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!

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Finding Opportunity in Disaster

29 05 2008

I am the luckiest guy in the world, I’m married to my high school sweetheart, today I turn 23, and yesterday I closed on my house an hour after I found out about a leak that flooded the front bedroom. 

Why do I consider myself lucky after closing on something that most people would have not closed on?  I consider myself lucky for two reasons.  The first is because I’m much luckier to have it happen before I move in, than to have it happen later, ruin furniture, and interrupt my life.  The second reason is because it allowed both sides to come back to the negotiation table. 

I wrote last week about how once the builder had my earnest money, I had no negotiating power.  This leak allowed me to get more.  Mary and I maintained a calm demeanor, we expected random issues like this (in fact almost this exact thing happened to my cousin’s new house after they moved in).  We decided what we wanted and went back to the table.  By no means were we greedy, but we decided that we wanted an extended warranty on the house and a guarantee for when everything would be fixed.  We got both, and closed.

If it had happened in two weeks I’d still consider myself lucky, because I have a fully funded emergency fund, a home warranty, and insurance for occasions like this.





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.





Live On Last Years Salary

6 05 2008

My wife and I have essentially been living as if we were making mortgage payments on our new house for the last 6 months, but instead of paying a mortgage (and taxes and insurance and Homeowners Association) it’s all been going into savings for our down payment.

We admit that we are stretching ourselves to buy our first house (I think that’s something that most people do), but as we are re-evaluating our budget (less than a month until we move in!) we have found ourselves looking forward to our raises in the fall (even if it just equates to a cost of living raise) because let’s face it…as much as budgeting is important, no one likes sticking to a strict budget, so we look towards the future at what we will be making and what we can spend (or save) at that point in time

I think our problem is that we are always looking to acquire more. We want more and don’t want to make sacrifices to get more.

As Mary and I caught ourselves looking forward at what we will be earning and what will increase in our budget I thought to myself, why not look backwards?

Why not live on last years salary? Say your salary was X last year and it increased to Y this year. If you live on last years salary and budget you inadvertently save Y-X all year. Then when your salary increases to Z you can live on Y and save Z-Y.

This concept allows you to save more and forces you to permanently (ideally) live below your means. It’s simple, but a great and easy way to save!





Anecdote: The Power of Cash

21 04 2008

Tonight Mary and I had the chance to eat at a very wealthy person’s house in Dallas.  This house is AMAZING.  This house is probably 10,000 square feet, and they had a “mile of wood trim” throughout their game room.  It was very impressive, and it sits on one of the most visible places in North Dallas, on the corner of a busy intersection.  The house is designed like a castle, and sits far enough back where you hear no road noise and you can’t see any of the streetlights because of the size of the lot and how the house is situated.  I could probably tell most people in Dallas what house it was and they would know exactly what I’m talking about.

The couple who own it are definitely a “power couple,” he’s a doctor, she’s a lawyer.  As I walked through I was thinking about the ridiculous mortgage payment they must have for their $2+million house, until I heard the most amazing thing all night… THEY PAID CASH!    

They built what they could when they could afford it, and while this isn’t for everyone, I applaud them for being debt free and staying together for what I’m sure was a hectic process.  They started the house on January 1, 1990, they moved in to the garage apartment 3 years later, and the house was under continual construction since then.  They just recently finished about 5 years ago, and they really did a great job with it.

I have to say, I am amazed that someone in this town owns their own mansion!  It’s very refreshing!




Life Tips From My Finance Professor: Part 1 – Purchases

18 03 2008

I took an investments class the during the Fall semester of my Senior year in college, and when I say “took” I mean that I dutifully attended every class, sat in the front row, and tried with all my heart to understand what the hell he was talking about.  It wasn’t that I didn’t understand the material, I just didn’t understand how our professor could brush over things so fast.  Most of the rest of the students never attended because the professor was one of the few that “recycled” his tests every year and didn’t change anything except for the numbers (ie: you did not need to attend class, you just needed to know someone who took him last semester).  

Dr. Chucky (as he preferred to be called) is one of the most peculiar people I have ever met.  And this is what you need to know about him… He probably smoked 2 packs a day, he sweated like a pig, and he spoke 6 languages.  He was a professor because it allowed him to play with his portfolio all day and use his summers to travel.  He is an incredibly smart person, but the type of smart person who didn’t relate very well to less smart people.  He has been on over 10 game shows and won a great deal of money from them.

I have previously written about things that should be mandatory for every college senior to learn (My Mandatory Class Proposal) and this series is about what Dr. Chucky rushed through on the last day of class when he handed out a sheet with many jumbled and incomplete sentences.  The thoughts were broken into 5 different categories.  We then talked about a 6th.  I will try and decode his thoughts in this series. 

Purchases:

1.  “1 hour search/study for each $1000 purchase”       

 What I believe he is saying here is don’t sweat the small stuff.  I write a great deal about frugality, and how I’m a bargain hunter, but usually what happens to me is that I over-research items and I don’t value my time enough.  If you spend 8 hours trying to figure out how to save 10% on a $1000 purchase is it really worth the time?   On the other hand, if you spend 20 hours researching a car and how to buy one it is probably a better use of time.  Or if you are looking to buy a house, spend as much time as you can, I don’t know if it’s possible to over-research a $200+ thousand purchase.

2.  “Think of all purchases in annual terms”       

 We live in a society that looks at things as “how much per month” without looking at the entire picture.  Sometimes it’s easier to finance things (not recommended) but we need to look at a bigger picture than just monthly, so look at how much you’ll be paying every year.  That should open your eyes, especially if you start to think about how much of that is interest and how much is principal.  Then look at how much you’ll be paying over the life of the loan…is it worth it?

 3. “Autos: go to fleet manager or internet managers”       

 Car salesmen are the pawns of the dealerships, the more they get you to pay, the more money they get.  Fleet/Internet Managers run the show.  They don’t get paid based on how much you pay, they get paid based on inventory turnover.  They don’t like to deal with haggling, they just want to get you in a car and out the door.  Mary and I did this when we bought our Volvo, it was a great experience, we got it for a great price, and we didn’t even need to haggle.  The internet manager agreed on our price, though the sales manager was royally pissed off (we heard him yelling at the internet manager).

 4. “Insurance, higher deductibles will lower premium rates”       

This pretty much speaks for itself.  Some people may say “but then I have to pay more if something happens,” true, but if you took the difference between the more expensive monthly payment, and the less expensive monthly payment you could be adding that difference to your emergency fund and earning interest on it in the meantime.  Pretty soon you’ll have saved enough to pay a higher deductible if something were to happen, and the rest is just more money saved.

 5. “Live below your means, save on : yard, car wash, cable TV, tipping”       

In other words, live below your means and don’t mindlessly spend.  There are plenty of luxuries that most people consider staples, Cable TV being at the forefront.  If you look for places to make cuts, you will find them.  You can wash your own car, you can take care of your own yard, and you don’t have to be known as a “big tipper.”

 6. “House purchase: Multiple Listing Service add-ons”      

  While I normally probably wouldn’t be able to decode this, I did jot down what he was talking about.  Multiple Listing Service (MLS) is the service that real estate agents use to search for houses.  What he meant by add-ons is to go to your real estate agents office early in the morning and map out which of the houses added to the list that morning you will go look at.  He was a big advocate of buy the cheapest/worst house on the best block, and he recommended that this was the only way to get it before someone trying to turn a profit by flipping it would.  Mary and I discovered that this really is the best way to do it.  When we were looking at houses we went by one that we really liked, on the day it was listed.  It was listed for what our agent believed was below market value, and the next day a contract was in on it for full asking price.  Two months later, it had been flipped and was back on the market for $100k more.

7.  “$1,000/month rent, buys a ~ $360,000 home after tax @ 5%”      

 This is one that I really can’t fully decode.  I believe he is essentially saying don’t throw away money on rent when you could be buying a house, but his math seems to be off.  By my math $1000/month buys a $225,000 house at 5% interest, if you put 20% down.  If you paid $1500 a month on mortgage you could do a $360,000 home after 20% down.  As someone in the process of buying/building a house, I’m still torn on the whole rent vs. buy thing.  There are tons of pros and cons to each, but I’m happy with our decision.  

As you can see, in Dr. Chucky’s list of incomplete sentences and thoughts on personal finances there is some great wealth of advice just waiting to be decoded and understood.  Stay tuned for more!





Is It Possible To Be Young And Frugal And Still Have A Vibrant Social Life?

14 03 2008

Mathematically being young and frugal makes a great deal of sense; save as much as you can now, and let the compounding interest build up over the course of your life. 

In theory if I were to invest $50,000 in a decent mutual fund at the age of 23, assuming it earns at least 10% a year (slightly less than the historical average of the stock market), I would have $2,262,962.00 by the time I’m 65.  That sounds great, and the numbers don’t lie, however it’s not that easy.

Achieving this goal, while feasible, means that we need to continue living the way we are now (very frugally) and save for over two more years before we would be back in good financial shape to buy a house.  We could do it, but it wouldn’t be fun, and we are already committed to the house.  

The fact of the matter is that being young and frugal comes with many opportunity costs; the biggest being a social life.  Personally, it’s in my nature to not be able to rationalize going out to bars and paying big bucks for a drink I can make at home for a fraction of the price.  Plus I’m not a big fan of loud crowded spaces.  I do however love hanging out with friends and meeting new people…who doesn’t?

In college I hated going out to bars, I would much rather have hung out with a few of my roommates or thrown a party at our house than go out.  As a bonus we would host the parties, charge a cover to get in, drink for free all night, and have money left over to pocket or pay the resulting tickets.  It was a pretty good setup :)…until we lost about 80% of our deposit when we moved out.  

I know there are always alternatives to going out to bars, but for the most part, when you are hanging out with friends, meeting new people, or even networking you will most likely be doing so while spending money.  Whether it be at a bar, a movie, the golf course, or over dinner, you’ll be spending money.  It’s called social spending, and it’s a fact of being social.

To be honest, this aspect of being young and frugal is less than fun.  It especially sucks in the office because everyone I work with goes out for lunch at least 3 times a week.  The frugal train of thought on this is to take your lunch to work and it will save you a ton of money, so this is what I do, and it does save a great deal of money.  On the flip side, I’m certain that I am missing out on a great deal of good networking (and the male bonding) that comes with going out to eat with the guys.  Also, I’m wondering if my being social with my bosses at lunch could have an effect on an increase in my salary, thus offsetting going out to lunch.

Mary and I have kept room in our food budget for us to each go out to lunch with our co-workers once a week.  At the time we set the budget it was a reasonable expectation, and while it is a reasonable expectation, it’s getting to the point where I feel bad telling them I won’t be going to lunch today.  I love that I am always invited, but I know that there becomes a point where you are turned down so much that you don’t ask anymore. I’m hoping that I am not approaching this point.

Outside of work it’s hard for us to make new friends right now because of our extreme frugality and location (both will hopefully only be around for the 2-3 more months).  We live 45 minutes away from work, and we are more than 45 minutes away from “uptown” where any sort of nightlife in Dallas occurs.  On top of that all of our childhood friends from the area no longer live here!

So with all this, is it possible to live frugal and still have a vibrant social life?  I’m sure it probably is, but for Mary and I, and our extreme situation, it seems that we have struck out.  Our saving for our house and preparing to be house poor is strike one, our current location is strike two, and being married seems to be strike three because all of our peers are still single. 

I am more than open to suggestions on how get our social lives back on track while still living frugally, so if you have any please post them in the comments section. I’d love to hear what you have to say!