Or Go Read Man Vs. Debt Instead

September 9, 2010

You're going to need one of these

Why can’t you be like other sites?

It’s the one complaint about Control Your Cash that we receive most often: where are the first-person stories about your struggles with income and debt?

1) There are several thousand other blogs that already memorized that riff and can play it by heart. We wouldn’t be bringing anything original to the party. Besides, this isn’t a place for self-indulgence. We don’t give a damn about the details of your finances*, and don’t expect you to care about ours. Or anyone else’s but your own.

We used to think that other people’s Facebook photos were the Ultima Thule of human boredom. But they’re captivating compared to hearing a personal finance blogger yammer about how he’ll now pay off his student loans 3 nanoseconds faster thanks to this handy new money-saving method he discovered for making your own duct tape. Also, the Sunday paper is full of coupons for your next grocery shopping trip.

2) No struggles to speak of.

Oh, does that sound condescending? Then would you feel inadequate if Danica Patrick told you she has no trouble negotiating traffic at 160 mph? How about if the chick from Evanescence said she could easily hit notes in the whistle register?

We’ve spent our adulthoods doing the prudent, common sense thing and seeing where it leads. So far, it’s working. At least more so than buying pet clothing and paying for tax refund anticipation loans might have.

You want commiseration? Start drinking or become a sex addict. Meetings in the church basement, Tuesdays at noon. No crosstalk, please.

Good. Now that we’ve got the children out of the room, join us for something worthwhile. Two things we try to do here:

-explain financial concepts that people presumably want to know about, or should, but don’t.
-show how not being financially idiotic can pay tangible rewards. And occasionally, show instances where you might think you’re doing the smart thing but aren’t.

If this sounds dictatorial, it isn’t. No more than your 3rd grade teacher was when she explained how multiplication works. Look, there’s no secret to gaining wealth. The mantra, again:

Buy assets, sell liabilities. Do this often enough, measure the results, and if you do nothing else you’ll get rich in spite of yourself.

Financial self-sufficiency is nowhere near as simple as “spend less than you earn”, but it’s not as complex as you think, either. That wedding you’ve been fantasizing about since you were a little girl? Unless it involves only you, the groom, a justice of the peace and a visit to IHOP afterwards, it’s a liability. Sell (i.e. don’t buy) it. The matching funds your employer offers for your 401(k), which will give you more tax-free income when you retire in exchange for a few seconds of incremental effort today? That’s an asset. Buy it.

Almost everything in your financial life fits into one category or the other – if not individually, then cumulatively. The bachelor’s degree in women’s studies is a liability. The interest-bearing student loan to pay for it is a meta-liability, and an obscene waste of money. The used DSLR camera that you can pick up from a highly rated eBay seller and is indistinguishable from a new one that’s twice as expensive? That might not be an asset by our definition, but the difference in their prices is. Buy the camera, assuming you’ll use it.

If you want patently obvious advice and feel-good pabulum, Google “personal finance blog” and you’ll find it. If you want to be challenged and inspired, stay here. Read the archives. And let us teach you how as much as you’re willing to digest about how money works (and how it doesn’t.)

*Dang. That should have been the subtitle for the book.

**This post is featured in the Carnival of Wealth #5**

Filed Under: Bad Examples, Consumer Debt, Education, Making Smart Choices, Personal Finance Tagged With: , , , ,

Trial and Error are Rotten Teachers

September 5, 2010

Almost as bad as her

The folks at Go Banking Rates are holding a contest among personal finance bloggers: write a post on the topic of education and wealth, and the lucky winner takes home the Readers’ Choice winner of Favorite PF Blog Writer! (exclamation point theirs.) Thanks to Go Banking Rates for accepting our entry, and may the most interesting and worthwhile post win.

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April, 1976. 7-year old me, returning home from school. The teachers had set up a lunchtime hot dog cart. (It was a Catholic school, they raised funds however they could. This predates school-supply drives and the Department of Education.) I eat my lifeless baloney sandwich in silence, jealous of the moneyed kids waiting in line, flashing their quarters like so many engagement rings. Tube steak in a bun, 25¢. And as much as I can remember, my first practical exposure to the idea of money.

Me (trying to determine the family’s net worth in hot dogs): Mom, how much money does Dad make?
Her: (silence)
Me: MOM?!
Her: Don’t you have homework?

And so began a typical North American financial education.

Cannibalism. Atheism. My female teenage cousin’s illegitimate child. In my house, these were just a few of the topics considered more appropriate dinner-table conversation than was money.

Every transaction was a secret. Every dollar figure carried with it the potential for embarrassment. Give a kid even a general idea of his family’s finances, and the next thing you know he’ll be blabbing to the neighbors. We can’t have that. Etiquette should always trump knowledge, shouldn’t it?

1979. I have never read the money section of the newspaper, but the sports section is all mine. Nolan Ryan signs with the Houston Astros for an unprecedented $1 million annually. We have a baseline! My father must make less than that, so…$700,000, maybe? (NB: in his best year he probably made 5% of that.)

To high school. Where the extent of financial instruction consisted of an introductory bookkeeping course, in which we measured the debits and credits of fictional XYZ company and its competitor, ABC company. You know, because terms like “cost of goods sold” and “depreciation” were so relevant to the everyday life of an overloaded teenager who’s already dealing with acne, introduction to beer, football roster cuts, and watching girls’ breasts develop.

14, first job. Washing dishes in a restaurant for minimum wage. Mom exercises her parental right and keeps every check, possibly as partial payment for a lifetime of free room and board.

Fast forward to graduation, and an unsentimental introduction to the real world. Rent? Insurance? 401(k)? IRA? CD? FICA? ARM? S&P? P&L? Drowning in acronyms without a lifeline.

I’m one rung above poverty, which is fine for someone 17 and living on his own for the first time. Wages barely cover necessities, which include a futon and not much else. My one extravagance is books, organized on a bookshelf composed of air. Air, and a floorboard.

And then, those naïve unfortunates at American Express ease the pressure by sending me a credit card I didn’t solicit. The symbolism is overwhelming: plastic signifies my passage into adulthood far more convincingly than any driver’s license or wispy sideburns could. I can buy real furniture! Pick up some new clothes! Dig up the fake ID I’ve been using since the age of 15 and conceivably, rent a car!

Instinctively, I understand that addition is cumulative. A plus B, added to C = A+B+C. It’s one thing to know that in theory, another in practice. Yesterday’s purchase plus this morning’s plus this afternoon’s will look quite different 30 days from now than it does today.

The bill comes. $749.23, which might as well be a quadrillion. The statement contains a caveat that turned out to be a blessing: “PAYMENT MUST BE MADE IN FULL.” I knew this. It was in the agreement I signed and presumably read. No excuses, even though I was a minor.

My right brain tries to convince my left brain that I should become the first person in history to pretend he no longer lives at the address the creditor has on file. An airtight plan that D.B. Cooper himself would be proud of. Fortunately, the left brain wins.

How to get covered? Everyone I know (and who will take my calls) is as poor as me. The right brain thinks about requesting a payment plan, but gets outvoted by reality: a collection letter typed in boldface, immediate interest charges, and the destruction of a nascent credit rating before it even had a chance to grow legs.

Buying a car would have to wait (several years, it turned out.) Same thing for any kind of social life or vacation. A credit counseling company got American Express to take 70 or so cents on the dollar, and I got to start again at zero. Older but still not old, and wiser but still not wise.

What would I change? Nothing and everything (he said in Zen-like fashion.) Nothing, in the sense that I’m grateful that I got the inevitable mistakes out of the way early. Everything, in that sending a young adult out into the world with zero financial knowledge is irresponsible on the part of parents and teachers alike. I might have been one of millions in that situation, but that didn’t make it any easier.

Oh, and parents? Keeping your kids in the dark about finances really helps them out when it comes time to negotiate wages and prices.

It should be effortless to know what things cost – including one’s own labor. No one should have to enter adulthood without knowing the fundamentals of finance – how and where to spend, when and why to invest. If you can understand a savings account, then you can understand a checking account, a money-market account, and ultimately how to buy a car, buy a house, do your taxes and assemble your own S corporation. None of this is that complicated. Our blog proves it.

Epilog: Today, hot dogs cost about $2.69/lb. wholesale. That’s 34¢ a dog, and they retail for at least 79¢, meaning pay a 135% markup or cook your own.

Filed Under: Education Tagged With: , , ,

Meet your role model, Part I of II

August 26, 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:

—————————-

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 7th 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**

Filed Under: Investments, Making Smart Choices, Net Worth, Personal Finance, Role Model Tagged With: , , , , ,
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