Occupation

My work is far from prestigious, but is also a step up from some of the jobs I’ve held over the years (being on the business end of a walk-behind Ditch Witch laying sprinkler pipe during a Georgia summer was some of the toughest work I’ve ever done).  My current job would be best described in the “Computer and Information Systems” area, barely landing us in the upper middle class category.

Education

Though it took a number of years, three schools and the accumulation of some debt, I did finally return to school and complete my bachelor’s degree.  This accomplishment landed me in the top fifth category, but I wonder if a basic bachelor’s degree will one day soon be the equivalent of a high school diploma with the push for more government subsidized post-secondary education.  That’s for another post.

Income

The combination of my full time job’s income, and my work here at Frugal Dad (and other freelance gigs), lands me in the top fifth class.  This is a good lesson. I should be living the high life, or at least a taller life, but thanks to debt we are living on far less than we earn.  The gazelle intensity is worth the sacrifice though as we are hammering down those debt balances.

Wealth

By far the most disappointing results of the group. Between our remaining school debt, and the fact that my retirement accounts have been obliterated in the last year, this drove our net worth into the lower middle class territory.  I am not overly despondent about it, but it is a great reminder that I have work to do.

Lessons Learned

My wife and I “treaded water,” financially, for most of our 20’s.  Well, that’s not entirely true because we did accumulate some debt. We got married young, decided to have kids young, and decided she would stay home with the kids rather than pursue a career. It was a personal decision that worked best for our little family, but it was one that did not come without sacrifices.

Until I finished my degree, and broadened my experience in my current career field, my earnings were in the lower middle class income range. We survived, but had little disposable income to save and invest.  In our late twenties things finally began to look up as my income increased, and we began to adopt a more frugal lifestyle.

Now that we are in our thirties we have some ground to make up on those who saved more diligently in their twenties. It’s a bitter pill, but one I wouldn’t trade for my beautiful children and the life we are blessed with now.  However, our primary mission is to make up lost ground on our retirement savings, clear the rest of our debt, and sock something away for our kids’ college education.  Easier said than done.

Which class do you belong, according to the survey/tool? Do you agree?

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Over the last few months I’ve heard him (and others) toss around the idea that one can choose whether or not they participate in this recession. I know what he’s getting at, and depending on how your personal economy is going you might even find it inspirational.  However, if you just got laid off, and suffered some setbacks in the weeks and months leading up to it which melted your emergency fund, you may think differently.

A few months ago I wrote a post titled the Serenity Prayer For Finances.  Basically, it broke down the words of the serenity prayer and applied a financial spin.  Ramsey’s comments caused me to reflect on those words again, and wonder what things I have control over, and what I don’t.  Here’s what I thought a few months ago:

Stop and think for a moment about all the things that are currently causing stress in your financial life.  I bet there are quite a few you have control over, like overspending or expensive car payments.  But if you are like me there may be other things that are outside of your control, yet they continue to cause stress.

I still believe that’s true, and I’ve lived it for the last eight months.  My mom suffered an aneurysm and stroke at 53 years young last September.  She did things the right way – had a good job, good insurance, a little (very little) socked away for emergencies.  But nothing could fully prepare someone for 162 days in the hospital out of the last eight months, being reduced to disability pay, and watching her retirement savings be decimated in a bear market.  It was a perfect storm in her financial life, and it will probably affect her for the rest of her life.

The silver lining (and believe me, our family has had to long and hard to find one), is that watching her go through this has had a profound effect on us.  For the younger ones, it is a sobering reminder how quickly the carpet can be pulled out from under you – just when you thought you were hitting your stride.  It was a reminder that no matter how well you prepare, there is always that unknown lurking out there that can knock you off your feet – quite literally.

So I take exception to what Ramsey says.  Not everyone can choose not to participate in this recession.  The single mom working a part time job because her ex got laid off and no longer sends child support certainly is participating in the recession.  The husband and father of two delivering pizzas at night because the plant he works at reduced his hours is participating in the recession.  The kids feeling depressed and anxious because they overheard their parents fighting about money are participating in the recession.

I chose not to participate, too, until the recession found me and participated in my life.  Sometimes, that’s just the way it works.  Whether it is fate, or just bad luck, we’ll never know.  But to suggest our family, or any other family, chose this fate is naive.  Sometimes bad things happen to good people.  It doesn’t make them bad people.

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This all sets up to make us frugal types feel guilty over the current state of the economy.  As if it is our fault that people borrowed up to their eyeballs (and then some) for two decades while our government leaned on banks to be even more liberal with lending policies. Sorry, but I’m not buying it.  In fact, if frugality had been popular years ago perhaps we could have avoided the current crisis we are in.

How Did We Get Here?

We are all guilty of biting off a bit more than we could chew.  Often driven by the inflated lifestyles depicted in Hollywood, American consumers adopted a voracious appetite for all types of luxury items, and quickly became debtaholics to afford the lifestyle.  Borrowing against inflated home equity was “in.”  Creative financing was “in.”  Saving money and paying off debt was “out.”  The prevailing attitude was, “We’ll just save money and pay off our debt sometime in the future.”  Well, the future is now.

I wasn’t immune.  I spent much of the late 1990s and early 2000s trying to figure out a way to get rich quickly.  I even resorted to borrowing to invest because hours of watching CNBC made me feel like I was missing the boat.  I caught the boat, but the hope of sailing home free quickly became a ride on the Titanic.  I suspect many others went down with me.

How Do We Move Forward?

This period of reduced spending is likely to last.  Many baby boomers have seen their retirement funds decimated.  Many Generation X and Y workers have seen practically everything they’ve saved in a decade of work vanish in a few months. It is sobering to watch, and it will have long term effects on consumer psyche for some time.  But here is the $64 million question:  Is that really a bad thing?

Perhaps we all needed a little cold water thrown in our face.  Granted, we didn’t need to be hit by a fire hose that was the 2008 recession, but I think this might be a wake-up call that was long overdue.  We simply cannot continue to borrow our way to success – as individuals, nor as a country.  I know this is a politically touchy subject with the current debate on the much-maligned stimulus bill, but it really is the truth.  We are leveraging our entire futures in the hopes of a short-term gain, much like individual consumers did in the 1990s, and we’ve seen the consequences of those actions.

Should We Feel Ashamed By Our Frugality?

I’m far from the authority on frugal living, so I only speak for my family in saying no, we should not feel ashamed over being frugal.  What’s odd is how things have come full circle.  In the mid to late nineties when things were really clicking the idea of living frugal was a joke.  Frugal people were made fun of for their thrift, or dismissed as being cheapskates.  Then when things began to turn south suddenly frugality was cool again.  Now, some are beginning to resent those of us who choose not to boost the economy by buying a plasma television we can’t afford.

I suspect this article will be the first of many from the media, who will soon begin to blame frugality for lack of economic recovery.  I believe that blame is misplaced. They should be blaming themselves for perpetuating negative financial news for months on end.  They should be blaming Hollywood for selling us on the idea that borrowing and irrational spending is sexy, and saving money is boring.  They should be blaming politicians on both sides of the aisle for continuing to borrow and spend our hard-earned money on their own frivolous pursuits.  And we should blame ourselves for falling for it.

If our economy is going to turn around we must first turn around our own personal balance sheets.  Continue to build your emergency fund.  Continue to get out of credit card debt.  Continue to spend wisely.  Continue to look for new side hustles.  Once a thriving breed, the number of frugal followers may begin to shrink under the “patriotic” calls to spend beyond their means. Hold the line, my frugal friends, for this will be an epic struggle.

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This time around the plan calls for massive government spending–to the tune of $825,000,000,000.  Yes, that is a lot of zeroes–almost one trillion dollars!  In fact, the figure has so many zeroes that it is hard for us to wrap our brains around just how much money that represents. Consider the following example.

If our government spent one million dollars a day, every single day, it would take 2,260 years to spend $825 billion.  That’s right; 2,260 years!  If the bailout reaches $1 trillion it will be more like 2,740 years.  So not only will our children and grandchildren be paying for this so-called stimulus bill, but our future generations will be paying for this bill for decades.  I don’t know about you, but I don’t think it is right to leave our children with the burden of cleaning up our own mess–even if that means our lives will get a little tougher in the near term.

To suggest this new stimulus plan should be scrapped altogether is politically unpopular.  After all, many out there believe we have already suffered enough.  And it is true that many really have suffered in the form of lay offs, foreclosures and other forms of financial hardships.  I get that.

However, at some point I think we need to ask ourselves what the objective is here.  Is it an attempt to spend ourselves out of a recession?  Is it an attempt to nationalize more industry and a good portion of the labor force?  Is it a short-term solution that will cause more long term harm?  Political parties will likely clash over the details of the American Recovery and Reinvestment Bill of 2009.

It is the details that many average citizens are unaware of, and should be more highly publicized.  Whether or not you agree with the cause, I think you will find the obligated amounts staggering.  Here are a few examples:

• Job Corps Facilities: $300 million to upgrade job training facilities serving at-risk youth while improving energy efficiency.

• Education for the 21st Century: $41 billion to local school districts through Title I ($13 billion), IDEA ($13 billion), a new School Modernization and Repair Program ($14 billion), and the Education Technology program ($1 billion).

• Transform our Economy with Science and Technology:  $6 billion to expand broadband internet access so businesses in rural and other underserved areas can link up to the global economy.

• National Treasures: $400 million, including $200 million to address the deterioration of the National Mall, such as repair of the Jefferson Memorial’s collapsing Tidal Basin walls; $150 million to address the repair backlog at the Smithsonian; and $50 million for the National Endowment for the Arts.

• Smart Appliances: $300 million to provide consumers with rebates for buying energy efficient Energy Star products to replace old appliances, which will lower energy bills.

• Clean, Efficient, American Energy: $6 billion to weatherize modest-income homes.

• Pell Grants: $15.6 billion to increase the maximum Pell Grant by $500, from $4,850 to $5,350

• College Work-Study: $490 million to support undergraduate and graduate students who work.

Source:  House.gov

Frightening.  They toss around amounts like “millions” and “billions” as if they are trivial expenditures.  Where will this money come from?  If we raise taxes, what will be the effect on new business and entrepreneurship in this country?  If we don’t raise taxes, and instead continue the trend of deficit spending, what will happen to value of our currency over the long term?  I recognize I am a simple guy, but I don’t get the feeling these things have been properly analyzed in the interest of quickly pushing through a massive spending bill.

I don’t pretend to have all the answers.  Just as none of us are solely responsible for the current recession, none of us could single-handedly solve the economic ills of today.  However, what we can do is demand more fiscal restraint from our elected officials.  If you and I spent money at this same rate when we were already in debt we would go bankrupt.  Unfortunately, those same rules don’t apply to government.  Or, maybe they do.  I guess time will tell.  The problem is, we won’t be the ones to suffer for our national spending spree, that will be left to the generations who come after us.

Post by Frugal Dad

The Colorado Lottery saw record sales in 2008 of $499.4 million. The Florida Lottery recently joined the multi-state Powerball game in an effort to suck in even more players. What’s behind the success of these lottery programs in our society’s obsession with the rich and famous (thank you Robin Leach).

The Lottery Is A Tax On People That Can’t Do Math

For purposes of this discussion I am excluding people who play the lottery as a hobby, and can afford to do so. I’m referring to the guy with a wife and three kids at home with no money for groceries who is spending $20 a week on scratch off tickets. If that same guy would simply put the $80 per month in a good growth stock mutual fund for 30 years he’d “win” $100,000! That’s a pretty good payout, wouldn’t you say?

But you could never convince him. When advised to save $80 a month, his response would probably be, “We can’t invest $80 a month! We’re living paycheck to paycheck.” Frustrating, I know. That’s because most people can’t see beyond the next paycheck when planning their financial futures. They squander every single penny they have now and just keep hoping they next paycheck will last them another two weeks.

But What If I Win?

It should come as no surprise that people who win the lottery often wind up broke. People with poor money-management habits don’t suddenly get smarter if a whole bunch of money is given to them. About the best thing you could hope for is that they have the sense to hire someone to manage it for them. Even then, they often know so little about money that they can’t adequately over-see their financial guy, who proceeds to rip them off behind the scenes.

Winning the lottery is not all roses. Imagine the people in your past that would be looking up your number if they saw you on the cover of People magazine as the country’s latest $100 million Powerball winner. No thanks. While I would love to have $100 million, I prefer to accumulate it the right way by building wealth. If by some miracle I won the lottery (and it would really take a miracle since I don’t play it), I would give away the majority of the money, minus enough to pay off my debts and those of close loved ones. As the saying goes, “more money, more problems.” And I sure don’t need 100 million new ones!

Post by Frugal Dad

My fellow Americans, your government has been hard at work over the last couple weeks drafting a 451-page bill filled enough provisions to make your head spin. Billed as a bailout for the country’s financial system, the “emergency economic stabilization” plan contains quite a few important provisions. To save you the trouble of sifting through all 451 pages, I’ve highlighted below some of the more important legislative accomplishments.

• Sec. 325. Extension and modification of duty suspension on wool products; wool research fund; wool duty refunds. I think this means reduced tariffs on wool and wool products will continue through 12/31/2014. Good to know those who can’t afford their home heating bills this winter can bundle up with cheaper wool sweaters.

• Sec. 317. Seven-year cost recovery period for motorsports racing track facility. This one should be popular with all those NASCAR fans with their C.P.A certification. Hard to tell much from the actual language in the bill, but it sounds like the government is extending the time some “motorsports racing facility” has to recover building costs. Whew, glad they got that one hammered out–our economy was surely doomed without it.

• Sec. 503. Exemption from excise tax for certain wooden arrows designed for use by children. According to the text, this provision allows for an “exemption for certain wood shafts” from excise tax. The shafts are manufactured for use by children, but cannot be less than 5/16 of inch in diameter and must not be “suitable for use with a bow.” I guess that eliminates the shaft taxpayers received in the passage of this bloated bill.

• Sec. 601. Secure rural schools and community self-determination program. This section takes care of the “Reauthorization of the Secure Rural Schools and Community Self-Determination Act of 2000. Unfortunately, I have no idea what that means, but considering this section alone accounts for 49 pages of the overall bill’s text I can only assume it is something important. Forgive me, but I got lost when I hit the subsection that called for job creation in areas whose objectives would be to “control noxious and exotic weeds” while providing “improvements in forest eco-system health.” You can see how a regular guy like me could get lost in the “noxious weeds” of these 49 pages.

If you would like to read more about these critical pieces of legislation, you may view the full text here (pdf format). I’m sure you will be as comforted as I am to know that finally all the rural, wool-sweater wearing kids toting wooden arrows with no bows to the motorsports track are finally taken care of. Whew–What a relief!

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• Stockpile non-perishables using coupons from eBay.  I’m surprised at the number of mega coupon clippers who still don’t know that many clipping services make their “products” available on eBay. That’s right–you can buy coupons on eBay, often times in lots of 10 or more for just a dollar or two.  If you frequently go through a product with a long shelf-life, look on eBay for a coupon for that product.  Maximize savings by combining store sales with your stash of coupons and you can realize some significant savings.  Remember to watch those expiration dates.

• Create your own home survival kit.  Any prepared homeowner should have a basic first aid kid and emergency equipment including, flashlights, batteries, water-proof bags, matches, non-perishable food, water, and first aid supplies (tape, gauze, over-the-counter analgesics, etc.).  Even if you are not preparing to live as a genuine survivalist, it still makes sense to have a cache of supplies on hand.

• Spread some cash around, at home.  In times of disaster, natural or otherwise, it is possible that ATM networks and banks will be unavailable for cash withdrawals.  For this reason, it makes sense to keep a small amount of cash at home.  Put the money in a safe, lockbox, or keep it well-hidden.  It’s also a good idea to keep it in separate areas so your whole stash isn’t discovered by a thief.

• Get a side hustle.  I’ve mentioned in previous posts my affinity for side hustles–a part time opportunity that you maintain along with your full time job.  A side hustle can provide money in a crunch if you get a pink slip from your regular job.  It can also help supplement a debt snowball, or the beefing up of your emergency fund.  For maximum diversity, it might make sense to try a side hustle in a separate industry from your full time gig.

• Learn to entertain yourselves.  In addition to the economic benefits of things like frugal family fun nights, these events have a way of preparing you for the worst.  Not long after we relocated to our current city, a strong hurricane made landfall a few hundred miles from us and maintained much of its strength as it passed over.  We were without power for a few days, and practiced some of the frugal fun night activities such as “Power’s Out” and “Game Night”–both themes are filled with activities we could engage in without power.

Taking these types of steps does not make you an alarmist, it makes you prepared for the worst while you hope for the best. We continue to hope for the best for our country’s economy, but there is little doubt we will hit some speed bumps along the way.  Be prepared by taking these steps to recession-proof your household.

What steps have you taken to better prepare your household for a slow economy?

Post by Frugal Dad

After news began trickling out of Washington that we may be due another stimulus check, Pete from Bible Money Matters put together a great post asking why not just create your own stimulus check?  With news of the government (taxpayer) supported bailout plan dominating the news recently, I thought I would use Pete’s same logic by providing a few ways to create a personal bailout plan of our own.  After all, many of the problems on Wall Street could have been avoided if bankers and government regulators had applied the same common sense approach to money management that many of us out here in the real world apply every day.

• Don’t spend more than you earn.  Unlike the government, regular citizens cannot print more money or borrow it from foreign countries to sustain spending beyond what we are bringing in.  No, here on “Main Street” that behavior leads to debt, and not the kind that can be bailed out by taxpayers.  Create a household budget and stick to it.  If you don’t have the cash for something then you simply cannot afford it.

• Live frugal.  If more people lived well within their means there would be no need for this proposed bailout.  Just because opportunities abound to overspend, and there are people ready, willing and able to help you do it, doesn’t mean you have to take advantage of those opportunities.  Apply this logic to the housing market.  Just a couple decades ago people were perfectly content to live in homes with modest square footage, three bedrooms, and a small garage for knick-knacks and tools.  Now days everyone needs a bonus room, home office, double garage on a one acre lot.  To finance this “American Dream” many people leveraged their financial future borrowing over half of their income to support a house payment they really couldn’t afford.

• If you have debt, pay it off and fast.  There are various ways to pay off debt, but at the heart of all the plans is the basic idea that if you live on less than you earn you will create excess money that can be applied to your current debts.  That’s really all there is to it.  Some people line up their debts by interest rates, making larger payments on the higher interest debts first.  Others prefer the debt snowball method of paying balances off smallest to largest.  I don’t really care how you do it, just do it!  And don’t let people convince you that debt is good, or that if it is low-interest you are better off investing the money.  If you aspire to be debt free, tune out the naysayers and make it happen.

• Create an emergency fund.  With debts paid off, and living a frugal lifestyle, savings should be your next priority. Build a healthy emergency fund of 6-12 months of expenses–the more the better.  Many financial planners suggest 3-6 months of expenses saved, but I personally would sleep a lot better knowing my family could survive comfortably for a year in the event of a major emergency such as a layoff or illness.

• Don’t suffer a spending relapse. Often times when people reach this stage of their financial recovery they backslide into bad habits of excessive spending.  Think of times past when the government got control of spending, balanced a budget and shrunk the national debt, only to see spending increase as national events changed the political landscape.  The government does not get the idea of an emergency fund, because in their mind a surplus is simply money unclaimed by a new spending plan.  Do not repeat their mistake–keep money in your personal surplus set aside for emergencies and keep your spending in check so you don’t have to dip into these savings to finance bad habits.

In some cases the best form of education we can receive is to be provided examples of how not to do things.  The poor money management lessons from our Congress are a great example of this type of negative behavior modeling.  Whatever you do, don’t follow their lead with your own finances.

Post by Frugal Dad

Teaching a Man to Fish

A great article over at Moolanomy pointed out the similarities in giving additional stimulus checks and a famous Chinese proverb:

“Give a man a fish and you feed him for a day. Teach a man to fish and you feed him for a lifetime.”

I agree with Pinyo’s sentiments, and would add that by distributing two stimulus checks in the same year we are setting a bad precedent for rough economic times in the future.  Imagine five years from now, after years of economic expansion, we hit another snag.  Maybe this time it is the demise of the student loan industry, or maybe credit card debt finally reaches such epic proportion that borrowers en masse begin to struggle to meet minimum payments.  Citizens will once again be clamoring for another stimulus check, citing 2008 as the year the “government” sent out two stimulus checks to “help the economy.”

Save One, Spend One

Full statistics are not yet available, but I would suspect a large percentage of households put the first economic stimulus check in savings accounts.  Many others probably used the check for debt repayment.  I personally find nothing unpatriotic about either one of these plans.  However, it was the hope of most politicians that recipients would take the checks and spend, spend, spend.  What they failed to count on was a majority of the citizenry is up to their eyeballs in debt, and without a dime in savings.

There were a few other factors that contributed to foiling politicians’ plans for increased consumer spending.  Rising gas and food prices ate up a large chunk of stimulus payments, reducing what people were willing to spend towards a television or new clothes.  The real estate debacle also spooked many homeowners, who decided to toss the check in their emergency fund as a hedge against future problems meeting their mortgage payments.

Perhaps a second stimulus payment would spur economic spending, but I’d rather “the invisible hand” allow this to happen naturally, and without the artificial inflation of disposable income from yet another economic stimulus check.

Personal Loans at rates as low as 7.88%. Borrow up to $25,000. Good credit required.

Post by Frugal Dad

Over the next hour or so every single news segment presented had a negative slant.  They documented families passing up on vacation because of high gas prices.  They found a couple out and about who were all too happy to tell us about their mounting credit card debt, and falling home value.  I’m not naive to think that people are not really impacted by all these economic factors, but I can’t help but wonder if we shouldn’t be more responsible for our own happiness.  When did we turn the job of making ourselves happy over to politicians and media pundits?

The Pursuit of Happiness

Our founding fathers had it right when they documented our inalienable rights to “life, liberty and the pursuit of happiness” in the Declaration of Independence.  They did not guarantee our happiness, but guaranteed our freedom to go after the things that made us happy.  The execution of that plan would be up to us, but we now look to others to create happiness for us.

I am happy.  My family is happy.   There is little anyone in Washington, or in the media, could do or say to change that.  From a broader perspective, we are fortunate to live in an era of unprecedented personal wealth with high salaries, a healthy job market and access to one of the finest health care systems in the world.  That’s not to say our systems are without flaws, but when compared to other parts of the world, or other periods of history, we have it pretty well off.  I am free to move my family from one corner of the country to the other if we so desired.  I make a choice every morning about where I get up and go to work.  And if I find myself hating that job I am free to go look for another job that I love.  If I can’t find one I am free to work from home, be a full time parent, or start my own business.  I was provided public education through the 12th grade, and given all the opportunities that went along with it to learn and participate in extra-curricular clubs and sports.  I freely chose where to attend to college, who I married, where to buy a home, what type of car to drive, and what programming I watch on television (a shrinking list, these days).

I guess what I’m trying to say is that we as Americans take many of these freedoms and opportunities for granted.  As a society we’ve survived civil war, two world wars, a great depression, recessions, real estate bubbles, gas shortages, and terrorist attacks on our country and our interests worldwide.  We will survive these rough times as well.  We will persevere.  It may take a little longer to bounce back than the most impatient of us would like, but it will happen, eventually.

Are You Better Off than You Were Eight Years Ago?

The media likes to ask this question in the frame of a dig against the lame duck occupant in the oval office.  No one is spared, regardless of their political party affiliation.  But it is a ridiculous question when you think about it.  Are you better off now than you were eight years ago?  Yes, I am.  In eight years I’ve been blessed with two wonderful children, made a career change to a more enjoyable line of work, relocated to a new city, earned raises from my employer, returned to school to finish my undergraduate education, and enjoyed the development of new technologies. Those sources of my happiness had very little, if anything, to do with what is happening in Washington, D.C.

And if I had answered no, I am not better off today than I was eight years ago, who would I have to blame? I guess I could start with myself.  If I had not pursued the completion of my education I may not have been able to change jobs, move to a new city, and enjoy salary increases along the way.  If I had not married my soul mate I would not have been blessed with two wonderful kids.  These moves did not come without sacrifice.  We racked up some debt to cover the additional costs of my attending school.  I spent many nights away from my family sitting in a classroom (until I discovered the joys of online education).  I stuck it out at a job I didn’t like because I needed the benefits and earnings to pursue my education because I knew it was the path to something better.  I spent many weekends locked away in a study room at a local library preparing for tests, writing papers, and reading monotonous text books.  I could have simply given up.  I could have skipped all forms of reading and learning, and been content coming home from my dead-end job and parking myself in front of the television for six hours watching mindless television programs.  But I was too busy pursuing happiness, and thankfully I found it.

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