Monthly Archives: July 2011

A Frugal Marriage, Five Years in the Making

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The following reader story was submitted by Dr. Graeme Gibson, D.C. You may read more about Dr. Gibson immediately following this post. If you have a story you’d like to share here as a guest post, please contact me.

We had “The Talk”

This July 2nd my wife and I happily celebrated our 7th wedding anniversary. In our seven years together as a married couple we have experienced loss (mother, aunts, grandparents, friend), gain (our two children, nieces, and nephews) and believe it or not, financial prosperity.

This last one may not seem like a big deal on the surface, but I believe our mindset about money is what has allowed us to survive the good, the bad, and the ugly during our years of marital bliss.

We had a “plan”

It is funny when you look back on the past and think about the decisions a couple makes together. In this case, we had a 5-year plan of when we were going to have children, which got interrupted with the arrival of our son one year later.

We also immediately combined finances, which eventually forced us to communicate better about our finances. I believe it was after the third overdraft fee that we started to discuss who was spending what, how, and why.

At this time, I would like to add that I would be considered the larger spender than my wife, but that is not to say she hasn’t had her moments. Over time it has definitely been me.

In spite of the stress of a beginning marriage we have always been open with each other. However, there remained an underlying financial pressure that was created by yours truly. In a time that seemed like the good times would never end, we were no different than the rest of the country:

  • We had a nice little home, taken out with a 0% down loan.
  • We had 2 cars and one had an amazing $545.00 per month car payment over 60 months.
  • I had a student loan payment of $750.00 per month over 30 years at a rate of 8.25% (No problem here, I just sunk it into our home with a Home Equity Line of Credit.)
  • We also had a few thousand dollars on some credit cards, but who’s counting?

While my wife is a teacher, and I am a chiropractor in Seattle, we felt that this was a normal and acceptable way to live. Everyone’s doing it right? Wrong. At least the smart ones aren’t.

Shortly after we had our son, I was reading a Harper’s Index where they broke down the potential of the housing bubble and mortgage crisis. This was in early 2006, and we took action by 2007. We took action selling our home at the peak of the market, selling our expensive car, and had a small sum in the bank for the first time ever. My student loans were also a thing of the past.

We felt on top of the world for about 1 day, as the outside pressures to own a home overwhelmed my better judgement. So we purchased a bigger home in an even nicer area. Looking back, you could even say it was the “peak” of the market. Ugh.

How I learned to love the financial collapse

A few months later, we were in our new home. All of the financial gains we had made were now gone, plus we added to the frustration our now extremely large mortgage payment.

You never truly understand the power of “interest” until you put yourself behind the eight ball.

Within 2 years of living in a home that we had to constantly fix (foundation, deck, stairs, plumbing), the financial collapse begins! Is anyone with me when I say I know what a sleepless night is all about? A wife, a child, huge monthly payments, and now the world seems like it’s ending.

In a way, that’s exactly what happened to us.

The Talk

Prior to the collapse, we had just survived an unusually devastating winter in Seattle. I car was stuck in the driveway for 2 weeks (as all cars were), and I began to believe we needed a new car. Maybe an SUV or some type of 4-wheel drive. So I started to look for a new car, only to come across a Dave Ramsey video about a free car for life.

After seeing this video, I began to see the error of my ways, and started the investigation into living debt free. I started to consider living below our means, and living a frugal lifestyle.

Following this revelation, my wife and I spoke about my new found knowledge, and believe you me, it wasn’t an easy subject to approach. Some of the things we spoke about that evening:

  • Sharing our home by renting out one or two levels (this would cut our living space from 2600sq/ft to 900sq/ft.)
  • Cutting our expenditures
  • Clipping and collecting coupons (before it was all the rage)
  • Saying no to things we think we want
  • Eating our meals at home more often

The toughest suggestion was the sharing our home by renting it out, but I needed to discuss worst case scenarios BEFORE they hit.

There is an enormous difference between choosing to live a frugal lifestyle, and being forced to live a frugal lifestyle.

Once “the talk” was over, I realized how amazingly understanding my wife was, and that she too was worried about the same things. We made the changes accordingly, and began the frugal walk down the aisle together.

Frugal living on our 5th

Our 5th anniversary was the first one where we decided to live frugally, however, we also wanted to do something special since it was such a special number. I decided to spend frugally at one of the most posh places in town. Knowing full well a dinner including appetizers, drinks, wine, and dessert may easily approach $500.00 or more.

Without getting into great detail, we managed to keep our night under $200.00, after tipping the wait staff and valet. Obviously this was an expensive night out, but my wife deserved something extremely nice for putting up with me for 5 years.

Some of the things we did to make our night a little less expensive:

  • We brought our own wine and paid the minimal corkage fee
  • I purchased 2 gift cards I found on Craigslist (after verifying they would work by telephone)
  • We shared our appetizer and dessert (something we normally would not do)
  • In spite of our living on the cheap, we made sure we had enough money to tip appropriately, as it is my opinion that you should always tip properly. If you can’t, you can’t afford to eat there.

We had such a wonderful time, and we didn’t walk out of that dinner with any debt or credit card payment. That made me even happier.

Frugality preparation saved our home and marriage

The change to a frugal lifestyle happened in 2007, and in the time that has passed we have been able to solidify our fiances while cutting our debt at the same time. This has allowed us to live freer, healthier lives, and set an example for our children.

It is my belief that if our open communication about our finances, and decision to live frugally together had not happened, there would have been an excellent chance of us not making it to 7 years. If we had, there is no doubt we would be absolutely miserable and crushed by mouting debt.

The decision is always in your hands, and making the frugal living choice togethe is far superior to being forced into that position.

About the author: Dr. Graeme Gibson, D.C. is a Seattle chiropractor. When he is not enjoying his practice he loves to spend time with his family, playing sports, and writing about physical and financial health. If you want to read more, please visit his Seattle chiropractor blog.

Driving a Paid-For Car on the Road to Wealth

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For the thrifty individual, buying a new vehicle is anathema. But sometimes the buy-quality-and-hold approach pays off in the long run. In 1967, my dad bought two new cars: an AMC Rambler and a Chevrolet Stepside C-10 Pickup. He had the car for more than 20 years and the truck for over 30. As a matter of fact, the truck outlived my father. 

With a brutal, roundtrip commute of about 150 miles every day, plus long family road trips on our school vacations, he managed to put nearly a million miles on the Rambler over its lifetime. When my older sister eventually got her driver’s license, being the frugal dad that he was, he sold the car to her. 

These days, folks have a tendency to trade in their cars every few years, always looking for a newer model with the latest bells and whistles. When I think of drivers who can’t get out of a parking lot without a GPS or who can’t live without seat warmers or decadent stereo systems, I am amazed at how our needs have changed. The old Rambler had an AM radio and what my dad jokingly called “Four-Sixty” air-conditioning—all four windows rolled down while going 60 mph.

People are so accustomed to nearly new cars that an odometer tripping over to six zeroes is now a newsworthy event or at least fodder for the marketing department. The Million Mile Pickup made headlines a few years ago, and at one time, automaker Saab offered to give a free car to any original U.S. Saab owner who logged over 1 million miles.

Those who hang on to their paid-off vehicles reap benefits beyond just freedom from monthly car loan payments. Older cars, like Frugal Dad’s 20-year-old van, might not turn heads but make up for their lack of pizzazz in other ways. Insurance premiums are significantly lower on older cars. Some states have reduced registration fees and much lower personal-property taxes for older models as well.

Note from Frugal Dad: I’ve been doing some work on the old van, and when I get it running again and cleaned up, I plan to share some pics. It occurred to me that I’ve talked about her for years, but never shown her off. Stay tuned!

Many consumers try to justify the purchase of a new car by saying that maintenance costs on an older vehicle negate the financial benefits. According to a 2010 Kiplinger article, barring a catastrophic mechanical problem, it is nearly always cheaper to maintain and operate an older, paid-off car rather than carry a car loan.

Bankrate.com, an aggregator of financial rate information, also advises consumers to hang on to their cars until the bitter end. Everyone knows that a new car’s value plunges as soon as it is driven off the lot. Depreciation is rapid for the first few years but levels out after eight or nine years. If you have a well-maintained, paid-off car in this age range, pat yourself on the back: your car is now holding its value well.

Drivers may be starting to wake up to the benefits of buying and holding. According to the automotive market research firm R.L. Polk, Americans are keeping their new cars for an average of 63.9 months, a figure that has been trending upward since 2008. Figures on used cars are also climbing, with 46.1 months as the average period of ownership.

For many people, having a new, luxurious, or otherwise impressive vehicle is very important. They may feel that their car reflects their social status, denotes professional success, or projects style and sophistication. No longer merely a contrivance to ferry passengers from point A to point B, in our culture, the car has morphed into a statement of self. Many people are so caught up in appearances that they neglect to save for their retirement or their children’s education in order to drive expensive cars.

I suppose I fall more into the buy-and-hold category than the shop-to-impress category: I’ve had the same used Honda CR-V for the last 12 years. I’ve logged about 146 months and have racked up nearly 179,000 miles, many of which have been accumulated on the punishing roads of Costa Rica. Although one of my friends recently pronounced my car “old and shabby,” I am unperturbed. I don’t expect to match my father’s record, but somehow, I think he would approve just the same.

This article was written by contributing author Laurel Gray.

First Retire, Then Have Kids

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The following guest post is from Mr. Money Mustache (check out his blog by the same name, MrMoneyMustache.com). More about him immediately following the article.

I have a far-out idea to share with the next generation of the American middle class.

Right now, I’m speaking specifically to the young people who are finishing up a college degree, perhaps in a promising field, and starting to get interviews for jobs with salaries they could only dream of just a few years earlier. The Adult World lies exciting and vast before you, and the Opportunities are unlimited!

At this point, let’s imagine you just dive in and start playing it by ear. You work hard at the new job, buy a new car, rent an apartment, enjoy restaurants and vacations, and may even save towards the downpayment on your first house.

There is usually a student loan still kicking around, and then a car loan, and maybe even some credit card debt that pokes its head in at some point. Meanwhile your new career advances quickly and within a few years you’ve almost doubled your new graduate salary – perhaps you are now making $60-100k or more.

Eventually, you might pair up and move in with your true love, so that you are now sharing one nice place. Maybe it’s even your very own home. Now you’re about 30, and you are one of the lucky households with an income of well over $100,000 per year! But you’ve still got two student loans, two car loans, assorted other debts, and when you add everything up, you still have a net worth of less than zero.

You are thinking of starting a family, but something doesn’t feel right about your financial security. How did you work so hard for almost ten years and still end up having less than zero dollars? At this point, you turn to the Wise World of Financial Bloggers to see how to clean up your act. And you begin the long slog to get out of debt, just as your expensive first baby is born…

But since this surprisingly realistic example is still just fictional, let’s stop and rewind it back to the beginning. What if the college student or recent graduate could receive the life-changing advice of one of us Thirtysomething financial bloggers, and use it to their advantage? What knowledge could the wise blogger impart?

Here’s what I would say:

“Hey young fella (or lass). It’s me, Mr. Money Mustache. Congratulations on entering the fantastic world of Real Work!

But before you take off running, take a look over here on the side of the grand hallway we’re standing in. There’s a little doorway that most people don’t even notice, called Real Wealth. If you take that particular door, you have the opportunity to become quite rich by the time you’re in your early 30s… right around the time the rest of your friends are just realizing they must have done something wrong because they are still recovering from debt!

In fact, the situation through this door is so good, that you can even quit work entirely in order to spend time with your future children, and for the remaining 70 years of your life, work will be an enjoyable and optional part-time affair of pursuing your true passions in life. Sound good?”

As the New Graduate, you would probably be pretty excited to go through that door. It would put you on the path to True Early Retirement. Instead of spending all your money, I’d advise you to live on about $15 to $25 grand of take-home pay per year, and if you pair up into a couple, the number would become $20-$35k.

The rest – and I mean ALL the rest, regardless of how much you earn, goes into your early retirement fund. Maximum contributions to the 401k, and to Roth IRAs, and then beyond that to more low-churn growth investments that don’t generate taxable gains. Maybe even a rental house or two if you really want to be on the Bullet Train plan.

A plan like this may sound quite tricky if you’re currently stuck in the American Ultraconsumer mindset. But as someone who followed this exact path myself, I can tell you it is absolutely enjoyable, fun, and even still quite luxurious. I still owned houses and reliable cars and a nice bike, and did a reasonable amount of restaurant eating and travel through the whole process.

The only difference between me and my indebted thirtysomething peers is that I was much more careful about considering each purchase to avoid wasteful ones, and I was adamant about never borrowing for anything other than a house. And I married a woman who was willing to live the same fun lifestyle to reach the early retirement goal together.

The ultimate reward for us came with the birth of our baby boy in 2006. We had already retired from our real jobs and could share the joy and pain (OK, mostly pain for the first few months) of parenthood together, with none of the compromised career-juggling lifestyle that defines our country.

We actually do enjoy working, and still do a small and non-mandatory bit each week to bring in extra savings and interact with other adults. But taking the entire pressure of finance out of your life so early on, so that you can enjoy the next SIX DECADES focusing on more worthwhile things, is a worthwhile thing to shoot for as a new graduate.

So which door will you choose, Next Generation of the Middle Class? Will it be more of the same old same old, or do you want to try it the Mr. Money Mustache way?

Mr. Money Mustache is a 36-year-old married man with a 5-year old son living near Boulder, Colorado. He discovered frugality early on in his career as a software engineer and as a result was able to enter an early retirement at about age 30. He started writing the Mr. Money Mustache blog earlier this year after realizing that many people were now earning higher salaries than he and his wife had earned in their careers, yet were still enduring financial hardships every day which were interfering with their goals of raising their children.