Just this morning, I was leafing through Jonathan Pond’s very good personal finance book Grow Your Money, which I reviewed a while back. In it, he makes the astute statement that everyone puts their money into three basic groups: necessities, luxuries, and saving for the future. The more I thought about that statement, the more profound I thought it was, as it builds a pretty strong framework for the financial problems ailing many Americans.
Obviously, the pile that will get you in the best shape over the long term is the “saving for the future” pile, but that’s only the first piece of the problem. The reason so many Americans are in poor financial shape is that they put more than they should into one of these areas to the detriment of others. Let me show you what I mean.
Some put money in the “luxuries” pile instead of the “saving for the future” pile. These are often the same people who argue that you only live once and that you’re wasting your time saving for the future when you could be enjoying the high life now. Quite often, these people realize what they’re doing - they know that they’re spending money on luxuries. The catch is that they just don’t care. I myself was in this group of people not too long ago.
Others put money in the “necessities” pile that should be in the “luxuries” pile. They identify things like HD televisions and cell phones as necessities in their life when the truth is that most of these things are luxuries. I have several friends in this group - they’re barely squeezing by and they are putting a little money away, but they continually tell me that they’re doing everything they can and are living “bare bones” as they surf the web on their G3 cell phone.
The recipe for success that I’ve found in life with these three piles is this:
First, go through everything in the necessities pile and determine if it’s really a necessity. In other words, go through every bit of your spending for a while and figure out whether you really need this item. I’m not suggesting going without the item, but merely determining whether you truly need the item for day to day life. Is that cell phone a necessity? For some people it may be, but are the unlimited text messages a necessity, or the web access features on it? Is that giant television a necessity? Is a case of beer or a $20 bottle of wine a necessity (they both are often included as “food” for some people)? When you start asking hard questions like this, it often becomes clear that many things in life are luxuries. Also, you begin to find that frugality is pretty cool - it shrinks the cost of many things in your necessities pile.
Then, try to keep a balance between luxuries and saving for the future roughly in balance. If you bring home $1,000 a week and spend $400 on the things that are truly necessities (mortgage, insurance, food), that leaves $600. Just put $300 of that away and spend the other $300 on the things that bring you pleasure - good food, good drink, technology goodies, and so forth.
Financial discipline is not about denying yourself everything enjoyable in life. It’s about finding a balance between the things you enjoy now and the things you’ll need later, and it’s also about finding value in all of the luxuries in your life rather than just treating them as things you do naturally.
Saturday, March 1, 2008
Sunday, February 24, 2008
I Quit
I quit my job.
It is scary as can be to write that sentence. Unbelievably scary. I’m walking away from a good paying and very stable job. I announced my resignation this week, and my final day will happen before the end of March.
Why?
So, why did I make this decision? There were a lot of reasons, all balled together, so I thought I’d walk through them one at a time.
I want to devote more time to my family. As my writing has taken off - both on All things Financial and in other forms - I’ve been more and more compressed for time. This has meant that I’ve spent weekends in the basement trying to write while my children play above me, their pitter-pattering feet on the floor making me wish I was with them. It’s meant that they spend more time in daycare instead of with me. It’s meant that when we go on vacations, I take my laptop along and write instead of enjoying special times with them. My son is a little over two years old and my daughter is almost six months old. If I keep doing this, I’m going to miss their childhood - and I don’t want to do that, not for all of the financial rewards in the world. In all honesty, this is the biggest factor that pushed me over the edge.
I want to devote more time to my writing. I love writing. There’s simply no other way to put it. The art of putting written words down on the page fills me with an elemental joy that I can’t describe. Some windows have opened for me where people are paying me to do this, and I can’t possibly turn away from it.
We’re in very good financial shape. If it wasn’t for this reason, I couldn’t possibly think of making a move like this. We have only a tiny amount of student loan debt and our mortgage and that’s it - no credit cards, no car loans, no anything. We have quite a bit of money in the bank as well and other sources of income, too.
We know how to live frugally. We’ve learned how to live way below our means over the last few years. We simply don’t spend much money at all, especially compared to our income. We spent substantially less than 40% of our income in 2007 - the difference was folded into paying off debts rapidly, with all of our car loans, our credit card debts, and much of our student loan debts just vanishing very rapidly.
Working in my home office and eating leftovers out of the fridge is far, far cheaper than commuting, buying gas, and succumbing to temptations along the way. I’ve calculated that my monthly savings just from not commuting is about twenty hours and $250 - and that’s assuming that I never stop for anything other than an occasional coffee or something. Plus, my lunches will be much cheaper - there will never be a temptation to eat out.
My wife is also considering a move to a job very close to home. Currently, my wife commutes about forty five minutes just to get to work. She’s considering a move that would reduce her commute to about three minutes.
I’m in the perfect position to leave my current job. I love my current job, so I’ve been waiting for the right time to make this move. I wanted a point where I could really walk away with minimal regrets, and now is just that time.
What Will I Do Now?
So, what’s my plan for after this switch? I’ve been thinking about this a lot, and here’s what I have in mind.
At first, I’m going to get substantially ahead in my writing for All things Financial. One consistent worry I always have about All things Financial is that I never feel far enough ahead with the writing - it’s almost impossible to walk away from it for a vacation or an illness or an emergency because I don’t have adequate time to get ahead on the writing. So, my first project is to “bank” a lot of articles and have them ready to go so that if I need to, All things Financial can keep running just fine while I step away for a bit.
This also means I’m going to have the opportunity to do some deep research and write some things that time simply hasn’t afforded to me.
Second, I’m going to shop my book hard to get it published. As I’ve mentioned before, I have a book that’s largely finished in first draft form. I’m going to polish it up and start shopping it hard, something that’s a time sink that I haven’t had time to do.
At the same time, I’m looking strongly at some freelance writing opportunities that will pay pretty well. I’m in discussions related to a newspaper column and perhaps a regular slot on a local radio show.
I’m going to start the long-discussed cooking/food blog. The focus is on preparing tasty and healthy meals at home for a family - while I won’t necessarily lean towards discussions of frugality there (I’m more concerned about tasty, then healthy), the very nature of cooking at home is a frugal behavior. When it launches, I’ll let you all know.
I’m going to dabble in local politics. This is something else that time compression hasn’t given me the freedom to do. Church council, city council, school board - these are all things I want to do.
I’m also going to spend some time on other side businesses and opportunities. Small-scale computer repair, things like that. I’m also going to look at helping my wife get her soap making side business up to speed, and I may raise a bumper crop of tomatoes, can some tomato-based foods, and sell them locally. I also have a few other strings that I may tug on, too.
I’m going to still send my children to daycare some for the socialization aspects, but we’re considering a reduced schedule that gives some stay-at-home-parent time. We’re going to ease into this over the next several months to see what works best for all of us and what matches our financial state.
Most importantly, I’m going to detach a bit from the heavily-compressed nature of the last two years of my life. In the summer, we’re going to spend some significant time visiting friends and family, people who I haven’t really been able to connect with in a while. I’m going to spend a ton of time with my kids outdoors, too - working in the garden, playing at the park, and so on. I’m going to breathe, something I haven’t done in a while.
All in all, it’s the single scariest thing I’ve done in my life, but I think it’s the right thing to do.
It is scary as can be to write that sentence. Unbelievably scary. I’m walking away from a good paying and very stable job. I announced my resignation this week, and my final day will happen before the end of March.
Why?
So, why did I make this decision? There were a lot of reasons, all balled together, so I thought I’d walk through them one at a time.
I want to devote more time to my family. As my writing has taken off - both on All things Financial and in other forms - I’ve been more and more compressed for time. This has meant that I’ve spent weekends in the basement trying to write while my children play above me, their pitter-pattering feet on the floor making me wish I was with them. It’s meant that they spend more time in daycare instead of with me. It’s meant that when we go on vacations, I take my laptop along and write instead of enjoying special times with them. My son is a little over two years old and my daughter is almost six months old. If I keep doing this, I’m going to miss their childhood - and I don’t want to do that, not for all of the financial rewards in the world. In all honesty, this is the biggest factor that pushed me over the edge.
I want to devote more time to my writing. I love writing. There’s simply no other way to put it. The art of putting written words down on the page fills me with an elemental joy that I can’t describe. Some windows have opened for me where people are paying me to do this, and I can’t possibly turn away from it.
We’re in very good financial shape. If it wasn’t for this reason, I couldn’t possibly think of making a move like this. We have only a tiny amount of student loan debt and our mortgage and that’s it - no credit cards, no car loans, no anything. We have quite a bit of money in the bank as well and other sources of income, too.
We know how to live frugally. We’ve learned how to live way below our means over the last few years. We simply don’t spend much money at all, especially compared to our income. We spent substantially less than 40% of our income in 2007 - the difference was folded into paying off debts rapidly, with all of our car loans, our credit card debts, and much of our student loan debts just vanishing very rapidly.
Working in my home office and eating leftovers out of the fridge is far, far cheaper than commuting, buying gas, and succumbing to temptations along the way. I’ve calculated that my monthly savings just from not commuting is about twenty hours and $250 - and that’s assuming that I never stop for anything other than an occasional coffee or something. Plus, my lunches will be much cheaper - there will never be a temptation to eat out.
My wife is also considering a move to a job very close to home. Currently, my wife commutes about forty five minutes just to get to work. She’s considering a move that would reduce her commute to about three minutes.
I’m in the perfect position to leave my current job. I love my current job, so I’ve been waiting for the right time to make this move. I wanted a point where I could really walk away with minimal regrets, and now is just that time.
What Will I Do Now?
So, what’s my plan for after this switch? I’ve been thinking about this a lot, and here’s what I have in mind.
At first, I’m going to get substantially ahead in my writing for All things Financial. One consistent worry I always have about All things Financial is that I never feel far enough ahead with the writing - it’s almost impossible to walk away from it for a vacation or an illness or an emergency because I don’t have adequate time to get ahead on the writing. So, my first project is to “bank” a lot of articles and have them ready to go so that if I need to, All things Financial can keep running just fine while I step away for a bit.
This also means I’m going to have the opportunity to do some deep research and write some things that time simply hasn’t afforded to me.
Second, I’m going to shop my book hard to get it published. As I’ve mentioned before, I have a book that’s largely finished in first draft form. I’m going to polish it up and start shopping it hard, something that’s a time sink that I haven’t had time to do.
At the same time, I’m looking strongly at some freelance writing opportunities that will pay pretty well. I’m in discussions related to a newspaper column and perhaps a regular slot on a local radio show.
I’m going to start the long-discussed cooking/food blog. The focus is on preparing tasty and healthy meals at home for a family - while I won’t necessarily lean towards discussions of frugality there (I’m more concerned about tasty, then healthy), the very nature of cooking at home is a frugal behavior. When it launches, I’ll let you all know.
I’m going to dabble in local politics. This is something else that time compression hasn’t given me the freedom to do. Church council, city council, school board - these are all things I want to do.
I’m also going to spend some time on other side businesses and opportunities. Small-scale computer repair, things like that. I’m also going to look at helping my wife get her soap making side business up to speed, and I may raise a bumper crop of tomatoes, can some tomato-based foods, and sell them locally. I also have a few other strings that I may tug on, too.
I’m going to still send my children to daycare some for the socialization aspects, but we’re considering a reduced schedule that gives some stay-at-home-parent time. We’re going to ease into this over the next several months to see what works best for all of us and what matches our financial state.
Most importantly, I’m going to detach a bit from the heavily-compressed nature of the last two years of my life. In the summer, we’re going to spend some significant time visiting friends and family, people who I haven’t really been able to connect with in a while. I’m going to spend a ton of time with my kids outdoors, too - working in the garden, playing at the park, and so on. I’m going to breathe, something I haven’t done in a while.
All in all, it’s the single scariest thing I’ve done in my life, but I think it’s the right thing to do.
Wednesday, February 20, 2008
Little Income, Big Debts: Managing Your Money in Your College Years
Here’s what you shouldn’t do. When I was in college, I used my student loans to finance my lifestyle. I worked at a decent paying job ($9 an hour at a job related to my major was great), but that wasn’t enough - I needed more. So I took out student loans, even though scholarships covered most of my tuition and housing expenses for college. Even worse, I didn’t really understand the value of the college education I was getting - I basically completed a major, decided it wasn’t for me, completed a completely different major, and took enough classes for some minors along the way. After I finally graduated after six years, I had accumulated about $35,000 in student loan debt. Including interest, I’ve paid about $32,000 in loan payments so far and I’ve still got about $16,000 left to go.
What did I learn from this disaster that college students can use today? There are a lot of students out there entering college and taking out student loans to pay for it. The money they’re spending, in the form of loans, far exceeds the money they’re taking in. I know all about it - I was doing this very thing just a handful of years ago. I made some incredibly stupid mistakes along the way, and it takes a lot of hindsight to see the things I could-have-should-have done.
If I had it to do all over again - if I were a college student today with a big pile of student loans building up and not much income - here’s exactly what I would do.
Take the studies seriously.
The cost of college is tremendous. During your years there, not only are you investing the cost of tuition, but you’re also investing the loss of income that you might have made doing something else, like becoming an electrician’s apprentice or starting your own business. If you’re paying $10,000 for your tuition and other expenses and you’re giving up $20,000 in income, that’s $30,000 that each year in college is costing you. That’s more than $500 every week.
What’s the best way to undermine that strong investment? To flunk out. To fail a class, causing you to stay in school longer. Even a poor GPA undermines that investment - you reduce the value of the degree by reducing your opportunities right after college if you’re showing off a low GPA.
Hit the books. If it’s a choice between a side job and the books, choose the books every time. If you need to borrow more money because of it, borrow that money. Don’t undermine the value of your big investment just to save a little bit of money.
Take advantage of the other opportunities, too.
College isn’t just about hitting the books and partying. There are tons of opportunities on a college campus to start building your career and resume, which will improve your opportunities and salary when you leave school (further improving the value of your student loan investment). That’s not to say that the experience should preclude fun, but that you should put effort into joining groups - and spending social time with those groups - that either build leadership skills or coincide well with the topics that you’re studying.
You’re also better off getting strongly involved in a small number of activities than getting weakly involved in a lot of activities. Try out a lot of things at first, find the ones that click for you, then get strongly involved with those. Take on responsibilities with those groups and work towards leadership positions later on. You’ll build valuable relationships with people, learn new things about your areas of interest and about yourself, and build up your future resume, too. Here are some more tips for maximizing the secondary value of the college experience.
You’re a college student - live as poor as you can.
Don’t spend your time dressing exceptionally well - there’ll be plenty of time for that later on. Instead, do most of your clothes shopping at Goodwill and at thrift stores. Don’t think you’re above it - look at your checkbook and realize you’re a person with a negative income - the exact person who should be utilizing such resources.
It’s fine to have a few clothes for special situations, but don’t spend money on a great wardrobe. The typical college campus is teeming with free entertainment - check the campus newspaper for ideas instead of spending money to have fun. Take advantage of the cheap food opportunities, too - for a while, I had a “one meal a day” meal plan in dining services and I’d eat a big meal then, then just snack the rest of the day on whatever was available.
In a nutshell, realize that each time you spend money in college, you’re costing your future, especially when you’re surrounded by opportunities for the most inexpensive living you’ll have in your adult life. Need more specifics than that? Here’s a collection of money management tips for college students.
Use a credit card only to buy books. Pay the bill immediately.
Don’t listen to people who insist that you have a credit card. Research a good one, then use it only once a semester to buy your textbooks. Put that credit card somewhere safe, then pay off the entire bill as soon as it comes in. Never use the card for anything else.
This simple plan gives you the benefits that you can get from credit card use in college (mostly building credit) without the dangerous drawbacks of building high-interest debt that you’ll have trouble paying off.
Seek a job (or other experiences) related to your major, even for lower pay.
If you’re going to get a job in college (most people do), look for a part-time job that’s related to your major, even if it means sacrificing pay. A job that really matches well with your studies is golden on your resume when you graduate - if you already have some years of experience working with this material, then you look a lot better than most people coming out of school.
If you don’t know where to begin, the first place to stop is at your departmental office. Ask around for job opportunities within the major - research work, paperwork, whatever’s available. If you can’t find anything there, look for industries near the college that might relate to what you’re doing and look there. Make the effort to make a personal appearance, as it shows that you’re serious about this - anyone can pick up the phone and dial.
Minimize your debt.
If none of the above apply to a decision, make the choice that results in the lowest debt when you graduate. You’re in college to build your future. Don’t sacrifice that future by piling on debt without improving your post-graduation opportunities.
In a nutshell, maximize the value of what you’re paying for, and minimize the level of debt. You’re surrounded by valuable opportunities in college - only by grabbing them by the horns can you really maximize the value of your college education.
What did I learn from this disaster that college students can use today? There are a lot of students out there entering college and taking out student loans to pay for it. The money they’re spending, in the form of loans, far exceeds the money they’re taking in. I know all about it - I was doing this very thing just a handful of years ago. I made some incredibly stupid mistakes along the way, and it takes a lot of hindsight to see the things I could-have-should-have done.
If I had it to do all over again - if I were a college student today with a big pile of student loans building up and not much income - here’s exactly what I would do.
Take the studies seriously.
The cost of college is tremendous. During your years there, not only are you investing the cost of tuition, but you’re also investing the loss of income that you might have made doing something else, like becoming an electrician’s apprentice or starting your own business. If you’re paying $10,000 for your tuition and other expenses and you’re giving up $20,000 in income, that’s $30,000 that each year in college is costing you. That’s more than $500 every week.
What’s the best way to undermine that strong investment? To flunk out. To fail a class, causing you to stay in school longer. Even a poor GPA undermines that investment - you reduce the value of the degree by reducing your opportunities right after college if you’re showing off a low GPA.
Hit the books. If it’s a choice between a side job and the books, choose the books every time. If you need to borrow more money because of it, borrow that money. Don’t undermine the value of your big investment just to save a little bit of money.
Take advantage of the other opportunities, too.
College isn’t just about hitting the books and partying. There are tons of opportunities on a college campus to start building your career and resume, which will improve your opportunities and salary when you leave school (further improving the value of your student loan investment). That’s not to say that the experience should preclude fun, but that you should put effort into joining groups - and spending social time with those groups - that either build leadership skills or coincide well with the topics that you’re studying.
You’re also better off getting strongly involved in a small number of activities than getting weakly involved in a lot of activities. Try out a lot of things at first, find the ones that click for you, then get strongly involved with those. Take on responsibilities with those groups and work towards leadership positions later on. You’ll build valuable relationships with people, learn new things about your areas of interest and about yourself, and build up your future resume, too. Here are some more tips for maximizing the secondary value of the college experience.
You’re a college student - live as poor as you can.
Don’t spend your time dressing exceptionally well - there’ll be plenty of time for that later on. Instead, do most of your clothes shopping at Goodwill and at thrift stores. Don’t think you’re above it - look at your checkbook and realize you’re a person with a negative income - the exact person who should be utilizing such resources.
It’s fine to have a few clothes for special situations, but don’t spend money on a great wardrobe. The typical college campus is teeming with free entertainment - check the campus newspaper for ideas instead of spending money to have fun. Take advantage of the cheap food opportunities, too - for a while, I had a “one meal a day” meal plan in dining services and I’d eat a big meal then, then just snack the rest of the day on whatever was available.
In a nutshell, realize that each time you spend money in college, you’re costing your future, especially when you’re surrounded by opportunities for the most inexpensive living you’ll have in your adult life. Need more specifics than that? Here’s a collection of money management tips for college students.
Use a credit card only to buy books. Pay the bill immediately.
Don’t listen to people who insist that you have a credit card. Research a good one, then use it only once a semester to buy your textbooks. Put that credit card somewhere safe, then pay off the entire bill as soon as it comes in. Never use the card for anything else.
This simple plan gives you the benefits that you can get from credit card use in college (mostly building credit) without the dangerous drawbacks of building high-interest debt that you’ll have trouble paying off.
Seek a job (or other experiences) related to your major, even for lower pay.
If you’re going to get a job in college (most people do), look for a part-time job that’s related to your major, even if it means sacrificing pay. A job that really matches well with your studies is golden on your resume when you graduate - if you already have some years of experience working with this material, then you look a lot better than most people coming out of school.
If you don’t know where to begin, the first place to stop is at your departmental office. Ask around for job opportunities within the major - research work, paperwork, whatever’s available. If you can’t find anything there, look for industries near the college that might relate to what you’re doing and look there. Make the effort to make a personal appearance, as it shows that you’re serious about this - anyone can pick up the phone and dial.
Minimize your debt.
If none of the above apply to a decision, make the choice that results in the lowest debt when you graduate. You’re in college to build your future. Don’t sacrifice that future by piling on debt without improving your post-graduation opportunities.
In a nutshell, maximize the value of what you’re paying for, and minimize the level of debt. You’re surrounded by valuable opportunities in college - only by grabbing them by the horns can you really maximize the value of your college education.
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