Bankruptcy Questions Answered

What Could You Cut in a Pinch?

With unemployment levels still high, many people are looking for ways to trim their household budgets. Dealing with a sudden loss of income can be difficult, especially if you're used to a certain lifestyle. Whether you're dealing with unemployment, recovering from filing bankruptcy or just trying to create a nest egg, where you spend your money can make a big difference.

A recent post from DarwinsFinance.com encourages readers to explore the financial cutbacks they could make if they were laid off. The author crunched numbers and found that his household could save about a thousand dollars per month.

This concept is useful for a couple of reasons. First, it gives you an idea of what kind of emergency fund you ought to have, and second, it opens the door to potential ways to start saving that money more quickly. Here’s a look at some areas where you might be able to save.

• Television: If you currently get a lot of channels, you could drop to a package with fewer frills. If you already have a fairly minimal setup, you could call your company and indicate that you're considering canceling your television service altogether unless they can offer a lower rate.
• Internet and phone: Downshifting to a slower online connection may work if you don't use the Internet much, and there's a good chance you could trim your cell phone package. And remember: negotiating with your provider (or trying to) is always an option.
• Subscriptions: Whether you receive newspapers, magazines or a cheese of the month, chances are your subscription isn't a bare essential. The good news is that if your subscriptions are mostly for reading material, you can likely find much of the content online.
• "Cheap" out food: Cups of coffee, breakfast sandwiches or lunches out may seem inexpensive (especially compared with restaurant dinners), but when purchased regularly, they add up. Packing lunch and brewing coffee are both easy to do—although, if you do lose your job, you'll probably be less likely to be tempted by on-the-go food, since you won't be at work.
• Clubs and activities: If you have children in extracurricular activities or you yourself have an expensive gym membership (or similar), you could always cut them in a pinch.
• Groceries: If you haven't already explored the glorious world of generic food, now is a great time to start. Many store-brand grocery items are actually produced at the same factories as the name brands—and come at a significant discount.
• Clothing: Dry cleaning can eat up serious funds, and so can shopping too often. And if you have difficulty resisting sales (or non-sales), consider avoiding your favorite shopping spots a bit more often.

Additional Resources

Should Households Establish Emergency Funds? (PDF)

The Decline in the U.S. Personal Savings Rate (PDF)

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Research Suggests Ways to Spend Smarter

High unemployment rates and sluggish recovery in the job market mean that many Americans are still budgeting carefully and watching every penny that leaves their wallets. It’s times like these when studies like the one conducted by researchers at San Francisco State University can help us make important spending decisions.

Memories Last Longer than Stuff

The new budget study examined recent purchases made by adults enrolled at SFSU. Here's what the researchers discovered:

• Happiness from things fades. On average, researchers found, the thrill brought about by new objects faded in six weeks to three months. This means that, no matter how much you love that new computer, dress or TV, you will get used to it in a few months and the pleasure it brings you will dwindle.
• Happiness from memories lasts. On the other side of the coin, the pleasure induced by spending money on experiences (like sporting events, plays, hikes, etc.) endures, thanks to our ability to remember and relive these experiences.

So how can you use this information to make the most out of the money you have for leisure? Focus on participating in events rather than accumulating goods. And, suggests the study, recruiting friends and loved ones to join you is a particularly useful way to make sure you enjoy yourself and create enjoyable memories.

Here are some ideas to consider when thinking about an experience (rather than an object) to spend money on:

• Take a class. Many community colleges and organizations offer continuing education departments that offer fun classes like ballroom dancing, cooking, yoga or sculpture.
• See a play. Check local newspapers or schools for events put on by community and school theatre or music groups. Bonus: these are often low-cost outings.
• Plan a picnic. Even in bad weather, you can organize a picnic indoors to shake up the monotony of chilly days. Team up with friends and make everyone responsible for one part of the meal. Or have everyone agree to bring a dish they've never had before.
• Be a tourist at home. Spend a day visiting museums or landmarks close to home that you've never actually explored. See what you can learn about your hometown.
• Get lost. Team up with a friend and try to get lost. Then spend the day driving or walking around areas you’ve never seen before. Take pictures as souvenirs.

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True Bargains: What Makes a ‘Good Deal’

While looking for low prices is an important part of financial responsibility, it’s only one component: getting the value you need is the other half. For example, buying the cheapest brand of conditioner may seem frugal, but if you have to use twice as much as any other brand, it may end up costing just as much.

Value Vs. Price

The "value" of an item is subjective, while price is relatively fixed. Two people may see the same item as having different values even when the price is the same.

• Value: How much an item is worth to a buyer/seller (usually determined by how much you need or want an item).
• Price: How many dollars an item costs. Dollars are sort of a generic value unit we’ve all agreed upon.

In many cases, value and price line up pretty well, and merchants will try to keep the two in line. Value really shoots up when a seller is asking for less than you’re willing to pay.

Maximizing Value

So how can you make sure you spend your dollars to maximize their value? Here are some tips.

• Buy second-hand: Thrift stores, flea markets and garage sales are all excellent places to find good values because they’re filled with items that haven’t declined in intrinsic worth but whose owners grew tired of them. Gently used items are often steeply discounted and still perfectly functional (but avoid super-cheap items that are simply junk).
• Spread the word: Let your friends and family members know what you’re looking for – someone may be trying to “get rid of” exactly what you need. When you’re in a store, tell the sales associate what you’re looking for. Ask for advice and find out if any discounts might be available.
• Shop ahead & behind: If you know you’ll need a new pair of sneakers once a year, keep your eyes peeled at all times for bargains – many staples won’t “go bad” from sitting around a while. Take advantage of end-of-season sales to stock up for the next year (think Halloween decorations on November 1st).
• Use the Internet: Craigslist, eBay, Freecycling, Amazon and other websites often offer significant discounts from retail prices. But if you don’t want to buy online or don’t like to pay for shipping, you can still use the Internet to get an idea of what various vendors charge for the item in question (and use that knowledge to bargain).

If you start thinking in terms of value, you'll be able to save money while getting your true dollar's worth—particularly important if you're struggling with debt or rebuilding your finances after bankruptcy.

Posted in Budget, Financial Literacy, after bankruptcy, saving money, spending money | Comments Off