleague, Jeff learned about the "Cheapskate’s Hierarchy of Moolah Management." It has four steps.  Today we’ll start with step number one.

Step One: Reduce your dependency on money as much as possible, thereby reducing your need for great cash flow. He says, "Cheapskates place the highest priority on spending less…not earning more."  Do you know anyone who has gotten a raise and still seems to be living paycheck to paycheck?

In step one it is important to place the highest priority on spending less, not earning more; there are three parts to step one:

First, identify your needs and your wants. Try to reduce your routine living expense needs to be no more than 50% of your income and allocate no more than 20% of your income to your wants or extras. Then put the remaining 30% into savings.  Take small steps to live within your means and whenever you can live below your means.  One suggestion is to make setting aside money for your savings part of your spending plan.

Second, establish a permanent standard of living and refuse to let your living expenses grow as your income grows during your working years.  As you income grows, put the extra income into your savings account or increase your contributions to a 401k or if you need to make a major purchase, save up for half or more of the total cost to reduce payment amounts for a loan. 

Third, avoid as much debt as possible and when you do take on debt, work on paying that off as quickly as possible.  Doing so will save you money in less interest paid and it helps people to avoid things like foreclosure and bankruptcy.  Pay ahead on house or car loans by adding extra payments to the principal.  If you have several credit cards with balances and loans to pay off, check out Utah State University's PowerPay - a free program to make a 'personalize, self-directed debt elimination program'.  

See the Resources below for more information.

Resources:  

MSU Extension has MontGuides to help with the budgeting.  

Developing a Spending Plan   https://www.msuextension.org/publications/FamilyFinancialManagement/MT199703HR.pdf 

Schedule of Non-Monthly Expenses   https://www.msuextension.org/publications/FamilyFinancialManagement/MT198910HR.pdf 

Track'n Your Savings Goals

https://www.msuextension.org/publications/FamilyFinancialManagement/MT200303HR.pdf

If you want all the details, get a copy of Yeager's Book:  How to Retire the Cheapskate Way - The Ultimate Cheapskate's Guide to a Better, Earlier, Happier Retirement by Jeff Yeager, 2013.

Utah State University Extension "PowerPay"  https://www.powerpay.org/

Common Sense Christmas shopping

Kari Lewis

After Thanksgiving tomorrow, Christmas shopping will be in full swing.  According to ABC   Surveys by the Harris Poll indicate that 28% of shoppers are entering this holiday season still paying off debt from last year!  If you have debt lingering around from the 2017 Christmas season, get that debt knocked out before shopping this year!  Today, I’ll share a few tips for avoiding debt this Christmas season and keeping that shopping budget in check. 

News, consumer counseling agencies see a 25% increase in the number of people seeking help in January and February, predominately from people struggling with Christmas debt.

First, make a list of who you will be buying gifts for and then come up with a few ideas that might fit their interests.  I would encourage you to ‘Like’ the Facebook pages of our local businesses as they often highlight sales and upcoming promotions that they have on items that might be on your list.  It is our local businesses who are supporting our communities, let’s make sure to shop there first!

Nearly one third of shoppers have Christmas debt from last year
lingering.  Make 2018 different with common sense shopping!
Photo by Kaleb Lewis

Secondly, consider changing things up this year regarding gift giving.  Just because your family has always exchanged gifts, doesn’t mean you have to continue.  Some families choose to just do one gift for a whole family, just get gifts for the kids under 18, or even draw names so each person only has one person in the extended family to shop for.  By drawing names, people often end up with a nicer gift that is useful, and everyone ends up spending less than they would if you bought for everyone in the family. 

Another option may be to do something fun like a ‘White Elephant’ Gift exchange where each person brings one fun gift that is exchanged.   Within gift exchange groups, it is perfectly acceptable to choose a monetary limit on the value of the gifts.  So often when I mention these ideas to other people, I get a resounding, “I wish we would do that!’  Bring it up…. chances are you’re not the only one in your family who is ready for a change!

Rather than buying a gift for everyone in a family, perhaps think of one gift for the whole family.  This might be a magazine or movie subscription, a game the whole family would enjoy, a professional photo session, or a membership to a local gym or bowling alley, for example.  For children, consider the ‘4 Gift Rule’ – buy your children something they want, something they need, something to wear, and something to read.

In terms of sticking to the budget, leave the plastic at home and take cash when shopping.  If your Christmas budget is $200 and you take $200 in cash with you shopping, when it’s gone, it’s gone.  There are also emotional triggers that occur when you physically use cash that don’t occur when using plastic.  Those emotional triggers in the brain makes you think twice about spending.

If you are planning to shop with a friend or family member, ask them to hold you accountable to your budget.  If they are going to encourage you to buy more, that your kids need or would love that, that you deserve that ‘treat’ for yourself, they are not the right person to be shopping with!  Remember, you will thank yourself in January when you don’t have Christmas debts to pay. 

Strategic spending of the tax refund check

Kari Lewis, MSU Extension - Glacier county

April is tax time, which brings about numerous ads for ‘Tax Refund sales.’  Whether it’s a tax refund, inheritance check, or capital credit check, whenever unplanned money arrives it can be tempting to quickly spend it.  However, this is an excellent time to evaluate where you can most strategically use that money to benefit yourself and your family the most. 

First, make sure that you have money saved for potential emergency expenses.  According to a 2016 GOBankingRates survey, 69% of all adults in the US have less than $1,000 in savings, with half of those adults not having any savings.  In the event that a vehicle needs a new engine, the refrigerator goes out, the hot water heater needs repaired, or you end up needing to pay your $500 insurance deductible for medical expenses, where does that money come from?  Now is a great time to lock away $500 to $1,000 in an ‘emergency fund’ for potential emergency or ‘occasional’ expenses that need money set aside for them.

Secondly, evaluate any deb  Do you have any unpaid bills that you have gotten behind on, or debts that need paid?  Choose which debts are smallest and knock those off first.  That will provide motivation for continuing to address any remaining debt.  If you have two debts of similar amounts, choose the one with the higher interest rate.  Now is the time to pay off those credit cards and cut them up!  In my household, we plan to put a portion of any additional income we receive towards our home mortgage with the goal of paying our house off early, which will save us thousands of dollars in interest expenses over the course of the loan. 

ts you have.

Next, put money towards a 3 to 6-month emergency fund – If you were to lose your job or had an injury or medical expense that prohibited you from working, would you be able to cover your monthly expenses?  Make sure to budget enough in an ‘emergency fund’ to cover things like housing, utilities, groceries, fuel, any loan payments you have, etc.  Putting any additional money towards an emergency fund is a wise option that can give incredible peace of mind in the months to come and help prevent the temptation of using high-interest credit cards to cover those expenses.

If you do decide to spend a portion of the money from a tax refund, inheritance, or capital credit check, think of what upcoming expenses you may have this summer and spend the money on those expenses.  Expenses such as daycare while school is out, a child’s summer camp expenses, graduation and wedding gifts, back to school supplies, etc. will be here soon. 

When tax refund checks arrive in the mail, the temptation can be high to take advantage of those ‘tax refund sales.’  However, ensuring you have at least $1,000 in the bank, that debts are paid down, and that you have a 3 to 6-month emergency fund in place will have a far greater impact in the long term.