On this day

So Facebook’s “On This Day” feature reminded me a couple days ago that I posted this back in October 2009:2009 Dave Ramsey

It’s almost humorous to me now, six years later, to read that. And I want to discuss what a mind shift has taken place in me since then. I spend much more time being intentional about purchases and our overall financial plan, and I feel less anxious about our bigger financial goals.

When we got married, we had budgeted enough to know that we could afford our apartment and living expenses, but hadn’t figured out what to do about debt, savings, retirement, etc. I was 27, and my husband was 26 when we got married in 2008, and I think we were pretty typical in that we’d discussed some financial stuff before marriage and in our first year of being married, but not other things. We both had mounting student loans, since we got married while we were both in school (him completing a second bachelor’s degree, me completing my master’s degree). Even before graduating in May 2009, I felt the pressure to get a good job in order to start paying my student loan debt. My husband’s debts weren’t nearly as large, but 2009 was rough for him in other ways, and he needed a new direction in life, and so we both began new jobs within a couple months of each other. We had no credit card debt and two older vehicles that we owned outright.

But when Steve’s aunt mentioned Dave Ramsey to us in the summer of 2009, we were both intrigued. I got one of his books at the library when we got home, and must have been reading through it and thinking about in October. My first student loan payment came due in November 2009, and I had just started my new job on October 6. If you’ve been reading along with me, or have read the archives, you already know how things turned out. We now have a positive net worth, no debt, and still no mortgage (at least while my husband is graduate school).

The major change is that I feel that I know a heck of a lot more about money and am much more financially savvy now. Dave Ramsey was a great first step, and the snowball method of eliminating debt worked exactly as it does, with people, on average, paying off their debts in around four years. But I’ve done a lot of other reading (and listening to podcasts like Planet Money), and feel confident in most of the financial decision-making situations in which I find myself. For example, open enrollment for health insurance is just around the corner, but I’ve already got a spreadsheet set up and next year’s spending plan laid out, so I can simply plug in some numbers to see what’s best financially for us. There’s no more big question marks looming in our financial picture. Of course, anything can happen, but there’s more security in having a plan and a backup plan than having no plan at all.

 

Reality

This blog may make it seem like everything always goes “our way” and that we never have setbacks or disappointments, and that things are just easy for us because we have good incomes. Well, I’ve been thinking about this a lot lately as we just returned from our trip to Amsterdam and people have directly told me, “I’m so jealous!” or “You’re so lucky!”

I’m not going to go into a lot of detail, but I just want to be clear that my husband and I don’t always have it so easy, we aren’t really any more lucky than the next person, and that the good things that happen for us are usually the result of a significant amount of hard work, planning, and usually budgeting.

We are very lucky to have each other, and to each support each other’s dreams in very tangible ways. A small example of this is that I’ve been talking about learning to skateboard for over two years, and finally, my husband had a co-worker with an unused longboard and he decided to make her an offer for it. He’s now teaching me how to ride, and made sure we both got helmets soon after this photo was taken:

skateboardA larger example is his graduate school experience. We discussed him going back to school for quite a few years before he actually took the GRE, looked at various online programs compared to classroom options, applied, and was accepted to both programs he applied to. We have managed to put him through school without student loans, thanks to many people–primarily his supervisor and co-workers who have adjusted to his changing schedule each semester and worked to help him reduce his hours as he transitions toward full-time student status with no job. He is basically paying his own tuition, and my income covers all of our regular expenses so that this can happen.

But we’ve been through some pretty crummy stuff, too. There have been professional setbacks of various types, personal disappointments, strained relationships, and medical issues. And don’t forget that we started our marriage in quite a bit of debt, with a long period of unemployment for my husband while I was only working part-time. I don’t write about these things, but it doesn’t mean they don’t happen to us, just like they happen to everyone else. The best we can do is try to make better decisions and think of our future selves.

It’s likely going to be a significant amount of time before we can take another vacation that involves getting on a plane, since my husband will (God willing) be graduating next spring and also (God willing) starting a new job sometime (hoping very soon) after graduation. This is one reason we decided to get back to Europe this spring, so soon after our last trip, because school schedules and life are quickly going to get in the way of any trips. And our hope is that we will eventually be able to save up a down payment for a house, maybe by our 10th wedding anniversary. All of this is a long way off, but I’ve always been motivated by long-ranging goals.

Don’t take financial advice from broke people

One of my favorite Dave Ramsey sayings is “Don’t take financial advice from broke people.” I think this is great, because if your goal is to not be broke, why would you do anything that a broke person tells you to do? Unless they are warning you not to do what they did to become broke, be wary of where you get financial advice, and always do your own research.

Look, there are a lot of financial blogs these days. And pretty much anyone can write a book and publish it, purporting to be an expert on just about any topic they choose. Dave Ramsey used to be broke, but managed to do what he does best–give folksy, easy-to-understand financial advice to the average person–and amass a fortune doing it. He’s great at telling people that bankruptcy is worth avoiding–because he and his wife Sharon lived through it.

I am pretty wary of most articles, blogs, and books on personal finance, because the type of advice they typically offer doesn’t fit with what I already know about money and investing or simply doesn’t go far enough for my taste. My latest favorite is Mr. Money Mustache, because I have no quibble with how he managed to save over 50% of his income for 7 years and retire at age 30. Also, he has laid out all of the numbers for anyone to see how they did it. He’s also shared their annual spending, which is actually pretty boring, and I hope to do similar posts in the coming months. We don’t have a huge stash at this point, but we’re definitely at a point where we easily save more per month than we spend. I hope to do a post on how we do that sometime soon. Stay tuned!

Gaming frugality

After stumbling upon the Mr. Money Mustache blog and reading a few posts, I was intrigued. Here’s a guy and his wife (Mrs. Money Mustache*) who have pretty much cut out every unnecessary item from their spending and retired in their early 30s in order to start a family. They have a lot of the same habits that my husband and I do. They got rid of all debt, because debt is a major emergency. They lived close to work, don’t borrow money for cars, don’t buy stupid cars, have no cable television, etc.

With our incomes, we can live quite comfortably on about half of our income, but we enjoy some frivolous things on a regular basis, with the justification that we already pay down debt and save pretty aggressively by most standards (we put toward debt or saved over 33% of our take-home pay in 2012). However, we have a couple long term goals that would be helped along if we gave some things up for a while. These goals include a trip to Seattle at the end of this month, paying cash for graduate school tuition for my husband, visiting France in the summer of 2014 or 2015, and satisfying my major love of bling with the last couple pieces on my jewelry wish list. We also both like the idea of buying a house with cash. This is totally within reach, if we are patient.

Last night, I asked my husband, “How frugal would you be willing to be? And for how long?” He said, “Well, I can be pretty frugal if I am working toward something.” And so we started making a list of things he is wiling to give up, and things I am willing to give up, and things we can give up together, in order to save money and slash more debt, more quickly. We have decided to:

  • give up beer until summer (unless bringing a host/hostess gift to a party), which will have the added bonus of helping us look better in our swimsuits
  • one fancy coffee drink per month (as long as we don’t buy any the month before and meet our gym-going goals to get our reimbursements which nearly pay for our membership)
  • both will bike/walk to work once it is warmer than 30 degrees when we leave
  • only eat out together for dates, not as a convenience – do more meal planning
  • husband will not get professional massages, and will visit the chiropractor only once per month, as needed
  • no new clothes unless essential for work
  • no new makeup, nail polish, other frivolous lady temptations for me – I have tons of stuff stockpiled that I purchased on sale, so can probably go 6-12 months without buying anything new
  • I will eliminate lady temptations by only going to Target for groceries (they have the best price on some items in our area, like the largest/cheapest size of the creamer for our non-fancy coffee)
  • Buy gifts primarily with credit card points for Amazon.com

We figured we can save a few hundred dollars a month by trying this for 3-6 months. This is a challenge in order to change some of our behaviors, and we are trying to make it into a game, by making the things we really enjoy into more of a treat than a regular daily experience. I will report on how this goes.

*He considers it an extremely high honor to have given her this title through marriage.

2012 overview and 2013 plans

piechart copy

I guess I didn’t do a year-end wrap-up for 2011, or at least I can’t find one in my own archives, but here’s a 2012 run-down.

  • We put 19% of our net income (take-home pay) toward our debt, in both regular payments and snowball payments. See huge orange chunk above from our Mint.com profile.
  • We spent 14% of our net income on a new-to-us vehicle; we took the funds out of savings and didn’t borrow a single penny to pay for it. See blue chunk above, which also included car repar and gas/oil.
  • Buying the car meant we needed to re-save our major emergency fund; we proceeded to save about 9% of our net income to get back to where we were before we bought the car.
  • Between paying down debt and re-booting our savings, we snowballed/saved about 33% of our income.
  • Between what gets taken out of my checks for my defined benefit plan (read: pension, which is matched automatically by my employer, but if I leave I don’t get to take that money so I don’t count it as savings), and what my husband puts in to get the maximum 401(k) match from his employer, we saved about 10% of our net income for retirement. I would prefer to be saving an additional 10% on top of those savings, but we’ll get to that once we are out of debt.

For 2013, we are potentially looking at my husband starting graduate school (if he decides to apply and actually gets in, that is–fingers crossed), which means we will likely slow our snowball in order to pay cash for his tuition. One thing that was helpful in deciding to maybe get an advanced degree was… wait for it… a cost-benefit analysis. Oh, yeah, you know how I roll. This ‘Will School Pay Off?’ calculator from Kiplinger’s was especially helpful. The cost of a graduate education involves more than just tuition, but lost hours and retirement matching from needing to reduce working hours. For some programs, it’s simply not possible to work and go to school, but we’re hoping that he can work part-time and manage at least a half-time course load.

We are also planning to pay cash for a vacation in 2013… more on that in a future post! Any 2013 money goals you are working toward?

Priorities

I learned this week that someone I know, not a close friend but still someone I consider a friend, is very sick. She also happens to be engaged, 17 weeks pregnant, and started chemotherapy last night for a very aggressive form of lymphoma which is making it difficult for her to breathe, and if the tumors keep growing, could throw her into cardiac arrest. I am hoping and praying for the best for her. It’s difficult not to personalize this type of thing, so I’ve fallen asleep the last few nights thinking ‘What would I regret not doing if that were me?’

I think I would rather spend a bit more time in debt in order to do the things I really want to do. I want to travel more, see some of the cities on my 43 things list. I want my husband to be able to go to graduate school, if that’s what he wants to do. I want to spend less time worrying about what others think and care less about office politics. So, while it is entirely possible for us to pay off our debt by the end of 2013, I think we may be looking at a bit longer timeline than that, and I am okay with that.

The current goal is to get it down to $20k by the beginning of 2013, and we are on track to do that. I think I’d also be okay with getting it down to about $15k sometime in 2013 if my husband goes back to school this year, as long as we can pay for his tuition without taking on more debt. The other option, with interest rates so low, would be to pay off my debt and take on some debt in his name at a lower interest rate. That’s all very theoretical right now, though, since he hasn’t decided if he will apply for 2013.

I’ll do a year-end recap of our financial picture soon.

Stuff I’ve found on Pinterest

I have been using Pinterest for a few months now, and I find it really fun and there are some great ideas out there to save time and money. I’ve got a Financial Board where I pin things that are more specific to personal finance.

One of my pins is from a woman whose family lives on $28k per year. I’ve started reading some of the posts in the series and it’s very enlightening. One thing they do that would be difficult for me but not impossible: they only drink water. Milk is for cereal and recipes only, and juice is a rare treat for making homemade popsicles. Lots of interested ideas for living on less.

I also found a cool infographic that explains what kids should know about managing money as they grow up. I think there are definitely things in each stage that many adults still need to learn, so worth a look.

Lastly, Nick Hanauer’s TED Talk in which he explains that middle-class earners are the real job creators. He explains in such a simple, elegant way how the rich have gotten richer and how trickle down economics is a bogus idea that hasn’t panned out for either major political party.

Title and registration

My husband suggested that I blog about our recent experience with purchasing a used car. This is still kind of a sore spot with me, because I’m not totally at peace with how everything happened, but maybe this will be cathartic.

It started when we learned my 1999 Saturn SL2 was dying. It failed a compression test pretty badly, though it still starts fine thanks to a new-ish battery my father put in some months ago and some new platinum spark plugs (everything’s better in precious metal!). It even managed to start when we had a few days of -30 wind chills, and has been parked outside for the last month straight since we got our ‘new’ car. She’s a trooper.

We bought a 2005 Ford Focus in 2010 to replace my husband’s 1986 Buick Somerset Custom which had so many issues I won’t even begin to catalog them. The Focus quickly became my husband’s car, because I felt much safer with him driving it than the Buick, it sits a little higher and has more head room than the Saturn for my 6’1″ husband, and I felt he deserved to drive something nice and relatively new for the first time in his life. The only drawback we discovered with the Focus is that it does not have a key feature that my Saturn has: traction control.

Now, traction control is apparently controversial as an option. Some people say ‘Just let me DRIVE my own car!’ but both my husband and I really like traction control. It’s basically the reverse of anti-lock brakes and can help you get going in wet, heavy snow while you see a dude in a huge truck/SUV who spins out with his 4-wheel drive. It’s also saved my life on a few occasions in rain while speeding down the highway; it kicks in when you start to hydroplane. I don’t recommend hydroplaning, as a general rule.

So, we decided that at least one of our vehicles needed to have traction control, and with the Saturn on it’s exit stage left, the ‘new’ car needed to have it. I did some research and learned that vehicles in our price range (under $7k) that had traction control standard included 2000-2003 Lexuses and Acuras, older luxury vehicles with many safety options. I honed in on the Acura brand since it’s the ‘luxury’ version of Honda, and Hondas have a great reputation. I knew that an Acura with more than 100k miles on it could easily go another 100k, and we’d probably only own it for a few years before replacing it, anyway.

Long story short, I found a 2001 Acura TL in incredibly clean condition, and it checked out with a mechanic, had clean CarFax history, good rating from Consumer Reports, etc. The problem? The day we wrote the check and I drove it home, I realized that I don’t like the car. I don’t like the drive feel since there’s a tiny ‘flare’ between 2nd and 3rd gears (it’s a shiftable automatic, which I’ve never had before) even though mechanically it’s fine according to multiple experts. It feels very ‘fancy’ to me. It’s the antithesis to my Saturn, covered in bumper stickers of all the bands I saw when all my income was expendable and tickets were my main purchase. Also, having a car that takes premium fuel, even though it’s usually only 25 cents more per gallon than regular and therefore only $3 more per 12-gallon fill, feels wrong to me.

We can definitely afford this car (I even got an insurance quote on it before we bought it) and with the little amount of gas we buy since we live so close to where we work, the premium fuel really is a negligible issue. The savings account took a hit when we bought it, but it will be back to normal by my birthday in April and our debt snowball is only mildly delayed, and we still have a sizable emergency fund cushion (yet another reason we keep more than Dave Ramsey’s recommended $1k in the bank).

Part of me just wants to hold onto the Saturn for sentimental reasons, but I realize that this is not an option and that it’s time to move her on. For now, my husband is driving the Acura (and enjoying it immensely) and I’m driving the Focus, which is a fine compromise. My husband did agree that the car that replaced the Saturn was to be ‘my’ car, an upgrade after driving the Saturn for 9 years, but the Focus is a great little car and I like it a lot (for one, it has a premium sound system, so my Vampire Weekend and Death Cab For Cutie sounds awesome in it compared to the Saturn’s 4 blown-out speakers). We’re just going to wait until the weather is a bit warmer before we list the Saturn for sale, and the insurance on it is a minimal expense until then.

Have you ever bought something you later regretted? How did you come to terms with it? Any advice or commiseration over my middle class problems is welcome.

An experiment

We got some bad news this week, in the form of our mechanic telling us that my ’99 Saturn is still running, against all odds. He actually said, “I don’t know how it’s still going.” So I started looking at Consumer Reports car buying guide online and searching used car sites.

We’ll just be getting our emergency fund fully stocked again at the end of this month, so having to tap it for a new vehicle was not going to be fun, but would be do-able. Then my husband and I talked last night and decided we would try an experiment: only use one car.

We live within easy walking distance of my workplace, and biking distance to his workplace. He said he would commit to biking if I could walk to work. This way, we can park the Saturn in our garage, and leave our newer car (a 2005 Ford Focus purchased in 2010 with cash) at home. Since we work opposite shifts, this could work, and attempting it in December/January will show us whether or not we could stick with it in warmer weather.

The plan is that I would walk to work in the morning, and the car would be at home during the day for him to run errands and go to appointments. Then he would leave for work in the late afternoon, and I would walk home and have the car for evening errands, and to visit my parents on the other end of town, and then he’d be home after I’ve gone to bed. If the weather is really too bad to walk/bike, we can work out other options (dropping each other off, rides from friends, etc.).

We’ll drop back the debt snowball for a few more months to save a bit more, in case we decide that we really do need two vehicles. And I’m going to buy some new mittens.

So close…

We are very close to paying off debt #2.

I am a bit annoyed with the Federal Student Loan servicer because they are switching websites sometime in early October (supposedly) and then http://www.dl.ed.gov will be no more. It will then be http://www.myedaccount.com, which means all of my payment history will probably be wiped out, just as it was when I switched servicers when consolidating my debt. And, no doubt, Mint.com won’t work with the new site right away, which means tracking the debt snowball with the ‘Goals’ feature will be messed up. I can’t really see a positive to this, other than maybe the new site being easier to use… we shall see.

Husband and I have had houses on the brain since seeing a listing for a super cheap-o house in a neighborhood we like. Like, $60K cheap. The major issue that made it so cheap? No appliances. But I just saw that as a potential opportunity to have the freezer-on-the-bottom fridge, the energy efficient dishwasher, the gas range with warming drawer, and the front-loader HE washing machine that I so desire. Someone else snatched up the house within a couple days, but it got us more seriously considering getting pre-approved.

We checked with the loan specialist at my husband’s credit union, and determined our income will most definitely allow us to buy what we want (small, probably older home, in the middle of the city). However, we decided we definitely want to pay off all of the debt before saving for that down payment. And, we’d like to go on that trip to Paris before buying a house, too. Maybe even get that convertible I’d really like. Why? Because we are weird, that’s why.

I actually mentioned my dream to buy a house with 100% cash to a family member at our vacation last month, and got a very “you are really WEIRD” look, but that is absolutely okay with me. So what if we live in an apartment until we’re 35? So what if we insist on a 15 year mortgage that can be paid off before we retire? So what if we care more about being able to save money than have a McMansion? As Dave Ramsey says, normal is broke–don’t be normal.