It's about what you do with it

I have to admit, I'm a sucker for testimonials. I recently spent hours on Dave Ramsey's website reading the "I did it" section about how people got out of debt, how much, how much they made, and how long it took them to do it. When I come across a new blog, I often decide whether or not to subscribe to it based on the author's 'about me' section.

This is why I try to create a balance on this blog between 'objective opinion' (quite the oxymoron-- I mean opinions and explanations of issues outside myself) and personal issues. There are a lot of things on this blog (and more to come) that most people wouldn't share with their best friend, but I chose to share them because I want to help and inspire people to be more and do more with their finances and lives.

With that in mind, I want to offer a little bit of inspiration today by encouraging you to take a serious look at what you have and what you really do with it.

I have to smile, laugh, or shake my head (depending on my mood) when I hear people talk about what they've been able to accomplish with only $3,200/month take-home. Now, I understand that $40k is a decent middle-class income. Still, my husband and I count any month we bring home $1,600 as a good month. That's half of the above-mentioned figure!

Do not get me wrong; I am happy for anyone who is making progress to get out of debt and save for their future, et cetera. What I want to know is, "where is she spending all of that money so that she thinks she is barely able to live on double my income?"

Do you know where our money is spent? Of course you do: on bills, groceries, gas, and some debt. I've posted that information for all to see. Even with some of the glaringly obvious omissions from our budget (such as health and car insurance--we have them, just not in our current monthly budget), $1,600 would cover them all. Whatever we make above our minuscule budget is gravy we use to advance our financial goals.

What would you do if you had to live on $1,600 a month? What would get cut? Before you go crying that it is impossible to live on so little where you live, let me tell you that I live in a big city-- not NYC, but not Podunk, USA either.

What would I do with $3,200? I would pay off my car yesterday, have a close-to-funded Roth IRA for 2008, have two maxed-out Roths for 2009, dollar-cost-averaged, add $7-10k to our savings, and start saving for a nice, 7-day Caribbean cruise to be taken some time next winter (because, after that much saving and investing, we deserve to take a vacation!).

So ask yourself, what do you do with the money you have? Really, the above scenario sounds like the testimonial of a rich person, but it's actually the testimonial of a lower-middle-class person who tells her money where to go rather than wondering where it went.

Dave Ramsey wouldn't approve...

I do admit that I am a pretty big fan of Dave Ramsey. I like his no-nonsense, common sense approach to personal finance and his Biblical/charitable perspective is no turn-off either. Still, I did break a cardinal rule a few months ago-- I bought a car using credit instead of cash. Here is why I believe Dave to be wrong in this particular case.

Dave would say I should have sold my car, bought a clunker, and saved for a newer car and paid in cash.

Here's the scenario-- I already drove a clunker. It looked decent, but it had who knows how many miles on it (the odometer broke 5 years ago at 144k+), everything leaked, and was getting *horrid* gas mileage. Our gas budget at the time was $600/month. Yikes! I was in school at the time and worked very little (the program I was in specifically forbade working); Hubby worked two jobs and our out-go was still 100% of our income. We had zero room to 'save up' for anything, even though I budgeted the blood out of every penny we got. Ask anyone who knows me-- if there was room to be saving, I would have been saving.

We had about enough money in the bank to pay for exactly the same car I already had or to make a pretty darn good down payment while leaving a $1,000 emergency fund. We shopped around for a while, found this car and got a payment of $103/month. The car gets decent gas mileage (24ish) and we were able to drop our gas budget in *half.*

So, we added $100 to our monthly bills, but saved $300 per month in gas. This means we could make 3x payments and be out of debt very soon. Plus, the sale of my old car brought an injection of cash roughly equivalent to 1/5 of the original balance.

I am very debt-averse and I grew up in a family that does not believe in car payments. No one is foolish enough to buy something that loses half it's value as soon as the deed is done, or so I thought. However, with some research, I was able to find a vehicle old enough to be price-stable and new enough to last a good long time, priced where I could sell it in a year for about the price I paid if I wanted to. We specifically got something family-friendly so that I could drive it for ten years if I so choose.

We are dumping this debt as soon as possible. We don't even own a credit card (although if we had longer to pay on the car I would consider a 0% for that purpose only...). Although I agree with Dave 99.9% of the time, I really believe that we made the best decision for us at the time. I will drive this thing into the ground and never have a car payment again.

Scooter economics

Ever since last summer, when gas prices were starting to get close to $4/gallon where we live, my husband and I have been thinking about purchasing a scooter. Since we seem to have a knack for living within a mile or two from at least one of our jobs, it seems like it could be a good investment that saves a lot of money in gas. Let's do some math, shall we?

Original investment: approx $1,200 (let's make it $1,500, to make it safe)
New licenses with motorcycle clearance: $70 (for two)
Insurance: I have absolutely no idea and I can't get a quote without giving every ounce of personal info I can-- we'll say $200/year, since that's about what I paid on my last car...
Registration: $100 (again, high-balling it)
Total: $2,070

So that's a hefty start-up cost. What will it save me?
My car gets about 24mpg and my husband's gets about 15mpg. We will say that the scooter gets 75mpg. It is a safe bet to assume that he will drive my car more if I have the scooter, but let's run the numbers both ways.

Our vehicle budget is $300/month. Assuming we each use equal parts for gasoline, that would put us each at $150.

My car gets24 mpg. 24mpg is approximately 1/3 of 75mpg, thus we can assume that I would save 2/3 of my part of our monthly gas allowance. 1/3 of $150 is $50, so I would save $100/month in gas by riding the scooter or $1,200/year.

Hubby's car gets 15mpg. 15mpg is 1/5 of 75mpg, thus saving 4/5 of his monthly allowance if he drove my car instead. 4/5 of $150 is $120/month saved by the scooter or $1,440/year.

Not bad, not bad at all. The scooter would pay for itself in about a year in this scenario. Especially if we deal-hunt and get a good scooter for under $1k, find good but inexpensive insurance, and we find that I've grossly overestimated other costs (which I usually do). Just dropping the initial cost of the scooter to $1k means the whole shebang is paid for the first year.

Not everything is oh-so cut and dry. I would drive one of our regular vehicles in the event of inclement weather or any time I have a lot of cargo to carry or need to use the interstate. (I am intentionally looking for something about 150cc so that it can go as fast as I need it to without going fast enough to really take it on the highway.) Not driving the scooter exclusively cuts into the actual amount of gasoline savings. Another year of skyrocketing gas prices could put saving over the top. There are plenty of what-ifs to think about.

I happen to have just about enough cash to pay for a nice, used scooter outright. Would you spring for it? On top of the economic benefits, it seems like a ton of fun! Soon my new-to-me car will be paid off (approximately 6 months into a 60 month loan... forgive the minor bragging...) and come fall if/when I'm working right down the road it could be a good thing. I hope to have some discussion on this one-- I really want your input.

Saving money by using less

I happened across a terrific blog post by Trent at TheSimpleDollar. It is called "The Happy Minimum" and can be found by clicking here. For some reason this post stirred up quite the negative response from some of his readers, but I believe there is a valuable lesson to be learned. Let me summarize:

The author uses a story about toilet-paper use to illustrate a point: we use a lot of consumable products in excess without even thinking. He spends the day paying attention to how much of things he really needs-- using only as much toothpaste as necessary, tasting food first instead of just pouring pepper on it, taking one piece of pizza at a time rather than loading his plate, etc. The whole point: he used less over the day and did not feel deprived in any way.

These things are pretty familiar to us, whether we see these things in ourselves or those around us. We all know that person who pours salt onto everything before tasting anything; that person who uses half the roll of TP every time; that person who stacks their buffet plate 10 inches high; the person who uses twelve sheets of paper towels to clean up a little spill. What if we limited our consumption to what we needed to feel satisfied rather than starting with too much?

Granted, the actual amount of money saved by one less shake of salt is negligible. However, being aware of our usage in the little things creates more awareness of the big things and the little things and the big things added together can mean big savings in the long-run. Also, it has the fringe-benefit of reducing our carbon footprint (which usually in turn further reduces our expenses!).

Some thoughts and ideas on how to reduce consumption without feeling deprived:

• Pick one or two things to focus on using 'just enough'-- Chances are by focusing on those aspects, you will see it bleed over into other aspects of your life.
• Make it fun-- Does your kid use enough toothpaste for everyone in the house? Get matching trial-sized tubes and have a 'contest' to see whose tube will last longer. Just be sure she's using enough to clean her teeth, and she'll be pasting like a frugal pro in no time. I'm seriously considering doing this with shampoo and body wash at our place.
• Ration it-- If you are paper towel people (we use dish-cloths in our house), set an achievable but challenging limit for yourself. Only let yourself use one roll per month (or whatever is appropriate for you)-- if you run out before, you're out of luck until the 1st. This is also effective with treat-foods like soda, etc.

I would love to know your ideas and goals related to this. What areas are you simply using too much without thinking? I challenge you to spend the next 30 days figuring out how much is enough and then only using that much. Leave a comment for encouragement and accountability.

Long-Term Goals

There has been so much to post about that I have not yet posted about our personal long-term goals when it comes to life and money.

First, take note that my husband and I are 23 and 21, respectively, so we have quite a bit of life ahead of us. Also, with that much life ahead of us, our future is very fluid-- compounded by the facts that (1) he's still in school, (2) I still haven't had my first 'real' job, (3) he's a minister, which means we don't have a lot of say about where we'll end up or for how long even after he finishes school.

With all of this uncertainty, it is difficult to make plans and goals. However, there are certain things we each want out of life, so we make goals based on what we can do now to make sure those things happen.

One goal that we have is to be financially secure. This means many different things to many different people. What it means to us is that we have an emergency fund in place (3-8 mo.) and are free from debt as much as possible, including paying of our home (when we buy one) as soon as we can, so that our expenses are minimal compared to our income. That way, no matter what happens, we have a roof over our heads. This is currently a work-in-progress, as our income is just now starting to equal even our minimum expenses. Still, we expect the debt-free portion to be accomplished in the next few months. I see this goal as a goal everyone should have.

Another goal is to save up for a down-payment on a house. At least 20%. The specific amount we do not know, since house prices vary widely from state to state. We would like $20-40k. Our strategy for this is to rely on one source of income for our regular expenses and save the other income in its entirety.

I will be a stay at home mom. This is a very, very important issue for me. I do not want someone else to raise my kids. I do not mind doing home-based businesses, but I do not have plans to work full time after we start having kids. Financially this means that we need to be taking full advantage of the second income while we still have it (maybe two more years). Putting 100% of my income toward savings and retirement then becomes a two-fold benefit-- achieving the goal faster and keeping us used to relying on only one income for daily needs.

We want to comfortably retire. I've touched on this in a previous post entitled "How to determine how much money you need to retire". To me this is also a part of being financially secure. I do not mind living on so much less than I may make so that we can reach our retirement goals sooner. The sooner we can live indefinitely on $0 income, the more comfortable I will be!

Even when life seems completely unpredictable, it is important to have long-term goals. Of course, we have short-term and mid-term goals as well.

What about you? Do you have your long-term goals in place, and are you actually working toward them rather than wishing for them? Is there a gaping hole in my list of goals?

Walgreens windfall...

A Walgreens success!

5 free Coffee Mate creamers!

It took 3 Walgreens to find enough stock, but we made it. Following the advice and printable coupons from moneysavingmom.com, I was able to print 6 $1.50/1 coupons for Coffee Mate. (FYI, the $1/1 coupon leads you back to the 1.50 coupon and lets you print that twice again).

These were (are for the next hour if you're near a 24hr store) BOGO at $2.49 at Walgreens. You can use 1 coupon for each item, even though one is free, so they ended up both being free with $0.51 overage. Limit two, but I fortunately happened to have two friends with me. So, we bought 6 creamers, I got two candy bars (thought they were $0.89, but were really $0.50), they got a candy bar and two packs of gum (with a BOGO coupon they had). All of these total probably cost $1.25.

I bought these for my parents, who go through about 3 creamers a week anyway. Liquid creamer is not really something you buy for the food pantry... I would not have gone to the trouble if I didn't really think it would be used.

I must confess I have been somewhat turned-off by Wags lately, as it seems so much work to try and find a store that is not sold out of the free stuff. But, now I know that if I go the extra distance to the rich side of town, they seem to have more on the shelves! Poor rich people, they're too good to use coupons...

Don't forget your Sunday papers tomorrow!

Difficult money decisions

There has been some talk about there being a job available next school year for me at the school I have been subbing for (school A). I don't know anything about the pay and this leads to a lot of what-ifs.

What if the school pays the bare minimum-- say $28k/year. That's not much, and it's really not competitive around here. My friend over in another district gets around $45k. Even some of the poorer districts pay $35k.

What should I do if that's the case?

School A has a lot of benefits:

• I already have great relationships with administrators and other teachers
• The school is a charter school with an emphasis in my area
• I would have an opportunity to be involved in other disciplines outside my area of emphasis
• I can see myself getting involved in growing the school and investing myself long-term
• The school is less than 3 miles from my house, rather than a 30 minute commute

School B may or may not pay a lot better, but:

• The $20/year difference itself is more than any annual income we've made in our married lives
• Working at a well-established school means less work establishing routines and procedures, since the school is likely already running like a well-oiled machine

Those are the only pros I can think of for school B.

Our plan is for both of us to work, but for one income to be purely extra. We would love for that income to be whatever my full-time income is and live off my husband's part-time income. In a few years we want to take that savings to buy a house and start a family where I do not have to work.

What would you do? Speaking hypothetically that school A does pay $20k less than school B, would you take the higher pay versus a job you would love?

Making Work Pay credit-- question from a reader

I recently received this question from a concerned reader:

"My employer will being withholding less income taxes beginning with my 3/16/09 paycheck because of the American Recovery and Reinvestment Act. A colleague is saying that although withholdings are changing, the tax tables are not and we will still have to pay at tax time. Is that true?"

I definitely understand the confusion. As if the tax code is not confusing enough as it is... Here is what my research uncovered:

• The particular part of the ARRA that is affecting your paychecks is called the Making Work Pay credit. This credit gives each working individual (and even non-working individuals) a $400 reprieve ($800 married filing jointly) from federal taxes.
• This went into effect 3/1/09, so look for it on your first pay check that includes days worked in March.
• Employers have the ability to give this credit to you throughout the year by adjusting your withholdings. This has (can have) the effect of raising your paycheck amount.
• You do not have to update your W-4 for this change to happen.
• If you do not have an employer (work for yourself, etc), you can claim the credit on your tax return.
• If your employer does adjust your withholdings, you must *still* report (not claim) the credit on your 2009 tax return.
• The tax tables have been adjusted for this.

I like this credit-through-the-year plan versus an end-of-year credit. It means you get to keep and use your money now, rather than lending it interest-free to the government to be returned next April. Just be sure to use that extra little bit to generate interest-- either through paying off debt, savings, or investing-- otherwise it doesn't matter if you lend money to the gov. interest free!

You can find plenty of information by Googling "Making Work Pay credit." For more info on who is eligible, what this could mean to you, and the adjusted tax table, visit this IRS link.

I found http://www.recovery.gov/ to be pretty much useless on this topic, but it does have a lot of general information about the ARRA.

I am definitely not a tax expert. If you find errors in this summary, please post a comment and let me know! That being said, I hope this clears things up for some of you who are wondering what is going on.

How to prepare (financially) for a depression

Yes, yesterday was an ominous post. No one wants to think about-- let alone believe-- that a depression is upon us. I hope I'm wrong.

In case I'm not (and because it's a good plan anyway) I am going to detail some ways we can prepare for a potential depression. And no, I'm not going to tell you to learn how to cook a squirrel. That is a survival skill you can look up if it's necessary.

1. Start an emergency fund. This should be 3-8 months of expenses depending on your job. If you work in a less-than-necessary field, be thinking 8 months. If you are a nurse, ER doctor, certain kinds of teachers, etc. and you don't know of any impending layoffs or downsizing, you can think 3-6 months. After you complete the rest of this list, build it up more. You will want cash on hand.
2. Get out of debt. Get rid of your credit cards, car loans, car leases (please tell me you don't have a lease!), student loans... everything! You want what little money you have to be able to go where ever *you* want it to. You can do this with only a 'mini' emergency fund if your debt is small enough to be wiped out fairly quickly. Just don't forget to go back and finish it.
3. Pay off your house. (a.k.a. get out of debt). I don't know why so many people do not consider their house payment to be debt. It is! The bank owns your house! I know there is a huge school of people out there who don't believe in paying off your mortgage early, but if you knew that no one in your family would have a job for the next 18 months, would you wish you had your house paid for? I thought so.
4. Cut costs. Start couponing, reducing (or eliminating) cable, review your insurances to be sure you aren't paying too much, drive less to save on gas, don't eat out or eat out less. Take that money and insert it into paying off debt or saving in cash.
5. Take care of what you have. This especially goes for your car and house. Do not skip the oil change or the leaky roof. If all you have is the shirt on your back, your car, and your house, aren't you glad the car runs and your house actually keeps you dry?
6. Buy for the long haul. When shopping for clothes, don't buy something that is going out of style tomorrow-- or even next year. When buying appliances, skip the 'automatic pickle slicer attachment' or whatever other unnecessary doodad, but don't waste your money on something that will not last, either.
7. "Stockpile." I do not mean go crazy and have toilet paper stacked to the ceiling in every room of the house. I mean give some thought to overstocking your pantry and toiletries. Pay attention to what is on sale and what you could pick up for free or next to free. Walgreens will pay me to buy toothpaste this week. Even though I am not out of toothpaste (actually just bought toothpaste), I will likely go pick some up. If you go out and spend $200 on toothbrushes and industrial-sized bags of rice you are missing the point.

Things NOT to do:

1. Cash out all of your retirement. Unless that is all of the money you have in the world and absolutely cannot find a job, leave that where it is for now.
2. Buy so much beans that you have a rat infestation. If stockpiling is 'your thing' and you really want to go for it, do. But if you are going to invest that much time and effort, do your research. Be sure you would want to do that even if you did not think the economy was bad. Also be sure you know how to properly store things and how long the shelf-life is. It would be awful to avoid starving only to poison your whole family with tainted peaches.
3. Panic. This list is to help you avoid panicking. Use your head, be smart, prepare as best you can. We're all in this together, so don't get some idea that you're going to starve alone in your living room floor. People will find a way-- it's just that the people who prepare earlier will have a much easier time of it.

Really, preparing is pretty simple. If we all prepare now, maybe it won't be so bad.

Feel free to add to this list by posting a comment.

The rumblings of a depression

The state of my own personal recession has distracted me from the original intent of this blog-- which was more of a macro take on personal wealth-building with micro examples from my life. Yet another example of how easily the urgent can take the place of the important. It is time to return to the important.


A depression is coming.

Yes, I said it. Some will now forever label me as a kook. I don't know if it will be soon, but I have a strong impression it will be in my lifetime. While many of you are bemoaning the mess your kids and grandkids will never be able to sustain, I despondently acknowledge that I am a part of that group. Being 21 right now is no fun.

Why am I so confident that a depression is coming? Because Americans no longer have any common sense.

Imagine a 64-year-old cashing out his retirement in small bills, taking it (in a large bag) to the top of the tallest building in his city, and dumping it all out. What charity! All that money going to help those who really need it! There are homeless people down there! There are people down there who will pick it up and spend it! Hurrah!

This seems to be the government's idea of stimulating the economy; and we trample each other on the streets trying to catch a couple of $1 bills and believe that this is the answer to our prayers and we could never survive without it. Meanwhile, our hero on the roof now has no job, no money, and 25 dependent grandkids to feed.

Our American hero of a grandfather is now at the mercy of anyone willing to give him money and at risk for having to feed his family dog food just to keep them alive. I'll leave how this could apply on a national level to your imagination.

The fault in this situation lies everywhere. We can trace it all the way back to eliminating the gold standard and establishing a fiat economic system. Our economy by definition is every bit as much of a 'bubble' as the 'dot com bubble' or the 'housing bubble.' We can blame it on our own exorbitant consumer debt, the Clinton administration's forcing financial institutions to give loans to people who couldn't afford it, the Bush administration's Iraq war. The fact is that there is plenty of fault to go around.

The reality is that contributing factors are now being added exponentially so that they are getting bigger and coming faster. It's like an avalanche; or a rapidly growing snowball of impending economic doom. "10 trillion dollars in debt? Let's add another trillion or two! That will fix it" ...And the snowball approaches faster and faster. It has already eaten some outlying villages in the form of massive layoffs and unemployment.

I do not claim to be a prophet or a macro-economic expert. I also do not want to get eaten by a giant snowball of doom. But my hope is waning. Our new President and Congress do not seem to have the sense we all need them to have. God bless them, I don't have a personal problem with the President or anyone else, but I can feel my confidence in their ability to bring us out of this mess slipping away.

Perhaps the President will bring us out, cut the deficit, bring us back into a surplus, then actually use the surplus to get us out of this hole. Adding a trillion dollars to the red column within the first 30 days of office is not the strategy I would use, but hey. As for me, I'm working on getting my own house in order.