We’re sorry we haven’t been posting lately! I (Dawn) was definitely overestimating how much time I would have leading up to my maternity leave, and unfortunately, Ironclad Finances was delegated to the back burner.

I will be starting my maternity leave next week. My hope was to have some posts written before I left, but that didn’t work out. So, we will be on hiatus until I’m back, which will be towards the end of April or early May. We’ll see you then!

A few months ago, we posted about the possibility of renting a property before deciding on buying in the post “Renting Before Buying – Testing the Waters.”

Renting before buying can be incredibly helpful in extreme situations: relocating to a new state, buying a much bigger home, or a much smaller one. This scenario, while not feasible for everyone, can help to save you a lot of money and headaches in the long run.

Obviously the difficult part of this is finding a place to rent that will allow you to get a feel for what you are looking to do. Finding a house that is the right size, for the right rent, with the right lease options can be very difficult. But if you are able to do so, consider this option before finding a home to blindly buy in the new situation.

This follow up post is once again inspired by Get Rich Slowly’s Holly Johnson’s own follow up post “The small house experiment, Part 2.” In Part 1, Johnson discussed renting a home for her family more than 1,000 square feet smaller than their previous home. They believed that a smaller home was the right solution for their family, but being unsure whether the logistics would work, decided to rent before buying.

In Part 2, Johnson discusses the outcome of their test. While the house works for the family, it’s not quite comfortable. But their experiment went beyond just judging the size of the house, it has helped them decide what the really necessity to them: “Storage space is something that I took for granted in our old house, and it’s apparently not something that I’m willing to give up. […] And, even though I thought I could live without an office, I’m finding it rather uncomfortable working in the corner of my tiny bedroom.”

So, now that Johnson and her family know what works and doesn’t work, they can continue to rent while they search for the right size home with the features they now know they can’t live without.

Now imagine how much different Johnson’s situation would be if they had jumped into downsizing by buying a much smaller house. They would have been stuck in a long term commitment in the form of a mortgage, which is much more difficult, time consuming, and expensive to get out from under than moving out of a rental.

We use Johnson’s situation as a real life example of renting before buying really helping a family make the right decision before settling on buying a house.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

Have you heard about the “52 Week Money Challenge?” If you spend any time on the internet lately, you’ve probably seen it. The concept is the save in dollars the week of the year you are currently in. So, in week 1 of the year, you would save $1, in week 40, you would save $40, etc. By the end of the year, you will have accumulated $1,378.

This idea is not new; we’ve seen it around for many years, usually starting to circulate the internet late each year as a possible New Year’s Resolution for people. This year in particular, we noticed it “shared” a lot among friends on Facebook as something to try for the New Year.

While we love the idea of people saving more throughout the year, we have our reservations about this plan. People get excited over the simplicity of it, thinking about how easy saving almost $1,400 in one year can be. But it’s not that simple.

Trent Hamm, over at The Simple Dollar did a post on this topic that made some great points: “Thoughts on the ’52 Week Money Challenge’.” (Please view the post for a sample “52 Week Money Challenge” chart). While Hamm is a supporter of the concept in theory, he makes some good points on the validity of it:

  • “[…]the catch is that the later weeks are far more challenging than the earlier ones. If you start this in January, December’s weeks are going to require you to put away $49, $50, $51, and $52, respectively. This plan is asking people to put aside more than $200 during the one month of the year when money is often the tightest.”
  • “If you just follow the chart as-is, you’re going to eventually run into a week where it’s not easy to make that goal. If you fail for a week, it’s going to feel pretty tough to get back on the routine.”

Both of these points are the main problems we have with the challenge. As with any New Year’s resolution, people will start off strong, especially since the early weeks are so easy to complete. But then things are going to start getting tighter the more money you have to save. Once you get to the point where you can’t save the required amount, people will start to flounder. What happens next? Do you just skip that week? Save what you can and move on? Suddenly your $1,378 starts decreasing and you start to get disheartened. Maybe you should try to add this week’s savings to next? Can you afford that?

Hamm has an interesting variation of this challenge that does makes sense to us. Instead of following the chart as laid out:

“Each week, make it your goal to save as much as you can. Can you save $20 this week? How about $40? How about $52? The higher you can make that number, the better. You can bump that number up through little choices during the week.

At the end of the week, just cross off the line on the “money challenge” table that matches how much you were able to save. If you were only able to sock away $15 this week, cross off the $15 line. If you saved $52 this week, cross off the $52 line.”

This variation to the plan will still allow you to save the $1,378 in one year, but without the added stress of raising the amount each week. However, we still take some issue with this plan.

  • Manual Savings – Part of the reason plans like 401(K)s are so easy to maintain is that the savings are automatically invested. With a plan like the “52 Week Money Challenge,” automatic savings is not an option as laid out. You will have to manually set aside this money every week. Do you work on your finances weekly? If so, that’s great. Unfortunately many people’s answer to this question would be no. If that is the case, it’s unlikely you are going to be able to keep up with putting this savings aside weekly.
  • Supplemental/Emergency Savings – To us, a challenge like this should be used only as supplemental or emergency fund savings. Do you save at least 10% of your income for retirement? Are you debt free outside of your mortgage? If the answer to either of these questions are no, then the money from this challenge would probably be put to better use elsewhere. If the answers are yes, then this can be a great way to boost supplemental savings, maybe for a project or vacation. Or, if you have no emergency fund currently, this can be a great way for you to start one, whether you are saving for retirement or paying down debt currently or not.
  • Normalize It – To make this plan simpler and easier to handle, why not normalize it? As in, average out the $1,378 over the 52 weeks, allowing you to save up automatically, without the added stress of the higher savings weeks. Not only will this still give you the savings you want, but saving $26.50 a week will be much easier to handle than saving $202 in December alone.

We can see why this would not be as appealing to people looking for easy savings tactics (those drawn in by only having to set aside $10 in January). But in the long run, over the course of the year, we believe someone saving a set amount each week will be much more likely to end up with the $1,378 in their bank account by the end of the year than those following the “52 Week Money Challenge” as is.

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

While the plan was to return to our regular weekly post today, we’ve decided to do something different. Since December was already a shortened month due to the holiday break, we’ve decided to take the whole month to write up some future posts.

As some of our readers already know, I (Dawn) am expecting my first child in late February. While I’m on maternity leave, I won’t be writing and posting to the blog. So, I’d like to take December to write the blog posts for that time period. Hopefully our readers understand!

We wish everyone a Merry Christmas and a Happy New Year! We’ll being our regular weekly posts again on Friday, January 10th.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

We wish everyone a Happy Thanksgiving! We hope everyone enjoys the holiday. We’ll be back in two weeks with our regularly scheduled post.

We love a good money saving tip. When you’re living on a budget, saving a few dollars here and there can make a big difference. Some money saving tips are pretty sound (like research a product before buying and finding it for the lowest price). Other money saving tips can backfire and end up costing you more in the long run.

This week, April Dykman of Get Rich Slowly wrote about this topic: “7 Money-saving strategies that can cost you more.” While the strategies she discusses can certainly help to save you money, you have to be very careful how you utilize them.

“1. Buying a coupon to save money later.

A great example of this scenario is Groupon or LivingSocial. The deals hit your inbox, and one piques your interest. […] So you buy it, and then you forget about it. The expiration date comes and goes. This has happened to me a couple of times, so my new rule is to only buy Groupons for services that I’d use anyway or places that I already love. For instance, when I’ve bought Groupons to my favorite restaurant, I’ve always redeemed them.”

Groupon and LivingSocial are great. They have some amazing deals and can really save you money, but it will only save you money if you would have spent the money anyway. If you were going to go to a restaurant and spend money there regardless of the coupon, then yes, finding a deal to save you some money is great. But if you are spending money just to get a deal on something you never would have done if you had to pay full price, it’s better to skip.

“2. Buying more to get a discount.

A lot of online retailers will coax you into buying just a little bit more with their discount offers. For instance, if I just purchase $20 more, I can get 15 percent off or free shipping. […] But the problem is that you can spend more money than you would’ve spent without the coupon. For instance, if I need $20 more in my cart to get free shipping, and shipping costs $8, then I’m paying $20 to save $8, which is $12 more than I would’ve paid without the coupon. In fact, I didn’t save; I spent more.”

I (Dawn) am guilty of this one (in fact I just made a purchase last week where I bought two items more than I was planning to get free shipping). When shopping online, shipping can be a huge expense, so it makes sense to want to try to avoid it. But if you are just throwing stuff into your cart to reach that elusive “free shipping” threshold, you may want to stop and think of the cost (Would you really be saving money on the total order? Is the final cost for the items you actually need plus shipping going to be more or less than the “free shipping” amount?

“3. Paying more to invest in quality.

More expensive doesn’t always mean higher quality. […] Expensive isn’t always better. Unless you do a bit of research, you might think you’re paying more to invest in quality, when really, you’re just paying more.”

Do you research. You can more than likely find reviews of different products online that can help you decide what is actually the higher quality product, regardless of price.

“4. Paying less to save money now.

Sometimes it does make sense to pay more. If you’re trying to save money by going with the cheapest item, that can cost more in the long run.”

Again, do your research. While getting a quality item for cheapest price you can is often a good idea, getting the cheapest item available often is a bad idea.

“5. Buying extra to save over time.

Buying in bulk is a good way to save money, but only if you actually use it.”

This is especially important if you are buying perishable food in bulk. Be careful not to buy more than your family can eat before the food goes bad.

“6. Buying something that’s too good of a deal to pass up.

Sales and clearance racks can be deceptive. […] Even though I got a great discount, I wasn’t saving money. Those items would hang in my closet, unworn and unloved. Eventually, I ruthlessly cleaned out my closet and got rid of those sad reminders of how much I’d spent on those great ‘deals.’”

People often buy items off the sale or clearance rack that they didn’t set out for. You went to the store for a winter jacket and came home with a summer shirt because it was on the clearance rack. While not inherently a bad idea (I’ve bought clothes for a few dollars off the clearance rack that I wear all the time), make sure you are buying it because you really like it, not just because it’s cheap. I know from experience that if you don’t really love the item or it’s not very comfortable, it will go to waste, and even if it only cost you $5, that’s still $5 down the drain.

The above money saving tips can save you money if utilized correctly. Make sure to think things through before making a purchase!

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

Many people have plans to retire away from where they are currently living and working. Some people already have vacation homes that they plan on moving to full time after they retire. Some people know exactly where they want to go, maybe some place they love to visit or where their family lives.

Still others have intentions to move, but aren’t quite sure where to start. Moving over long distances at any point in your life can be a big decision, one that can have a major impact on your future. This is even truer for entering retirement where your resources will be more limited and you have to concern yourself more with lifestyle needs like health care and transportation.

A few weeks ago at U.S. News – Money, Emily Brandon posted “10 Tips for Picking a Place to Retire.” If you are considering a move in your retirement, these tips can point you in the right direction on where to start.

  • Seek lower costs” – There are plenty of areas around the U.S. that have lower costs of living. Obviously, depending on where you live now, the difference in cost could be very extreme. Picking an area that has lower cost of living overall (especially if you are looking to buy a home), can have a major impact on lowering your retirement expenses.
  • “Look for great amenities” – You should look for a place that will allow you to stay active and productive in your retirement. When looking for a new place to live, make sure to keep the available amenities in mind. Whether is it an all-inclusive community, or the availability of amenities within short walking or driving distance.
  • Health care options are essential” – Healthcare will become more important as you age. You don’t want to retire to an area where the closest medical center or hospital is too far away for convenience. Also, make sure the available options that are close at hand are quality, with good doctors and technology at hand.
  • Calculate the tax impact” – Taxes can have a big negative impact on your retirement income, and it’s unfortunate that many people do not take the time to consider this impact before entering retirement. If you are looking to move to a new state, keep in mind the impact of the state taxes before you move. There is a wide variety of tax rates to choose from state by state, so don’t lose sight of how it will affect you and your potential move.
  • Aim for proximity to family and friends” – We’ve heard plenty of unfortunate stories of people who move to a location far from family and friends only to be unhappy there. Maybe it was to a place they loved vacationing to or a place they always dreamed of living. But it can get very lonely, and this can be especially true if you have kids and grandkids. In the long run, it’s important to consider how living near family and friends can positively impact your life.
  • Consider the political, religious and social climate” – This may not even be something you would think about during a move. There are plenty of areas around the country that are more highly charged than others politically, religiously, or socially. If you have a particular leaning, you may want to consider what views others in the community have. Otherwise, it may become difficult to make new friends with like-minded views.
  • Job opportunities” – If you are looking to work for at least some of your retirement years, as more and more people today are planning, make sure you look for a place that provides you with job opportunities. Otherwise, your plans to go back to work may not come to fruition, straining your retirement income.
  • Transportation options” – While driving yourself around may not be an issue now or for years to come, there may come a point where you no longer can drive yourself. Consider looking into what public transportation options are available where you are looking to move for future use.
  • Better weather” – This is often the reason people will give for wanting to move, especially if they live somewhere with extreme temperatures. But you have to do your research! Temperature can vary wildly by state and by season, and some people may not consider the extremes. If you are moving from Wisconsin and bitterly cold winters, you’ll probably love Florida’s winter temperatures. You may not love the summer temperature though! While nowhere is going to have your perfect weather, you have to decide what is most important to you and what kind of extremes you can tolerate.
  • Test it out first” – We’ve discussed this here before. When making a big move, you never want to jump into buying a house right away. You should always look into renting for a time to make sure that you really love where you’ve chosen. That way, if you find out six months down the road you haven’t chosen the right location, you are in a much better position to fix the issue than if you are tied down into homeownership.

We hope you found some helpful tips here if you are looking at moving when you retire. We thought Brandon’s list has many good thoughts to get you started.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

Here is October’s review of blog posts. We hope you find something you enjoy!

  • U.S. News MoneyWhy 65 Is Too Young to Retire – There is no rule that says you have to be retired by 65, and in fact, for many, 65 may be too young to retire.

Please let us know if you have a favorite financial blog that you think we should be reading.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

Often times, renting before buying isn’t an option. You don’t always have the ability to do so. Many times you have to rely on your own best judgment, or the reviews others have given on a product.

Although people may not necessarily think of it, renting before buying a house may be an option. Not renting the house you will likely end up buying of course, but you may be able to test the waters first, especially if you are making a big change.

What do we mean by this? A big change can be a move to another city or state, extreme downsizing or scaling up, etc. Purchasing a house is a big commitment. If you are making a big change from what you’re used to, jumping right in may not be the best idea. If you buy and decide you’re unhappy with the change, it’s difficult, time-consuming, and often financially infeasible to move again.

However, you may want to look into testing the waters first. If you are moving to a new city or state that you are unfamiliar with, rent for a while, either an apartment or a house, to get to know the area. You may find there are neighborhoods you prefer, or others you decide you never would want to live in. If you buy right away, you may end up in one of those unwanted areas before you give yourself a chance to find out.

For extreme downsizing or scaling up in size, you will probably have more limited renting options. Holly Johnson over at Get Rich Slowly tells about her own experience in downsizing, and why she and her family decided to rent a house before buying in the post “The Small House Experiment – Part 1.”

Johnson discusses selling her home too quickly, and after searching for an equivalent sized home closer to her husband’s new job, they decided maybe it was time for a change. Maybe they didn’t need so much space for their family. Since they had run out of time to get out of their current home, they began renting a home more than 1,000 square feet smaller than their previous home. This “experiment” will tell them how they handle living in a smaller space and will allow them to decide if it’s what they really want to buy.

Obviously, this may not be as easy of an option as renting a temporary apartment in a new city. There may not be a rental home with the size or features available where you are looking to move. Or maybe the place you are looking to rent wants too long-term a commitment for your plan. But it may make sense to look, especially if you are having any doubts about what kind of house you are looking to buy.

Renting before buying a home isn’t necessary for everyone. And sometimes it doesn’t make financial sense or isn’t an available option. But if you find that it is something you might want to do, make sure to do your homework about your rental and not get involved in something too rigid (like signing a one year, hard to break lease when you plan on buying your home in three to four months).

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.

This week, over at U.S. News – Money, there was a post by Sabah Karimi that we’d like to talk about today: “6 Worst Money Mistakes You Can Make In Your 20s.”

Your twenties are a very important time in your life. It’s the time where many people are finishing up their schooling and starting their careers. Some may be settling down, getting married, and starting a family.

Unfortunately, we often see people in their twenties neglecting their finances, to the detriment of both their current account balances, and their future retirement. Maybe it’s because they were never taught how to handle money responsibly. Maybe they just have the “I’ll deal with it later” mentality. Whatever the reason, there are plenty of mistakes people in the twenties make with their money.

Karimi gives her list of top mistakes:

  • “Fueling an overspending habit. Breaking an overspending habit during your 20s can prevent serious money problems later in life. Become a mindful spender and keep track of all your purchases.” – Overspending can be a dangerous habit at any age, and a habit you’ll likely carry over into your later years unless you break yourself of it when you are young.
  • “Living without a budget. Knowing how much it costs to live your lifestyle and what expenses you are responsible for every month can help you make better financial decisions throughout your 20s. Update your budget at least once a month, and track your weekly expenditures within the budget so you have a clear picture of where your money is going every month. Review your budget regularly to cut out extra expenses and contribute more toward your savings account when possible.” – If you have been following us for any length of time, you know we are firm believers in budgeting. Not only is it helpful for expense tracking, it can help you spot areas you may be able to save money in that you never would have seen before.
  • “Neglecting student loan repayment and forgiveness programs. About 1.6 million people are eligible to cap their monthly student loan payment at 10 percent of their income by enrolling in appropriate income-based repayment programs. In addition to income-based programs, there are several loan deferment and forgiveness programs designed to make your student loan payments as manageable as possible.” – It’s unfortunate that so many young adults have to start their careers (often with lower than ideal wages) saddled with so much debt. Making those student loan payments when you’re just starting out and not even sure where the money to pay for your rent is going to come from can be daunting. Be sure to look into what your options may be.
  • “Relying on credit cards to fill income gaps. If you’re counting on credit cards to pay for bills or take care of expenses you forgot to budget for, you will be setting yourself up for huge debt problems. Learn to live within your means by taking a close look at your finances with a realistic budget.” – Accurate budgeting can become important for this very reason. There will likely be times when using a credit card is unavoidable (i.e. for emergencies while you work on building up an emergency fund), but relying on them every month for your regular expenses (or to fuel an overspending habit), can cost you thousands of extra dollars in interest and years to repay. It’s just not worth the hassle.
  • “Living without health insurance. Medical bills are one of the biggest causes of bankruptcy in America. No matter how healthy you are, you must be prepared financially for a medical emergency.” – Obviously, health insurance is a major hot topic in the U.S. right now. Regardless of the upheaval, if you are lucky enough to find a job where health insurance is offered as part of your benefits, consider taking advantage. Not everyone has the opportunity, and even if it’s expensive, it can be a good opportunity.
  • “Trying to keep up with the Joneses. […] It’s easy to feel financially insecure in today’s social media landscape, where every major purchase is announced on Facebook and photos from expensive vacations are shared on Instagram. Don’t get lured into that spending frenzy. Your real friends will not care about what kind of cars you drive or whether you have the latest gadget. Figure out your priorities, and don’t let other people dictate your financial future.” – This is another problem that affects people of all ages. Feeling inadequate can cause people to make mistakes that don’t seem like such at the time. It can often fuel an overspending habit, and can cause you to make purchases that you could regret later.

Your twenties can be a time of new beginnings. It can be exciting and stressful at the same time. Don’t compound your stress by making these financial mistakes that could affect the rest of your life.

 

  • Disclaimer: The information on this blog is not meant for specific financial advice. The ideas/opinions stated are not suited for everyone, and readers should use their own judgment in applying them in their financial lives.