Debt #1

As of tomorrow, Sept. 1, 2010, the first debt in my husband’s and my Debt Snowball will be gone. It was our smallest student loan, and now with my loans consolidated, it means we’ll only have two student loan payments per month–one his, one mine. Woo! Take that, MyFedLoan.org.

It may not seem like a big deal, but Dave Ramsey’s promoted idea is that money is more about emotion than ‘head knowledge.’ Even though that little student loan was our smallest payment each month, and our lowest interest rate, having it gone is just a relief, and pretty exciting having one less debt.

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Completed: The Millionaire Next Door

I finished reading “The Millionaire Next Door” earlier this week, and let the ideas set in for a few days before I started writing about it.

First, let me say that, yes, the ideas in the book are not really anything new, and the book was published in 1996.

I liked understanding the difference between being a high-income earner and being financially secure. Being a high-income earner often means that you have to put on a show of sorts and display your status in life. Not having a high-status job can actually be to your benefit, especially if you can save and invest well.

I appreciated being reminded of this, because my profession and my husband’s are not what anyone would consider high-status. Nobody will ever expect us to have a huge house or drive expensive cars. We don’t make enough to be taxed all that much. We are both happy to have jobs and work hard at them, and we are thankful we don’t live paycheck to paycheck.

I also liked understanding that someone can be an under-accumulator of wealth (UAW) or a prodigious accumulator of wealth (PAW), and that there is not a set dollar amount to be considered a PAW, but rather, it’s a formula. Right now, I am definitely a UAW, but I also spent seven years earning two degrees in order to do my job. I know that this investment of time and money was worth it because I am not an entrepreneurial type, and not a business person by far. I am more like the professor than the contractor. By age 40, I hope to have this turned around and be a PAW.

The reminder that goals in life do not have to be attached to owning material goods is a healthy one. I place a high value on time spent with family, education, seeing and learning new things when I travel, and none of these can ever be taken away from me if I file bankruptcy and my assets are liquidated. Though, I think I’d probably miss my XBox.

Overall, I’d say this book is worth a read. You can skim a lot of it, but I think the abundance of examples help drive home the authors’ many points about financial stability vs. appearances of wealth.

Spending plan breakers

Along with gifts being spending plan breakers (see my previous post on this topic), I also came up with some other expenses that haven’t exactly been surprises, but I could have done a better job of planning for them.

They include:
Gym membership
Professional association membership(s)
Magazine/newspaper subscriptions
Other subscription services with once a year costs (i.e. XBox Live, AAA, club/union dues, etc.)

I fixed the gym membership issue by setting up a reoccurring monthly withdrawal from checking to savings into an account specifically for renewing the membership when the time comes. The magazines and other ‘entertainment’ style expenses have just come out of our ‘amusement’ budget in whatever month the bill comes. It’s not exactly perfect, but it works for the time being.

I’m not really sure what to do about the professional memberships or things like AAA coverage. I suppose I could plan to save $5-$6/month for these in an account, but that seems a little silly. A $60/year membership doesn’t really cause our spending plan to be totally foiled, as we often come in underspent on at least a few categories so it ends up not making a big difference. I haven’t really seen a good spending plan that includes these type of expenses.

How do you manage once a year fees or subscription costs? Are there better ways of doing this than just fitting it into my regular spending plan?

Book review (so far): The Millionaire Next Door

I started reading “The Millionaire Next Door” yesterday, and am about half-way through. It’s written in a very conversational style by two wealth experts, so it’s a fairly quick read. The whole point is that millionaires aren’t what we think they are (high consumers), and that really anyone could be a millionaire with the right attitude and willpower to save money (income does not equal wealth).

I really liked a few anecdotes so far, so I wanted to note them here.

One is about prodigious accumulators of wealth (what they call PAWs–people who have saved a significant amount of money relative to their income) being excellent defensive players when it comes to money. They liken someone who is a good defender of their money to someone who is physically in shape but still exercises every day. I get this, because I am what most would consider relatively fit, and I still exercise regularly. I don’t do it to lose excess weight, I do it to maintain weight and generally help my well-being (mentally as well as physically).

The other anecdote is about the millionaire who shies away from the expensive champagne and caviar spread that has been set out for him to enjoy as he is interviewed about his millionaire status. He admits that he only drinks scotch and two kinds of beer, “free and Budweiser.” The point is that millionaires actually have rather blue-collar tastes and backgrounds, and that is how they sock away so much of their incomes and work so hard to maintain financial freedom. They don’t wear expensive clothes or lease expensive vehicles.

I really like the idea that there literally could be a millionaire next door, and you’d never know it. It may be the plumber with his own business, or the auctioneer who spends a lot of time around farm equipment, but it’s probably not the doctor with the $500,000 house or the middle manager with the new Maserati every year.

Christmas in August

Since beginning this whole “spending plan” business, I’ve come to realize that there’s one thing that always breaks the plan, and that’s gifts. It happened back in May with Mother’s Day, and so I made up a plan for all the rest of the gift occasions for the rest of the year, and started in with shopping slowly and well in advance of the ‘gift needed date.’

This means I started Christmas shopping in June. I also pared back who exactly will receive a gift from us, because, quite frankly, while we can afford it now, with uncertain job outlooks, we might not be able to come January 2011. So, it’s pretty much immediate family and everyone else will get a lovely holiday card from us.

I actually highly recommend sitting down and making a list of all the major gift-giving holidays, who you give to, and then thinking about what to give that person. Having many months to plan means the gift can be both more meaningful AND more economical. I also have some random ‘just in case’ presents stashed if I forgot anything/anyone. Let me tell you, Anthropologie has some awesome stuff on their sale tables that any of my female friends would love/cherish, usually for under $20.

Happy Christmas… in August!

Late bloomers

My husband and I are, for lack of a better term, late bloomers when it comes to being on sturdy financial footing. We both took so long to be out of school and in real ‘adult’ jobs, that now we’re staring 30 in the face without much to show for it other than some diplomas and cheap IKEA furniture in our tiny one-bedroom apartment.

It’s tough not to compare ourselves to other friends who have more material goods than we do. It also sucks to see friends struggle with money.

I guess the lesson is to be grateful for what we do have, and not be envious of what others do have. I have learned that, even though someone may have a huge house or brand new car, doesn’t mean that they can really afford it, thanks to credit and monthly payment plans. Sometimes what appears to be a blessing is actually a curse.

For now, I feel lucky to have what we do, and I have a wonderful life, even without a lot of extravagance.