Don’t Buy More House Than You Need

Five and a half years ago I bought a house.  I was living with my girlfriend at the time in a nice apartment and for some reason got the idea I needed a house to stop throwing away my money towards rent.  I live in an insanely affordable area so houses, even with insurance, taxes, and other crap would make the mortgage more affordable than renting.

I looked at countless houses and had a decision to make.  I had it down to a couple and of course had the option to continue to look.  That’s when I made a decision I regret.  I bought the biggest house of them all as I figured why not get more house for my money.  Now there were other benefits also.  Old style with nice wood trim/floors, huge garage/barn, and an awesome backyard.

Why do I regret it then?  Because, five and a half years later, the work it needs is piling up.  It needs a roof and if it was a small single story I would have no reservations of jumping up there and doing it myself.  Now with a tall 2-story house and fairly steep pitch I don’t want to get up there, hell, I don’t even want to clean the gutters out which desperately need it.  That’s the same reason that getting a roof put on is going to be more expensive when I have to pay someone to do it.

Along with the upkeep electric and heat are all more expensive.  More rooms mean more lights that need to be turned on when doing this or that.  More square footage means a larger area to heat which costs more.

So, when looking at houses factor all that in.  Will you be able to handle the upkeep and pay to heat parts of the house you’re never in?  With it just me and my wife now, even with a baby on the way, we could probably live in the downstairs only area very comfortably.  That makes me wonder if a house half the size would have suited us more than well.

God, I Love 3 Paycheck Months

If you get paid bi-weekly chances are you’ll get that 3 paycheck month twice a year.  Not only is it, for us budgeting types, essentially extra money but the fact most companies don’t take out insurance and other deductions it makes it even sweeter.

This month was that month for me and luckily it’ll allow me to get pretty close to where I want my emergency fund to be.

This week wasn’t all wins though.  After a weekend out of town we spent a bit more money than I had anticipated and I had a hard time holding off on pulling the trigger for a ticket package for the local NHL team.

Instead of bumming out about the negatives I’m looking on the bright side of the extra paycheck, a huge bump in our savings, having tickets to 6 awesome hockey games this season, and memories from a pretty amazing weekend.

No sense beating yourself up when it seems like you take a step backwards.  Focus on the positives and move along, trying better next time.

Personal Finance Carnivals Galore!

Luckily enough I was selected to be included in 2 personal finance Carnivals this week.  Check out the links below to read a ton of other awesome blog posts selected.

Festival of Frugality
Carnival of Personal Finance

If you’re new here take a moment to subscribe and read around.  There isn’t a ton of content yet as this site is about a week old but there will be plenty more coming.

What’s the Worst Than Can Happen if You Don’t Pay Your Bills?

I just came across a blog post titled Don’t Pay Your Bills.  Now I’m sure you’re not expecting a personal finance blog to support an idea like that as it is, to a point, literally saying don’t worry about paying your bills.  However, I think there’s a huge take-away from it on a larger scale.

It’s no secret, especially for those of us that have to read/write personal finance blogs, that money owns us.  We’re all working to get to a place where it doesn’t but for the majority of people, they’ll probably never get there.  The second we have to change what we do, sit out on something we want to do, or stay up just an extra 5 minutes at night worrying about money…it owns us.

The article brings up a good point.  What’s the worst that can happen?  We get a scary letter in the mail?  Get a few calls?  Get kicked out of our house/apartment?  Yeah, all of that sucks but it’s not the end of the world.  It’s going to be tough, but at the same time you can learn a lot from it.  You learn what happens when you really don’t have any money, what the true worst case scenario is.  When that happens something else happens…you’re not afraid of money anymore.  You’ve seen the worse and survived it.

Once that happens money doesn’t own you any more.  You lose that constant worry about not having money in the bank or if your retirement savings isn’t hitting that ideal mark.  The writer of the article actually became fairly successful after hitting his low, could be a coincidence but it could also be what let him lose that worry about “what if” when taking risks.

Now, lets bring this in a bit.  I’m not saying go and blow money on everything you want or quit your job to try to pull off the ideal passive income source which is harder than it sounds like most things of that scale.  What I am saying is, what’s the worst that can happen?  Still bust your ass and work on getting those debts paid but if you can’t make that double payment one month, what’s the worst that will happen?  If you don’t have enough in your emergency fund to cover that new roof, what’s going to happen?  You have to dump it on a credit card and pay an extra 20% for it?  If you lose your job…what are the real chances you’ll end up homeless?

I think the true first step in this personal finance nirvana I like to talk about is not letting money own you, to define who you are and what you do.  Instead, think of it as a tool to live your life.  When/If that time comes when you don’t have that tool, well, who of us haven’t used a rock as a hammer?

Don’t Spend Money to Save Money

I’ve seen rather financially savvy people spend money on stupid things in the name of savings a few bucks.  I agree that sometimes it’s worth spending a few dollars if it’ll pay off in the end but usually there are other alternatives.

Books
Yesterday I saw a forum post asking what personal finance books they should buy in order to help them save money.  Now there are ton of good options out there like Dave Ramsey’s Total Money Makeover or Ramit Sethi’s I Will Teach You to Be Rich which will give you some pointers, however there are a ton of free options out there.

Look into blogs and even YouTube videos that are all free and will provide the same info that’s in most any financial book.  Lots of books even start out as blogs now, including I Will Teach You to be Rich, so do some searching before pulling the trigger on purchasing them.

Budget Software
This is one I don’t get.  YNAB is a hugely popular budget app but you have to pay for it, all $60! of it.  Now it does have some features but I can’t see using it when there are free apps out here like Mint and not to mention, just making a simple spreadsheet.

Now I do subscribe to a service like this (Outright) for my business accounting but that is much more complicated and it allows me to quickly pull together year end tax information which is a huge bonus for me and saves me time to make me worth it.  I don’t see where YNAB gives you a $60 advantage over other software or budgeting methods.

Credit Monitoring/Reports
Now a lot of people end up getting scammed into these (such as freecreditreport.com) but a fair amount of people will pay for credit reports or monitoring services for no reason.  Using AnnualCreditReport.com you can get a free credit reports once a year from EACH of the reporting agencies.  Also, with services like Credit Karma you can monitor your actual score for free which can throw up red flags to issues with your credit reports.

Now some programs out there like LifeLock and other identity protection services may be worth it if you’re the paranoid type but the majority of  people should be able to get by with the other free alternatives.

So, 3 quick areas were you don’t have to spend money to save money.  What did I miss?  Share in the comments.

I Won’t Be Caught Dead Washing Sandwich Bags

On my original journey to financial nirvana I subscribed to tons of personal finance blogs and would spend a good chunk of the work day reading through them instead of actually working(sorry ex-employer).  While I learned a lot from them there were some aspects of frugality they would preach that I would consider borderline psycho.  I could live with the making of your own laundry detergent even though I never did it but the one thing that really stuck out to me was people who would wash and reuse sandwich bags.  I can barely stand using them as is, let alone having to wash them out and try to get them to dry.  When you’re talking a couple cents I don’t see how it’s worth it to spend any amount of time cleaning them out.

I agree it’s a way to save money and a little here and there does add up but it’s not something I’m willing to do to save money.  In my mind it’s worth an extra month of that credit card payment or that hundred dollars of compound interest I’ll miss out in my retirement account in order to not have to scrub sandwich bags.

Now, with that said, lets back up and decide where to draw the line on saving money. I will buy generic in a heartbeat to save money.  I’ll shop around online for a fair amount of time when I’m looking to order something to ensure I’m getting a good deal.  I’ll even drive close to the speed limit in order to save gas (easier said than done for a car guy).  However, I still like doing some financially irresponsible things.  I love a good beer here and there and have a kegerator that eats up electricity (not to mention the beer in it).  I like expensive scotch and have a couple hundred dollars worth sitting on my counter.  I spend money on my car and track events without thinking.

I do all that because I enjoy it.  I know I could make a couple extra student loan payments instead of having the occasional scotch but it’s not worth it for me to give it.  I want to be debt free and in good standing financially but is it really worth it if I have to go through hell doing it?  Why not enjoy life where I want while cutting where I won’t notice it as much and just extend that period a bit longer?

So what says you, where do you draw the line when it comes to cheaping out to save a few bucks?

The Difference Between Being Broke and Being Poor

My personal favorite finance blog had a post about how he’s not rich. Interesting for sure, however one of the comments caught my eye where the reader mentioned that most Americans that think their poor are actually broke.  That got me thinking about the differences between those two words.

There are people that are truly poor.  People making below the poverty line, barely able to afford food let alone suitable housing and other things the majority of us take for granted.  I’m going to guess, if you’re reading this, you’re probably not one of them as internet access is probably tough for the true poor to obtain (as hard as that is to believe).

Being broke on the other hand, I would define as self-caused poorness. That is, spending beyond their ability to make yourself seem poor.  You’re not poor if you have a $500 a month car payment so you can’t afford to go to that concert.  Instead, you’re broke.

Most people seem to throw these works around interchangeably but there does seem to be a difference between the two of them.   Next time you claim you’re poor, make sure you look back and realize that instead, you may be broke.

Use the 50/20/30 Rule To Check Your Budget

You have a budget, right?  If not, stop reading this and make one right now.  Now that you’re sure to have one, break it down with the following categories and see what percentages each of the 3 take up.

Category 1: Necessities
- Housing (mortgage/taxes/insurance/rent)
- Transportation (car payments, insurance, gas, maintenance)
- Utilities (electric, gas, etc.  Not cell phones/cable TV/internet)
Category 2: Financial Responsibilities
- Other loan payments (student loans, personal loans)
- Savings accounts
- Retirement contributions
- CC Debt
Category 3: The Wants
- Cable, internet, Cell phone bills
- Eating out
- Entertainment
- Any other “un-needed” expense.

Now, if you’re doing what the experts say this should be about 50% in category 1, 20% in category 2, and 30% in category 3.  Mine has the last 2 reversed but high student loan payments for the wife is what off-sets this.  I’m a bit higher on the first category too with paying insurance on 3 cars and having loans on 2 of them.  I was actually surprised at how close it was to the suggestion with those issues aside.

Now if your “wants” percentage is over 30% that’s a good sign that you need to focus more on savings and debt repayment.  Those are the two categories that are easiest to fix so that’s not a horrible spot to be in (unless you’re like me, and they’re reversed).  The necessities category may be hard to change but the transportation and grocery areas are the two that can be flexible there.  If you can’t fix it the only real way to offset it is to increase your income unless you look at refinancing or down-grading your home and/or vehicles.

I found this useful since when I see example budgets it’s hard to tell where I should be.  I live in a rather affordable area so seeing a $2000 mortgage payment on a budget seems out of place to me, as does 6 figure incomes.  Switching it over to percentages instead of hard numbers makes this budget work whether you’re making minimum wage or millions of dollars a year.

Share your percentages in the comments as I’m curious to see just how standard these percentages are.

My Story – A Curvy Personal Finance Road

I was always somewhat financially responsible, I guess it was something my parents drove into me.  I had a job through high school and didn’t manage to get into a ton of debt early on.  When I left for college I had financial aid and scholarships that made a relatively expensive school possible with minimal student loans.  My first personal finance mistake was buying a car I thought I had to have, with no job. I figured I could find one easy enough in the big city I was now living in (I’m from a rather rural area) so I talked my parents into co-signing a loan for the fairly reasonable priced but perhaps maybe unpractical car and it was mine.  After a few months of pulling together what I could to make payments (and an embarrassing month of having to ask my little brother to spot me some cash for a payment in exchange for being allowed to take the car to his prom) I got a job that I kept through college that helped me pay for most everything including the car, eventually graduating from a nice college with affordable student loan debt.

Buying the car might have been my first mistake but it wasn’t my biggest.  During college I was required to spend some time in an internship.  I was lucky enough to find a paid one and made twice of what I was used to.  During this I started a side business so the money was rolling in, or it at least seemed to.  Still being relatively young I wasn’t focused on savings and instead dumped it all into the modifying that car.  I threw a bunch on the credit card with the belief that “I’m eventually going to buy it so why not charge it” (big mistake number 2).  When the internship was over I still had a decent amount of credit card debt and, since I only had another semester of school to finish didn’t go back to my old job and instead relied on my side business.  I was making OK money but the business wasn’t taking up enough time to prevent me from taking on the old job again.

I owned a business, of course I had money for everything.  I held that thinking through the last semester of college and a few months before getting a real job.  The biggest mistake I made was not separating business and personal accounts and not keeping records of what I was actually making.  Yeah, I was making enough to live on but I wasn’t making enough to finance my credit card debt, my living expenses, and the fun that I could have when I had no real commitments.  I was burning through more money than I was making and it was all ending up on the credit cards. Due to my complete lack of any budget (business or personal) I didn’t even realize it.

I still remember sitting at my desk and realizing this.  Staring at the negative numbers that kept adding up for the past few months and a total credit card debt of well over $10k.  All I had to show for it was a shiny sports car.  I made a budget for the first time in my life and opened business accounts (bank and credit card) to keep things separate.  I started keeping track of business expenses to make sure I was actually making money.  I was on the right track and crawling out of debt, finally.  Lesson learned.

Fast forward a few years and I was living with my girlfriend in a house I bought and had erased that $10k+ debt and built a savings account equal to it.  I was doing well in my job and doing what I wanted as the money was there.  I was saving a huge chunk of money monthly still and dumping cash into my 401k to max out my employers contribution.  It was personal finance nirvana.  However, the rest of my life wasn’t so happy.

Long story short the girlfriend and I broke up and through a whirlwind of months I was engaged to a new girl that I am positive is “the one”.  During the break up I had to buy some things that were deemed as hers which she took so savings took a pretty big hit there.  The new girlfriend and now wife was just finishing up her masters in education and had masters sized student loan payments with little promise of quickly finding a teaching job due to the horrible market.

Fast forward to now and we’re not broke, we’ve never had a negative month for as long as I can remember.  It’s just tough looking back on what I had financially and trying to make it all work.  I’m of course happier overall but the financial side of my life is where 90% of my stress is.

That long story leads me to here.  I’m hoping this blog will not only help me get back on track but also inspire others to do their best to get their finances in order.  I’ve read plenty of other personal finance blogs and although those guys who have it all together might know what they’re talking about it seems like they might have lost touch with the ones of us who are still struggling.  I’m hoping this mutual struggle will help me help you (yes, I realize that sounds corny).