Archives for August 2010

So not the right photo

If we told you someone was 29 and made $32,000 annually, and that he regularly went on exotic vacations (Italy, Alaska), was sophisticated enough to invest in gold exchange-traded funds and complicated Treasury instruments, and speculated about being a stay-at-home parent one day and retiring at 57, would you think he was:

a) bad at math;
b) dealing heroin;
c) Controlling His Cash?

His name is Brandon. We read his comment on Frugal Dad regarding the alleged expiration of the middle class (it’s comment #32) and were so impressed we asked him about his own financial details. The conclusion? He’s everything you need to be. If he can do it, you can. Brandon’s extraordinarily detailed, but that beats the hell out of the opposite.  Again, it’s about buying assets, selling liabilities, and making conscious choices. Here’s some of his story:

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I’m single and childless. Four years ago my credit cards were maxed, I had a car loan, and was miserable in a low-paying job waiting tables. Rather than go the easy route with bankruptcy, I closed the cards, negotiated the interest rate and paid everything off with an emergency budget in under a year.

I took advantage of Indiana’s individual development account program, which also has federal funding. It gives you a large match in funding, financial literacy training, etc. for 4 years. You can double fund – my program took 2 years. You can spend the money on education, start a business with it, or buy a house.  I turned $1600 into about $10k with this program.  I also resumed my business degree, which I continue to work on very part-time. It’s not a priority since it serves no purpose to my job.

I started working in a higher-paying job, which pays $32k/year including overtime and holiday pay. Most importantly, I like it. I work with delinquent and abused kids.

I turned the overtime into savings, kept the emergency budget, and saved a few higher-than-usual tax returns. When I get my degree, it’ll be on my financial terms because I want it, not because I need it. Lack of a degree hasn’t held me back from any job I’ve ever wanted. I have lots of friends with $20k-100k in loan debt: I don’t know a college-educated friend or family member who doesn’t have significant debt. The only ones who earn a lot more than me are an engineer and a lawyer, and the lawyer’s expenses dwarf mine.

Last June I bought a condo for $103k, with all new appliances. I ended up with a homeowner’s warranty, $5k in the form of a down payment lien which is forgiven after 5 years. The house was immaculate, reasonably updated considering it’s 30 years old, and had a low monthly condo fee of $100.  I have units on either side, so my electric and gas bills are tiny.  I put exactly 20% down, avoided private mortgage insurance, and have a mortgage payment of about $480 (excluding low taxes and insurance).  I also took advantage of a state program, and end up having a quarter of the mortgage interest I paid refunded to me each year.

Once I controlled my credit, my score shot up. When I got the loan it was 740-750, now it’s 770-790.  That gets me a better rate on any future loan.

I realized I’d learned a lot by having an emergency budget, and it went from a necessity to something of a game.  It became a challenge to trim costs.  I learned how to do minor things on my car; how to change the oil, then the transmission fluid – not sure I’ll make it up to brake pads.  I drive a paid-off ‘99 Prelude with 67,000 miles. I bought it in 2004 with a 5-year loan I paid off in 4. I’ll never take out an auto loan again, and will die without buying a new car – the math doesn’t work for me.  I was without TV for about 5 years, but I had a $9 Netflix subscription, high-speed internet, and the library.  My new roommate wanted TV, so I installed it, but he’s paying for it, and I might finally watch some football, but I can’t get into TV again even when I try. His TV install covered a $200 DSL upgrade fee that kept my bill the same but doubled my service speed.

I occasionally buy myself nice things – my big item this year is a Cutco forged knife set that I needed for a culinary program.  Last year it was a treadmill to replace my 20-year old exercise bike, and before that it was a cheap HDTV to replace my 25-year old TV. I use what works until it’s impracticable to keep it, and when replacing it, make sure it’ll a) last and b) get used.  I delay purchases of most things – I research it, look for pricing trends/deal cycles, and sometimes just let it hang as a bookmark or in my Amazon cart. If I still want something or feel I’ll use it when I remember to check it next, I’ll act.

I volunteered at a local community center regularly for a few years, the one that administered the IDA program. I knew most of the people working there, grew up with their kids. The center asked if I wanted to help with their foreclosure prevention program, so I did the training and became a counselor.  I make a modest return off each client, help the center earn income, and get to help people – an ideal second job.  That turned into an opportunity to help start a local teen court program at that center which I’m working on right now. It’ll be a $15k income bump if my budget gets funded.

I rented out my other bedroom. My roommate has raised my utility bill, but he pays my mortgage (or my Roth IRA, take your pick). The $8k homebuyer refund went back into my cash reserve, a portion of which went to replace the original HVAC system in my home. I ended up with $2k in rebates/refunds, even though my current system was still working. It bothered me to replace a working system, but I had incentive.

I don’t carry credit balances unless it’s silly not to, e.g. 0% financing, cash back programs.

My biggest weakness was restaurants, which also goes for most of my foreclosure clients. As a waiter I acquired a taste for good food, plus I was a 20-something man. My monthly grocery budget was $50, and my restaurant budget $500. Now it’s $150/$100 and I’m finding ways to cut it more while eating better food. The $100 is an entertainment expense: I wasn’t willing to give up some nicer meals or my favorite pub with friends.  I almost never drink; it’s expensive and I don’t need it to enjoy a night out.  The culinary classes will help, through better home cooking and potential future income if I wish.

I calculated the payback on the culinary degree based on my food costs. It’s rough, but I did it because I found the concept of payback on the $3k entertainment expense interesting.

I use prepaid cell phones – none of my friends notice, and I pay $15-20 a month. Nobody notices that my landline is Ooma and has already paid for itself. I keep it for local family, who like to talk.  My gas and electric bills are so low that the delivery charges are more than the usage portion. I replaced some bulbs with CFLs, I avoid ghost power draws, and I keep a handle on the air/heat.  I’m intrigued by some things like air-drying clothes and making my own detergent, but I haven’t jumped in – that’ll depend on cost and fun factor.  Soon I’ll share my wireless with my neighbors, and that should offset my monthly condo fees by $15-20. Another benefit of the speed upgrade.

Last year I went to Washington, D.C. with my parents. I paid for all but a few meals and a Segway tour.  I recommend train travel, by the way: it’s a vacation in and of itself.  (Ed. Note: Hear, hear.) The year before I went to Glacier National Park with friends, also by train. In September I’m going to Italy, spending a few days with my parents in Venice before they go to Slovenia, while I head south over a week toward Naples. I’m not paying for the $1k plane ticket (thanks Mom), but I took $1k from the vacation fund and donated it to the community center.  In a few weeks I’m hitting Vegas for the 7^th consecutive year (Ed. Note: have fun.) I timed the cheapest Southwest tickets, and have a great hotel price I’m sharing.  I don’t gamble, (Ed. Note: ignore previous note) but I do like to eat well out there.  Next spring or fall I’m going to take a train for a week through Alaska, which I’m already budgeting for in SmartyPig.

My co-workers all make more than I do, though none of them are more than lower-middle class. They usually have 2 incomes and have no idea how I do it without putting it on a card.

They’re rarely interested in hearing how, either. I’ve come to realize that either people can’t imagine living on my budget and not buying stuff all the time (not that they’ve tried it), or that they’ll only change after hitting bottom, and even then that’s iffy (see my foreclosure clients.)

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Impressed? You should be. More next week.

**This post was featured in Festival of Frugality #246**