Anyway, go check out the cool graph at Mint.com

http://www.mint.com/blog/trends/student-loans-08242010/

As I looked over the numbers on the spreadsheet, one number really stood out.  It was the “total monthly expenses” number.  The number was actually higher than our expenses are today.  I won’t lie.  It put a smile on my face, mostly because it made me feel like we’re succeeding at keeping lifestyle inflation away.  What’s even more remarkable about this is that we really haven’t sacrificed in order to do it.  In the last four years we’ve purchased a new car (it’s paid for), built a second home (it’s paid for), taken a couple vacations, re-roofed our home and had multiple other expenses pop up.  We were able to do these things because we have managed to keep our monthly committed expenses at about the same level as they’ve been for years which has freed up additional monthly income to keep our emergency fund full and cover all those unplanned expenses that come up.

How have we managed to keep our expenses level for this many years?  One bill at a time.  I have always considered recurring monthly expenses to be evil.  They will suck the life right out of your budget if you don’t keep a close eye on them.  By paying close attention to all of our monthly bills, I am able to keep them as low as possible, evaluate which ones we are truly getting our money’s worth out of and ditch the ones that just don’t make sense.  Here are a couple examples:

Car payments:

We used to always have at least one car payment.  We just accepted the fact that people always have a car payment.  A few years ago, I decided to quit the car payment rollercoaster.  That has freed up over $300 per month in our budget.  By saving up and THEN buying the car, it proves to us that 1) we really wanted the car and 2) we can afford it.  This has probably had the single biggest impact to keeping our monthly bills at a minimum level.

Cable and Telephone:

A long time ago in a galaxy far away, we used to have a home phone line with all the bells and whistles.  Caller ID?  You bet.  Voicemail?  Yep.  Call waiting?  Uh huh.  Now we don’t.  We maintain a home phone line for $21 per month, solely so that I can use it for work.  If not for work, we wouldn’t even have it.

Cable has also been a drag on our budget over the years.  I’ve been pretty religious about calling to negotiate a lower price, but recently we went a step further and scaled back cable to only our local channels.  We haven’t missed cable even ONE bit.  Between the local channels, our old Tivo box and the cheap $8.99 a month Netflix plan, we have more TV than any human should ever watch.  We also save hundreds of dollars a year compared to the old days.

Electricity and Gas:

Growing up in a house where we didn’t have a lot of money, I was always told to turn off the lights when you leave a room.  It’s a hard habit to break.  Between my wife, daughter and I, we do a pretty good job of turning off lights and only using electricity in the room that we’re in.  We also keep the heat at a lower level than most (somewhere around 67-68 in the winter) and keep the A/C off unless we REALLY need it.  We also heavily use CFC bulbs in the house to minimize the amount of electricity we use for lights.  All these techniques save us hundreds of dollars a year compared to the equivalent houses in our neighborhood.  How do I know this?  I get a letter once a month showing our energy consumption compared to our neighbors.  We consistently beat even the “most efficient” neighbors.

No Revolving Debt:

By not having any credit card or consumer debt, we save a ton of money on interest compared to those people that do carry revolving debt.  It also frees up monthly cash flow.  It’s nice not having a line item on our budget that has the minimum monthly credit card payment on it.

Shopping for Insurance:

I used to just send my checks in to the insurance company, resigned to the fact that insurance just costs lots of money.  This year, I’ve taken a more aggressive stance on insurance.  By shopping this year, I’ve been able to reduce our insurance costs by over 15%.  It all adds up.  I’m done being loyal to one insurance company.  I make all the other companies out there earn my business.  Why not make insurance do the same thing?

Home Mortgage:

Since having a mortgage seems to be a given where I live, at my age, I might as well make sure I’m getting the best rate possible.  By having good credit scores, my wife and I have been able to lower our interest rate by nearly a point.  That change shaved nearly $200 a month off of our house payment.  Yes, we had to extend the loan back out to 30 years but I’m mitigating that by paying bi-weekly (works out to an extra payment each year) and throwing a bit more at the mortgage every so often.  Just these steps should get the house paid off faster than before the refinance, with a lot less interest paid.

None of this stuff is rocket science.  I get that.  I guess the main reason we’ve been able to keep our expenses level over a number of years is that we’ve refused to allow lifestyle inflation to increase them.  We’ve been on a “pay as you go” plan for a number of years so that we still enjoy the things we really want without committing to additional fixed monthly expenses.

This article screams “personal responsibility”.  Whether it be Cortney, or her mother.  They both should have had the basic knowledge to know that 1) amassing $97K in school debt is not a good plan and 2) the burden this debt will cause her for many years because, even in bankruptcy, there will be no way to shed it.  I feel bad for them, but at the same time, I think they should have thought a lot harder about what they were getting themselves in to.  It appears that the mother doesn’t have a lot of personal finance knowledge which probably contributed to the overall situation.  My parents weren’t financially savvy but, even at the age of 19, I knew amassing a large amount of debt wasn’t a good idea.  I posted about the value of a “high cost college” years ago with the general view that attending a high cost college to obtain a low value degree was a bad idea.  In this case, Cortney spent all that money getting a religious/women’s studies degree.  If that’s her passion, great, but my estimation is that she could have learned much of the same information at a lower cost state university.  I don’t believe she got a good return on her investment because her earning potential with that degree from NYU is most likely not enough to justify the high cost of the degree.

Anyway, it’s worth reading.  Go check it out.

House: $340K

Lake House: $155K

Toyota Truck: $9K

Honda CRV: $24K

Boat: $8K

Yamaha Quad: $4.5K

And a number of investment accounts which I won’t total out here (where the majority of our net worth sits).

All of the assets are paid for with the exception of the “House” and “Honda”. We have a reasonable mortgage that is much less than the house is worth and a small amount owed on the Honda.  Everything else, including the lake house, is paid for.

That stuff is all pretty static.  What I’ve been paying the most attention to is our income vs expenses.  I’ve always prided myself on keeping our expenses at about 50% of our after tax income (Including after 401K contributions).  For those of you that have been around here awhile you’ll notice that there is an asset up above that I haven’t been completely up front about.  The Honda CRV was purchased about 6 months ago.  I broke every rule in the book and bought it new because my wife wanted it.  She is very good about not spending lots of money and doesn’t purchase lots of clothes, shoes and all those other things that some of the more “high maintenance” wives would so I really didn’t mind buying this car, although we could have saved ourselves a bit if we’d simply followed the basic rules of buying a car.  (using a broker, buying used etc etc).

Anyway, I opted to finance about $10K of the cost because I didn’t want to reduce my emergency fund.  I could have paid cash for the entire purchase, but I decided it was worth the monthly interest (at 4%) to keep a cash cushion.  Unfortunately that payment has pushed us to spending about 54% of our after tax income.  I’m no longer at my 50% expense limit and it’s really bothering me.  Yes, things are still rosy at our house financially but I’ve declared war on the balance of that car and am throwing a few thousand a month at it to wipe out the balance.  I’m looking forward to the day that I see our monthly expenses below the 50% mark.  I think we’ve got about 3-4 months to go.

This was bound to happen sooner or later because I stopped getting paper copies of our bill a few months back and the only notification I get that the bill is due is an email.  With the amount of email I get I just glossed over the notice.

Since this has never happened before and I maintain a balance of more than $30K in my credit union accounts, I decided to call them and play the “good customer and this never happens” card.  I called and talked to a lady who was happy to remove the fee.  Phew.

I don’t think this will happen again simply because I’ve learned my lesson.  When I get one of those emails, I need to address it right away, as opposed to putting it off and thinking I’ll get back to it.

It’s definitely worth taking a look to see where your bank or credit union falls.

What makes this more difficult is that we live in a part of the country where housing is relatively expensive.  The original purchase price of our house was $280,000.  While we’ve been paying on that for almost 7 years, we still have a long ways to go.  The good news is that if we were to magically find about $130K, we’d have the option of paying the house off.  You can bet if we do come in to any amount of money like that, we’ll definitely pay the house off right away.

The thought of living in a home that is paid for is very exciting to me.  While we’d still have taxes and insurance to worry about, the reduction in our monthly bills would give us a ton more options.  Even with the mortgage, we are currently living on about 50% of our after tax monthly income.  If we were to lose our mortgage as well, it would drop us down to living on about 32% of our after tax income.  At that point, we could definitely think about pursuing work that we are more passionate about with little regard to what the compensation was.

I read an article today that talks about a recent Slate commentary from Charlie Munger titled “Basically, It’s Over”.  If you aren’t familiar with Charlie Munger, he’s been the sidekick of Warren Buffet for decades and I consider him to be pretty damn smart.  While you can always find gloom and doom articles out there about the end of America etc etc, I’ve always been impressed with both Warren Buffet and Charlie Munger.  They have always seemed incredibly honest and they have a great way of putting things.  So, when I read the article, I have to admit, it put a bit of fear in me.  I’ve often wondered how long we can sustain the massive debt levels that we’ve seen over the last decade (and beyond).  There is not a limitless supply of money or resources in this world and sooner or later all the excess spending at the government and personal level is going to come back to haunt us.  It appears that it might be sooner than later.  I found the comments about “blind optimism” to be very interesting.  While I haven’t studied history as much as I should have, I do know that we’ve seen many societies rise and fall.  It’s fairly likely that eventually the US will fall from world dominance and now seems like as good a time as any.  With trillion dollar deficit spending, the rise of a global economy and educated global workforce, rising unemployment and consumer debt levels that have never been seen before, it’s not a tough case to make for a rather gloomy future.

On the plus side, I just saved a ton of money on my car insurance……

Anyway, go check out the Yahoo article and the original Charlie Munger article as well.  Definitely worth reading.

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Am I saving enough?

It’s a thought I have often.  We are saving well over 20% of our before tax income in our retirement accounts and are trying to build our emergency fund up higher, although I will confess I’ve slipped up on that goal more than a few times.  The good news is that we do have at least 6 months of income saved up and it’s easily accessible.  When you combine that with the safety nets that the local/federal government provide (unemployment benefits), our emergency fund should last us more than a year.  On top of that, the most likely scenario is that one of us would still be working.  In that case, we could go for years without my income because we have kept our fixed expenses very low.

Is my resume current?

I haven’t done a very good job of keeping up my resume, but with a few minutes of work, I think I could have it tuned up and ready to send out.  I’ve also kept up my contacts at previous companies and try to maintain a large network of contacts that I would certainly get in touch with if I found myself looking for work.  The most likely way that I would find a new job is through referrals and connections.  Blindly sending out a resume in this environment would likely not yield any results so my personal network is as important as ever.

Am I doing all I can to be valuable at work?

I’m definitely reevaluating my role at work and am going the extra mile to make sure things are done right and done quickly.  I’m also keeping in touch with my boss to be sure I’m doing all that’s needed.  I actually just met with him yesterday to lay out performance goals for the year and then we had lunch afterward.  My sense is that I’m still considered a valuable member of the team and would be one of the last to go if layoffs were to happen in our group.  I’ll continue to watch my performance and volunteer for extra work.  By doing this, it will help me gain even more visibility with my management chain and hopefully reinforce that I’m one of the key players on the team.

Are we keeping our bills to a minimum?

I’m still religiously watching our fixed monthly expenses so I know we are doing all we can to keep our bills low.  Our total fixed bills for things like mortgage, utilities, gas, food etc are still floating around 50% of our after tax income.  If we were to lose our jobs, we could probably reduce that another 5-7% by really locking down spending and getting rid of expenses like Netflix, cable and a couple other “extra” expenses that we have now.

All in all, I think we are doing all we can to prepare for the day that we might be faced with a layoff.  By spending far less than we make, and saving some of our monthly excess income, it is providing us with a level of security to weather most any storm.  If we hadn’t been doing this for so long, I think we’d be much more stressed out about potentially losing our jobs, that’s for sure.

The report, Forrester’s annual Customer Advocacy rankings, ranks nearly 50 financial services firms in the United States by the percentage of each firm’s customers who agree with the statement: "My financial provider does what’s best for me, not just its own bottom line." The results are based on a survey of about 4,500 consumers.

The bottom seven of this year’s rankings, first to last, are Bank of America, Chase, Capital One, TD/Commerce, Fifth Third, Citibank, and in last place, HSBC.

Among Bank of America customers, 33 percent agreed with the statement above, while 31 percent of Chase customers agreed, 29 percent of Capital One customers agreed, 28 percent of TD/Commerce Bank customers agreed, 27 percent of Fifth Third Bank customers agreed and 26 percent of Citibank customers agreed.

A full 33% of Bank of America’s customers believe that their bank is looking out for them.  That means 67% do NOT.  Wow.

Have I mentioned I’m a big fan of credit unions?  The number one reason that I like doing business with a credit union is that they aren’t trying to make a profit from me.  That results in higher rates on deposits, lower rates on loans and lower fees.

Anyway, go check out the article.  It’s worth reading