Handling Finances

What if I told you I actively choose to pay more for exactly the same product.  Would you consider me stupid?  What if I said the extra cost didn’t gain me anything like convenience or service.  Maybe I’m just impulsive?  Or maybe I’m talking about a charity auction or a deal with a good friend?

Nothing so exotic — I’m talking about soda pop and candy bars.

I know I’m addicted to sugar and salt.  Every day, I walk by a vending machine that calls out to me, “it’s soooo sweet…”  Occasionally, I even drop a few quarters into the slot to receive my little 300 calorie package of chocolaty goodness.  Some weeks (like the week after Easter) I find myself visiting the vending machine daily as my taste buds crave their fix after a week-end overdose.

Vending machines are a terrible waste of money — the conveniently placed products cost over twice as much as the same product purchased in a pack of 10, and they have to be outrageously profitable as they only need servicing every month or so.  However, I choose to let myself visit the vending machine for my sugar fixes for one simple reason — if I purchase more sugar, I will eat more sugar.

I have decent self-control.  I can wait months after saving enough for my new camera just to make sure I don’t miss saving for retirement 40 years in the future.  I’m waiting to save even more as a down payment on my mortgage even though I could easily afford to purchase a house now.  Yet when it comes to sugar, my willpower just breaks down.  That’s not to say I can’t resist excess sugar, just that the craving neither increases nor decreases — it just sits there waiting for a weak moment.  Perhaps I even have an excuse — since my wife is diabetic, I do a decent amount of cooking with Splenda, and I recently read that these non-caloric sweeteners short-circuit the signal in your brain that correlates sweetness with making you full.

Anyway, whatever excuses I come up with, the bottom line is that if I have sugar in front of me, it will be consumed.  My solution: don’t buy sugar.

Sure, I’ll visit the vending machines — sometimes much more than I should, but the simple knowledge that I’m paying so much for a bottle of sugar-water is a strong incentive to curb my intake back to once a week or so.  For a while, I tried to save money by purchasing soda in cases, but I found my spending didn’t decrease — my intake increased!  Apparently even trying all the tricks I could think of — bringing only one can to work a day (I started drinking it at home) or drinking extra water to keep my thirst down etc. couldn’t make up for the higher availability of the stuff.

Since I can’t save money by buying in bulk, I choose to continue to overpay for my pop and candy.  With a lower intake for the same cost, and with the need to actually walk across the hall and come up with dollar bills keeping the sugar just out of reach, I actually find my craving decreases over time so I do end up saving money (until Halloween anyway).  More importantly, if spending more saves me from consuming even a hundred empty calories a day (and it does), I come out healthier for the cost.

It’s not a decision I take lightly, and the high prices at vending machines do make me cringe, but the pain is what makes this strategy work in the first place.  Yes, I do make a goal to avoid vending machines some weeks (and often I even succeed) but forcing myself to pay a premium at vending machines is my first line of defense against unlimited consumption of chocolate and soda.  For once, I’m happy that vending machines charge so much, and I’m glad those evil dispensers are there to tempt me just enough to curb my sweet tooth without turning me to great deals on 5-lb bags of skittles.

People love to complain about gas prices.  I once heard that “we’d find any price ridiculous if it was displayed in huge numbers at every major intersection” but the truth is that gas prices are on the rise and it’s hurting many people’s budgets.

Saving on gas isn’t easy.  Sure, you could obsessively check gasbuddy.com and go out of your way to find the best deals (thus burning more gas to get there) but unless you want your car to smell like french fries by running on cooking oil,  it’s tough to save a meaningful amount on the price of gas.  However difficult it is to save on the price of gas, it is easy to save a ton on the amount of gas you burn in your daily driving!  How much can you save?  How does $0.50 a gallon sound?

Cars generally get the most miles per gallon at about 55 mph.  This isn’t just a hold-over from when speed limits were 55 mph nationwide (to save gas by the way) as some engines are tuned to be most efficient at 60 or 65 — it’s more a simple matter of physics.  As you drive faster, you have to push air out of the way faster and the drag on your car increases exponentially with speed.  In simple terms, every 10 mph you drive over 60 makes your engine burn enough more gas to effectively increase the cost of gas by $0.50.  As I drive to work on a 60 mph road (that’s the limit — traffic generally pushes over 70) this is a huge deal for me!

It’s not always safe to drive significantly slower than other traffic, but I’ve found a significant number of people who drive similarly in the slow (right) lane.  No matter how fast traffic is moving (when it’s not backed up in rush hour anyway) driving on the slow side will save you money both by decreasing the amount of fuel you buy and by avoiding nasty speeding tickets and higher insurance rates.  Oh, and it’s also safer, but if people cared about driving safer, they wouldn’t be going 10 mph over the speed limits anyway.

But I don’t have time to drive slowly!

Especially when I’m driving with passengers (*cough* my wife) I occasionally hear that driving more slowly isn’t worth the extra time spent driving.  It’s true, when I’m driving 600 miles on the interstate, I can save 30  minutes of a 9-hour drive by driving 70 instead of 65, but on my daily 20-minute commute, saving 90 seconds by driving 5 mph faster isn’t worth the extra $0.25 in my book.  Seriously, if you’re worried more about 5 minutes a day than $0.25 a gallon, stop whining about gas prices and drive as fast as you think you can get away with!

Of course there are other, less effective ways to save gas.  Fueleconomy.gov suggests that next to slowing down, stopping and accelerating less aggressively can cut your fuel cost by 33% on the highway and 5% in the city.  If you’re carrying around an old book collection in your trunk, cutting 100 lbs of weight can also increase fuel efficiency by 1-2% or 3-6 cents per gallon.

I’ve written previously about my goals for 2008, but in reality I have many more goals than simply saving for retirement, buying a house, and traveling to England. In the past, I would simply use a spreadsheet to allocate the money in my savings account to different goals, but I found that rather tedious and would frequently just work on one goal at a time and ignore the rest. Having grown up with the internet and computers at my fingertips I’ve come to expect things to be automated and about a month ago, I found a great way to automate my goal-oriented saving.

Once you’ve entered all your information and started an account at ING, it’s extremely simple to create additional separate accounts for various purposes. You just pick which type of account (checking or savings — I only use savings) and give the account a name. I’ve started four accounts besides my main account for some basic discretionary spending in my life: Photography, Vacation, Auto and Charitable Giving. I also set up automatic transfers to each right after my monthly paycheck is deposited — I always keep enough to cover these automatic deposits in my main checking account so I’m not in danger of emptying my account and incurring fees.

Why save for smaller goals?

There’s another way to do this — I could pull money from my checking account when I want to give to charity or buy a new camera lens, and I could use my emergency fund for car problems. But car problems are predictable — you don’t know when they’ll come up, but you know that you’ll encounter them eventually! Putting money aside every month reduces and even eliminates the financial stress of car problems, and can spread out the cost of a new car into a high-interest savings account.

Aside from the auto savings, all my accounts are totally discretionary. These accounts serve two purposes: they limit my spending on photography and vacations, and they ensure that I will have money to spend in these areas when I want it.  Also, while my wife balks (with good reason!) at spending hundreds of dollars on camera equipment, saving for months to get a new lens both helps me to avoid impulsive purchases and calms her reaction to the cost of lenses “we don’t need.”  Avoiding marital strife and impulsive expenses all at once is a huge bonus in my book!

Saving for Goals Sets Priorities

Not only does this system reduce marital strife, eliminate impulsive purchases and avoid debt, but it makes your priorities obvious every month.  With automatic or manual monthly transfers to the savings accounts, you can assign priorities based on how much money you put into each account.  If I’m saving up for an overseas vacation, I might increase my vacation savings.  At the same time, I can either reduce my contribution to another account or simply live with less spending money for the month.  if I get some extra money (like the coming stimulus check) I can put part of that toward whatever goal I want as well as throwing some into long-term savings.  By increasing my photography account, I’ll be stimulating the economy… just perhaps not until I can afford that $7000 Canon 600mm F4L lens I’ve been drooling over!  (note to the wife: just kidding!)

Smartypig — the online version of my savings plan.

Smartypig.com has a really similar way to save for small goals. If you want to save up for your next vacation or a new car, you can put your money in an account with regular deposits. The site will tell you if you’re on track — factoring in your automated deposits and the interest rate. Unfortunately, although the site has a slightly higher interest rate than ING and other high-interest savings accounts, it charges hefty fees for everything from having gifts deposited by relatives (5%!) to getting back your money by check. Of course they don’t let you direct-deposit your money back into the account it came from because they want the 2% interchange fees they get from the debit card they want you to use. Overall it’s a bit of a racket and I strongly suggest perusing The Finance Buff’s review of the site at Free Money Finance before giving them a dime!

Whether you go with ING accounts, Smartypig, or just keep track of your categories on a spreadsheet, consider prioritizing your money with goal-oriented savings.  It’ll help your finances, teach you patience, and earn interest while you wait!