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Riskiest Place For Money: Mattress, Bank, Or Stock Market?

Over the last year, I developed a budget, started making more money than ever, and used credit cards to hack travel costs. I’m more motivated than ever to save money. Using this tactful budgeting and planning, I now have a surplus of savings! After years of bleeding red to student loan debt, it feels deeply satisfying to see the positive, green numbers.

Now that a little nugget of savings has developed, I’m realizing a different anxiety. There are various market actions that can negate your savings plans, and it’s important to protect against them. It seems like every place I look, there are risks for your nascent savings. Today, I wanted to spend some time explaining a few of the risks that await your new wealth.

Under the mattress?

Pros. The classic paranoid and/or privacy-minded decision is to just stick your extra savings under your bed. My late-grandmother seemed to be deeply concerned about her possible access to funds — likely influenced by the Great Depression — and she would constantly have funds hidden away around the house. I thought this was rather bizarre, but appreciated her desire for some amount of cash in case of emergencies. Most importantly, you are not exposed to stock market risks or banking fees.

Cons. Sticking your little nest egg in a little home safe or inside your mattress comes with some risks, too. Not only is your money literally exposed to the elements (i.e., fire, flood, or other natural disasters), but saving your money at home may be put your household at risk for burglars. Lastly, this decision makes you completely vulnerable to inflation (which is a serious long-term concern), you don’t appreciate from interest, or gain stock market exposure that averages about 7-10% per year.

In the bank account?

Pros. Take your paychecks, bonuses, and side income and leave it in your bank account. This could not be easier, and you don’t need to spend any more time deliberating and considering financial decisions. Although, if your money is deposited into checking account, I’d recommend transferring funds to a high-yield, online savings account. You don’t bear any of the stock market risks and there isn’t any risk of loss. All checking and savings accounts are insured through a government organization called the FDIC (Federal Deposit Insurance Corporation). The deposit insurance covers each account up to $250,000.

Cons. Even if you’re using a high-yield checking and savings account, you’re likely receiving less than about 1% interest. Inflation is a nasty, hidden force that can eviscerate your savings. For the month of April 2014, inflation in America was about 2.0%. Effectively, just holding it in a bank account will cost you 2% or more if inflation becomes worse.

In the stock market?

Pros. Benjamin Franklin really said it best, “A penny saved is a penny earned.” Now that I have some savings, I’d like to make the most of it. I want to send my dollars out to work for me. I opened a couple financial accounts, one of which is an E*TRADE brokerage account. With low transaction fees and commission-free ETFs, this was an easy decision. I’ll be making about 7-10% per year, and attempt to invest in high dividend stocks. This method defeats inflation and puts it to work, as I build a little savings.

Cons. Of all the methods mentioned, this is definitely the riskiest. Investing is not free from thievery and scum; hell, I’d prefer a burglar sometimes, as they do less damage. The Dow Jones fell over 50% during the most recent bubble and crash. (Interested in getting an in-depth understanding of the crash? I highly recommend reading The Big Short by Michael Lewis.) Most investors were decimated by the stock market’s movement, which was caused by bubbling housing prices, credit default swaps, and a variety of predatory practices by big banks. By joining this arena, I’m exposed to criminals on the grandest scale.

There’s no perfect, safe place to store and build a savings. Every option contains risks, and it’s important to consider each and every one of them to make the smartest decision for yourself. For me, I’m taking risks and putting my money in the market. I’m young and looking to put my money to work as fast as possible.

I Just Paid Off A $25,000 Student Loan!

By Frugaling 30 Comments

Remarkably, over the course of this year, I’ve completely changed my budget — both in spending and income. The aim is simple: I want to destroy my student loan debt as rapidly as possible while in graduate school. Over the last few months, I’ve deposited more than ever into the federal government’s coffers by paying everything off early.

In August, one of my student loans — the unsubsidized at 6.8% — was actively gaining interest and sat around $25,000. My debt had metastasized and was snowballing into a serious concern. I thought I was doomed to this reality until I started Frugaling, found more ways to make money, and prioritized debt reduction. Then, it all clicked, and debt started disappearing.

Today, I’m shocked and proud to announce that I’ve paid off the biggest hurdle. The $25,000 loan in August now sits at $0 — completely paid off. Instead of losing thousands of dollars over the years and struggling to pay it all back, I have shortened everything. Now, it’s gone!

Unsubsidized Student Loan Chart Debt Question — *My unsubsidized student loans were going crazy. In August 2013, they reached $25,000. Now, they’re completely paid off!*

I know this is shorter than normal, but I just wanted to share this little achievement with all of you. Trying to keep personal finance… Well, personal!

Thank you everyone for your support and help thus far. I have a ways to go, but this is the biggest mountain to climb.

Becoming A Runner Saved My Budget

By Frugaling 8 Comments

Kali Hawlk is a freelance writer and blogger with a passion for helping twentysomethings learn to manage their money and live well on less. When she’s not out on a run, she blogs about personal finance and more at CommonSenseMillennial.com.

Although I hate to admit it now, the truth is I used to be far from frugal. I frequently gave in to the desire to accumulate more stuff, material things, clutter, and junk. Remarkably, I never went into debt, but I certainly didn’t have anything left over at the end of each month to save. I coveted what other people had that I couldn’t afford.

Kali running article — *Photo: Kali with husband*

I was miserable without what I thought I had to have, but even when I went on a shopping spree, the happiness was quick to fade. Before the day was done, I would be back to being bored, sad that I didn’t have what someone else had, or feeling bad about the way I looked and wondering when I’d have enough clothes to make me feel good about myself.

I used shopping and spending as a cure for boredom, a way to relieve stress, and to improve my mood and confidence. Unfortunately, at the time I didn’t understand that I was choosing a really bad coping mechanism for dealing with my problems.

I wish I had some sort of financial epiphany that made me see the error of my ways (it would be a fitting story for a financial blogger with ideas about what twentysomethings should know about money). But what turned my spending around – and what ultimately saved my budget from being annihilated every month – was a habit I gained: Running.

It was this simple activity – something that we’re all born to do – that allowed me to kick the comparison habit, stop wanting what I didn’t have (to start appreciating everything I already had), and helped me develop a greater self-confidence. Running gave me a purpose I didn’t have before.

Suddenly, every afternoon I had a task to complete; I went for a run, cross-trained, did strength training, or took a rest day and went for a walk instead. A less-than-stellar season on the high school track team that ended in multiple injuries and embarrassing showings during competition left me feeling as though I had something to prove, so I was extremely motivated to work hard and succeed.

Becoming a runner made me healthier in every way: physically, mentally, and fiscally. Though the physical benefits were an obvious plus, I was surprised when I realized I had made positive financial changes, too. I quit going shopping for crap I didn’t need. New clothes didn’t make me feel confident; my belief in myself and what I could do made me feel that way. I started saving all the money I previously would have spent on more stuff that was supposed to make me feel happy, but didn’t.

Before I started running, I’d often feel drained and miserable. Becoming a runner made me feel energized, inspired, and motivated to work hard in every aspect of my life. I realized how much I had the ability to save, and I made a plan to stick with a strict budget and make the most out of my small income. I started setting ambitious goals and then throwing myself into making my dreams into realities. Without a doubt, I wouldn’t have found the drive to start up a blog, pursue a career as a freelance writer, and start making plans to quit my day job to travel full-time if I never found myself as a runner.

Now, when I am bored, I go for a run (or at least a walk) or work out instead of riding in my car to the mall. When I feel sad, I go for a run instead of sitting on my butt in front of the computer for a marathon session of online shopping. When I am stressed, depressed, or confused about something, I go for a run instead of lying in bed, staring at the ceiling and moping.

Whenever things are bad or not right, I go for a run and everything is okay.

What do you do to save your budget and reduce your spending?

Dominate The Supermarket And Save Big

By Frugaling 3 Comments

When I go shopping, I have a strategy. Coupons, cards, and a shopping list are always present. Surprise visits and purchases to the grocery store happened twice or more a week before I started frugaling. Now, I’m aiming to make visits no more than once a week.

Over the past few months, my food costs have hovered around $400 per month. This was largely attributable to eating out expensively and frequently. Things are changing, and my wallet’s smiling because of it.

Stores attract you into staying longer and buying more. Their carefully crafted advertisements and shelves encourage lackadaisical shopping. Our busy lives beget rush purchases and frozen meals. The combination induces greater spending and wider waistlines.

There’s a solution to this. While it takes significant forethought, preparation is always cheaper to reactionary purchases and fixes. This is your plan to dominate the supermarket and pad your wallet:

Never Care About Brands

The shelves are a carefully crafted maze of prices and products. The key is to look low and to the side. Generally, you’ll find the more affordable and store brands there.

Interestingly, more and more store brands are being placed in-line with comparable products. This makes your decision and comparison much easier. Looking for Mini Wheats in the cereal aisle? At Target, you can expect to see their store brand (which tastes great!) right next to it.

This isn’t just about buying generic over brand name. This is about wholesale non-affiliation and de-identification. By losing brand recognition and identity, you’ll consistently make the financially frugal and sound purchase. Brand loyalty rewards the company and empties your wallet.

I’m ruthless when I enter a beauty/deodorant aisle. I’m not picky about smells, nor do I care what brand I wipe under my arms. Who should? I usually can find a stick for about $1 in a clearance section. By disavowing the brand recognition and desire, I save each and every day.

Savings: About $1 per item.

Bring A List, Check It Twice

I made this mistake one too many times. Here I was aimlessly wandering around the shelves, thinking about what I needed to get. The stores prey off this lack of (psychological) preparation. The concept of needs and wants morph into one and the same. Suddenly, you realize how much you’re missing.

The answer is simple, but requires solid preparation: make a list. Open your cupboards, refrigerator, underneath the sink, pantry; wherever you keep your food and household goods, peer in. Evaluate what you’re missing and what’s running low. You don’t want to run to the store and realize the next day that you’re running low on orange juice.

With a detailed list in hand, check it again. Feeling prepared and sure about everything you need will make you a confident shopper. Confidence is key for saving money and knowing what you need. There should be no excuses for extras or surprise purchases. Stick to the list like your budget depends on it; after all, it does.

Savings: About $10-15 per trip.

Plan Your Meals, Leftovers

“I’m tired and there’s nothing to eat.” After a long day of work and graduate school, this is a notorious budget killer. The solution sounds simple, but is very difficult in practice: plan your meals.

By strategizing what your week looks like for food, you prevent two spending slipups: One, you’re less likely to eat out. Two, it’s easier to follow your shopping list. Furthermore, this can be the single biggest cost-reduction tool possible.

One week. Seven days. At least three meals per day. That’s simple math: 21 meals. Honestly, I eat some pretty simple, regular, inexpensive breakfasts that I’d highly recommend. That takes out 7 meals right there. 14 meals need to be basically structured. It doesn’t mean that Tuesday I must eat salmon; rather, organizing your shopping list to be prepared to make any of these choices.

A great site for finding frugal, budget-conscious meals is Budget Bytes. The author, Beth, creates fabulous little recipes for simple cooks. Wherever you look for recipes, try to place them on certain days and consider expiration dates for foods.

Savings: Up to about $100-200 per month.

Pick Your Place, Time Wisely

The place you choose to shop at matters. Saving a few pennies, dimes, and quarters at one supermarket over another begins to add up. Like saving 3 cents per gallon on filling up your car, finding the most affordable store is important.

Loyalty programs are at nearly every store, as they aim to track spending and predict buying patterns from its customers. By giving away this data to companies, they can offer discounts to regular customers. When you find a place with consistently affordable products, stick with it.

Along with price points, evaluate the customer service staff. Are they attentive, present, and happy to help? Often, big-box retailers suffer in this domain, as there’s simply too much room to provide help to all the customers present. Local grocery stores tend to provide more hands-on help and know-how.

Lastly, wherever you shop, plan to show up early or late – never in between. One of the most popular times to shop is after traditional work hours: 5 or 6 PM. Secondarily, stores get slammed on Saturdays and Sundays. Make an effort to avoid these busy times, as the increased wait can cause frustration, poor service, and increased spending. By 8 or 9 PM most crowds have fizzled out.

Savings: Up to $0.25-.50 per item.