Get Rich Slowly

links for 2006-11-19

• HOWTO: Keep Track of Coupons - Consumerist
  (tags: coupons groceries saving)

Wesabe: a Web-Based Personal Finance Tool

There’s a fantastic new tool available for those who want to track their spending. Wesabe went public yesterday.

Our site is live and available for everyone to use. We set out to build a tool to help people gain control over their money, and we believe we have accomplished our goal. It isn’t perfect and we have a ton of features we want to add, but this product helps people right now.

Wesabe is a community-based personal finance site which allows users to track their bank accounts (privately) while sharing money tips and goals (publicly). Think del.icio.us or Flickr or 43things, but for money. To quote the FAQ:

What does Wesabe do?
Wesabe is a community of people who share our experiences with our money so we can help each other make better financial decisions. We do this by aggregating and analyzing our community members’ personal financial data, and showing tips — recommendations to get the most from our money. These tips and recommendations come from the collective wisdom of our entire community. When one of us figures out how to make a great decision, we all learn.

I’ve been playing with Wesabe for a couple of weeks now. Here are some first impressions.

Accounts

When you first login to Wesabe, you’re given an opportunity to upload data from your bank accounts. You can do this manually by exporting the information from your bank’s web site and then uploading it to Wesabe (sort of like uploading a photo to Flickr). Or you can download and install a tool (for Mac or Windows) that will do this for you automatically.

Once account data has been imported, you can modify it by entering store names and by tagging each transaction. For example, I bought new tires for my wife’s car at the beginning of November. I had to change my bank’s metadata after importing the transaction. I changed the gibberish to “Les Schwab” (the name of the tire store), and then tagged the transaction “car hondacivic”. This transaction is now visible whenever I view my entries tagged “car”, and whenever I view my entries tagged “hondacivic”.

Your account data is visible only to you. But your numbers are included in community aggregates. For example, nobody else can see that I spent $4.98 for milk and bread at Safeway yesterday, but my $4.98 tagged “food groceries” is included anonymously in the aggregate community data. This helps users get some idea of what is “normal”. It also helps when offering tips and setting goals.

Tips

Wesabe members can share money-saving ideas with one another. These, too, can be tagged. For example, the following tip was tagged “art entertainment museum”:

Nearly every art museum has free admission at least one day a month. By doing a bit of research, you can enjoy some culture on the cheap.

Other users can comment on tips. They can also save them as favorites. (So each user will gradually acquire a list of favorite money tips to use for inspiration.) I love this because it draws upon the wisdom of the community — the power of this feature will surely grow with Wesabe’s user base.

Goals

Users can also designate goals, such as “avoid overdraft fees”, “save for vacation”, or “contribute to my IRA”. There’s a discussion area where the Wesabe community can comment on goals, offering advice and encouragement. Tips for each goal appear based on its tags. To track your progress, you can link tags from your own accounts to a goal. For example, if one of my goals is “contribute to my IRA”, I would link it to the IRA tag from my accounts. I haven’t used this feature yet, so cannot comment on its effectiveness.

Tags

Wesabe’s tagging system is a key to its power. Every transaction, every tip, and every goal can be tagged. If you’ve ever used Flickr or del.icio.us, tags will be instantly familiar. They’re one-word descriptors used to categorize your transactions (and tips and goals). For example, if you take your friend Sue out for dinner at a nice restaurant, you might use three tags for the transaction: “food restaurant friends”. The ever-present list of tags can be used to check your spending. If I click on the “food” tag, for example, I get a list of all my recent food transactions, as well as graphs representing my food spending over time. I can also access tips tagged “food” from other Wesabeans.

For example, check out this tip from Matt Haughey:

I’ve taken to tagging any purchase that is a gift to myself, or an extravagance, or any non-necessary thing with: extra. In a click, I can see how much money I waste each month on silly gadgets, bike upgrades, and wacky t-shirts. There was never an easy way to get that kind of data from Quicken.

On Matt’s advice, I’ve been tagging my unnecessary spending as “extra”, too. Whenever I buy comic books, for example, they’re tagged “comicbooks extra”. This is something you cannot do in Quicken, and it’s surprisingly powerful.

Conclusion

I often stress the importance of tracking what you earn and spend. It’s one of keys to accumulating wealth. From my limited use of Wesabe (I’ve only been using it for a couple of weeks) it offers some keen features. I can’t foresee it replacing Quicken at this point (and I’m not sure its creators intend for it do so), but it’s certainly an excellent supplemental tool.

So far, I’ve had just two issues with the site. The tagging system can take some getting used to. Wesabe cleverly uses two levels of tags: one for “just this entry” and another for “each time this transaction occurs”. This is powerful, but can be confusing, too. I recommend being cautious in the use of global tags. Also, Wesabe had some difficulty parsing data from my credit union. But the response to my bug reports has been quick and efficient.

If you’re worried about uploading your bank data to another site, perhaps Wesabe’s security policy may set your mind at ease.

Others around the web are writing about Wesabe, too.

• A Whole Lotta Nothing: Crap I Love: Wesabe
• Wired: Wesabe: Personal finance made easy
• Boing Boing: Wesabe: Community money-saving service

You can also get great tips from Wheaties for Your Wallet, the Wesabe blog. This is a great app for those looking to track their finances. I recommend it.

Reader Survey: How Do You Cope with a Limited Income?

Most of us have been there at one time or another: stuck at minimum wage, hog-tied by a fixed income, or working a crap job fresh out of school. Some find themselves living in a city where the cost of living is out of sight. It can be a nightmare trying to make ends meet when you’re barely earning enough for necessities. What use is worrying about retirement when you don’t have enough for rent?

I want to hear some real-life stories from GRS readers: How have you coped with circumstances in which you had to struggle to make ends meet? How did you avoid debt? (Or did you?) How did you get out of the situation? What tips can you offer others who find themselves just striving to get by?

Please share your story so that other readers can learn from your experience.

links for 2006-11-17

• Paid off credit cards. Now what? | Ask MetaFilter
  What to do with $1200 more a month?
  (tags: planning saving money)
• Frugal For Life: The Mindset of Frugal Living
  (tags: frugality frugal psychology philosophy)
• 15 secrets debt counselors wish you knew
  (tags: debt credit money)

How to Get Out of Debt

Nick writes with a common question:

I am a college student with $8,000 of debt. What is the first step in paying this off?

Debt elimination involves three steps:

1. Stop acquiring new debt.
2. Establish an emergency fund.
3. Implement a debt snowball.

Here’s how to approach each step. (I’ll use Nick’s situation as an example, but the principles apply to everyone.)

Stop acquiring new debt

(This step can be accomplished in an afternoon.)

This may seem self-evident, but the reason your debt is out of control is that you keep adding to it. Stop using credit. Don’t finance anything. Cut up your credit cards.

That last one can be tough. Don’t make excuses. I don’t care that other personal finance sites say that you shouldn’t cut them up. Destroy them. Stop rationalizing that you need them.

• You don’t need credit cards for a safety net.
• You don’t need credit cards for convenience.
• You don’t need credit cards for cash-back bonuses.

You don’t need credit cards at all. If you’re in debt, credit cards are a trap. They only put you deeper in debt. Later, when your debts are gone and your finances are under control, maybe then you can get a credit card. (I don’t carry a personal credit card. I don’t miss having one.)

After you destroy your cards, halt any recurring payments. If you have a gym membership, cancel it. If you automatically renew your World of Warcraft account, cancel it. Cancel anything that automatically charges your credit card. Stop using credit.

Once you’ve done this, call each credit card company in turn. Do not cancel your credit cards (except for those with a zero balance). Instead, ask for a better deal. Find an offer online and use it as a bargaining wedge. Your bank may not agree to match competing offers, but it probably will. It never hurts to ask.

Establish an emergency fund

(This step will probably take several months.)

For some, this is counter-intuitive. Why save before paying off debt? Because if you don’t save first, you’re not going to be able to cope with unexpected expenses. Do not tell yourself that you can keep a credit card for emergencies. Destroy your credit cards; save cash for emergencies.

How much should you save? Ideally, you’d save $1,000 to start. (College students may be able to get by with $500.) This money is for emergencies only. It is not for beer. It is not for shoes. It is not for a Playstation 3. It is to be used when your car dies, or when you break your arm in a touch football game.

Keep this money liquid, but not immediately accessible. Don’t tie your emergency fund to a debit card. Don’t sabotage your efforts by making it easy to spend the money on non-essentials. Consider opening a savings account at an online bank like ING or Emigrant. When an emergency arises, you can easily transfer the money to your regular checking account. It’ll be there when you need it, but you won’t be able to spend it spontaneously.

Implement a debt snowball

(This step may require several years.)

After you’ve stopped using credit, and after you’ve saved an emergency fund, then attack your existing debt. Attack it with vigor. Throw whatever you can at it.

Many people say to pay your high interest debts first. There’s no question that this makes the most sense mathematically. But if money were all about math, you wouldn’t have debt in the first place. Money is as much about emotion and psychology as it is about math.

There are at least two approaches to debt elimination. Psychologically, using a debt snowball offers big payoffs, payoffs that can spur you to further debt reduction. Here’s the short version:

1. Order your debts from lowest balance to highest balance.
2. Designate a certain amount of money to pay toward debts each month.
3. Pay the minimum payment on all debts except for the one with the lowest balance.
4. Throw every other penny at the debt with the lowest balance.
5. When that debt is gone, do not alter the monthly amount used to pay debts, but throw all you can at the debt with the next-lowest balance.

I’m a huge fan of the debt snowball. It still takes time to pay off your debts, but you can see results almost immediately.

Supplementary solutions

You can do other things to improve your money situation while you’re working on these three steps.

First, focus on the fundamental personal finance equation: to pay off debt, or to save money, or to accumulate wealth, you must spend less than you earn.

Curb your spending. Re-learn frugal habits. (Frugality is something with which most college students are all too familiar.) You can find some great ideas in the archives of this site. Also check Frugal for Life.

While you work to spend less, do what you can to increase your income. If possible, sell some of the stuff you bought when you got into debt. Get an extra job. (But don’t neglect your studies for the sake of earning more. Your studies are most important.)

Finally, go to your local public library and borrow Dave Ramsey’s The Total Money Makeover. Don’t be put off by the title — this is a fantastic guide to getting out of debt and developing good money habits. I rave about it often, but that’s because it has done so much to help my own personal finances. After you’ve finished, return it and borrow another book about money.

The most important thing is to start now. Don’t start tomorrow. Don’t start next week. Start tackling your debt now. Your older self will thank you.

links for 2006-11-16

• Cut Monthly Bills In Half - Consumerist
  I’ve written about this before, but it never hurts to mention it again: you can save money by comparison shopping, then asking you current service providers to match the best price.
  (tags: bills tips lifehack)
• » Photocopy The Cards In Your Wallet on Blueprint for Financial Prosperity
  Great tip: be prepared by photocopying the stuff you carry in your wallet. This will help if you lose it or it gets stolen.
  (tags: planning lifehack identitytheft)
• Consumer Reports’ Most Reliable Cars | CNNMoney
  (tags: cars planning)
• HOWTO: Negotiate Your Gym Membership Like a Diva - Consumerist
  Someday I’ll write about how foolish gym memberships can be. (Mine certainly is foolish.) Until then, here’s some good advice.
  (tags: health money saving)

Congratulations, Ramit!

Ramit Sethi has signed a deal to publish a book based on his site. This is fantastic news. Ramit has a direct, engaging style, and offers commonsense personal finance advice for young people. (And for old people, too, actually.)

It’s also just the push I need to get off my ass and turn my own dreams of writing a book into reality. Time to read up on book proposals again.

You, Inc.: How to Be the CFO of Your Own Life

Many people could improve their personal finances if they simply viewed themselves as a business. In this guest entry, Flexo from Consumerism Commentary explains how he’s become the Chief Financial Officer of his own life.

In the very early days of 2002, I realized I needed to change a few things about my life.

My girlfriend and I returned from a vacation in Phoenix, Sedona, and the Grand Canyon in the middle of December 2001, having had an excellent time despite some nervousness about flying so soon after 9/11. Upon returning, four things happened to me that forced me to change my outlook. I suppose the older, more rational me can look back and say on some level I caused them to happen.

1. My girlfriend left me.
2. I lost my low-paying non-profit job in the arts — a job for which I had just moved to a horrible apartment in northern New Jersey.
3. My car was impounded by police. Unbeknownst to me, I had been driving with a suspended license due to my failure to pay a years-old speeding ticket I don’t remember receiving.
4. My landlady somehow got the impression that I was moving out at the end of December (although no such decision was ever communicated). While I was out one night, she removed my belongings from the apartment so someone else could move in.

I moved in with my father so I could take some time to look for a new job and to contemplate my existence for just a couple of months. It was during this time I realized that I was losing money every month while working at that non-profit. It cost me more to travel to the job and pay rent and other necessary expenses than I was earning. I decided to start focusing on my financial situation (among other things).

I bought Microsoft Money and started plugging in numbers, accessing my accounts online, and paying off debt. “Interesting,” I thought. I liked how the numbers on the computer looked as if they were some sort of official financial statement.

I got a job in Newark — accessible via train from my dad’s house — since I could not afford to drive for a while. (It would also have been illegal.) I worked as a temp for the Chief Operating Officer of a very large company. They liked me, so they kept me after the temp assignment ended. Now I began to see something really interesting in the Microsoft Money: the numbers were going up each month! Neat!

I moved twice during the next twelve months: once to a cheap apartment in Jersey City which kept my expenses down, and then to an apartment I shared with three roommates in central Jersey. Rent was less than $350! Cable was split among four people! Now that I was tracking every penny earned and spent, I saw the value of saving money where possible, spending less than I earned, and maximizing my income. (I’m still working on that last one.)

Rather than just letting things happen to me, I was making decisions about my money management. I was investing in a 401(k) with company match. I opened a high-yield savings account at ING Direct. And I was making other good decisions. At this point, I became the Chief Financial Officer of my life.

Then I put two and two together.

I had been blogging since 2000 — since earlier, actually, but it wasn’t called “blogging” yet — and I thought that creating a blog about my finances would be a cool way to keep myself accountable. I doubted at the time that anyone would actually want to read my financial updates, how I spent money, and whatever money-related issues I was pondering.

In my first post, in July 2003, I presented my financial update, a status of my current net worth divided into a few categories. I was inspired by the automatic monthly reports generated by Microsoft Money. Since that first post, my monthly updates have grown into financial statements, not unlike the financial statements in the annual reports published by corporations. I’ve been posting them on Consumerism Commentary ever since.

Thinking about my finances and treating them in terms of a business makes sense. Putting together these reports each month like a business is the most important part of being the CFO of my life. As I export the numbers from Quicken (no longer Microsoft Money) into Excel to prepare the website post, I am forced to think about how much I spent, and where I could have saved more money without compromising the things that are important to me. Now that I have income from several sources, I also review those numbers to determine how I can expand my business opportunities. Preparing the reports makes me consider my progress and publishing the reports keeps me accountable.

I am thankful for the regular readers my blog has attracted over the past few years; their comments have been invaluable in shaping my thought process and my decision making. Each month, I do not want to let them down. Part of my motivation for always trying to make appropriate financial decisions is the knowledge that I have to report my progress to the public every month. It’s no wonder that so many companies would rather stay privately owned than open their finances to scrutiny by going public. It’s a tough crowd, especially when you make a sour financial move. Although the mistakes show up less often these days, I am positive I have more mis-steps to make before my life is through.

No matter how poor my decisions are, the results will be posted every month, for the world to see. I now prepare two statements each month.

• Here is my latest income statement.
• Here is my latest balance sheet.

If you’re interested in developing your own statements, I’ve created two Excel templates, located here and here.

Thanks to Flexo for sharing his story. If YOU have some personal finance information you’d like to share with the readers of Get Rich Slowly, let me know.

Track Your Spending with a Cash Notebook

I had dinner with my friend TJ tonight. He paid for his meal with cash. After we’d settled the check, he pulled out a small spiral notebook and jotted down some numbers.

“What’s that?” I asked.

“I’ve started using a notebook to keep track of what I spend,” he told me. “Whenever I pay in cash, I write it down. Otherwise I don’t have any idea where it goes.”

“That’s a great idea,” I said. “I track every penny I earn and spend, but I do it on the computer. I use Quicken. It helps me know what I’m doing.”

“I don’t have the discipline to keep track of my finances like that,” said TJ. “Besides, I’m not trying to track every penny. But since I moved into this new house, money’s been pretty tight. I feel pinched. Keeping this notebook gives me a rough idea of where everything’s going. I’ve always been able to check on things when I use a bank card, but cash has been a problem. Now if I find myself wondering where I spent that $20, I can look it up here.”

“I have trouble tracking cash, too,” I said, “even though I track everything on the computer. If I take out $40 on one weekend, but don’t do my finances until the following weekend, I can lose track of things. I just did my finances on Sunday. I got stuck because I’d spent $3.58 in cash someplace I can’t remember. Maybe I should keep a notebook, too!”

TJ nodded. “The notebook is also a preliminary step. I’ve only been doing this for a few weeks. I may decide that I need to do more. Maybe I’ll set up a budget. Maybe I’ll have to get Quicken.”

This is an example of learning to do what works for you. Everyone can find some method that will allow them to track their spending and make corrections if necessary.The cash notebook reminds me a little of Merlin’s Hipster PDA. Solutions like this are awesome. They prove that high-tech isn’t always the way to go. Often you can improve your life for a buck-ninety-eight.

Reader Story: Two Approaches to Car-Buying

Earlier I posted a link to a story that indicates that new cars are more affordable than they have been since 1980. This prompted a couple of you to e-mail me your car stories. An anonymous reader wrote to share the following: