Small Ch-ch-ch-changes

Heat by spcummings

Phil’s been on a mission the last year to walk behind me and the boys turning off lights. He’s also replaced all our regular bulbous light bulbs with flourescents, and he’s been cognizant of turning down the thermostat when we leave the house. I’ve humored him, and have gotten into the habit, with some backsliding when I’m forgetful, of being more conscious about the heat and light we use needlessly.

Phil’s main motivator was saving the planet, not our checkbook.

Last year we signed up for a budget program with our gas company in which our gas usage over the entire year is divided by 12, and each month we pay the same amount. So we have a relatively hefty bill in June that represents three times our usage, but we’re not floored by a bill in January. Last year our bill was $99 per month.

I just received our adjusted bill, and even with gas prices higher than the Sears Tower, Phil’s diligence paid off. The new bill is $91 — or almost $100 per year less than last year.

Amazingly, this hundred dollars was completely painless. We haven’t spent the year pulling on a third sweater or heating up foot bricks for the boys to take to bed. We just stopped using energy we didn’t need when we were away from home or out of a room. Who knew?

Book Review: All Your Worth

 I’m confident enough to admit it: During my maternity leave with Tommy, I developed a bad, daily Dr. Phil habit. Every day at 3:00, Tommy and I would stop what we were doing and settle in to teens gone wild or husbands who thought their wives were too fat. In between the heated lectures and doo-doo-DOO music going to commercial break and Dr. Phil cheekily using the word “ass” five times a taping, I saw a one or two shows that stuck with me. One exceptional offering featured Elizabeth Warren and her daughter Amelia Warren Tyagi, who had recently written All Your Worth. The book is a primer for getting your finances in order, regardless of where they currently stand, and provides a fairly simple game plan for doing so.

I immediately ordered the book, already terrified at the prospect of raising two kids without losing our shirts. I sweated over the worksheets, read through and integrated some of the tips for simple changes that can yield big results (like shopping insurance every few years), and ultimately felt much more comfortable about our finances. Then, when I realized the repo man wouldn’t be coming for our children any time soon, I put the book on the shelf and forgot about it until this summer’s third-baby wake-up call.

While the book contains fantastic advice for all aspects of your financial life, two pieces of information really stood out for me:

Insight #1: Finances should follow a simple 50-30-20 rule.

This formula breaks down your take-home pay into three simple categories. Fifty percent is earmarked for obligations like mortgage, insurance, food, utilities, car payments, and daycare (if it’s a necessity for income). Thirty percent is for “fun,” although that’s a loose term for anything that isn’t an obligation. Fun can be a vacation or this season’s It bag, but it also covers things like basic clothing, eating out, and satellite radio – areas we’ve come to see as necessities. The remaining 20 percent is for savings.

The authors maintain that if your money is in this balance, you’ll be fine. If it’s out of balance, you should strive to get it there. If you find that “fun” is taking 50 percent of your take-home pay, you need to scale it back to get things better in balance. If you’re not saving any money, you need to acheive a balance that lets you do so. If your obligations are requiring more than 50 percent of your take-home pay, there’s a solid reason why you always feel behind – it’s difficult to maintain or get ahead with that level of obligation. In the latter situation, the authors maintain, it might be time to look at downsizing a house, selling an SUV you can’t afford, or even moving to a more profitable part of the country. I loved this incredibly simple formula, seeing as I’m one of those people who periodically tries to track every little expense, and runs out of steam about four hours into the exercise. This was a system I could work with.

Insight #2: The rules have changed, and you need to get on board quickly with the new ones. 

Elizabeth Warren is the first person I’ve heard articulate how the current state of our finances is the result not only of complete lack of self control, but also the changing rules of credit and financing. It’s easy to see a problem: Consumer debt is escalating, foreclosures are at scary levels, and savings rates are in the toilet. But in the last 30 years, people have had much more ability and encouragement to get themselves into trouble than ever before, and she maintains that we have to understand the rules and arm ourselves. Fifty years ago, if your income wouldn’t comfortably cover a mortgage, the bank would turn you down; the bank wouldn’t try to put you in an interest free “product.” Likewise, you could have an outstanding record and a solid paycheck, and still not qualify for a credit card. External parameters were put around your finances that limited how far you could go into hock. This obviously is no longer the case. (If you disagree, rent the excellent documentary Maxed Out. Or better yet, borrow it from the library for free.)

In the relatively short time I’ve been managing my adult finances, I’ve seen these rules changing. When I was taking out a loan for my first house, for example, I was looking at financing about $65,000 on a salary in the mid-forties. At this point, I was still filing taxes with an EZ form and carried no debt, but my very simple finances were scrutinized fairly heavily by the mortgage company, and required what seemed to be reams of paperwork to show my income, my lack of debt level, my savings, my favorite flavor of ice cream…

Two years ago, when an atrocious, ostentatious, infamous Indianapolis house was foreclosed on and I wanted to get a viewing with my real estate agent, a prerequisite for seeing the place was getting pre-approved for the mortgage. The house was listed at $550,000, a figure so divorced from the reality of Phil and my ability to pay that it was laughable. But I knew that the kooky house required a “special” buyer and likely would sell for half that price (it sold for $267,000, although sadly not to us). So when I called to get pre-approved, I began blathering on that while the house was completely out of our means, it certainly wouldn’t sell at its listing price. Before I could get the sentence out, the broker cheerfully stated, “You’re approved!” Whether I could have actually gotten a half-million-dollar mortgage is debatable, but reading article after article about the current sub-prime debacle makes me think it was reachable. If I’m told by a mortgage company that I can afford a half-million-dollar house, without the personal backing to know the figure is ludicrous, I would assume the lender knew something I didn’t.

All Your Worth made me look more empathetically at those who were allowed – even encouraged and coerced – to finance an unsustainable lifestyle.

Regardless of your financial position, I think you’ll get something out of this book. It has now helped me, twice, relax about our finances, realizing that they’re in balance. Likewise, it’s given me some great advice on where to look for further savings, how to invest money when there is money for investing, and what to stay away from. On my shelf of financial books, it’s a stand-out.

The Birth of the Amateur Tightwad

Call me a tightwad dabbler.

Back in my 20s when I was single, childless, and saving for a first home, I subscribed to The Tightwad Gazette for a few years, tried tactics like making my own granola (which I found to be a *lot* of granola for one person to eat), and honed my DIY skills. There were still splurges, mind you, but I happily drove my Geo Prizm for eight years, balanced my checkbook weekly, and rejected what I considered needless expenses like cable TV.

A couple years later I married, and with the infusion of a second income into our Midwest household, we relaxed the rules a bit. We got cra-zay and started subscribing to cable, went for frequent martini nights with friends (this was the 90s, after all), and felt comfortable buying all the new music and books we could handle.

 About six months after the wedding, my husband Phil and I moved to New York City.  We lived in a great brownstone in Park Slope, a fun and gentrified area of Brooklyn, and our financial status can only be described as hemorraging money; I’m fairly certain some kind of fiscal hoodoo literally hooked a siphon to our accounts. Despite the blood-letting, when I discovered I was pregnant and we decided to move back to the Midwest, we had saved enough money to buy a house in a comfortable neighborhood. We set about raising our little boy, Max in comfort, albeit with fewer $100 Tuesday nights out with friends.

A few years after that, we had a second baby — our boy Tommy — and were ready to close the door on family-building and start focusing our energies elsewhere. Maybe we’d actually get around to the home projects we’d let go, we dreamed. With Max about to start kindergarten, meaning we only had one child in daycare, just *think* of all how much money we’d have, we said. We started planning in earnest for the next stage in our lives.

This all took a U-turn several months ago with an unexpected extra pink line on a white stick. After the shock and panic settled into the excitement of watching our family grow (as well as scheduling an appointment for minor surgery to ensure that this would truly be the end of the growth), I took inventory of what our next several years would look like. I’d given away all of my maternity and baby gear, so much would need to be replaced. Neither of our paid-for cars would accommodate two car seats and a booster seat, so we were looking at a new vehicle. We were back to having two kids full-time in daycare, never mind the summers when three would need full-day accommodations. Our house was perfect, if a little tight, for four; would we need to look at upgrading — and upgrading in the worst real-estate market since the 1980s? Suddenly, I was lightheaded and woozy from more than the pregnancy.

To steel myself, I dusted off those back issues of The Tightwad Gazette for inspiration. I find, though, that as a dabbler, I have some ideas, but not nearly as many answers as I’d like. I’m still a bit lightheaded and woozy.

That’s where I’m hoping The Amateur Tightwad can come in. I want this to be a forum where I can share ideas and thoughts and discoveries that have made our financial road easier — or didn’t work so well and will never be repeated — and also get ideas from readers about what they’ve discovered. This isn’t about finger-wagging or judging others’ thresholds; it’s about sharing what has worked and hoping others can glean some great information in the sharing.

I hope you’ll stop by often and pick up some ideas, and also share your thoughts about what you’re finding.

Welcome to The Amateur Tightwad!