Quick apology to my loyal readers, to the extent you exist, but work has been insane this week. Many lawyers bill clients by the hour and have “billable hour” targets for the year. I’ve already hit my minimum billables for the year to get a bonus, and above and beyond that, bonus typically increases with every 50 hour increment you hit over that. My personal goal for the year was to hit 150 hours above, and at this rate, I’m going to hit that figure early next week — and I may even hit another 50 hours over that by year end! Things have just been that nuts. So anyway, I apologize, but I hope to have some new posts by next week. Thanks for your patience!
Posted by Thirtysomething Finance on December 18, 2009
Posted by Thirtysomething Finance on December 10, 2009
I was just E-Mailing with my friend J. Money over at Budgets Are Sexy, and I had a profound thought, one that has occurred to me before, but which I’ve never verbalized — and I decided to verbalize it to you:
Are we really doing what we want to do with our lives?
Think about it. Except for the independently wealthy, we’ve all got to worry about paying down debt, living comfortably, and saving to retire comfortably. Look at all of us here in the PF blogosphere: there’s a whole culture devoted to dealing with these issues! When you think about it, it seems that almost every decision we make is driven by money.
This occurs to me in particular when I think about myself and my job. Let’s just say that a lot of the time, I’m less than enamored of it. But I do it. Why? Because I have to. Why? Because I have to pay down debt, make enough to live comfortably, and save for retirement.
If it were up to me, I’d go to music school, learn the nuts and bolts of music theory, and spend my life working in music: maybe I’d compose, maybe I’d perform, maybe I’d teach, maybe I’d do something else altogether. Or I might like to work in non-profit. Or I might like to get into public service. I really think there are higher and better uses for TSF than what I do now, but alas, I’ve got to accept that I can’t just do what I want because I have these obligations.
Interestingly, I’ve known a lot of independently wealthy people who have been very flighty when it comes to what they do with their lives. Maybe there’s something to be said for the struggle that we all deal with. But as I think about a career change, I’m forced to accept that I must do something that’s going to pay the bills.
In a sense, this reminds me of Baker‘s post over at Man vs. Debt: would you kill a stranger for a billion dollars? I believe that the fact that we even consider this question demonstrates the extent to which I’m right (and kudos to Baker — what a great post and exercise in getting to the root of PF and human nature).
Am I bumming you out? I hope not — seriously — but I’ve been particularly down on the job this week and resigned to my station in life. Am I wrong about this? How do you all get past these kinds of doldrums? I’ve read a lot about being grateful for what we have and not focusing on what we don’t, but I can’t help but wish I had the freedom to just do what I want and, more importantly, to not have to do something I don’t particularly like (and something that I completely hate at times). Isn’t that what we’re all really after?
Posted by Thirtysomething Finance on December 7, 2009
In case you’ve been living under a rock (not The Rock), the real estate market has sort of been in the toilet for the last 2 years and change. It’s unclear whether I’m screwed as a result in terms of dropping home values — as I will discuss herein, within the past 8 months, my place appraised at $45,000 and $20,000 more than I paid for it…yes, I got two appraisals and will explain why — but at one point, when my bank tried to screw me, I fought back and prevailed!
For background, I closed on a brand new condo in March 2007 (great timing, eh?). I paid $415,000 for it, plus some upgrades for about another $7,500 — nicer hardwood floor, nicer sink in one of the bathrooms, etc. I actually caught a break too — long story short, through a clerical error on the part of the seller’s real estate agent (which the developer decided to honor), combined with a little haggling on the part of my real estate agent (a.k.a., my Mom), I ultimately paid almost $60,000 less than what the developer was initially asking! My building has 4 floors of residential units. The second and third floors are single level units, while the third and fourth floors consist of lofts. I live in the smallest unit on the fourth floor — that is, the least expensive and highest loft unit.
Important Note: units on the third and fourth floors are identical, and by and large, are priced at exactly $20,000 less than units on the fourth floor — and the unit immediately below mine (my sister unit on the third floor) sold for about $452,250. So aside from the fact that I completely love my place, this also made sense to me from an investment point of view.
Anyway, in order to finance my purchase, I made a downpayment of 5% — that is, $20,750 — and took out a 30-year fixed mortgage for $325,000 at a rate of 5.875% (I locked in this rate some time in 2006 and paid one point — an extra $3,250 — up front to get this lower rate) and a HELOC for the remainder ($62,250). For those who don’t know, “HELOC” stands for Home Equity Line of Credit. Basically, it functions like a bank account whose limit is a certain amount of equity in one’s residence. It’s kind of like a second mortgage, except you can draw down on whatever amount you’ve repaid at any given time — so if you draw down the full amount, then repay half, you still have access to half. Make sense? More information here.
So in my case, based on the appraised value of my place, my bank let me borrow $62,250 from them, with this amount being secured by the value of my home. I then used the full amount to help finance the purchase of my place — another long story short, this was a good move because it permitted me to get around PMI (purchase money insurance).
So here I am, making monthly payments on my 30 year fixed mortgage and also on my HELOC. Both loans are secured by my home, but from the bank’s perspective, my home is only as good as what it’s worth. So the real estate market tanks, and in January 2009, I get a letter from my bank telling me that my home (which I bought in March 2006 for $415,000 and which, according to my bank, had appraised at that time for $440,000) had an estimated value of $350,000 — a drop of $90,000, according to their appraisals! Thus, because my HELOC lender was afraid that the loans on my place were greater than what my place was worth (i.e., that I was underwater), the bank told me it was “suspending future draws against [my] account as of January 20, 2009.” In other words, my HELOC effectively became a run of the mill loan that I had to repay and whose balance would only decrease.
I was shocked! I was appalled!! I was outraged!!! After all, I bought my place for $415,000, had put in about $7,500 worth of upgrades off the bat (sink, hardwood floor, etc.), and between March 2006 and January 2009, I calculated that I’d put in another $17,000 or so in various improvements. So my place had to be worth at least $440,000, which was $25,000 more than I paid for it, right? OR if you were to use $440,000 as a starting point (remember, that’s where my bank said it appraised my unit at in March 2006, then it would be worth $465,000, right?? OR if you were to compare my unit to my sister unit on the third floor, which sold for $452,250 and add $20,000 off the bat (remember that units on the fourth floor sell for that much more than units on the third floor), plus the $25,000 in improvements, we’re looking at almost $500,000, right??? Well, my bank didn’t think so.
But regardless, so what? I’d already drawn down the full $62,250, and they weren’t making me pay that back immediately, so I was OK, right? Well, not exactly…
You see, after buying my place, I was trying to be a good boy and was socking away money each month to start an emergency fund…but rather than put this money into a high interest-bearing savings account, which is where I keep my savings now, I had been paying down my HELOC, assuming I would be able to withdraw this money in the event of an emergency. By the time January 2009 rolled around, I’d saved about $7,500, and while I knew that banks were starting to freeze HELOCs, I just didn’t think home values in my city had been as affected by the subprime crisis as other areas had. Well, it was looking like I was wrong!
So what was I to do? Well, in the letter the bank sent me, there were instructions for how to appeal the bank’s decision to freeze my HELOC — I had to obtain my own appraisal putting the value of my home at $440,000 and had to submit it in accordance with the terms of the bank’s letter. So my first step was to obtain an appraisal, and you can be sure I had the name and number of an appraiser within the course of a week, and after a few months worth of back and forth, including E-Mails about the upgrades I’d made, real estate comps, and the market in general, I had an appraisal in hand reflecting an appraised value of…
…wait for it…
$460,000!!!!! Appreciation of $20,000 over the bank’s appraisal in March 2006 and $45,000 compared to my purchase price!!! Well, you can be sure I put together a very lawyerly package for the bank and had it out to them the day after I got the appraisal in. And lo and behold, they unfroze my HELOC!!
The only thing that was troubling me was that I had to pay $360 for the appraisal, and you know, if you think about it, it’s really not fair that I should be out of pocket that much money when the bank clearly goofed in its appraisal. And as I’ve told you before, Bub always taught me that the answer is always “no” if you don’t ask. So I added to my lawyerly package that I thought I should also be reimbursed this $360 — and the bank reimbursed me!
Well, I’m no dummy (most of the time, anyway), so I immediately drew down the full amount in my HELOC (about $7,500) and put it into my high interest-bearing savings account (at the time, I was using HSBC, but I later switched to Schwab). Since then, I’ve upped my emergency fund to $15,000.
So in the end, I fought the Bank and the…Bank lost! I think the lesson here is that you really need to stand up for what you believe in and vigorously defend your personal finances! I’m not sure if banks are still freezing HELOCs, but if anybody is facing this issue, I’m glad to help guide you through the process.
And as if this story weren’t sweet enough, there is a beautiful silver lining that drips with poetic justice (not Poetic Justice). But I’m exhausted, so I’ll have to fill you in on that later. Thanks for reading this far!
Posted by Thirtysomething Finance on December 3, 2009
Hello to my loyal readers! I apologize for not being more on top of updates, but between family obligations with the holidays and a crazy week at work, plus a recent re-dedication to going to the gym (as much, if not more, for my head as for my body — this will be the subject of a future post), I just haven’t had the time to devote to TSF lately.
But I did want to drop a quick note to make a recommendation of some music that you must listen to. As background, let me start by saying that this is my favorite time of year. Call me sentimental and even sappy, but I absolutely love the Fall, especially the time between Thanksgiving and Christmas. Like Radiohead said, I believe in everything in its right place (note: Brad Mehldau instrumentally echoed this sentiment). And during the Fall, it’s finally cold enough to justify drinking a Pumpkin Spice Latte (or “PSL,” as the girlfriend and I refer to them) from Starbucks. I first saw PSLs advertised during the summer, and I was somewhat shocked and appalled — you can’t drink a warm weather drink like a “PSL during the summer!
As with the “PSL, I believe you have to wait until just the right time to start listening to holiday (let’s face it — Christmas) music. And now that Thanksgiving is over, it’s finally time for Christmas music! To oversimplify, you will find two types of Jewish people in this world: those who love all things Christmas, including — especially! — the music; and those who don’t. The Girlfriend and I are squarely in the former camp — we can’t get enough of it!
So now that it’s finally time to listen to Christmas music, who do I turn to? Why, none other than one of my favorite singer/songwriters, Aimee Mann, and her 2005 Christmas Album, One More Drifter in the Snow.
Aimee Mann has a really cool story. She started off in the 80s group Til Tuesday — you might remember their song “Voices Carry,” which is actually a great tune. Anyway, post-Til Tuesday, she released a number of solo albums on Geffen Records but did not sell enough copies to keep the label happy (it’s a shame because the tunes are solid).
1999 was a big year for Aimee Mann. She contributed the majority of the soundtrack to Paul Thomas Anderson‘s masterpiece, Magnolia. According to legend, Anderson wrote the story of the movie around certain of Aimee’s tunes, including “Save Me” and “Wise Up,” I believe. In 1999, Aimee also started her own label, Superego Records and has released each of her subsequent albums independently. Gotta love the DIY aesthetic.
Well, in 2006, Aimee released >Drifter, which consists of mostly traditional Christmas songs and also a few originals, including the amazing “Christmastime,” an original tune by Aimee’s husband, Michael Penn (brother of Sean and Chris (RIP)). I highly recommend you check out this album if you’re into the classic, traditional Christmas music record. Her take on the classics, like “White Christmas,” which Irving Berlin said is the best song ever written, and “I’ll Be Home For Christmas,” are spot on. Her lazy, loungey, relaxed take on “Winter Wonderland” is one of my favorite tunes on the album.
Last year, I saw Aimee on her Christmas show tour, a Vaudevillian tour she has done for the past few years with the help of various guests (when I saw her, the show featured Nellie McKay, Paul F. Tompkins, John Krasinski, http://en.wikipedia.org/wiki/Michael_cera (a.k.a. George Michael Bluth — is this thing on?). Well, there was a surprise guest at my show — none other than Amos Lee! He sang a duet of “Winter Wonderland” with Aimee, which was awesome — but the best part was when Aimee’s guitarist played his guitar solo…Amos was grooving along with his eyes closed, looking down — but when Aimee’s guitarist played one particular lick (the last lick coming out of the solo, if you’re following at home), Amos looked over at him like daaaaamn — it’s a really tasteful, soulful lick.
If you like Christmas music, you simply must purchase and listen to this album. You will not disappointed.
Posted by Thirtysomething Finance on November 30, 2009
Hi, everybody! I hope you all had a great Thanksgiving! Mine was very relaxing, and I got to spend some great QT with my family, including my brother, who lives on the west coast and isn’t in town all that often. It was great!
So last Wednesday was my favorite day of the month: PAYDAY! I get paid once a month and have a payday ritual that involves Quicken and 30-60 minutes. In a nutshell, this is the day my budget goes into action. So my paycheck goes in, and here’s what comes out (after Roth 401(k), cell phone (which is ~$60), FSA (flex spending account) ($125 per month), and a small charitable contribution to United Way (though I’m planning to make my larger contributions next year to United Way because I can direct these contributions right to my desired nonprofits, but I do right by my firm because United Way is our pet charity — FTW — sorry for that tangent):
1st – $1,746.84 (30-year fixed mortgage)
1st – ~$185 (HELOC — changes slightly each month)
1st – $244.53 (condo fees)
1st – $139.47 (college loan)
1st – $119 (electric bill)
9th – ~$250 (0% credit card balance — I’ll explain that one in a later post — must pay 2% of balance each month in order to keep my interest rate at 0%, so the actual amount decreases by about $6 each month)
15th – $804 (law school loans – federal consolidated and private)
Before the end of the month: $9.53 (Netflix) + cable and internet (~$93) + water bill (~$28) + $100 (housekeeper)
Total “fixed” costs (sidestepping whether I can or should reduce or eliminate certain aspects of this (i.e., Netflix, housekeeper, cable and internet, electric bill, water bill): $3,719.37
Since I finished paying Social Security tax for the year (as I’ve discussed before), my paycheck each month usually comes to about $7,800 (again, after Roth 401(k), cell phone, FSA, and United Way). I normally aim to leave myself about $1,000 for the month to spend on food, entertainment, cabs, etc., which should leave me with $3,080.63 that I can use to put towards outstanding debt, savings, etc.
For purposes of background (and I swear I’m going to do a post on this in more detail in the future, I already have an emergency fund in the amount of $15,000, along with student loans (some that I’m in a rush to pay off, and some that I’m not), my HELOC, and my 30 year fixed mortgage. So at this rate, I should be able to put about $3,000 towards reducing debt each month, right?
Wow, this is depressing. This month, I’ll be lucky to put $1,500 towards debt reduction!
Overspending on my credit card! One month it’s a gym membership. Another month, it’s certain medical stuff (long story — will tell you another day). This month it’s holiday bonuses to my assistant and doormen, a variety of charitable contributions, and my girlfriend’s birthday, which is dangerously close to the holidays!
While I can “afford” to make these payments each month (and I pay off my balance each month), I often find myself paying a good $1,000-$1,500 a month in credit card expenses. The other issue is timing — I make purchases from, say, the 28th of one month but then don’t pay the bill until the 26th of the next month. But when it comes to payday of the next month, I find myself skimping on my payments to debt reduction, which is a high priority of mine (how else am I going to get to sleep at night?) — so this is a big problem!
I think there are a few ways I can approach this problem:
1. Do I need to cut some discretionary spending?
2. Am I just not budgeting properly?
This is a topic I plan to address more in the future, but for now, I’m interested in knowing what you all think about these two questions. To answer my own questions, I think my problem is that (a) I’m not budgeting in enough detail and (b) I’m <b?not being realistic about some things. But another part of me thinks it’s good to set ambitious savings goals, even if they’re unrealistic, so that even if I don’t get all the way there, I’ll be pushing myself further than I might have otherwise.
Another question is how much you all spend each month on, say, food, entertainment, taxis (if you live in a city and don’t own a car…like me!), and miscellaneous other things that come up (like charitable contributions, holiday gifts, and other random things). And how do you budget for these sorts of things?
I’m really just interested in opinions here!
Posted by Thirtysomething Finance on November 26, 2009
And I mean that from the bottom of my heart! See you all next week!
Posted in Uncategorized | 2 Comments »
Posted by Thirtysomething Finance on November 24, 2009
When she was well, my Bubbie (grandmother, to some) was 5 feet tall and 100 pounds, with a mouth like someone who was 6’6″, 250! She was always great at getting somebody to give her what she wanted, partially due to three very important tips she taught me that have served me well over the years:
1. “The Answer is Always ‘No’ If You Don’t Ask;”
2. “The Squeaky Wheel Gets the Oil;” and
3. “You Catch More Flies With Honey Than With Vinegar”
Her words echoed in my mind this morning when I logged in to my Charles Schwab High Yield Investor Checking Account, which I typically do every morning — but this morning, I was surprised to see a $25 insufficient funds charge to my account. Bub wouldn’t like that! I tend to run my account pretty lean and mean — in other words, I don’t keep more in my account than I’m planning on spending that month — and I also am meticulous about monitoring spending and tracking how much is coming out of my account at any time. Needless to say, I was very surprised to see this charge because I track everything so closely.
So I called them — what did I have to lose? The customer service representative (“CSR”) told me that I had attempted to make a payment to my Schwab credit card account in excess of the amount of funds I had in my account. And I realized what happened…I got a ~$350 check from work recently, reimbursing me for some expenses I’d incurred on a recent work trip. I deposited the check into my account with TD Bank, my brick and mortar institution — but when I went to pay my credit card bill, I must have accidentally had the payment come from my Schwab account instead…
So I explained what happened to the CSR, and he agreed that it was too bad. I could have easily hung up and let this be a $25 lesson, but I remembered Bub’s three rules and asked him if, as a courtesy, he would give me a refund on account of this expense. And he said yes!
And I knew he would say yes. I’ve had this experience countless times — the fact of the matter is that CSRs are authorized and even encouraged to extend these courtesies — but usually only if you ask! This phenomenon is not limited to dealing with banks — I’ve had similar successes dealing with the cable company, my cell phone provider, and a variety of stores.
When you find yourself in these situations, you must remember that nobody is going to look out for your interests unless you do. While it’s important for you to state your case and assert yourself, you do not want to be the guy or girl that is such a jerk that the CSR does not want to help you. If the CSR isn’t on your side, your job is going to be that much harder, and in my experience, you’re usually better off starting out nice before you lose your temper. Getting nasty is a switch you cannot un-flip, and if you upset the CSR, you run a strong risk of missing your objective. That said, I think there is a time and a place for huffing and puffing, whether theatrically or seriously — and as I will describe, I’ve been there before — but you never start out that way.
Here are a few concrete tactics I use when faced with these situations:
1. Address the CSR by name.
2. Be pleasant, polite, friendly, amiable — pick your synonym.
3. Ask for what you want.
and if this doesn’t get you where you want to be,
4. Ask to speak with their superviser and repeat Steps 1-3.
Of course it can be more complicated than this, but I believe these 3-4 steps are enough to get you started. As the GI Joe team so eloquently stated, “Now you know, and knowing is half the battle!”
This is a topic I definitely plan to blog about in the future, as I have some customer service success stories that I must share with you. In hindsight, some of these stories are almost embarrassing in terms of what I wanted and how far I went to get it — but they’ve reinforced my belief that my Bub was a pretty hip lady.
There are times when I’ve close come to the conclusion that customer service is dead in this country, but it’s not — it’s just that the rules of the game are different. That said, I believe these three rules I’ve listed here have served me well under the new paradigm.
Posted by Thirtysomething Finance on November 23, 2009
In addition to being passionate about personal finance and music, I do what I can to maintain a sense of style (as opposed to fashion, which I believe is more fleeting than style — but I digress). I just got this month’s issue of GQ, and while I typically rely on the magazine for little more than its glimpse into the fashion world, I was drawn to Benjamin Kunkel’s article about Nouriel Roubini. For those of you who don’t know who he is, Roubini is an economics professor at NYU’s Stern School of Business. He also runs his own consulting firm, Roubini Global Economics, and maintains a blog of his own, Nouriel Roubini’s Global EconoMonitor. More significantly, Roubini is probably the most prominent and prescient economist who predicted the current economic crisis. As early as 2006, Roubini predicted that the United States “was likely to face a once-in-a-lifetime housing bust, an oil shock, sharply declining consumer confidence, and, ultimately, a deep recession.” Boy, was he right…
Born in Turkey to a family of Iranian Jews, Roubini spent a few years in Tehran, Iran and Tel Aviv, Israel before his family settled in Milan, Italy when he was five years old. He has degrees from Bocconi University, in Milan, and Harvard, has taught at Yale, and has previously worked with the IMF (International Monetary Fund), the World Bank, the White House Council of Economic Advisors, and the United States Treasury Department (under President Clinton).
According to Kunkel, Roubini thinks the U.S. economy “is still limping from what he likes to call a hard landing” — a fall from which you don’t bounce right back up.” Roubini expects that the economy will grow at approximately 1.5% — less than half its historical rate — thanks, in part, to government stimulus. Kunkel quotes Roubini:
If you ask about the medium term, actually, I think the opportunities for global growth on a sustained basis are quite positive. Right now the basic building block of global demand, the U.S. consumer, is faltering; therefore, there’s a lack of aggregate demand relative to supply. The supply has been rising because China and emerging markets have been investing so much in new factories and new productive capacity. A lack of demand relative to excess supply — that’s what the global recession is.”
Roubini calls for a complete rebalancing of the global economy, with the U.S. and Europe saving more and other countries, such as China, Japan, and Germany, spending more. For the U.S., he predicts tight credit, high unemployment, and possibly even the return of stagflation a la the 1970s, depending on the relationship between oil prices and overall growth. In early 2007, Roubini said “a strong rebound is unlikely,” but Kunkel points to the “more colorful” phrase of financial journalist Doug Henwood: the routinization of crappiness.
Despite the Dow’s recent return to 10,000, Roubini remains uncertain about the future:
The key issue is not whether the recession is over today or in three months but whether over the medium term growth is going to be robust or anemic, or even whether there’s a risk of a double-dip recession. And I believe the recovery is going to be anemic.
Why an anemic recovery? He points to the fact that banks are still unwilling to lend; that U.S. households are still in debt and out of work, and that corporations are still cutting costs, rather than increasing revenue.
Though many feel they no longer need Roubini, he said to Kunkel that “[t]oo big to fail is now too bigger to fail. Welcome to the great financial crisis of 2014.” I sure hope he’s wrong, but I want to be ready in case he’s right. Isn’t that why we’re all here?
Posted by Thirtysomething Finance on November 20, 2009
Hi gang, this will be my first in what I’m sure will turn into a series of music recommendations. As I’ve mentioned before, I’m an avid — even rabid music fan, and like many music fans, I love nothing more than turning people on to new music. It doesn’t necessarily have to be “new” as in current — I’m equally happy to recommend something from the 70s as I am to recommend something current. That said, today’s recommendation is for an album that just came out!
Are you excited?! I am!!
OK, so I’m taking somewhat of a risk with this first recommendation. The band is pretty obscure and may also be somewhat of an acquired taste. That said, I love love love them! The band is Lambchop (not to be confused with Lambchop), an ensemble band that came out of Nashville in the 1990s (here is a link to their MySpace). They’ve been with Merge Records since 1993, and they’ve just released a live album recorded at XX Merge (XX Merge was a blowout for Merge’s twentieth anniversary as a label). This album opens with a mellow piece from the band’s first album, I Hope You’re Sitting Down/Jack’s Tulips, and contains tunes all the way through their most recent studio album, OH (Ohio). Lambchop’s live show is impressive (I saw them at SXSW in 2006), with the ensemble band, and their tunes really come to life — by the end of this disc, I guarantee you’ll be dancing!
Lambchop used to be somewhat associated with the alt country movement, which is best exemplified, IMHO, by bands like Uncle Tupelo (now two separate bands: Son Volt, which has stuck with the alt country thing, and Wilco, which has matured way beyond it), but I think the association had more to do with their being from Nashville than anything else — though with some of their earlier stuff, you can hear it more.
Lambchop’s music, like a lot of music I like, is not easily pigeonholed. Some of it is better classified as soul than country, though it is all extremely soulful — and it’s not country soul in the Dolly Parton/Jenny Lewis sense…it’s just….well, it’s hard to explain. I think of Lambchop as fall music, which is somewhat ironic for a band from Nashville.
Their singer, Kurt Wagner, not to be confused with Kurt Wagner, used to be a working stiff like the rest of us. So the story goes, he worked as a carpenter, installing and sanding down floors, even after the success of the band’s sixth album, Nixon, in 2000. Here is a great piece about Kurt and the band from a few years ago.
I was introduced to this band in 2004 when David Byrne, one of my favorite artists (I’m deliberate here in my use of that word) and the former frontman of Talking Heads, covered Lambchop’s “The Man Who Loved Beer” on his album Grown Backwards. For the Talking Heads fans among us, you will smile and enjoy Lambchop’s returning the favor around the 3:30 mark on the last tune on this live album (click here for video).
I hope you enjoyed this first music recommendation — it surely won’t be the last!
Posted by Thirtysomething Finance on November 19, 2009
I’d like to start by directing you to a post by J. Money, one of my favorite PF bloggers, at Budgets are Sexy. In this post, J. refers to a recent article by money guru Jean Chatzky regarding the optimal budget. Here is Ms. Chatzky’s optimal budget, with commentary by J.:
Housing: 35% This includes not just your rent or mortgage, but utilities, maintenance, taxes and insurance.
Transportation: 15% Again, not just your car loan, but the money to pay for gas, parking and upkeep, as well as any taxis or public transportation.
Other Debt Repayment: 15% Not your mortgage or car loan, but student loans, credit cards or other debts.
Savings: 10% Non-negotiable (includes retirement contributions)
Life: 25% This is everything else. Your clothing, travel, health care, fun.
As you can see from the comments to J. Money’s post, people fall on both sides of this optimal budget, and by varying degrees. Here is where your hero falls; as a preliminary matter, please note that the number to the left of the slash (not Slash) represents my percentage at this time of year, when I’ve earned more than the limit of earnings on which Social Security may be taxed (for more information, click here, but in a nutshell, you only pay federal Social Security tax on wages up to $106,800 in 2009):
Transportation: 0% (I don’t own a car and don’t have a good record for what I spend on cabs — I guess that would fall under Life)
Other Debt Repayment: 32.8%/36%
So how do we feel about this? Well, according to Ms. Chatzky, I’m doing pretty well. I’m paying less than her optimal budget would suggest for Housing (mortgage payment, HELOC payment, condo fees, and utilities, including internet and cable TV — I’ll debate whether cable TV is a Housing cost or a luxury or Life cost) and Transportation (again, we can sidestep the debate as to whether I should be factoring cab costs in as Life or Transportation), am putting more into Savings than she suggests, am putting a ton more to Other Debt Repayment, and am spending more or less what I should be on Life.
So why do I feel like I could be doing better?
Well, to start with, I’ll note that this is a major approximation, partially because I’ve run these numbers on an approximate monthly basis. The problem is, no two months are the same! And yes, that is a problem! At the end of 2009, I’m going to have to re-run these numbers to see how I did on an annual basis. Obviously, my percentages change in the months after I stop paying Social Security tax, but regardless, my monthly budget is never exactly the same, which some (including yours truly) might say is a problem in and of itself. Plus, I refinanced this year, which I suppose represents an additional Housing cost; however, that has freed up more money that should probably be going to Other Debt Repayment. And I put my tax refund towards Other Debt Repayment, for the most part, which would change the numbers on an annual basis. And I fund a Flex Spending Account and am not sure exactly where to factor in those dollars…and what about copays and prescriptions?
But I digress, and, for that matter, I’ve gone cross-eyed — thinking about this stuff makes me crazy sometimes and keeps me up at night! OK, deep breath. The blogosphere wasn’t built in a day, and there’s plenty of time to tackle these thoughts in future blog posts. And I’m back.
Next, if you examine my figures closely, you’ll notice that my percentages have changed, perhaps in an unfavorable or unexpected way, now that I’m not paying Social Security tax. In a perfect world, I’d put all of this “found money” (that I get once I stop paying Social Security tax) towards Other Debt Repayment — but in reality, my monthly percentage is lower than when I’m paying that money as taxes! My Savings rate drops a bit, but my Life percentage goes waaaaay up! This means I’m spending this “found money,” and this is a problem. I’m really going to need to tighten the belt!
One issue is that costs just come up sometimes, and it’s tough to always budget for everything. For example, I had a large doctor’s bill pop up recently, and I also re-joined my gym, which I hadn’t necessarily been expecting to do. Fortunately, I’m able to “afford” (i.e., not go into additional debt to pay for) these items, but the money has to come from somewhere — and based on my current budget, that somewhere is always Other Debt Repayment. But the less I put towards my debt, the further I am from financial freedom and being able to sleep at night!
One big problem that I must address is that after I budget for my necessary costs (i.e., Housing, Savings, regular bills, etc.), I’m left with a pile that I don’t really refine any further. For example, I don’t say to myself, “TSF, you are only going to spend $X on food this month, $Y on entertainment, and $Z on the unexpected things that come up.” Sometimes I run out of toiletries and need to pick some stuff up. Other times, a friend from out of town arrives unexpectedly, and we go out for dinner. I also like to take my girlfriend out on the town every once in a while! While I recognize that this is my problem (i.e., I need to set a limit and not reach into the cookie jar when I want to spend more money), I see this as a problem with Ms. Chatzky’s Life pile: it’s easy to have a catch-all category, but if you’re not setting specific limits on what constitutes that category and how much you spend on each subcategory, you can find yourself in trouble. Plus, when these “unforeseen” expenses come up, where does the money come from?
I’ve read a lot about Dave Ramsey’s envelope system, and it’s something I’m potentially interested in exploring. I’ve also read a lot about ING Savings Accounts that can be customized easily into various sub-accounts for various purposes (i.e., travel in March, wedding coming up in May, and maybe a general “unforeseen expenses” category separate and above an emergency fund).
And I’ve digressed again! If it were up to me (wait a tick, it is up to me!), here’s about how my budget would look on an annual basis:
Transportation: 0% (again, factoring cabs in under Life)
Other Debt Repayment: 40%
Savings: 15% (I max my 401(k), so whatever percentage that is of my annual net income…let’s call it about 15%)
Of course the figures will be different at the end of this year because I refinanced my mortgage — so my monthly payment shrank, but I came out of pocket to shrink it. I’m sure there’s an accounting mechanism that would help me flesh this out, but I’m not an accountant!
Anyway, I will revisit this post later in the year to see how I did, and I hope to have some detailed posts in the future about where my money goes each month. I still have a lot of work to do in refining my own budget and yardstick, and I think the end of 2009 will provide a good time to sit down with a pencil and paper and crunch some numbers. But in the meantime, I’m interested in hearing what is your optimal budget, rather than how you measure up to someone else’s yardstick.