Searching

14 07 2008

As many of you know, I started this blog to hold myself accountable for budgeting as my wife and I planned and budgeted to move into our new house.  Over that time, I successfully wrote and grew this blog to over 100 subscribers.

Now that we have moved into our house, I’ve found myself at a loss of ideas and motivation to post.  As I’ve been trying to analyze why I feel this way, I’ve come to the conclusion that it’s because I’m beginning to feel like a hypocrite.  We live in a very nice new house, that we have worked very hard for, however we have had a great deal of help getting here.

First, we got a huge leg up from my wife’s brother and his wife.  They currently own two houses in the Dallas area and offered to let us live in one of them, rent free, as long as we maintained it and paid the utilities.  So far we have not been able to thank them enough for the head start they gave us on saving for a house.  We lived there for about a year, and by living frugally we were able to live on my wife’s salary while saving all of mine.  This enabled us to have a good sized down payment on our house and to fully fund an emergency fund.

Next, my in-laws gave my wife her mom’s old car for her graduation.  Which is a very generous gift by any standards, but when her mom’s old car was a mint condition Lexus SC 430 with low miles, it’s above and beyond.  We were able to sell the car for a large sum, which enabled us to put a very large down payment on our Volvo, and put the rest into the down payment on our house.

Finally, something that I have written about previously, but a check that my grandmother gave me when I was young.  I was able to invest and exponentially grow it.  This money paid for Mary’s engagement ring and our wedding rings.  It also paid off all of our debt after college, and for some of our furniture.

Living in our nice new house I have to say it is hard to feel like we are living frugally, in the truest since of the word we definitely are not.  We have a new 2500 sqft house (for 2 people), and we drive a new car that we make payments on (when we could have paid cash), but what I have really come to realize in the last few months writing this is that being frugal isn’t about being stingy, cheap, or not wanting to spend money.  What being frugal is really about is choices.

Mary and I choose to live in a nice new house, we choose to drive a nice new car, and we choose to make sacrifices to afford both of them.  We take our lunch to work.  We don’t eat out much.  We carpool.  We don’t have cable.  We use coupons. We don’t belong to a gym, instead we workout on our own…which will hopefully be a future post.  Mary made the drapes in our bedroom from nice fabric she found deeply discounted.

As you can see, although we may not be the true poster couple for being “young and frugal,” we like to think that we are wise with our money, and we are able to enjoy the choices that we make, while still saving for retirement.

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Falling Off The Wagon

15 06 2008

Hi, my name is Daniel, and I… lost track of my finances. 

I write (what is for the most part) a personal finance blog, so you’d think that I would track every penney, but I don’t.  We budget to pay ourselves first (savings/retirement), pay all of our bills, and then everything else is give and take.  One month we might go over on eating out, but we won’t touch our clothing budget, so we call it even; but over the last month as we have moved I have learned a very valuable lesson.

Once you start spending, it’s hard to stop.  It’s like the floodgates of your bank account open, and the next thing you know, you’re asking how your credit card bill got that high!?

We realized this week that we have run our credit card bills up much more than we realized.  It’s not like we have purchased large items, it’s a great number of little things that we did not appropriately budget for.  For instance, the last two weekends we have been out of town, and we did not adequately budget for food for either weekend.  Plus being gone on the weekend messed up our schedule, so we didn’t go to the grocery store to stock up for the week as we usually do, so we ended up eating out.  Then we moved, there was no point in us buying tons of food when we would have to move it, so we ate out more.  

Our move was a beast by itself.  Thank goodness I have friends and family who were willing to come help when I offered free beer (which no one ended up drinking!).  I rented the largest Budget truck available, for 24 hours, found a coupon code online to nock off 10%, and then surprised myself when I was able to negotiate another 15% off at the truck rental place.

Somehow a great number of little things added up.  The only major things I can remember buying are drapes and blinds for the house (which we came in way under our budget for!…to bad we went over everything else!)

This will serve to be a very interesting month.  We will soon make our first mortgage payment (yikes!), and we’ll get to see how close we were in our estimates for our new utility bills!  Plus, we’ll map out a plan to pay off our credit card bills.  Which right now I’m thinking will involve pulling some funds out of savings and tightening the budget to replace the money over the next few months (and hoping for a decent raise soon!)

Also, allow me to apologize for this seeming rant.  As you know it’s been over two weeks since I’ve really posted anything of substance, so A. I’m a little rusty, and B. it helps to just start writing to get the wheels moving sometimes!





Buying A House and Maintaining An Emergency Fund

20 05 2008

In 8 short days I will make the biggest purchase I am ever likely to make, I will be purchasing a new house.  And the closer we come to closing, the harder it is for me to practice what I preach.

Everywhere I look small “upgrades” are popping up that I know I can find cheaper elsewhere, or that I can do myself without having to pay the builders up charge for, and it pains me every time I give the go ahead for them to do something else when I know I’m being ripped off.  I can’t haggle with them, I’m not in a position to.  I already signed the contract to build the house and put down earnest money, so I’m at my builders mercy.

Why would I voluntarily get ripped off you might ask?  Because as I plan ahead for all of our upcoming expenses like drapes, blinds, rugs, random furniture (although we have most), deposits on utilities, moving costs… It’s easier to lump it all in and finance it so that I’m not out anymore cash after I seemingly drain my accounts at closing, because I will not allow us to dip into our emergency fund for these items.  Really the only thing we aren’t having them do that they can is hang our drapes and install our doggy door ($350 for something I can do myself in a hour is too much for me to bare).

At the end of the day, and especially as our country is testing the waters of economic uncertainty, emergency funds are too important to tap into for non emergencies.  And I’m proud to say that even though we may be paying an up charge on these items, our emergency fund will remain in tact and actually grow a bit due to the rolling in of some of our closing costs, so in the case of an actual financial emergency we will have money to keep us afloat.





Positive Peer Pressure

16 04 2008

Note: I sincerely apologize for the lack of posts over the last week.  It has been a very hectic week for Mary, Myself, and My family.

For the first time in my adult life I experienced positive peer pressure, and it made me glad to have the friends I have.  The other night I called one of my former roommates, who is a very good friend of mine and I caught him in the middle of a beer pong game with a fraternity brother of ours.  We all graduated at the same time, all with double degrees, all with finance as one of them.  We spoke about how things are going in life and our conversation came around to finances. 

My former roommate told me that he decided to splurge his tax refund on a new set of golf clubs to celebrate his year in the workforce and a recent promotion.  The conversation went something like this, I will use R for the roomate and G for my other friend (They have me I’m on speakerphone… mid beer pong game):

Me – Nice!  Congratulations…that’s a pretty big purchase!

R – I know, but I’ve already funded my 401(k) and started funding a Roth IRA for the year and I wanted to splurge on something nice as a reward.  Are you and Mary funding your 401(k)’s?

Me- Unfortunately we don’t get 401(k)’s until we have been at the company for a year because of high turnover in our industry.

R & G- THAT SUCKS!

Me- I know, BUT we have both fully funded our Roth IRA’s for 2007.

G- Very good.  So you’ve each got your 4 grand sacked away… that’s impressive.

Me- Thanks.  Have you been funding yours?

G- Absolutely, and I’m saving all the rest of my money for an engagement Ring…

Towards the end of our conversation we all agreed to peer pressure another friend into making sure he is saving and on a good track.

Maybe it’s just my circle of friends, but I’m starting to think that we might be getting it!  We have seen family members want to retire but not be able to, we have seen friends and family get in way over their heads in debt, and we don’t want it to happen to us!  The credit crunch/recession/whatever you want to call it may end up being a good thing for our generation because we are seeing first hand what can happen when your priorities are not in line, and we are learning from it!  We are learning from other people’s mistakes and enriching our own lives because of it. 

I am very proud of my friends for having their priorities in line by not getting caught up with excess, splurging when everthing else is taken care of, and still making time for fun by enjoying a good game of beer pong on a weeknight.  Way to go guys!

On second thought I may have gotten ahead of myself, I need to call them back and make sure they have emergency funds as well… I will update.

Update:  I checked back with R.  And I am pleased to say that he has quite a few separate funds set up.  He says that he has an Oh Shit fund (read: emergency fund), 401(k), Roth IRA, and a mid-life crisis fund (which apparently could double as a house down payment fund as well).  Wow…good job R!





Does The Size Of Your Image Equal The Size Of Your Debt?

31 03 2008

Our society has a perception complex. We are raised to judge and compare ourselves against others and our perceptions of other people become our own reality. We are trained from an early age in this regard. In school it didn’t matter if I got a “C” on a project as long as it was in line with the other students in class. Even on a set scale where everyone knows that an “A” is the best, we judge ourselves against our peers, not the scale. It only mattered that I was considered as smart or smarter than the other kids in the class.

By no means do I consider myself to be smart, but the fact that I am a clean cut, in shape, nerdy looking guy, who can carry a conversation on just about any topic, has really helped me out in life. My image allows other people to come up with their own realities of who I am, and I have found that for the most part, people consider me to be a mature young guy with a good head on his shoulders, though if you read young and frugal you already knew that (I kid). And for the most part I work at my image because I want people to walk away feeling that way about me.

Whether we like it or not, image is important in our society, and our society sees the things we appear to possess as extensions of who we are. Our friend who drives the BMW must be rich, and the guy down the street who drives a ’95 Civic with 225k miles on it must be poor (eww!).

Notice how I used the phrase “appear to possess,” I say this because if I’m leasing or I have financed a 3 series is it really mine? If it’s paid off like the ’95 Civic then of course it is, otherwise…? I don’t know, can you claim half a BMW?

All of this perception is human nature. As kids, we know that rich people drive nice cars, live in nice houses, and watch huge HDTV’s. As we grow up, and learn about money and responsibility we learn that just because we appear to possess these items doesn’t mean we are rich.

Mary and I listened to NPR on the way home from work today and we heard an interview with Moby. Moby grew up very poor, and he and his mother were on welfare and food stamps until he was 18. He knows and understands the merits of frugality, and that perception isn’t everything. He said on the radio today that earning a great deal of money hasn’t changed him and that he still shops at the same grocery store and does his laundry at the same laundromat. He says he still even has a little 13 inch TV.

When talking about his spending habits and his TV, Moby said “will watching Family Guy on a 42 or 50 inch TV make it funnier?” This practically stopped me dead in my tracks. For months I’ve been salivating over flat panel TV’s that I can’t really rationalize purchasing, but I always end up salivating and coming back around to wanting one. Mary and I even went shopping with her mother for one yesterday. I have had my dream home theater in my head for months (with a mac mini at the helm), and this one prompt by Moby made me question my motivations. Yes, Family Guy is hilarious, but A TV won’t make it funnier because it’s bigger, nor would Davidson have beaten Kansas had I watched in HD.

Why do I feel compelled to make such a big purchase? I could definitely put $1500 to better use somewhere else like an IRA/401(k) or paying down our car loan even faster.

I really can’t come up with a good reason as to why I want a new TV. We have two 20″ TV’s and they both work perfectly. Plus, I don’t really watch TV anymore! Yet, for some reason I want one that is newer/better.

Maybe I feel that our new and incredibly nice house is an extension of us and the TV is an an extension of the house that makes it that much nicer. Maybe I want people to perceive that we have made it, when we drive in our nice and practical new car to our nice new house and watch Nightly Business Report our big new LCD. But at the end of the day image is only as deep as the debt you (can) get yourself into.

Here is the anomaly on all of this, I don’t want my friends looking at our house and our car and being jealous. Sure it makes everyone feel good when other people are jealous of them, but Mary and I are in a unique situation where we are starting out in our lives and careers together. We are a dual income family with no kids (ok we practically treat our dogs like kids…but I digress). It is easier for us to afford this lifestyle. I don’t want any of my friends jumping into our lifestyle too quickly and getting in over their heads, I want them to understand that yes, we have nice things, nicer than we deserve, but we also have car payments, mortgage payments, insurance payments, property tax payments, Homeowners Association Dues, and various other things factored in.

Hey, at least we have no credit card debt! 





How Scouting Taught Me To Be A Smart Shopper

26 03 2008

While I was at my parent’s house over Easter, I was looking through some of my old stuff when I found a stack of Merit Badge books from Scouts.  Sitting perfectly on the top of the stack was the book for Personal Management, a merit badge designed to teach teens about managing time and money.

The book is filled with very good information on everything from budgeting, to living on your own and debt management, but I’d like to focus in on the section titled: Being a Smart Shopper.  (Keep in mind that as I go through and quote this that it was written in 1996 for teenage boys, but the lessons transcend age and date.)

 Suppose you have your eye on a really special skateboard.  How much does it cost? (Don’t forget to include the cost of protective gear if you don’t already own such items.)  You count your money and discover that you don’t have enough.  What do you do?  You Might:  

  • Shop around.  Maybe another store or a catalog has the identical skateboard at a cheaper price.  A telephone can make comparison shopping easy.  Call at least three stores.
  • Earn or save more money until you have enough to buy the skateboard.
  • Wait for a sale.  A store clerk might tell you if the skateboard will go on sale soon.
  • Look for discount coupons.  These can be found in newspapers, coupon books, or the mail.

What if you still don’t have enough money to buy the skateboard, or you decide you don’t want to spend that much money, even if it is on sale?  You have other choices.  Shoppers can’t always buy exactly what they want.  Sometimes they must compromise.  Thats part of being a good money manager – knowing when to say no to yourself. 

 Wow.  I’d say those last few sentences are something everyone needs to remember!  Mary and I are in this situation with our house right now.  We really want hardwood floors in our living room, but we know that we just don’t have the money for it.  We are forcing ourselves to say no, and it’s hard because we need want them.  It is very hard to say no to yourself, and it takes a great deal of self control, especially when (once you get older) it’s so easy to put a purchase on the credit card.  Luckily for Mary and I, we are able to hold each other accountable and it really helps.  

The Scouts are essentially saying, if you can’t afford something you have a few options: shop around, save more, wait for a sale, and look for coupons.  Very smart advice for anyone.  It also reminds us all to consider all of the costs we will encounter for this item, like having extra money for protective gear for the skateboard.

The passage goes on to recommend that you buy a less expensive skateboard with a different paint job, buy a used skateboard, check classified ads, and it even brings up building your own skateboard (which sounds fun and easy to me!)

The book then offers a checklist for smart shopping some of which are (my commentary in parentheses):

  • Be wary of advertising…(Always!)
  • Before buying a product, talk to…others who may already use [it]…  (Also seek reviews from consumer reports or on the internet)
  • Try before you buy/demo
  • Consider quality.  Price isn’t everything… Why buy something, even at a low price, if it falls apart quickly or doesn’t work properly.  (I am obsessed with quality products, if there is a difference in quality and price, I will buy the one that has better quality)
  • Consider Service. (I’m usually willing to pay more for something if I know that the service behind it will be worth it.  For instance, I’ll pay a bit more for something at Costco in order to get their service and extended warranty)
  • Don’t Impulse buy.
  • If there’s a problem, take a product back right away (be sure to keep your receipt).  Don’t toss the item aside and feel sorry for yourself….Most stores…[will]…probably fix the item or give you a new one.  (I am terrible at actually returning items to stores.  It always seems like too much of a hassle.  But I’m going to make a point to return a broken glass bowl we got as a wedding present (in June) this week.  We have the receipt.  I hope they take it back!)

It’s not always easy to be a smart shopper.  Most people, myself included, aren’t good at the waiting part.  We impulse buy, it’s what advertisers and marketers try to train us to do, but we need to always remember to stop and ask ourselves if we need the item, or if we just want it.  We also need to ask more important questions… Can I afford this?  How long with this take me to pay off?  How long will it take me to save for this?  Those are the types of questions that should be going through everyone’s head when they see something they want to impulse buy.

Writing this has been very beneficial for me today, because Mary and I did our Tax return yesterday and when I saw the amount we will be getting back I got very excited.  I even caught myself drooling over Mac mini’s online today.  But I slowly moved my mouse up to the corner of the screen and closed the window, because even though a Mac mini is on my list of things I want and need (yes I do need a new computer), I want to achieve other Goals first.  Most of our Tax return will hopefully be going directly into savings to help us achieve higher goals.





When Did Frugality Cease Being a Virtue?

24 03 2008

When Did Frugality Cease Being a Virtue in Our Society?  Really no matter how far you look back in history Frugality has always been a virtue.

 “He who gathers money little by little makes it grow” – Proverbs 13:11

Here the bible calls upon us to save where we can, even a little bit helps, and by doing so we can watch it grow. 

 “For age and want, save while you may; no morning sun lasts the whole day” – Benjamin Franklin

 Here, one of the greatest American’s to ever live writes that you need to have an emergency fund.  You can spend on your wants all day when times are good, but if you don’t save for a rainy day you’ll be in trouble later on.  Benjamin Franklin is documented in many occasions preaching the virtues of frugality, in Advice To A Young Tradesman, Benjamin Franklin writes:

“In short, the Way to Wealth, if you desire it, is as plain as the Way to Market. It depends chiefly on two Words, INDUSTRY and FRUGALITY; i. e. Waste neither Time nor Money, but make the best Use of both. He that gets all he can honestly, and saves all he gets (necessary Expences excepted) will certainly become RICH.”

More recently, some of our most brilliant minds preached and lived frugally.  Henry David Thoreau lived frugally and documented it in Walden Pond.  He removed himself from the pressures of society so he could clear his mind.

Warren Buffet, one of the best businessmen in the US, says, “If a business is worth a dollar, and I can buy it for 40 cents, something good may happen to me.”  In other words, look for bargains and buy low, that’s the way he has made over 30 billion dollars! 

As you can see frugality is in our history, but society has pushed back.  In most of the world if you don’t try and haggle with a salesman, you are considered stupid by the locals.  On the otherhand, when I haggle in America, people will look at me awkwardly and get confused.  

The surrounding world tells us that image is everything and that splurging makes us feel good. 

I prompted my dad with this question the other night, and I received a great response to why frugality is no longer considered a virtue.  This response allows you to connect all the dots.

It stems from the Great Depression.  The people who lived through the depression have known what it is like to be cash strapped, and to get the most out of every penny.   They know what it really means to have a “rainy day,” and they understand that, as Ben Franklin put it, “no morning sun lasts the whole day.”  The people that survived the Great Depression grew up knowing and understanding how important it is to save, but they also never wanted their children to go without like they had to do.

As a result, after the economy settled, there were great new inventions, and the wealthy began putting a TV in their living room.  Because one wanted to go without, the less wealthy followed.  However, no one wanted to drain their savings to purchase a TV, or Washing Machine, or Dryer, so payment plans began. 

Why drain all your savings when you can pay a cheap monthly payment?  What was there to understand?  For $30/ month, you could get what you couldn’t let your family go without, and at such a fair price!

Pretty soon, a ‘fair price’ became just the ‘price’ of an item, and haggling wasn’t needed because you could easily afford the monthly payment.  This increase in credit, made less people need to grasp the concept of frugality.

This is why I believe a generation grew up without learning to haggle or understand frugality.  And somewhere along the way, the term frugal got mixed up with the word “cheap.”

The United States is in the process of coming back around and understanding the perils of credit, and re-learning the virtue of frugality.  Right now, the US has a negative savings rate, and this will be hard to change, but I believe we are headed in the right direction.  A “frugal” search on Google will net you over 7.3 million hits, which is a sign that at least the internet community is getting it.  Hopefully our society is in the midst of realizing the error in our ideals, and will be working hard to get out of debt to become and continue to be financially free.