We spent an average of $10.11 per day during the month of August. Compared to the $28.56 per day we were spending during the first seven months of the year, $10.11 looks pretty good. Another way to look at it is that had we continued to spend our average daily amount of $28.56 during the month of August, we would have spent $885! We still spent more than I’d like but I can live with this. Had we cut out that trip to Olive Garden, the number would have been much lower.

Anyway, we plan on sticking to reducing the number of times we eat out.

1. Our kids are bigger and can no longer eat off the kid’s menu.

2. We often take our kids’ friends with us.

3. We eat out way too often!

4. I typically order beer with my meal (my wife will drink a glass of wine on occasion).

5. My wife works so it’s often easy to scrap dinner at home and just go out to eat.

6. I have just been lazy in keeping track of our eating out budget.

I was looking over our budget and decided to figure out how often we ate out and how much we spent on average each time we ate out. The findings shocked me, which is typical when you get lax in an area and just don’t pay attention. Anyway, I put together a list just to show you what an idiot I can be:

Eating Out 2009

Now, why am I sharing this information with you? Because I want to change and I figure you guys will keep me honest. I look at that number and think about all the things I could be doing with that money. Not only is eating out costing us a lot of money, it’s also very bad for our health!

My wife and I set a goal to cut back drastically on eating out. Our goal for the rest of the year is to cut our eating out to NO MORE than TWICE A MONTH! That will help bring us back in-line with our budget, which was orginally around $300 per month (about once a week). To accomplish this goal, we have created a weekly menu and we shop for groceries based on that menu. That way, it doesn’t get to be dinner time and there’s nothing to eat so we have an excuse to go out to eat. NO MORE OF THAT!

Learn from me…

If you are over budget in one of the areas in your life, I encourage you to take the first step and write down or calculate just how much you are spending. You’ll probably be surprised at just how quickly it adds up. Although I knew we were spending lots of money eating out, I was surprised when I figured out just how much it was. Once you know how much you are spending, you can figure out how you’re going to cut back and make the necessary changes. Then, keep track of your progress. Keeping track of your progress will FORCE you to think about your goal. If you have committed yourself to writing down how much you spend, you more than likely think twice before you spend.

I plan on revisiting this topic around the end of the year. Hopefully, I’ll have some real progress to report. So far, so good…we haven’t eaten out in nearly two weeks.

UPDATE: Check out mapgirl’s website for a few tips on food budgeting and cooking at home.

I’m pretty happy with that number—especially when I hear that the average household’s ratio is around 1.3 (or 130%).

Remember, to get the ratio, you simply divide your total debt by your annual income (use gross income for simplicity’s sake).

So…

What’s your total debt to income ratio?

I’m thinking it would be relatively low for AFM readers since you guys seem to be on top of your finances. But, I’d still be curious to know (if you’re willing to share the information)

For those of you who aren’t familiar, credit card insurance is an insurance that supposedly makes your credit card payments in the event that you can’t make the payments. I have never seen or read an actual agreement for this type of insurance but I am certain that there are lots of catches and exceptions involved with this kind of insurance.

That said, let’s assume that you actually purchased such insurance. How much will this insurance cost you? To run an illustration such as this, we’ll need to assume the following:

• Beginning balance of $5,000
• Credit card insurance is $.49 per $100 of the outstanding monthly balance (around $25 for the first month). Some companies charge more and some companies charge less.
• Monthly payment of $100 applied to the card with the insurance and $125 for the card without insurance.
• No additional purchases are made.
• Annual interest rate is 13.99%

I ran an illustration using Excel and this is what I found:

As you can see from my example, you would spend nearly $300 in credit card insurance premiums. Remember, this amount is charged per $100—so it declines as the balance declines. In my opinion, you are better off taking the credit card insurance premiums and putting them towards paying down your debt. Yes, it is an insurance product, which could be useful if you lost your job. But, as I mentioned earlier, these plans can be full of loopholes and exceptions. You may not be getting what you think you are paying for. My guess is that the $25 per month they charge you in premiums is pure profit for the credit card company. If it wasn’t, they wouldn’t be calling us every other day trying to enroll us in such a program.

Who’s right?

This is a very tricky situation for a couple of reasons:

1. People who have lots of credit card debt probably don’t have the self-discipline necessary to put money into a savings account. In other words, they may save up some money and then go blow it on something just because they have the money. People usually don’t get into credit card debt because they are practicing financial prudence. That said, do these same people have the self-discipline to pay more than the minimum towards their credit card debt? Good question.

2. Not having an emergency fund while you are paying off debt is scary too. Why? Because when an emergency comes up (like the transmission goes out on your car), it will have to go on a credit card. It’s very demoralizing to pay down a credit card only to charge it right back up again when something bad happens. I know this from experience. It makes you just want to give up.

My thoughts:

I think the solution depends on the person but I kind of like the idea of doing both at the same time. Regardless, I think a real behavioral change is going to have to take place. I think such a change starts by creating a budget. You have to know where your money is going so that you can find out how much extra you can put towards debt liberation.

For example…

Let’s say you write out your budget and you have $100 extra per month to put towards your debt. I would recommend setting up an online savings accout and direct $50 of that $100 to that account, automatically each month. FORGET THE ACCOUNT IS THERE! Just keep socking away $50 per month. Then, I would either use Dave Ramsey’s or Suze Orman’s approach (which method’s better?) and put the other $50 per month towards getting out of debt.

What are your thoughts? Do you have anything to add to the mix?

I’m thinking a small Dell would suffice but as I said earlier, I really don’t know. Inexpensive computers (I’m thinking $400 – $600 price range) are out there. It’s the software that makes them expensive.

Any suggestions?

Hi!

I’ve been subscribing to AFM for quite some time now and I really appreciate almost all of your blog posts. My room mate just bought a car yesterday and because he has little to no credit (and may have been an easy target) got a 24.99% 6 year loan (his payments are around $380/month making the $13,000 car actually cost close to $30k!). He says he’s going to refinance in a year and hopefully will get a better interest rate after establishing more credit. The salesman said that he could pay extra towards the loan to pay it off early, etc. Let’s say he could afford to pay $480/month, would it be better to pay the extra $100 every month on this higher interest rate, or pay an extra $1200 once he gets on the lower interest rate? I hope my question makes sense! You always do a great job explaining things with your spreadsheets!

Thanks,

R

Your room mate made a really bad decision for a couple of reasons:

1. Running the numbers, I come up with a principal and interest payment of around $350 per month. R says his room mate is paying around $380 per month. This means that the sales guy either talked the room mate into buying insurance or he slipped it in under the radar. Regardless, it’s some expensive insurance that will cost him over $2,100 over the life of the loan. Your friend would be wise to go back into the dealership and DEMAND that they take the insurance off. UPDATE: It was a warranty.

2. He most likely will NOT be able to refinance his loan because the car will depreciate in value very quickly. It’s hard to refinance a loan on an asset that is worth less than what is owed on the loan. Due to the high interest rate on the loan, your friend will be upside down on this loan unless he pays substantially more towards the loan than his payment. That said, given how crappy the financing is, I wouldn’t be surprised to find that this loan has some sort of prepayment penalty.

Your friend would have been smart to have done some homework BEFORE he made such a commitment. It sounds like he made a decision with his heart and ignored his head.

Now, concerning your question:

Let’s say he could afford to pay $480/month, would it be better to pay the extra $100 every month on this higher interest rate, or pay an extra $1200 once he gets on the lower interest rate?

Here is a look at your friend’s car loan amortization summary:

Assuming there’s no prepayment penalty, your friend would be wise to pay as much extra towards this loan as possible. I’m skeptical that he will be allowed to refinance this loan. I ran some numbers and found that if he paid an extra $100 per month towards the principal, he could pay the car off in less than 4 years, saving himself over $5,200 in interest.

I just hope that his decision hasn’t started him down the path of one bad decision after another. Usually people who get upside down on a car, stay that way for A LOOOOOONG time.

Today, the 37-year-old single hairdresser pays her new bills on time, without fail, and has no credit cards. But she’s made big money mistakes in the past, leaving her with about $3,000 in ancient bills, some dating back nearly 20 years.

I feel for this woman. I also applaud her for being proactive in getting out of debt.

I agree with the article’s author in that this woman needs some extra income. She could wait tables or work retail for a few months until she got out of debt. I believe the article says she owes something like $3,000 in old debts. That doesn’t sound like much but when you are only making $26,000 per year, that’s quite a lot to pay off. At $26,000 per year, she probably doesn’t have a lot of extra money.

Do you take advantage of 0% Financing Offers?

I have in the past when I purchased a TV from Best Buy. I had the option of paying full price in cash or finance the product for two years at 0% interest. I had the money available to pay for the TV outright. The decision to me was a no-brainer. I chose to finance it for two years with no interest. This was a large purchase so I figured I would get to keep my money in my high-yield savings account and take my time paying off the purchase since it was “free money.”

I set up my bank account to make the monthly payments to help make sure that the payments were made on time.

Of course there is a risk to my strategy. If I missed a payment my interest rate would soar. There’s also the chance that something might come up and I wouldn’t have the cash available to pay off the purchase IF I needed to. There are also deferred interest charges that will be charged on the account if I don’t pay it off in time. So there are risks.

One other disadvantage to buying on time is that I have a monthly payment. I HATE monthly bills and try to eliminate as many of them as possible.

So, what about you? Do you take advantage of 0% financing offers or do you pay cash anyway?

Finding the time and energy to make your children’s school lunches interesting, healthy and inexpensive is a challenge that many parents face. By planning ahead, shopping smart and communicating with your children, you can save money and also teach your kids a valuable lesson about saving.

• Communicate with Your Children

No matter how healthy or seemingly delicious a lunch may be, if you aren’t communicating with your kids about what they enjoy, you could be wasting incalculable amounts of money on items they aren’t eating at lunch. This by no means gives them total access to everything on the grocery store shelves, but by providing options and getting children involved in the conversation, you ensure that you’re feeding them what they need AND want.

• Plan Ahead

After discussing lunch items with your kids, make a shopping list and stick to it. If this means getting a neighbor or sitter to watch your kids while you shop to avoid checkout line tantrums, do it. By setting a weekly lunch budget, making a list and sticking to it, you’ll know exactly how much you’re spending and can look for ways to possibly save even more. Instead of buying snack packs of their favorite chips or crackers, buy in bulk and portion out in baggies every Sunday evening. This is a great activity to involve your children in and then explain why you’re doing it. Who says they can only learn at school?

• Shop Smart

Even those shoppers with the best intentions and extensive lists can be thrown by a flashy display or “big” sale. It’s important to be well-informed and be an investigative shopper. Be prepared to change your mind, as long as the sale items are really that. Instead of looking at the flashy price tag, look at the smaller price per unit/ounce also on the tag. That’s where you’ll be able to see real savings. The most important thing to keep in mind though is whether or not your kids will consume it.

If you already keep track of your grocery budget, hopefully you’ll begin to see that number dwindle as you take the above steps. Share with your children how much you are saving thanks to your diligence. Next, discuss a way to use the money to reward you both. Whether this is on a new toy, a special dinner or a deposit into a special college savings account for your children, by showing them the direct rewards that can come from saving, you can help instill this habit in them while they’re young.

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About Junior Achievement® (JA)

Junior Achievement is the world’s largest organization dedicated to inspiring and preparing young people to succeed in a global economy. Through a dedicated volunteer network, Junior Achievement provides in-school and after-school programs for students which focus on three key content areas: work readiness, entrepreneurship, and financial literacy. Today, 137 individual area operations reach more than four million students in the United States, with an additional five million students served by operations in 123 other countries worldwide. For more information, visit www.ja.org.