Almost three months ago in mid December, I wrote a post about my concerns that people’s credit card limits were suddenly being slashed.  Well, it’s good the mainstream news eventually gets around to covering issues that are happening in real people’s lives, so that the masses can be warned. Here’s a recent article now being featured at the top of Yahoo news as of today.

Take a look at this to see what’s going on – by the time the mainstream news covers something, it’s usually not anything new, but so prevalent that it’s a major issue for a lot of people.   This article makes it sound a lot more mild than it actually is, since a huge number of people facing this scenario aren’t able to quickly pay off their cards or reduce their spending to below their limits, making for massive fees (note that no one in that situation was featured).  The article didn’t mention that credit card companies are also suddenly drastically raising interest rates, something that should be of concern to anyone who doesn’t pay off their accounts in full each month.  If you are still heavily dependent on your credit cards, please, start weaning yourself off of them immediately.

Also, I think it’s prudent to keep an eye on your credit card account just in case there’s a sudden policy change that takes effect.  Don’t think you’ll get any warning.  For the last few months I’ve been checking mine twice a month instead of just once (an online account makes this easy), because getting a bill that shows lots of unexpected fees isn’t fun, and neither is trying to argue with a credit card company representative to have them refund those fees.  Prevention is the best cure, and forewarned is forearmed!

Avivah

I often see the suggestion made to join a warehouse store to save money on food and paper goods, because it’s assumed that it’s going to be a cheaper option.  I used to shop at warehouse stores, but now I seriously question if it’s a financial savings for most shoppers. 

First of all, there’s the membership fee of about $40 for a year.  That doesn’t sound like much, right?  In a year, of course you’ll save lots more than that!  Or will you?  So let’s start by looking to see if you can recoup your fee, which you’ll have to do to break even.  (There’s no savings unless you can do more than break even, obviously.)

Saving money in a warehouse store is an art, but most people think that all they have to do is shop there to save money!  They walk around dumping oversized packages of whatever strikes their fancy into their carts, positive that it’s lots cheaper than they could buy it for in a regular supermarket.  Everyone knows that buying in bulk will save money, and seemingly, when you’re in a warehouse store, you’re buying in bulk.  But things aren’t always what they may seem, and that’s an assumption that will cost you money.  My hesitations about endorsing warehouse stores as money saving options are below.

1) First of all, the majority of food items sold in warehouse stores are processed items.  When you buy processed foods, you’re buying foods that are full of additives, GMOs, high fructose corn syrup, plus bad fats like cottonseed/vegetable/soybean oil.   And you’re paying significantly more than the cost of ingredients themselves, for the convenience of not having to make the food yourself.   Right off the bat, I’d tell you to cut your convenience food consumption and that will make a much bigger dent in your food budget than shopping at stores like these.  But I know that many people enjoy these foods and don’t want to give them up, and are happy to get them a little cheaper.  So once you’ve determined the item you’re considering is a value for you to purchase, look at the unit pricing.  How much is it per ounce?  How does it compare to the per ounce cost of a smaller box at your supermarket?  You need to know this information to be an educated shopper.  It might be a little less expensive than the regularly priced item (or not – the Sam’s Club here is in the same complex as Walmart, and I often can find the same thing cheaper at Walmart – and you don’t need a membership to shop at Walmart).  But once you start comparing the sale prices of the supermarket items to warehouse items, the super-sized boxes stop looking so appealing! 

2) Then, most of the foods in the warehouse store are brand names, with the exception of the one store brand.  Name brand companies have spent plenty on advertising to make people think they’re offering top value, but in reality, there’s not much difference between most of the companies.  Recognizing this makes it easier to stay away from name brands, and choosing the less expensive labels is another good way to save money (not including fantastic sales or couponing, which can make it possible to spend less on name brands, but which only apply in regular supermarkets). 

3) What about when it’s not less expensive to buy in the larger package?  Don’t make the mistake of thinking that because you’re buying a fifty pound bag of something, it by default must be cheaper.  I haven’t found this to be the case at all.  On a regular basis I find it less expensive to buy items in the smaller packages – for example, it’s significantly cheaper for me to buy 1 lb bags of beans or rice than to buy it in 25 or 50 pound bags.  It may be counterintuitive, but it’s true.  Again, you need to know what the unit pricing on the item is.

4) So you’ve determined the item is a good value, and you bring it home.  Do you use it in the same quantities you would otherwise have used it?  When I shopped at these stores, I found myself buying larger amounts of things than needed because ‘it was such a good deal’.  But if you’d usually use a standard box of Cheerios for your children’s breakfast, and you end up using a mega sized box (ie, double) instead because you feel it was so cheap, you haven’t really saved anything.  You’ve just spent almost double what you would have otherwise, without even realizing how you’re draining your budget – because you’re busy feeling so good that you bought your Cheerios cheaply.  People do the same thing when being extravagant in the use of paper plates or paper napkins, because they bought so much. That’s fine if your goal is to increase your quantities, but don’t fool yourself and think that you’ve saved money. 

5) I also found myself buying things that I didn’t really need, just because it seemed like a good price.  So you need to be sure that you won’t fritter away whatever savings you think you’re gaining by buying things that you don’t really need.

I found that there were only about three items that were money savers for me, and none of them justified the cost of membership – 40 lb bucket of powdered laundry detergent, instant yeast, and dishwashing liquid.  At the end of my membership period, I bought enough of those items to last for six months.  I had initially planned to renew after six months passed (thereby getting 18 months of shopping out of my 12 month membership), but then realized that it would be more worthwhile to put some energy into finding cheaper alternatives or better sources for those items.  And that’s what I did.  I’m able to easily find every single item I ever used to buy at the same price or less without ever entering a warehouse store.

(Obviously, if you live where there are several large supermarkets, there will be more competitive sales on food and paper goods than for someone who lives in a very rural area and has only one small local store.  In that case, they’d probably save money at the warehouse store.  I don’t think the majority of shoppers fit into this category, though.)

To sum up, psychologically warehouse stores are very effective, because people really believe they’re saving money. And if their prior option was to shop at regular supermarket prices for name brand processed foods, they will save money.  But for the careful shopper, she’d be hard pressed to save enough to cover her membership fees in the course of a year.

Avivah

>>Do you have a budget? If so, how did you create your budget?” 

The answer is yes, I do keep to a budget, but since there are a few steps in beginning to budget, in order that this will be of help I’ll start at with the first thing first.

The very first thing you need to do is track your spending – every penny of it.  If you use debit and credit cards exclusively, this will be very easy.  Take your last three months of bank/credit card statements out.  If you use any cash at all, make a note of this, too, no matter how small or insignificant it seems to be.  Twenty dollar bills get frittered away with frightening ease with nothing to show for it, and you need to know where it’s gone.  Then , write down exactly what you spent and what it was spent on. 

After you’ve written everything down, look at where your money went.  You’ll see some categories emerge – food, bills (each one should be it’s own category), clothing, transportation, gas, medical, etc.  Write down each category at the top of a paper, and then write down under it the expenses that relate to that.  If you have so many things that you find the expenses hard to categorize, that’s fine. More categories will probably help you keep things clear than fewer.

Once you’ve done this, total up how much you’ve spent in each category.  This will give you a very clear idea of exactly where your money is going, and you must know what your real spending is and where it’s going.  Someone with six kids a couple of months ago told me she spent $150 a week on food.  I told her I’d love to hear her tips because she’s clearly using a lot of frugal strategies to achieve that.  She looked surprised and told me she wasn’t especially careful.  I right away knew that she had no idea what she was really spending.  About six weeks later we bumped into each other again, and she told me that she was totally wrong, that she spent significantly more than she thought (as in $400 a week).  But it wasn’t until we spoke that she started to pay attention to it. 

You can see how it’s going to be hard to budget successfully if you think you spend $600 in a given category, and are really spending $1600!  And it’s also going to affect your receptiveness to getting your costs in order, if you think you already are being careful.  (Here’s something I’ve found – most people think they are pretty reasonable in their spending, regardless of their debt loads.)  So reality is important to have on your side. 

Here are my categories: maaser (tithe – this gets taken off the top before anything), mortgage, car insurance, telephone, gas (for the vehicle), gas/electric, life insurance for dh, life ins. for me, transportation (for dh), midwife (she’s wonderful about letting me make monthly payments instead of one large lump sum), clothing, savings.  I have specific categories at certain times of year for holiday expenses that I determine in advance (before Purim includes mishloach manos, matanos le’evyonim; Pesach includes shmura matza and other related expenses).  I also have a miscellaneous category, but I don’t suggest you do that until you’ve been tracking your spending for a while and are already very careful with your money.  It’s too easy to get sloppy about that.

 Don’t be afraid of this step.  Once you know what you’re spending, then you can start to have fun slashing every single category.  There are so many frugal strategies in every area of life, and it’s very exciting to see how much less you can spend without compromising your quality of life.  In fact, living responsibly within your financial means and utilizing your creative side to do that not only doesn’t compromise your quality of life, but greatly improves it!  As I’ve said before, frugality isn’t about doing without; it’s about finding out what’s most important to you and making sure your spending responsibly reflects that.  It’s definitely a lot more fun to live debt free, knowing when you spend on something that you really have the money to buy it and to find alternatives when you don’t have the money, than to live in denial. 

Avivah

I’ve mentioned that I love to read, and generally have a pile that I’m in the middle of reading at any given time on various topics.  One area that’s been of interest to me for years is finances.  I’ve heard several times that Dave Ramsey (whose books I think are great) has very effectively marketed the ideas of Larry Burkett, and finally decided to read some of Larry Burkett’s books.

I just finished a book by Burkett entitled The Coming Economic Earthquake.  This book was written in 1991, and details the concerns Burkett had about the economy and his predictions as to how it would play out.  As he said in his intro, he went out on a limb to write this, since if he was right, people would say he was lucky, and if he was wrong, people would say he didn’t know what he was talking about, but he felt it was his obligation to warn people about what he saw coming.  He estimated his predictions would play out around the year 2000, though he said it could take longer.  When asked before he died if he thought he had been off track in making these predictions since it hadn’t yet happened, he said, no, he thought it would be even worse than he predicted because the longer the delay, the worse the earthquake.

This book was riveting reading, and I told my ds15 and dd14 that I thought they’d enjoy reading it, too.  (They have to read for an hour a day from something I’ve approved – that hour doesn’t include their recreational reading – so I would allow this for their official reading.)  It’s very clear, interesting, and systematically puts together a lot of information that I’ve spent months assembling for myself from various sources.  What makes it especially interesting is to see how on target he was – every day right now, every time I hear the news or read an online financial article, I see exactly what he was predicting playing out.  Whereas someone might have discounted what he wrote even two years ago as unlikely and alarmist, now it’s almost eery to see how on target he was.

Last February, long before there was any news or discussion about it, I became very concerned about the economy, and shared that privately with some of you.  I’ve been asked about what my concerns were based on, and tried to succinctly respond by summing up several major factors, how they tied in together, and how they would affect all of us.  Larry Burkett has done a much better job than I ever could in explaining this!  I really recommend this book, to understand many aspects of the economy and why what we’re going through is happening. As I said, it’s clear and easy to read, unlike other books filled with graphs and technical jargon that I’ve found challenging to digest.

My ds told me he didn’t want to read it, because listening to me discuss the economy is depressing enough.  🙂  (He is reading it and enjoying it very much now.)  But I told him that I actually didn’t find it depressing at all – if anything, it almost cheered me up.  It’s bothered me for many months now to feel like I was seeing things that no one was expressing the slightest bit of concern about, and I felt bringing them up would cause me to be labeled paranoid (though now the regular news is a lot more alarming than what I shared with friends thirteen months ago).  Somehow it heartened me to see it all outlined just the way it was, to know what we’re really going to be dealing with and why, and that it’s not my overactive negative outlook (I’m not a pessimist by nature at all).   It’s always easier to deal with something concrete than something vague.  So go get it from your library and get educated!

Avivah