Saturday, April 11, 2015

Variety is the Spouse of Life

When I first got married, many moons ago, my husband said something that, had I been a lot smarter, would have set off alarm bells in my head.

We had been married only a few months when we determined that both of us couldn't have pickup trucks. Since his was bigger and in much better shape than mine, we decided that I would trade mine in and get a practical 4-door car. As we were driving off the lot with it, my dear one turned to me and said, "I think we will always have a car payment".

What frightened me about this was that he said it like it was a good thing. He was smiling - actually smiling! Did he mean that being in debt is a good thing? How can that be? What kind of monster did I marry?

This left me highly confused, and it took me a long time to understand what he really meant.

See, my dear one and I came from very different backgrounds. I came from a family of educated liberals who consider thrift a virtue. My dad may pay cash for cars, but you'll never see him drive anything more luxurious than a Toyota. On the other hand, my dear one grew up very, very poor in Appalachia. Like food stamp, clothing from the church donation bin kind of poor. He managed to rise up to the middle class through a combination of the U.S. Army and the G.I. Bill, and the idea of actually buying a brand new car off the lot was, at the time, a measure of success for him. He knew how to make a great dinner for three bucks, but he didn't understand that debt is not a good thing.

I mention this because it took a very long time - about 15 years - before we got to a point where my desire to be debt free and his desire to have nice, new cars all the time found a balance. In reality, the balance is that he lets me manage the finances, and whenever we take on a debt, I pay it off immediately. I don't allow him to keep a rolling balance on a credit card and I don't tolerate store cards at all. But I know that if it were up to him, we'd be back up to our eyeballs in debt in no time flat.

Why am I going on painting my dear one in such an unflattering light? Because our marriage is a good example of how, in spite of our best intentions, having our finances combined with someone with different spending habits can lead you in to money habits that we wouldn't have if it were just us on our own.

In my case, we have been in and out of debt for most of our 20 years together, but it hasn't been disastrous debt. We've gotten underwater on credit cards a few times, made a lot of car payments, and never seem to get that damn student loan paid off, but I've seen much worse. Ever see someone married to a spouse who shops for entertainment? The wife who thinks it's funny that she has so many shoes that she hasn't worn them all, or the husband who isn't a real man if he doesn't drive a Porsche?

I'm not saying that if your soul mate doesn't have the same money values you do, you should give them a toss. If it's just an imbalance, and they're willing to work with you on it and compromise, then you can make it work. Just remember to keep paying yourself first, even if you're doing it from a joint bank account.

Thursday, April 9, 2015

The Latte Factor and how it can help you pay yourself first

If you're still reading after that last post, good for you...and thank you! I say that because a lot of people stop right there. I mean, here I am telling you that even though you finish up every month totally broke, you're supposed to take money out of your already limited bank account. How is that supposed to work?

I mean, look at my last example. By the end of the month, you have less than twenty bucks left. Where's that savings supposed to come from? It's not like extra money is going to magically appear from the ether.  So I'll tell you that my last post was the easy part. Now it gets just a little bit harder. 

Before I get into the hard part, though, I want to go back to the very beginning of this blog, where I say that I'm hoping you are someone who's pretty sure you make enough money, but there just never seems to be enough left each month. So what I want to talk about now is how you can actually make sure that putting aside a couple of hundred dollars each month won't leave you overdrawn.

My old friend David Bach has something he calls the Latte Factor. Basically, the Latte Factor means that doing without a daily latte will save you enough money to put away a tidy little nest egg.  I hesitate to use this term, since you can find me in line at Starbucks every morning myself, and I don't want to sound like I'm judging you for doing the same. I mean, we all need what we need, right? But his point isn't that you shouldn't drink lattes. His point is that most of us tend to fritter away a huge amount of money each month on very small purchases, and if we want to save money, the easiest way to do it is to identify a couple of things we spend money on not because it really makes our lives better, but because it's such a small amount of money we just don't care.

Back when I was always broke, we used to have a food truck pull up to my employer's building every morning at about 10 AM. At first, it was kind of a luxury; we could step outside and for only a couple of dollars, we could get a hot breakfast burrito or toasted bagel instead of trying to make do with whatever was in the snack machine. After a while, though, I found that I had stopped eating breakfast at home at all, knowing that I could get something during the break. A few months in, by the time the food truck rolled around, I was salivating like Pavlov's dog. At five dollars a breakfast, I was spending 25 dollars a week.

If my kitchen suddenly and tragically exploded one morning and left me with no way to pour a bowl of cereal before I left for work, then five bucks isn't much for a quick breakfast. But for a 25 year old trying to live in Silicon Valley on $24 grand a year, that tiny little amount was starting to add up. I mean, do the math: $25 a week is $100 a month, money I could be putting away. 

I'd like to say that I caught myself in time, but remember that I was even more of a dummy then than I am now. The only difference is that now I make enough money to both pick up a latte each morning and contribute to my growing nest egg.

But I hope that you'll learn from my mistake. For just one week...actually, for just one day...keep track of every dollar you spend. At the end of the day, look back and see if there's a small change or two that you can make. Maybe instead of buying breakfast, you can make it at home. Or if you get the 3 PM munchies (I sure do!) and can't help visiting the snack machine, keep a stash of snacks in your drawer, purse or backpack. Then, keep on paying yourself first.

Sunday, January 18, 2015

Okay, let's get down to business

Okay, you've been reading along so far (thanks!) and you might be thinking: "Okay, Money Dummy, I know that debt is bad. I know I should be saving. But what the heck should I do, and how to I do it?" So that's what today's topic is about: what do you do?

The answer is: Pay Yourself First.

Okay, that's the short answer. Now, here's the longer answer.  When you make a move to get ahead with your money, you're paying yourself. And that payment is more important than all the other bills you have each month*. So each month, when you're divvying up your money to pay rent or mortgage, insurance, food, and so on, add to those the amount you're going to pay yourself.  And to make sure that it actually happens, automate it any way you can so you don't forget. Remember what I said in my last post, about how our brains aren't hard-wired to think about money? Your brain will remind you about all kinds of things you need and want every day, from paying the electric bill (there's the envelope on the desk in front of you) to going out to dinner with your friends (that text flashing on your phone, also in front of you). Your brain knows you need light, food and companionship. But it won't remind you of your retirement. As far as your brain goes, you'll work until you drop dead at the age of 46, no 401(k) necessary.

The first think you're going to do is figure out how much money you can devote to this worthy task. Let's say in this case you're going to save $100 a month.

Okay, so in what ways can you pay yourself?  I'm just going to give you one example right now, which is just having an emergency fund of $1000. I won't tell you why you need one; everyone else has told you that. You want to have one, you just can't ever seem to save money. Here's how you do it:

Option 1: If your employer has direct deposit
1. Go to the bank and open two accounts; a checking account and a savings account**
2. The bank will give you three important numbers: your checking account number, your savings account number, and the bank's routing number.
3. Go to your employer and get a direct deposit form (this is usually done online now)
4. On the form, have $100 direct deposited to your savings account and the remainder to checking. You'll need the three numbers to do this.
5. Forget that you ever did this.

Option 2: If you don't have access to direct deposit
1. Do the same as steps 1 and 2 above
2. Get a login to the bank's online site
3. Go to the bank's transfer page. Every bank has a page that lets you schedule regular transfers.
4. Set up an automatic transfer of $100 once a month, on the day you get paid.
5. Forget that you ever did this.


After ten months, surprise!!! You've saved a thousand bucks. That's a good emergency fund.


What you shouldn't do, and what I did for most of my adult life, is to intend to save that money after you've paid your bills. Here's what always seems to happen:
  • You get paid.
  • You pay the rent or mortgage, insurance, electric bill, etc.
  • You go to the grocery store
  • You realize that the rest of your money has to last until the next payday, so you decide you'd better sit on it until the end of the month, just in case
  • The end of the month comes, and you have $11.76 in your checking account. Good thing you get paid tomorrow!
 So in this case, you just never, ever get ahead. No matter how much money you make or how little you spend, you are always living from paycheck to paycheck.

 Since you've read this far, I'm going to give credit where credit is due. I learned this technique about eight years ago from a guy named David Bach. He wrote a book that my mom gave me as a gift called The Automatic Millionaire; there's the Amazon.com link so if you're the book buying type you can check it out.


*I guess I should point out that this doesn't mean you should pay yourself instead of your other bills.
**You already know this, but if you already have these, then you can skip this step. Same goes with the others.

Friday, January 16, 2015

Why it's not your fault that your money is a mess

Yesterday I went to lunch with a group of amazing women I work with. I love these lunches. They are the highlight of my life. We chose a restaurant in the mall across the road from the office, and since the place was on the other side of the mall, we took a shortcut through Macy's. 

"Oh, this is a bad idea!" called out one of the gals as we passed the makeup counters and stands of accessories. "I can't even walk through Macy's without buying something!"

"Oh, me too! I just love it," Said Gal #2. "But my husband will kill me if I spend any more money. He wants me to stick to a budget."

Now, since I'm pretty much a dummy about money myself, the last thing I'm going to do is lecture someone else, much less a co-worker, on how they handle their money or their marriage. By the time we got to the restaurant, sat down and ordered, we had all gone through the litany of misery to which our poor spending habits had doomed us. We were having the time of our lives, but the word "budget" kept coming up. Finally, I spoke up:

"I don't know why we all agonize over budgets. It's not like we all don't know that budgets don't work."

"Yes, of course, they don't," said Gal #1. "But my husband thinks they do."

Gal #2 then helped me out (which is good, because I probably would have dropped it, I hate being a know-it-all in person, I prefer to save it for the blog). "Yeah, well, you're husband's not the one who has to remember the amount 'budgeted' for groceries when you're at the store after working all day."

"Yeah", added Gal #3, "And you have to get something quick, because you have two hungry kids with you and you have to get home and make dinner."

"And the kids are whining for you to buy them whatever crap they see. Who can think about a budget right then and there?"

"They just don't get it."

"Yeah."

This one also gave me some food for thought about how maybe one way that we can solve our money problems is to face them head-on. We can do this by admitting to ourselves that the way we think about money isn't the way money really works. And by doing so, we can find things that do work instead of blaming ourselves, fighting with our spouses, and feeling that euphoria-replaced-by-guilt every time we walk through Macy's.

Here are a couple of ways that, in my opinion, we think about money incorrectly.

  • Our brains are not hard-wired to think of money as an item of value. We might think they are, since we've been conditioned to do so, but in reality, our natural impulse is not to save or invest, but to use the money we have to buy things we need, like food and clothing, or things we want, like organic, free-range eggs and Manolo Blahniks. So every day, our brains see those colorful pieces of paper in our wallets and try to convince us to exchange them for something we can actually use.
  •  Everyone around us is constantly trying to separate us from our money. Think I'm lying? Look around. TV, radio, the internet. Amazon.com, your email Inbox, Craigslist, books, your neighbor, even your spouse. We all look at everyone around us as someone we can get something from. Sounds natural, until you realize that some people are really good at convincing you to give them your money. Often you do so, willingly, before you even think about whether you are getting something in return.
  • Once someone's convinced you that you want to give them your money, it's a very short hop to them letting you give them your money in installments so they get even more of it. Ever try to buy a new car for cash? No, neither have I, but my dad once did. The salesman didn't want to let him do it. Cash means no interest, which means the dealer gets less money. But they make it look like they are letting you finance as a big fat favor to you.
I can't count the number of times in my life I've left the decisions on what I would buy and for how much to the person who would benefit the most from my purchase. This started when I was old enough to carry a dollar bill in my own wallet, and continued through my first credit card and  my first new car. Here are some of the messages I've fallen for:

"You deserve it!"
"Your friends will be so impressed!"
"You only live once!"
"What's money for, if not for spending on the things you like?"

So, why am I going on about how it's not your fault? Well, I'll tell you what I'm NOT doing. I'm not trying to tell you that it's okay to make a mess of your money. What I hope is that you'll see that you're not alone. You don't spend too much money because you're a "shopaholic" or you "just don't have any willpower" or you're "just not smart with money". These aren't excuses; everyone faces these challenges every day. Everyone; not just you.

And you and me, we're in this together. And if a dummy like me can get ahead, so can you.

Monday, January 5, 2015

Step 1: Debt is not okay. It just isn't.

I mentioned in the first post of this journal that when my husband's business went under, we were deeply in debt. Now, most of that was business debt of one kind or another, but the fact is, we had let ourselves get buried in personal debt anyway: in addition to the mortgage, we had student loans, two car loans, a second mortgage for the pool (what planet were we on to think that was normal?), and that doesn't even include the credit cards, of which we had...let me think...four.

We are not debt free at the moment. One of the student loans hasn't been paid off yet, and we now have a car loan. After all, we're nothing but a couple of dummies trying to make our way in the world. But let me tell you what we learned. It's really simple.

Debt is not okay. It's just not. Everyone who wants to sell you something will tell you that it's perfectly okay, after all, everyone does it. And that financing is so easy to get, we can handle it for you. And you really want that thing, you want it NOW, and here it is...all you have to do is sign. I've done it a hundred times, and you probably have too.

But it's not okay. It's just not.

I learned this from a guy that I mentioned a couple of days ago named Dave Ramsey. Now, if you haven't heard of this guy, he's a long-time money management guru out of Texas who has a radio call-in show, a couple of books and a series of seminars called the Total Money Makeover. His thing is helping people get out of debt. I used to listen to his call-in show when I was driving home from work, and I'd listen to people call in and ask what to do in this or that situation, like the guy whose wife told him he had to take a job that paid below poverty level. Over time, I started to get what he was trying to say: that buying things you can't afford doesn't make you happy, it traps you, it makes you miserable, and it keeps you from reaching your long term goals.

But, you say, and so do I...I have to have a car, and cars are expensive! I don't have time to save up 25 grand, I need a car now! How can I do that without borrowing the money? I'm not rich!

Okay, let me give you an alternative. Go ahead and buy the car. Finance it. But don't just make the minimum payments. The second you get that car home, commit to yourself that this car is going to be paid off as soon as you can do it. And do the same thing with everything you owe money on.

Now, I know what you're going to say: "Yeah, it's easy to say you're going to pay off a car, or save money, but it never seems to happen. Every time  I try, the money is always gone."

So that's what I'll talk about next: paying yourself first.


Oh, I almost forgot...I was going to tell you why we have a car loan. We had to buy a new car six months ago after our trusty Jetta was totaled by another driver. We used our insurance money and took out a loan of $18,000. We've been paying it off to the tune of $1100 a month, plus we dropped a couple of bonus checks on it, and as of today, the balance on the loan is a bit under $8000. We expect to have it paid off in February.

I'm off now to hang with the fam. This dummy is out!

Saturday, January 3, 2015

A word on who this blog is for, and some deep philosophy

Most money management blogs, books, seminars and, well, pretty much anything else, are geared toward people who have jobs and make decent money. I sometimes then see feedback from folks who say, "Hey, what about those of us who make hardly any money? Am I supposed to squirrel away the $5-10 I don't need for rent and groceries in the hopes of investing in mutual funds?"

The answer is pretty much the same everywhere: No, you shouldn't. And money management experts (of which I am definitely not) are short on advice for people who don't make enough money to fill their basic needs. The type of advice they have to give is just not going to work on that level. It's just not. But I did once hear some good advice from money management guru Dave Ramsey on one of his call-in shows years ago. He was talking to a guy who had four kids and a wife who was a stay-at-home mom. When his wife felt he worked too much, she asked him to take a lower paying job that allowed him to be home more. He was now trying to make ends meet on a salary of $15,000 per year.  Dave's advice? Buddy, you don't make enough money to support a family of four. You need to go back to a higher paying job.

Now, I know that not everyone has that option, and that's a tough reality of life, one for which I'm not remotely qualified to give advice on. What I can tell you, though, is that if you are struggling to get by on the money you earn, don't worry about saving or investing; worry about making more money. That's the reality, and that's the reason that money management advice is really geared toward people who already make enough money. Why? Simple. Because those are the folks who are easy to help.

So who are you? Well, hopefully, you're kind of like me. You make enough money, but you spend a lot. You think you make good decisions, but then you look at your checkbook (or your Mint, or YNAB, or Quicken account) and think "Where the hell did all my money go?"  You try to save money, or pay off debt, and month after month it just doesn't happen. You get a raise, and a year later you still don't see any of it.

And you see all these articles in Forbes and Fortune telling you it's okay, you're in the middle class, and the middle class is squeezed more and more every year, and it's really hopeless because life is just really hard, and gas is really expensive, and housing prices are astronomical, and by the way, you have just GOT to get the new iPhone 6 for yourself and everyone else in your family, and of course all parents who love their children will only drive them around in the largest SUV on the market. But be sure to get this year's model, because it has a backup camera.

It's hard to jump off the treadmill, but it can be done.

Friday, January 2, 2015

Reboot

We spent Christmas of 2009 in an old ranch house in the Texas Hill Country that belonged to a friend of the family. It was delightfully cold outside, but inside we had a crackly fire going and the owner of the house had put up a white tree for the season.  It was a small house, but there were only three of us: my husband, our 11 year old daughter, and myself.

That Christmas was the first time in over a year that we had spent time together, and we used it as a chance for us all to reboot. In early November, my husband's business had failed. He had been working long days and late nights for months trying to stay afloat, and everything had suffered. Our marriage was a mess, our daughter had grown resentful of her dad, and our finances were a mess. We were deeply in debt and were facing bankruptcy, but there was good news as well. My husband had a new job in the industry he had left two years earlier. My job was going well. We still owned our home, and we were committed to digging ourselves out of the hole we had created.

So that Christmas, we opened up a few gifts that I had picked up at the Dollar Store, then we sat around the old dining table and planned out our recovery. 

I'm now starting this journal five years later as a celebration of what we did right, an exploration of what we did wrong, and hopefully, some advice along the way that might help one or two of you make your own decisions. And I'll drive home one little factoid that I hope you'll find encouraging: as we were balancing our 2014 accounts, we found that our net worth is now at US$750,000.

So now I've introduced myself. Nice to meet you!

Why did I call this the Money Dummy? Because the Fool was already taken, and I want to drive home one fundamental point about managing your money: you don't have to be smart. You don't have to be good with numbers, you don't have to have great willpower. You don't even necessarily have to be very frugal. You just have to have a system.

I'll probably post a lot these first couple of weeks because I have a lot to say, but as time goes on I'll cut it down to weekly or even monthly. After all, I'm not a writer, or a blogger. I'm just your average dummy.