Wednesday, February 29, 2012

What are you going to do when you go Frugal?

Many of us do not plan to go frugal.  It is something we feel is forced upon us by a change in circumstance.  We moan, groan, panic, make mistakes, learn from our mistakes, and just keep moving forward.   Then one day we realize that things are just not as tough anymore,  kind of like when a headache goes away.  We cannot say exactly when or what happened but we notice that feelings of anxiety and stress are gone.  We may even have some money in our pockets before the next payday or see a balance in our savings account.  It could end abruptly.  A new job or a raise being the most common remedy for a downturn. 

Either way the question becomes what will you do?  Will you return to your old way of doing things or stick to your new found frugal habits to avoid debt and live within your means in a fuller richer way?  Or, most likely a combination of the two.

The day will come, it may be just around the corner.

Here are some of the things I have done at different times, some admittedly wiser than others:

  • Went part time.  It was no longer necessary to work full time to support my lifestyle.
  • Gave more willingly and generously.
  • Bought jewelry.
  • Took a trip.
  • Remodeled the house.
  • Paid down debt at a more accelerated pace.
  • Went out to eat with friends more often.
  • Bought a full beef for the freezer instead of buying by the pound.
  • Bought gifts for my family for the times I had not be able to.
  • Loaned money to friends without worrying about being paid back.
  • Went kayaking.
  • Saved more.
  • Started my poultry business.
Whatever you decide it will be with a freedom not previously experienced.  Others may not understand your choices and they don't need to for keeping up with the Jones' is no longer a consideration.

Sunday, February 26, 2012

Home Furnishings on a Budget

Buying a home is an exciting event.  After months of planning and searching for the right home at the right price in the right neighborhood moving day arrives.  In our case all that was being moved required multiple trips in the car.  No u-haul was needed because there was no furniture.  I take that back.  There was one bed, a desk, and a t.v. with a stand.  A friend provided a pick-up for this one load.  A house seems so much more spacious without furniture.  We wandered around the open spaces deciding what we really needed and wanted.  We talked about getting a pool table for the empty living room. The air mattresses really are quite comfortable.

I did have some pieces in a storage unit so it was good to get arrangements made to close that out but it was mostly personal items and family heirloom pieces.  The lot consisted of mom's treadle machine and kitchen table, my antique buffet, 1 bed, and grandma's 100 year old oak chairs and hope chest, and two dressers.  The long trip with all my stuff in a horse trailer including the dog ended up costing possibly more than the value of replacement of the items but really, can grandma's chairs ever be replaced?

We had decided before moving that as tempting as it might be there would be NO DEBT PURCHASES.  No monthly installments, no 90 days same as cash, and no regrets.  No sweat.  That was until a major expense came up right after moving that had not been revealed on the inspection that was an immediate MUST FIX item.

Does this sound like life or what?

So with the pocket books much diminished the hunt was on for somewhere to comfortably sit.  Our weekly adventures were to hit the garage sales, consignment and thrift stores, watch the ads, craigs list, and keep our ears open for deals.

The first blessing was a brand new bed offered for free from a friend with a guest room that was no longer needed. 

Shortly after moving in we found our first garage sale score just down the street.  I had decided that I would rather have a seating area in my room than a dresser and found a love seat, chair, and ottoman for $150.  The price included 2 men carrying the set 5 doors down the street and depositing it in the home.  I really like the different periods of furniture and these pieces reminded me of something from the days of blond wood,  only popular for a season and reminiscent of the 1950's. Since there was no other couches in the living areas we left them there temporarily while we continued our search.

Weeks passed and the hunt went on.  The furniture consignment center looked like the most promising spot. The prices were good for the quality but still a little more than we wanted to spend.  Biglots even had a nice new set and with the discounts gave room for pondering. 

Then it happened.  We came to a garage sale where a grandma was selling her 1970's claw foot living room set in excellent conditon.  We all burst out laughing the moment we saw it because it had to be one of the ugliest sets we had seen.  It was as if the designer could not quite figure out what style they were going for so put all the styles into one eye catching combination. Yet at the same time we could all picture it right in the living room.  The set included 2 love seats, a chair, and an ottoman.  While we looked at it the owner lowered the price from $200 to $150.  We whispered to one another that if they could deliver we were on.  The question was asked and before the money exchanged hands the furniture was loaded.  A wood rocker was added to the deal for an additional $30.  We laughed all the way home.  When the men saw our older antiques they commented on the vintages though I had never thought of 1970 being an antique.  It was just the age of ugly furniture but I do admit it looks nice with the 1930's buffet and Singer that is even older than that.

Only one room left to go.  And, this was where we would spend the most time.  The rec room.  I said that to someone and they had no idea what I was talking about.  I responded "you know, where the t.v. goes".  They thought I meant the living room.  The conversation went back and forth as I explained that t.v. does not go in the living room because that is where company stays or one goes to read a book.  Of course if you only have one room then the t.v. would be there but not if there are two.  Then I referred to it as a family room and they still did not know what I was talking about, no it was not a den.

We were at 6 to 8 months now as our quest continued.  We joked about how long this would go on.  At this point it didn't really matter because we were comfortable, not sleeping on the floor, and still had plenty of space if someone wanted to ride a big wheel in the house.  All of our garage sale shopping was paying off with books, clothes, toys, kitchen appliances, and other fun stuff.   But, we knew our shopping days might soon be over because we were getting to the point that we needed to have a garage sale not go to a garage sale.

So here it is:  The $200 furniture.  Comfy, good condition, easy to wipe with a damp rag if needed.  One can stretch out, lay down, or use the ottomans as extra seating if needed.  The set came with the couch, chair, two ottomans, and two tables.  And, of course, same day delivery.

The best thing about these purchases in addition to the daily use they get is that in the future any of the pieces can be replaced guilt free, resold at a garage sale for a similar price, or if an out of area move  occurs they can be used and given away.  Replacement could happen at the other end except of course for the heirloom pieces entrusted to my care.

They were not purchased for the style so much as for their function. Style can come sooner or later when the money has been saved and other financial goals acheived.  If you have been keeping track the total is $530 for three rooms of furniture.  Lamps, rugs, and decorative items are being added along the way.   Whether this furniture is used for two years or twenty years it will still feel like a good deal.  The buffet?  I bought that in 1984 as part of a dining room set for $150.  I no longer have the table and chairs and if you notice one of the little knobs is different which I am fine with.  There is still a tag inside that indicates that it was built in Portland, Oregon in the 30's. 

Though you may not share the same taste in choice of styles the outlets I have mentioned carry all styles.  The consignment store especially carried many high end pieces for a fraction of their new cost. 

Happy shopping!

Wednesday, February 22, 2012


I made reference in a recent post to the fact that I had never paid more than $5,000 for a car.  This seems to have been my successful number for finding a good used car that maximized the balance between expense and usefulness.

Billy Black Shoes.  A beautiful semi-retired stallion who has had over 200 registered foals in Paint and Pinto breeds.  Billy is as gentle as Mr. Ed which is unusual in a stallion. He can also talk just as well, at least he was a master of communication even if he doesn't speak English.  Billy is definitely on my list of BFF.  We spent many hours together talking things over.

Billy once took second place in a reining competition and loves to spin, slide, and perform the other reining maneauvers.  For those not familiar with a spin here is a short video.
Billy showing off

Imagine my family's surprise when I  told them that I had spent $6,000 for the privilege of bringing Billy home to live with me.  (I'm not sure that any of us really own horses, we just get to share their lives and make some of their major decisions.)  My family was shocked that their conservative, frugal mother would spend so much on a horse!  It was almost unfathomable to their minds. 

To me the rational was plain and simple:  both are forms of transportation and one reproduces and the other doesn't. From a financial standpoint one would give me a return on my investment and the other would not, a car is strictly a depreciating asset. There are some noteable exceptions, of course, for Mustangs (named after horses), Corvettes, and other models that draw attention 20 years later and better hold their value but they still cannot reproduce.

When I moved from the ranch Billy has made a new home in the area and enjoys the vast pastures of his well earned retirement and has been able to take a trip to the beach to run on the sand.

This is one of Billy's progeny who also was used as a breeding stallion for a time and now is Angie's BFF. 

Wiley Coyote and Angie

This is the mystery and amazing thing about creation.  Trees, plants, and animals all are able to produce after their kind.  When we choose to invest our skills and time as managers of most agricultural pursuits most of what we invest can double in one years time with little help from us.  Far above the monetary considerations is the JOY, BEAUTY, and WONDER that they add to our lives.

Monday, February 20, 2012

Back yard investment.

What do blueberries, rhubarb, and strawberries all have in common?
  • Easy to grow in small areas
  • Easy to prepare or freeze
  • All provide an excellent return on investment.
  • Great pies!
Living in the suburbs is not a reason for not having homegrown fruits and vegetables.  In fact, one of the biggest benefits to a small yard is the ability to putter out and pick yourself some fresh rhubarb for a pie or blueberries for your pancakes. 

Rhubarb.  Have you ever seen rhubarb growing?  It's pretty awesome stuff.  The leaves are huge and the bright red stocks are eye catching.  To harvest a stock you grab and pull.  I have landed on my behind many times pulling rhubarb but that's why you send the kids to do it as they will just laugh.  I have seen someone actually cut a piece off which I guess you can do but I think it's against the code.  The reason being that when you pull it out another stock can grow.  It is similar to pulling celery from the outside. 

Strawberries.  This year I have eaten more strawberries than I can remember.  The crop was amazing.  A plain strawberry is one of natures best treats.  Strawberries are prolific and send out runners so starting with a small number of plants can multiply in to a patch.

Blueberries.  Four bushes should be enough to eat all you want fresh and freeze some for pies, pancakes, and muffins.  They need plenty of water to produce those big luscious berries. Mom and I used to go out picking every evening and ate so many that we were lucky to get any into the house.

Each of these selections come back every year, need little pruning, and are extremely easy to grow.  Having nice fruit bearing shrubs was is an attractive selling feature of a home.  If you don't want a yard that looks like a berry patch you can intermix the plants with your other shrubbery for added color and texture.   Large pots or whiskey barrels can also provide a decorative piece.  Consult your local nursery for the best variety for your area and soil type.


Now for the real reason for the post. Pies. The selling of pies has become big business with prices ranging from $6 up to $15 or more.  Did you know that if you have your own fruit you can make a pie for about $2?  It's fun.  When my son was about 9 years old we started making pies.  It was part of his home school fractions instruction.  Once we were hooked we kept baking and started giving pies away. The next step was a farmers market and sold them one day.  He was even taking orders for them.  We had flour all over the kitchen.  If you have never tried either rhubarb or strawberry rhubarb pies they are available at most pie shops. If you would like some homework for this post you can drive down and have a piece just to see if you like it.

So there you have it.  In this post we have covered saving money, taking up gardening, baking, and a new family hobby.  Frugal living is not just about saving money, it is a lifestyle.

Related links:
Great pictures on rhubarb and growing other home vegetables.
People interested in green living are going to be excited about Mother Earth News!
I no longer have my old lifetime recipe box but I'll tell you my best kept never revealed secret.  Right before the pie is ready to go in the oven sprinkle about a teaspoon of sugar on the top of the crust.  It will give the pie a golden brown color and a tad of that sugar sparkle.
Here are links to strawberry rhubarb pie recipes:

Originally posted Aug 17, 2010

Sunday, February 12, 2012

Who Wants to be a Millionaire?

Our nation is obsessed with the word Millionaire.  Almost every one chases the promise and enough catch it that in droves we watch, listen, and follow after those who might show us the way.  The lotto is the most obvious of the quest where for supposedly $1 a life can be instantly changed.  For those who shun this approach as unreasonable odds there are countless books, speakers, and methods that promise if you just listen and do than YOU TOO CAN BECOME A MILLIONAIRE!

What if, when we became adults someone told us that they were handing over 1 million dollars to us.  How would that change our life and thinking?  What would change about our lifestyle, spending habits, goals, and giving?  There is one catch would not be given in a lump sum, it would be given in monthly payments.  These payments may be the same amount each month or may experience some up and down fluctuations.  But, we could rest assured that we would get our million or even more.

The truth is that for most of us it will or already has happened!  Does this surprise you? 

1 million divided by 40 years equals $25,000.  Federal guidelines tell us that is just slightly over poverty level.  We know that most people will make over that in their earning careers. 

Let me state it again just to make the point:  If you make an average of over $25,000 in your lifetime career you will have made more than $1 million dollars before you retire.  Shocking isn't it? 

So what is the problem then?  It has got to be not just what we make but how we spend.  We have missed or something has led us to miss something very basic that elementary math should teach us.  Before we just to the conclusion that A) Carol is crazy, or, B) That can't be right,  let's step back and try to figure out what is really going on here.

I admit, this is something I am just learning myself and didn't even begin to consider until I was well into the process of making my major life decisions.  Once these major steps have been taken one cannot easily wipe the slate clean and start over.  There are responsibilities to fulfill and mouths to feed so any adjustments must take these into consideration. 

For most people the three biggest expenses are:
1.  A roof over their heads.
2.  Transportation.
3.  Food.

Some would have to add medical problems to the list and this is the wild card of our time and I don't plan to deal with that one today except to say that back in the 70's many of us had excellent medical care at very affordable prices so what we are experiencing now is based on policy and business practices and not on necessity.

So lets imagine for a minute that we were 18 years old and were handed a lump sum check of 1 million dollars and we knew that it was our basis to last a lifetime.  What would we do?

1.  Put a down payment on a nice house. 

Screech!!!! Now mentally make any sounds that come to mind of putting the brakes on as fast as you can.  That is one of the biggest bear traps we get our foot into and why so many end up in more debt when they have money that when they don't.  It's the leverage game. 

Let's start over...

1.  In today's housing market there are many nice houses all over the country that can be purchased for under $150,000.  We are not talking fixers here except maybe some cosmetic stuff.  These homes are 3 and 4 bedrooms, 1 - 2 1/2 bath, garage, and nice yard.  That would be our first purchase.  If we were country minded we could head for the hills and get some acreage as well for the same price. That would leave us with $850,000.

Oops, no, even in my dreams Uncle Sam shows up to collect.  So, we divert here and pay our taxes.  This is a total guess but let's say 33% off the top or $330,000.

And, for the tithers or those who are committed to other charitable contributions that is another $100,000.  Some may choose to help pay off their parents mortgage or assist with medical bills. And, yes, this would have been the first step. For those opposed to tithing or other giving please note that the amount is FAR less than what the government requires. 

So, our new working total is:  $420,000.  It truly is shocking how fast money can go...

2.  Next, I would buy a good 3 year old used car with good gas mileage.  Why not new?  When the car is driven off the lot it immediately looses value.  Additionally, the insurance on a new car is much higher.  Let someone else cover that.  How much should we spend?  The most I have ever spent on a car is $5,000 but for our imaginary car let's go bigger and say $10,000 to $15,000.  Is that sufficient?  Since I'm riding the bus right now I'm not sure.  What about for the husband or wife?  Ahh...we are 18 so most would not have that expense.

So here we are 18 with a house and a car and at least $400,000 to last the remainder of our lives as a basis.  How much should we allow for monthly expenses of food, utilities, toys, etc?  Yes, it is at this point that many will blow the rest and then spend the remainder of their lives saying that 1 million dollars is just not enough to live off and we need government programs to help out. 

This is really where our creativity and temptations come in.  Do we put it in the bank, invest in the stock market, start a business, or what?  So many quality sales pitches and even government incentives to guide us to the path others want us to make to line their own pockets.  Maybe we should go to college to gain more skills.  Maybe we should dedicate our life to worthy causes and just take a small amount each month.  The answers will vary as much as the person answering but I encourage you to dream your dreams and write them down.

"But Carol, this is all so silly" you might think.  "I have a mortgage, 3 kids, and am 40 years old".  Well stick with me here if for no other reason but because it's a new idea and it is often the crazy ones that give us our own brilliant ones.  And, it is fun to think about.

Ok.  We each have $400,000 that must last us the rest of our life.  But we have a roof over our head, no mortgage, and can choose to either go to work or not.  The person who surprises me the most sometimes is myself.  I have done things that I did not even know were in me until I did them so I cannot say for sure but this is what I would hope I would do given the proposed scenario.

1.  Find a job or cause that I love and commit myself to it.  This might even be my own business and may require some start up funds but if so I would set a limit on the amount.  I am not 18, my kids are grown, I don't really want to go to college full time.  If additional funds were earned I would plan to live off those.
2.  Buy two investment properties with at least one being in a different part of the country.  The reason for the diversity would be because of the possibility of natural, social, or economic crisis.  Better not to have all ones eggs in the same basket.  At least one would be a residential property.  Remember, these would be paid fully in cash so all income would be a recovery of my initial investment and then income and appreciation.  The goal then would be an investment return and then cash income.  The second piece would be food or timber producing ideally in an area that may have future development.
3.  Buy gold or other precious metals.  Not while the price is so high but when the price goes lower.  The reason for this is not just for investment but because if I was 18 I would want the funds in a form that I would hope would be available in 40 years and some hedge against inflation. 

If I were to decide that I wanted to not work or invest the balance it would give $8,000 per year for the next 50 years.  This would be $666 per month and I automatically do not like that number so would not choose that option.  I would automatically go higher or lower.  In addition, all rental income would be going into our pockets along with other returns on investments if we have chosen wisely.

Back to reality.  Or at least an idealist version of what reality could be.

Recently I commented to a friend that a person could buy a home in cash by age 25.  She gives me no slack and practically scoffed at me and told me to prove it.  So I had to get out my calculator and see how close I could get.

My friend has two kids that were close to achieving the home ownership goal at a very young age. First, they worked every summer and banked their money. This started at age 12 in the blueberry fields and babysitting.  Later one became a cook, one a waitress - both got tips.
My son’s first job was the family landscaping business, then county landscaping, an ice cream store, then at the bank part time at age 16.  When he graduated he went full time at the bank as a personal banker which was 2 -3 levels above his entry level position.
We all know that cars and driving is the on the top 3 list of things teenagers think about – IF it cannot be avoided or delayed buy what you can with cash.  An older cheaper car is also less insurance.  One of my son’s was able to buy a dandy for $500 from a grandma who had given up driving.  When he wanted something new I bought it from him and drove it for years.
The financial goal would be $5,000 - $10,000 saved before getting out of high school.   The second key is to get a job at a good company when in high school so you can be ready upon graduation for good advancement.  Restaurants and fast food establishments are some of the most willing to hire young people and they provide valuable work experience in cashiering, cooking, and work ethics. Even if it is not a career plan they are stepping stones to goals.  Even if they were to stop right here and go no further in our scenario that would give a good downpayment on a home to a young couple who wanted to start out assuming they had each been as responsible with their time and money.  A modern day version of a hope chest.  For our purposes we'll build the next level.
After graduating from school they continued to live at home worked full time and were able to bank most of their money.  They should contribute to food and utilities and participate in household tasks. If $1,000 to $2,000 per month were saved from age 18 to 25 that would be $84,000 up to $164,000.  Can you even imagine walking out the door of your parents home with this much cash to get started?  Even if they wanted to accelerate the plan and leave at 21 the amount is significant.
When a sizable amount of cash is saved it's time to look for a place and preferably one where sweat equity reduces the price by at least 15% - 25% of comparable value.  Yard work, painting, and even tile or linoleum, etc. are things that most can accomplish with some instruction. A structural inspection will reveal any non- fixable or expensive stuff.
Yes, college delays the process but should end up with more skills translating into higher pay.
If one does not want to be this extreme they can modify the idea and have a substantial down payment to keep their payments low. The biggest cost of a house is not the sales price or principle, it is the interest, so the more that can be avoided the better.

I firmly believe that our national habit of boosting kids out of the home at age 18 has done them and their children a grave disservice.  Most are unprepared physically, mentally, emotionally, or financially for our sink or swim method of parenting.  If they are ready or no longer willing to be a productive member on the family then by all means but as a desired parenting strategy the only thing we are teaching them is to live paycheck to paycheck and try to raise a family with never enough.  Even those who seem to be succeeding are often so far in debt that the cycle is almost impossible to break.

National Implications

Think for a minute about how the entire fabric of our national economy would change if we all actually owned our own homes instead of having a monthly mortgage payment or housing expense.

Would mothers of babies still have to work or could they raise their own children?

Would father's feel the pressure of unending bills and need to numb it with football games where someone actually wins at the end of the game?

Or, could they actually just enjoy it and feel good about their lives, accomplishments, and happy families.  Would men be so quick to jump ship when they knew a baby was on the way or would they be able to have the confidence that they could handle it without women bickering in their ears about "mo money" with babies crying in the background?

Most of us missed the boat of being able to pay for our homes in cash up front like the above scenario but we can help our kids to do things differently.  We can also start were we are right now and set some goals and take some actions to get ourselves out of this mess that we have allowed ourselves to get into.

For the record, this is not what I did.  I left home with no money, got married, got a job, had a child, and did the whole common credit as you go always wondering why it was taking so long to quit living pay check to pay check.  If I had not worked at a bank or taken accounting I might still not know what a balance sheet even was.


I hope that you won't dismiss this as just another blog post for I know that what I am sharing is dynamite.  If we could really GET IT, myself included, it would explode the economic crisis to it's core and we could rebuild our nation with the strength and integrity that those who have gone before us worked so hard to achieve.  So please, think about it, talk about it, pray about it, and pass it on.  One family at a time.  That is how we must change and recover.

I am a firm believer that the 30 year fixed mortgage is a good and wonderful thing to help the American people keep a roof over the heads of their families.  It is the product that hopefully will provide a low enough payment to give stability for the ups and downs we all go through.  BUT, that should be our safety net not our goal.  If we start wherever we are at and begin to despise the fact that we are in debt and do those things to minimize, get rid of, or pay it off we will be money ahead.

Young love and starting from scratch can be a beautiful thing as a couple builds their life together.  I was married at 17 and don't know that my hopes and feelings have been as pure and powerful since.  But as parents it is our job to prepare our children to be ready for all that is coming their way and that includes the need to have a roof over one's head and food on the table and of course to share love with another whether it comes at 17, 27, or a lifetime of singleness.

Maybe we need to be reminded that we are MILLIONAIRES.  Now how are we going to manage these vast resources we have to produce a gain and not bury them in a hole to rot or waste them in uninformed or shortsighted thinking.

Friday, February 10, 2012

Valentines Day Roundup

Are you a Hallmark person?  Although I am definately not to the disappointment of some who know me I admit that I enjoy the bright colors and cheerfulness of those who are.  I especially want to share this first link.  The ideas do not have to be limited to one day but can be of value 365 days a year.  It is always good to show affection to those we love whether the times are good or bad. 

My favorite memory of Valentines Day has nothing to do with romance or men.  It was my third grade class when we made our construction paper heart to receive the Valentines from our classmates.  It was the rule: you either bring for Everybody or Nobody.  Of course, when we bought the assortment box we gave the cutest cards to our friends.  It was fun to walk around the room and put a little envelope into everybody's heart.

The message of our teacher was clear and well received:  It's okay and good to learn to be kind to everyone.  That was the most valuable lesson of the holiday.

100 Ways To Show Your Love For Free from Personal Finance Advice

At the Heart of Valentines Day   from The Frugal Dad.  This post has the statistics of the $15.7 Billion holiday and a history of how it all began.

Wednesday, February 8, 2012

Looking at the Pricetag

In my last post I mentioned projecting out our finances on a five year basis.  A reader asked how we could do this without knowing the variables.   Yes, it is entirely true that there are many changes that can and do happen in a five year period that we cannot anticipate.  This makes it even more important to look at the true price tag before committing ourselves to ongoing expenses. 

Businesses over the years have developed a method of increasing sales commonly known as "the monthly payment plan".  This enhances their sales and the consumer is also benefited because they do not have to come up with a large sum of money at one time.  This allows us to "work it into our budget" and be able to have the product or service without feeling the pinch.

One of the goals of In The Trenches is not only to get one through the tough times but ultimately to lay a firmer foundation to withstand any of the ups and downs of the future without the crisis we have experienced in the past.  No plan can ever anticipate all possibilities or assaults, ask anyone who has gone through a major health issue or a natural disaster.  However, we can be more prepared for the normal fluxuations and possibly even a temporary job loss if we realize that there will be changes.  Farmers recognized and lived under this lifestyle principle because the majority of the harvest came in only once a year.  Even now when we have gone away from the agricultural living many jobs are seasonal and the workers need to plan on a few months of income followed by months of lack.  Consider the ski resorts, vacation industries, construction business, and even retailers who survive all year waiting for "black Friday". 

When we look at our anticipated income and expenses first on an annual basis and then on a projected five year basis the picture is enlarged and we begin to be able to see the forest through the trees.  I first discovered this when the Social Security office sent me a form that had all my years salaries listed.  I quickly added up all the income I had made and was surprised, no, shocked.  So I quickly did a balance sheet of assets and liabilities to see how much I had held on to.  Fortunately the excercise ended up making me feel okay about things, in fact, I was pleased that I had been able to do things in such a way that a large percent of what I had earned was reflected in durable assets.  If you are scratching your head and don't know what I'm talking about the free worksheet button will give you a copy of a blank balance sheet.  They are really very simple and don't have to be exact.  Example:  You owe $2,000 on your car, it is now worth $6,000.  Your net worth on that vehicle is now $4,000. 

Back to the monthly payments.  I'm going to keep this simple not because I don't think you will get it, I'm sure you will.  It is simple so I can best figure out how to state my point. I have to use a calculator for the simplest of math.  I used to be able to run a 10 key far faster than I can think. Four examples spread over 5 years:

$25 x 60 months= $1,500
$50 x 60 months= $3,000
$100x60 months= $6,000
$2,500 x 60 months= $150,000

Now we can play with these for some ideas.  First, let's say your current take home salary is $2,500 per month.  That's $30,000 per year. Not a big household salary but one that many are living on.  Given that you are not expecting many changes the total would be the amount of your take home pay.  Now by taking all your expenses you can see if you will be ahead, break even, or farther behind at the end of five years.  The outcome can help you decide if you need to make some changes now.

The $100 number is close to the monthly payments I have heard some are paying for cell phones, internet service, or superduper cable.  They feel they can afford it or have been caught in a three year agreement and cannot cancel without still being liable for the payment.  It's certainly the choice of the individual but at the end of five years do you really want to say that $6,000 was spent and there was nothing to show for it?  I like a little t.v. also but am more than satisfied with the minimal program.

What about the minimum credit card payments where only the interest is paid and at the end of five years almost the same balance remains.

How about those morning coffees.  Only $1,500.  (Yes, we know from my previous posts that this is one of my own weaknesses)

Yes, it sure does take the fun out of almost everything.  But, that is only the first step.  Now having taken a step back to look at things adjustments can be made, or not, depending on your priorities.

Once this becomes a habit of thinking each income or expense can be evaluated based on it's long term results rather than the short term monthly payment amount.  Taking that same $25 which at one time did not seem like so much can also result in a tidy little savings account as the time passes. 

Just as a little tree can grow into a mighty fir so our small choices also grow into large ones if we do them often enough.  For more on the subject please read the chapter titled Critical Choices on page 32 of the free version of In The Trenches on the right.

Monday, February 6, 2012

Goodbye, Middle Class

If one scans the headlines certain things of interest tend to jump out.  For some it is football scores, some diet tips, and for me it is personal finance stories. The headline above caught my eye so I wanted to know more. 
Next, I scanned the topical bold headings:

Previous pay: $110,000
Current pay: None
Where they live: Staying as guests in a friend's home

From six figures to the poverty line
Previous pay:
Current pay: $15,000
Where they live: Their foreclosed home, awaiting eviction

Previous pay: $40,000 to $50,000
Current pay: $12/hour
Where they live: Family shelter

These are the kinds of situations that I wrote the book for.  I went through this myself in a big way.  I totally sympathize with the struggle and frustration that these families are now going through.

But, do you see what I see?  Have you learned yet what I have learned?  At the risk of sounding harsh and offending some I will venture to make some comments after reading the story and watching the video at the bottom.

"We thought this could never happen to us."

And, that in a nutshell is where the source of most of our problem lies as individuals and as a nation as we go through these times.

Why not?

As I look at these salaries I can honestly say that I have never made even close to that much a year in my life.  And, to make this much money and then be broke and homeless there was much more going on then just a job loss.

It may be easy for me to see these things now because it is after the events.  There is an old saying "If I knew then what I know now things would be much different"  Of course they would.  Hindsight can give much good advise and instruction.  So speaking from that perspective let's look at some of the things we can easily spot and questions we could ask.  Our purpose is not to judge or find fault but to lay the cards on the table so when things get better we don't repeat the same mistakes.

OK.  I'm doing the tough one first just to get it out of the way. Here we go...

1.  Were their homes paid off?  We will assume the answer is no since the article states it and they are currently homeless, living with friends, or waiting for the sheriff to kick them out.

If they were making $130,000 a year what was your outstanding mortgage balance?  Was the house more than they could afford?  Just because we have a 30 year mortgage does not mean that we should take 30 years to pay off the home.  The longer we drag it out the more interest we pay.  Almost 5 times the purchase price if we go the entire length of the contract. 

This is definitely the biggest financial hurtle most of us face for obvious reasons.  I was ALMOST out of the woods on this one and then got sucked back in and have to fight that battle again.  My friend Paul, mentioned in the book, recounted the ONE time he had been in debt in his entire life.  He had family property and built a home on it.  He was able to pay for the home except for $7,000.  He told me that he could not stand having this debt and having his home be at risk.  He worked as much overtime as possible until the last payment was made.  Every available dollar went on the payment and he breathed a huge sigh of relief when it was done.  I'm sure my eyes were big and my mouth open while he told the story.  $7,000 total debt in his 70+ year life?!  And, he couldn't sleep at night?  Somewhere along the way we have lost perspective and think there is such a thing as "good debt".  Oh, maybe it's because the lenders tell us so.  Of course it is good for them, they make massive interest and hold the title to our homes.  Or, it's an appreciating asset.   Sounds good, but it will appreciate just as fast or even faster when it has no mortgage lien. 

Most of us cannot look at our mortgage and snap our fingers or put it on our annual goal list and get it done.  But, can we think like Paul and do more than what we are doing now?

2.  How much reserve fund were in place?  They mention six months to 2 years of unemployment so even if they had one it might not have been sufficient but helpful for as long as it lasted.  Did they have a food storage program for six months to a year?  I would think at that income it should be totally doable.

3.  When they became unemployed did they adopt an In The Trenches battle plan?  Did they go to the fox holes and cut back all unnecessary expenses within the first 90 days or did they just try and act like everything was normal and hope for the best?

4.   Investments.  The video mentioned 401K investments.  Although these can be helpful and worthwhile when the employer contributes matching funds we do need to be careful because some of the money goes into the stock market with no guarantee of a return.  I'm sure that many of you are more knowledgeable than I on these for I have not often had them available so don't keep up on them.  Just because the banks sell them and the government promotes them does not mean they are the best things for us.  We always have to remember who the funders are behind he politicians. Were the investments something that they could cash in if needed or provide additional income during the lean times?

5.  How much other debt was there?  Were cars, furniture, and who knows what also on credit?  These are like lead weights on the legs of a swimmer.  When you are in a boat they may not be noticeable but jump or get thrown out and they will quickly drag you under.

6.  What did the balance sheet look like?  Another way of asking some of the questions above and a summary of the results.

7.  How is middle class defined?  Is it the amount of money one makes? The net result of their balance sheet?  Or, income to debt ratio?  I know many who live very well on small amounts because they know how to manage well.   

In my opinion, $130,000 is a BIG annual income.  Yes, that speaks much about my perspective but basic math says that in less than 10 years over 1 million dollars will be made.  If you had a million dollars how would you manage it?  Just because it is given in annual or monthly increments does not make it any less.  Would you spend it every month and more?  If you make half of that you could still say that in 10 years time you would bring home 1/2 a million.  Not too shabby.  We all think we want to win the lotto and many already have just don't recognize it until it's gone. 

One of the things we were required to do when I was in banking in addition to making an annual budget was to project that budget out for 5 years.  But, wait a minute you may think, this is my personal finances, not a business.  True enough.  So at the end of five years you don't care if you break even, loose money, or make a profit?  At the end of five years it's okay that you are worse off or the same?  I think not.  So with that in mind why not project your current plan out for the additional time frame.  It may surprise you or give valuable information as to how you could do better. 

Above all we need to recognize that life DOES have it's ups and downs.  When we are up what would we do differently if we acknowledged there could be a down.  As they say "Hope for the best but plan for the worst".  As all farmers know, harvest time is the time to store up for winter.  Nature itself teaches us the basic things we need to know to do well and prosper if we would just listen.

The point of my comments is not to single these families out - that has already been done with the article.  It is not to fault find after the events - that has no purpose.  My comments are intended to focus on what we can do to rebuild our future in a better way.  I once heard that when a skyscraper is built the builders must drill the supporting beams into the ground almost to the depth of the height of the building we see above ground.  This is to prevent the building from toppling over with the weight when an earthquake or other events come to pass.  Not all situations can be prevented that is for sure.  But, we can and should learn from all.  I'm still working my own plan and have a ways to go.  Hope you are too.

Friday, February 3, 2012

Car Roundup

As most of you are aware I have now gone almost 2 1/2 years without a car! I have read so many good books and met so many interesting people on the bus.
The topic of cars seems to be in the headlines of the top financial blogs so it seemed like a good time to do a round up:

My most informative award to an article goes to:

What is the True Cost of Purchasing a Vehicle? provided by Christian PF

Getting the best deal on gas:

Buy the Cheap Gas from The Simple Dollar

How to Save on your Car in the New American Economy from Darwin's Money

And, the drum roll here for:

Day 7: Going Car Free from Jacob at Early Retirement Extreme for as you all know I cannot go for very long without putting in a plug for ERE whose book sales are doing wonderfully.

Whether you choose to own a car, take the bus, saddle a horse, ride a bike, or walk just remember that there are always CHOICES. It is the choices that we make that will ultimately determine where we are going and how fast we are able to get there. 

Convertible Female

That's me in my dream car. Just because I live frugally does not mean I have to dream frugally.