Meet your role model, Part II of III (UPDATED)

Still not the correct pic. One more chance to get it right.

Last week we introduced you to Brandon, the guy who lives a rich and fulfilling life on a $32,000 salary.

Notice we didn’t remark about how well he “stretches a dollar”. Brandon isn’t one of these twits who resharpens disposable razor blades and makes his guitar strings out of dead neighborhood cats. At least, we hope not. Instead, he’s made a few forthright, intelligent decisions about how to spend and invest his money, and is sitting about as prettily as someone in his situation can.

Brandon proves that you don’t have to be born rich to avoid being poor. He buys assets, he sells (or never incurs) liabilities, and he lives better than plenty of people who make 3 times as much.

We originally planned to break Brandon’s story over 2 posts, but his methods are so detailed and his rationales so logical that we’re going to need yet another post. Read this, and sit tight for Thursday:

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I don’t do Goodwill or anything like that, maybe one day. I don’t need pricey work clothes. I do the shoe deal thing when I need shoes. You can find some great deals on shoes if you have a 5-year horizon. (Ed. Note: The man has a 5-year horizon for shoes?) I do have a couple of nice Indochino* suits**.

Last year I maxed my Roth. This year I added the 10% payroll contribution to my public employee retirement account.  I have a long-term care policy that grows by 5% a year that I’m thinking of dropping. I have paid-for whole life insurance, enough to cover all loans, funeral, etc. My grandparents took it out when I was 2.***

The key is to not use credit, and keep an eye on purchases. Self-discipline is sometimes still challenging, until I remember the sinking feeling I used to have. I was determined to never feel that way again.  I suppose I could always get a slightly better paying job, or finish my degree, but I don’t feel like I need anything more and I’m concerned I wouldn’t like my job as much.  I’m content – I travel with family and friends, save lots of my income, have fun hobbies and side jobs that don’t feel like jobs, and even enjoy my main job.  I know when I get married or have kids I’ll be set financially. We might even be able to have one parent stay at home, or fully fund colleges with the second income.  I plan on retiring early, not sure how early though – aiming for 57 if I stay with my current employer, sooner if I can take my future extra income and invest it how I want.

My favorite financial tools are Mint, SmartyPig, and auto-deductions.  It helps to impose a bit of discipline with the auto-deductions, which only takes a nudge, while making it fun and/or easy to do.  I like watching things grow toward my goals at Mint and SmartyPig.  I avoid using my debit card because I have to manually assign categories in Mint (how amusing is that excuse?), so I use my credit card for the cash back. SmartyPig gives a good return on my envelope-style accounts for various funds (property taxes, condo insurance, vacation, house maintenance, cash reserve, etc). I keep $1k in my credit union savings account, $1k-2k in my checking account.  I try to keep my cash reserve around $15k, but it’s down now because I just spent $8400 on HVAC. It won’t be back up until I get rebates in, and my maintenance fund catches up to its virtual 3-year negative. I budget 1% of my home’s purchase price annually for maintenance.

I’m a few years ahead overall, due to a $20k inheritance from my grandfather. $3k went to the cash reserve, $3500 to the HVAC install and the rest to a modest non-retirement investment. Here are my monthly expenses:

Mortgage$481
-Insurance25
-Condo fee100
-Property tax56
Utilities192
Transportation85 (includes maintenance, plates etc. I bike the 4.4 miles to work semi-regularly. Both workplaces are close to each other.)
Car insurance55
Long-term health care insurance117 (Ed. Note: this is in the event you’ll need a nursing home)
Household, including food175
Entertainment, including food110
Medical/Pharmacy/Student Loan58
TOTAL1454

And my monthly savings:

Roth IRA417
PERF 10%267
Vacation208
House maintenance fund85
TOTAL977
GRAND TOTAL2431

(Ed. Note: We didn’t ask Brandon to separate the expenses half of his personal income statement into real expenses and savings. But that he did shows that he comprehends the enormous difference between the two. Again: buy assets, sell liabilities. That starts with putting them in different tables.)

Finally, my income:

Wages, after insurance, cafeteria plan etc.1850
Rent income318
2nd wage income320
TOTAL2488

All those numbers are after-tax. The wage income excludes abnormal overtime/holidays, which usually runs $3-4k pre-tax. My total was $33k last year, $32k the previous year. Nor does that include any tax refund, (Ed. Note: sigh) mortgage interest credit, or interest income.  That adds up to a fairly conservative $4k post-tax, for Christmas charity (we stopped doing gifts) (Ed. Note: yeah!), new stuff, more vacation, extra car/house fund, savings, other investments, dinners/anniversaries/weddings/etc.

I’m honestly wondering what I’m going to do with additional income from teen court or a raise. Paying off my mortgage isn’t a bad return, but it’s not great. My work’s other retirement plans (457s) are horrid for investing in given their expense ratios. I could go into taxable accounts.  I’ll probably donate some, put some towards more exotic trips, or fund my next car.  All else being equal, I might do a mix – it won’t take that much to pay my mortgage off in 10-15 years if I wanted to, and still do the above.

*What’s Indochino?
**What’s a suit?
***Life insurance for a 2-year old? We’d love to know the grandparents’ financial situation.

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Next installment, Brandon’s investments.

**This article is featured in the Carnival of Financial Planning-Edition #157**

Lower fees through prevarication

And just like that, this post looks like new

If you missed it, this post originally ran on The Writer’s Coin. We contemporized it for August.

When is it OK not to pay a bill? (If you’re the Hawai’i state government, “Whenever it suits you.”)

Your humble poster automates whatever finances he can, setting and then forgetting the cable bill, the phone bill, the car payment etc. This frees up time our ancestors would have spent reconciling statements and hoping that the payments would post once the checks had cleared.

A few weeks ago I received an email from…well, a company whose parent is based out of Cleveland and grosses $2 billion annually*. I patronize this company only sporadically, but they make you buy an annual membership. Like a moron, I ignored the email’s unambiguous message that said my account would auto-renew within a week.

A week later, another email. From PayPal, saying my account had been debited.

(Aside: What’s more nerve-wracking than an email from PayPal? For me it usually means I spent money for some legitimate purpose sometime in the previous month, couldn’t recall what I bought and am only remembering it now.)

I’d automatically re-upped with the Cleveland company and was now on the hook for another 363 days. The price of the membership is nominal, but I shouldn’t spend money on something I can’t justify.

I called and spoke with an Interactive Voice Responder. “So you wish to cancel your membership? Please say ‘cancel.’ Thank you.” She confirmed my cancellation, but I still had to plead my case to a human to get the charges reversed.

Once I got a real person on the line, I got creatively dishonest and explained that I was out of the country and had left the job of cancelling my membership to my girlfriend. (Because when you have to get something done, it’s always smart to wait until the last minute and put someone else in charge of it while you’re thousands of miles away.) And, as long as I was weaving fiction out of the ether, I mentioned that my girlfriend happens to have a thick Czech accent. (More lying.) And, on the day before the account was set to auto-renew, she attempted to cancel via the…Interactive Voice Responder. Yeah, that’s it. But she couldn’t, because…it couldn’t discern her heavily accented English.

I felt dirty doing this, especially when the customer service person bought my story without question. I didn’t have to defend my ridiculous charade even slightly, which left me wondering whether she was naïve or just couldn’t be bothered to treat me with the skepticism I deserved.

If you’re persistent, polite, and apologetic, you can weasel your way out of minor charges like this. Which gives you a second chance to use the money you thus recovered to buy assets and sell liabilities with. (Note: This method will not work with the IRS or almost any other federal government agency.) But it does bring up an ethical question: How wrong is this? There are degrees.

Did I receive a service and fail to pay for it?

No, unless you consider the 1½ days of membership that I received but didn’t use to be a “service”. Extrapolating from the company’s annual dues, I owe them about 6¢. Having me on the membership rolls for that period cost them a small fraction of that.

How big a deal are we talking about?

Using the traditional scorekeeping method of dollars and cents, almost nothing.

What burden am I putting on the other party?

6¢ divided by all that company’s employees? I’d have cost them more money if I’d shown up at corporate headquarters and asked to use the bathroom.

Is there a pattern?

No. I learned my lesson. Once was enough.

Social convention dictates that we honor certain legal obligations and ignore others. Making the payments on your car falls into the former category—you can’t be surprised if your car with delinquent payments gets repossessed. Paying your mortgage used to fall in that category, at least before 2007. On the other hand, driving 4 miles an hour over the posted speed limit to keep up with traffic is hardly the kind of thing you should feel guilty about doing.

So is there a special circle of Hades reserved for deadbeats like me, or have I committed the equivalent of removing the tag from a mattress I don’t own?

*Alright, it’s American Greetings’ Blue Mountain. Pretty sure the statute of limitations on microfraud is less than 3 months.

**This post is featured in the Festival of Frugality Carnival**

**This post is featured in a Real Estate Investing Carnival**

Judge a book by its insides

Too wary/cheap to buy Control Your Cash: Making Money Make Sense sight unseen? Amazon’s “search inside the book” feature is up and running.