2009 Financial Resolutions

Another day, another year of financial goals to write down.  Here goes!

* 2009 Resolution #1: Beginning in February, I will put $2,000/month into accessible cash/emergency/non-retirement savings.
The $2,000/month target comes from the usual $500/month I put into my emergency fund + the $1500/month rent check from my tenant.  I need the January rent check to pay for my Invisaligns or credit card debt (one of the two), but if I’m careful with my money elsewhere I should be able to use February’s rent check for savings only.

$2,000/month from February through August (the last month my tenant will pay rent according to his lease) = $14,000.  Assuming the worst, that I have no rental income through the end of 2009 (and consequently that I could only put in $500/month from September through December) and that gives me an additional $2,000 ($14,000 + $2,000 = $16,000).

Hence…

* 2009 Resolution #2: I will add at least $16,000 to the existing balance of my emergency savings this year.  
If I do, my emergency fund balance will be about $26,000, which is exactly what I want.  With $26,000 and unemployment, I could live for at least six months and not lose my house in a worst case scenario (which is losing my job and not finding one for a long time).

* 2009 Resolution #3: I will sign the Compact for six months (January 1 – June 30).
Lord, this one is going to be hard.  I don’t really want to do it, but I need to do it.  I just don’t think I’ll stop shopping and using that credit card for non-essential expenses.  Besides: I don’t need anything.  How fortunate am I to be one of the few people on Earth who can say that?

My Compact exceptions (many people have them) are:

• Yarn.  I’m not even apologetic about this one.  I knit.  I rarely find used yarn and I don’t have the time to go hardcore, buy used sweaters, unravel them, and dye the yarn.  I work full time and am finishing my Ph.D.  I can have new yarn.
• Underwear.
• Gifts for others.
• Stuff for our wedding.  I was able to buy all of our linens used, at estate sales and thrift stores, but am not sure I’ll be able to do this with everything.  I’ll try, but I’m hedging.

Discipline and Punish

Changing your behavior is tough.  Or rather, changing my behavior is tough.  I totally lack discipline about some things, like doing the Master Cleanse or fruit fast or, well, any kind of detox really.  I’ve never lasted a day.  I also buy product (i.e. make up, shampoo, especially Aveda anything) like nobody’s business – though I know it’s out of hand and periodically say “No more!”  

The bad news?  My lack of discipline has reappeared in my financial behavior. Since paying down all of my credit card debt and keeping it low enough that I can pay the balance in full each month, I tend to be very forgiving of myself when I’ve been overspending again.  Recently, for instance, I have taken money out of my emergency fund to pay off a credit card balance.  Yep.  

That act might not SEEM that bad.  I’m paying off a balance, after all.  But it’s very bad.  Touching savings is like shopping: The more you do it, the easier it gets.  And if I were to lose my job, as so many people are right now, I would want a nice big emergency fund over Aveda product.

Let’s take a look at how far in hock I am, again.

Credit Cards

• $420 balance, due 11/15
• $1,937 balance, due 11/17 ($1,250 of this is a 50% down payment for Invisaligns for my teeth.)
• TOTAL = $2,357 

 

I originally planned to take money out of my emergency fund to pay off the balance.  If I did, I’d have less than $4,000 in my emergency fund.  I hate that idea.

Then I told myself it wouldn’t be so bad, that I could just deposit the Nov. rent check from my tenant for $1,500 to bring my emergency fund balance up to $5,400.  I still didn’t feel any better – and every time I’ve failed to listen to my gut, I’ve paid the price.  I cannot, cannot get in the habit of using savings to pay for semi-frivolous spending.  Instead, I’m going with…

Plan B  

There are other ways to pay off my credit cards.  If I have to pay some finance charges, so be it.  It’ll be a good reminder to me to stop using my credit cards for most things.  I deplore paying finance charges, a huge inspiration in my paying down nearly $10,000 before.  

My Plan B is nothing new to anyone who has read basic books on personal finance: I will pay the minimum required payment and as much additional as I can, for the next (mid-November) payment deadline, out of my “regular money” (i.e. salary income, not any sort of savings account.  That means:    

 

• $38 minimum payment (on the $1,937 balance card)
• $24 minimum payment (on the $420 balance card)

That’s doable.  

There will also be a Nov. rent check from my tenant waiting for me in a few weeks, when I get back from working overseas (also a reminder to test direct deposit with my tenant!  There’s money I don’t have access to that I could really use right now!).  All of the Nov. rent check will go to the card with the largest balance and highest interest rate (that’s the $1,937 balance, in case it wasn’t obvious), leaving a $437 balance on that card.  

Also doable.

That payment strategy will leave me with a maximum of $800 in credit card debt (less, since I plan to pay more than the $38 and $24 minimum payments).  

Finally, I will throw a few hundred dollars at any remaining debt on two upcoming pay days (11/15 and 11/30) and use the Dec. rent check from my tenant to pay off any remainder (though there really shouldn’t BE a remaining balance come Dec. 1.)

Heuristics and Biases

The title of this post comes from one of my favorite books on my favorite topic, behavioral finance.  Heuristics are mental shortcuts (not always rational ones, though they seem rational to us) that affect how we think about and behave with money.

This keeps me on the prowl for mental shortcuts I might be making or biases I might have.  One example is the difference between what I think (through quick mental calculation) that I spend on something vs. what I actually spend on something – like most people.  Here are some differences I found in my Mint.com trends today.

Air Travel
I think I spend a lot more money on air travel than I actually do.  In my head, I add up the domestic flights I take at about $300-$600 per flight, with one or two $900-$1,400 international flights thrown in, and I easily arrive at about $4,000/year. But I’ve actually spent less than $1,500 on air travel in the past 12 months, which includes all of my plane travel through the end of 2008.

Food
This is tricky: I am sure, very sure, that I spend a lot more money than Mint.com says.  I think I have a good sense of when I’ve been eating out too much and not packing my lunch enough.  But, I’ve only recently started tracking cash expenditures diligently again so I have to trust what Mint.com says for now.  I know a lot of my “ATM Withdrawals” are for food.  Let’s see if I’m right in another month or two.

For May 1 through July 1, 2008 I spent $893 on Food and Dining; from July 1 through September 1, I spent $827.  That’s oddly even keel.  I will bet myself a non-Friday cup of coffee that I spend at least an additional $800 month in cash on food expenditures – eating out, groceries, coffee, wine.  We shall see.

Shopping
This was an easy one, and my mental assessment of “I am bleeding money out of all pores” was dead on.   From May 1 through July 1, 2008 I spent $173 on shopping.  From July 1 through September 1, I spent $647 on shopping – almost exactly $500 more.  And remember, my Mint.com Shopping category doesn’t count the $663 for 50% of the blinds for my condo, which I classify as home improvement and maintenance for my tenants.  This means that, more accurately, I spent $1,310 shopping for the past two full months – without cash expenditures taken into account since I wasn’t tracking them.

I mean YOWZA!  That’s BAD.

Of that $500-more-than-usual that I spent in August…

• $86 was in the Books category (now you see why I’ve banned myself from book buying for the rest of the year)
• $127 was in the Hobbies category (AKA the I Love Fancy Knitting Yarn category), and
• $424 was in the Clothing category.  Now, you’d think I’d have a whole shiny new wardrobe to show for that, but you’re wrong, because one item was a $190 pair of jeans.  Hey!  At least I ADMIT it!  I’ll even tell you how I rationalize it: “But I would think nothing of spending $190 on a fancy dress for a wedding that I would wear once, and I wear jeans every day, so $190 seems strange only because it’s jeans, but it’s far stranger to pay $190 for a dress you wear once, right?  I also bought my now-worn-through pair expensive jeans in 2004, and now it’s 2008, so I need this new pair because I wore almost no jeans except the first pair of fancy jeans and, because I did that, buying another pair of $190 jeans is OK.  If I spent $50/year on jeans every year and multiplied it times 4, you get $200, which is what I paid for one pair instead.” See how that goes?  I don’t even know if that qualifies as a mental shortcut; I think it probably just counts as meaningless crazy babble.  And to think they’re going to give me a Ph.D. in May…

Car Share (Transportation)
Like air travel, I also over estimate how much I spend on my car share program (since I do not own a car and, fortunately, have not owned a car for nearly five years now).  I feel like I spend about $100/month on car sharing, but… I am happy to report that Mint.com tells me I’ve spent just $217 on car sharing from May 1 until the present.

To be honest, this number does not reflect our household level of car share use (Mans pays for his too) but this is what I personally have spent.  And so, every time MUNI hates me and crushes my spirit, and I am tempted to buy a car, I will say “$217!” to myself.  A few years ago, $217 was two months worth of car insurance alone! As long as I can get away without having a car, I will continue to do so.

I wonder why I over estimate transportation costs (air travel and car share) specifically… I’ll mull that over…

Oh, how far the mighty have fallen.

Or, Why I Do Periodic Financial Check-ins And Apparently Need To Do Them More Often.

In my post of May 27, 2008 I had $12,000 in three savings accounts – a Roth IRA and two basic savings accounts (my credit union and ING). As of today, I have made no headway (except in retirement savings in my work account, which have increased by almost $3,000 since May).

But it’s worse than not making headway: I’ve had the dreaded backslide. Those same three savings accounts now total $10,017 – a reduction of almost $2,000!

This is bad.  This is very, very bad.  So what’s the emergency remediation plan? And it IS an emergency remediation plan.  This is my own personal Superfund Site, right here.

• Every single rent check for the rest of this year is going into savings, for a total of $4,500 by Dec. 31, 2009.
• This will be in addition to my usual savings deposit of $250/paycheck, for $500/month or $1,500 total by the end of the year.
• More importantly, I will NOT touch my savings.  Once I started doing that (for faux wood blinds for the house) it became too easy to just clicky clicky on the big old ING “transfer” button.  No more.
• Everything I wrote in yesterday’s post.

Old habits die hard.  I’m just so disappointed in myself, and that the habits I worked so hard to change for a year are rearing their ugly heads again.

“You made me promises…

I knew you’d never keep!”  Oh how I loved dancing to that on Tuesday nights at Industry in poor little Pontiac, MI.  And it’s so very me right now.

Did I say I was back on the wagon?  I did.

And then… Did my best friend come to town to visit me?  She did.
Does my best friend have cancer?  She does.
Do we ever have any idea of how much time we have left together?  No.
Does anyone?  No, but we’re more mindful of it than usual.
Does this affect my spending?  Absolutely.

I think absolutely nothing of buying a tee when she buys a tee.  Or the $39 dress we both fell in love with today, so we both bought one.  I think nothing of paying $150+ for car share hours so we can drive to the Napa Valley, Stinson Beach and Muir Woods, or eating out daily.  And do I expect to regret a penny of this?  Never.  I could lose my job tomorrow and I still wouldn’t regret the time (or money) I’ve spent with her.  Every moment is perfect, but all moments are really.  Each moment is ephemeral and perfect.  And if some moments involve spending money, that’s fine by me right now.  Many of them don’t.

Still: After my friend returns to the Midwest, I need to buckle down.  I respond to rules I set for myself, so I’m going to lay them down and commit them to binary here, so I’m accountable to anonymous others:

• I will not buy new clothes or shoes for myself for the rest of the year (underwear and socks being the only exceptions).
• I will not buy any new shampoo, conditioner, salt scrub, sugar scrub, scented oil, or other lovely smelling but unnecessary product until my existing product is gone, gone, gone.
• I will not purchase any books for myself for the rest of the year.
• After I pay off my credit cards (during the next cycle and in full, per usual), I will not use them for anything except plane tickets or other Southwest purchases (which get me Southwest points to visit family).  It’s getting to be a little too easy to swipe that plastic again.
• I will resume taking my lunch to work at least three days per week.
• I will resume buying coffee (vs. taking my own) only on Friday mornings.
• I will resume putting at least $1300 of each rent check, and $1500 if possible, directly into my savings account, rather than spend them (as I did with the first one).  Exceptions are major purchases like vacations and home improvements, which is the same rule I followed last year (i.e., it’s better to use cash to pay for vacation than charge it up)

This I vow.

Ain’t We Got Fun?

The paycheck (the first with my raise in it) came at midnight, and not too much is left.  It also included tuition reimbursement from my employer – my paycheck is not usually this high.  So it goes.

Of $5,049.93:

• - $2,200.00 set aside for housing costs (thanks again for the messed up escrow analysis, National City)
• - $1,890.74 tuition reimbursement (paid directly to my school first thing this morning)
• - $250 to the emergency fund
• Leaves a $709.19 balance, keeping in mind that
• The Verizon bill is coming $72 ($10 higher than usual for some reason I have yet to locate on the bill), and
• My $193.68 condo assessment is due on Aug. 1, and…
• My honey’s birthday is Aug. 5.  And I am one of these terrible people who loves spending money on other people almost more than anything else.

Boy howdy, these are some good times!

New Rule: I cannot spend more than $150/week until I have renters again, which I hope to Jesus, Mary and Joseph will be the end of August or sooner.

Mr. Amis, I’ll have to fight your war against cliche another day, because it’s time to count my blessings…

Are we downhearted
I’ll say that we’re not
Landlords mad and getting madder
Ain’t we got fun
Times are so bad and getting badder
Still we have fun
There’s nothing surer
The rich get rich and the poor get laid off
In the meantime
In between time
Ain’t we got fun!

Raise You Your 401(k)

I was recently promoted to a new position at work and received a $10,000 raise ($700/month or $350/paycheck).  I just increased my 401(k) allocation to 12%, so that all of my raise is going straight into retirement savings.

What do I really want?  I want an Amazon Kindle.  I want it more than anything I’ve wanted in a long, long time, even more than a Tempur-Pedic mattress.  My friend brought one over when he came to dinner on Sunday, and lo, this Ph.D. student did not know the Kindle could hold PDFs after you convert them.  I have four full, huge binders full of papers, and about 50 additional PDFs on my Mac, all of which I refer to fairly frequently for my dissertation work.  Do you know what dumping those binders would mean for my lower back when traveling?  Surely the Kindle would save me money on massages.  I would love the Kindle only for its PDF carrying capability, and yet it has so much more power to bestow reading joy.

Oh well.  As my mother always said to us (and yes, she said this all the time, even in a month like July), “Well, Christmas is coming.” It’s right up there with “This house is not a democracy.”

I know I should throw my raise into my 401(k), and that someday I’ll be glad I did it, as I have been for every retirement count to which I’ve contributed since 1998, even when I thought I couldn’t afford to.  But today, given my cash-strapped no-tenants times, it pained me to do it.  I have to keep reminding myself that in a couple of months I’ll be even keel again and just grit (gnash?) my teeth for now.  And gnash them on brown rice and lentils

Let’s focus on the good:

• 12% of my total pre-tax, salary income ($125,000) is $15,000.  This means that, for the first time ever, I’ll be maxing out my 401(k) contribution. *Pat on back.* Now if only the market would behave a little more nicely…
• That 12% of my income for retirement savings only doesn’t reflect all of my savings.  I also put $500/month toward my emergency fund.  That brings my total, current, annual savings rate to almost 17%. I think that’s pretty good, since I keep hearing that the average American savings rate hovers around -.07 to 1%.
• The above bullet points don’t count rental income.  What happens when I have rental income again?   Let’s assume I get about $100 less rent per month than I’m asking – $1,400/month.  That’s $16,800 per year and, when added to $125,000, a total annual income of $141,800.
• Assume that I treat rent checks as I did last year, which is to throw them into savings and pretend they don’t exist (except for the occasional vacation paid for in cash, or a few plane tickets to see family so as not to carry credit card balances).  That would mean an additional $16,800 in savings, for a total annual savings rate of about 25%. Even better.

Can I do it?  We’ll see.  Let’s see if, one year from now, I have been able to save $31,800 above and beyond what I currently have. I’m going to aim for August 1, 2009 since that will be one year from the first paycheck that will show 12% retirement savings.

Humans: Built to Adapt Quickly!

When something prompts me to change my behavior very quickly, I am reminded of the fact that I can do it… and of how often I don’t because I “really don’t have to.”  I admit it!

Take last week, for example.  I found out that my renters are leaving in August.  This means that I really don’t know when I’ll see another rent check and that I have some related expenses coming up (changing the locks, getting my unit deep cleaned, painting the few non-brick walls).  I am determined not to use money from my savings account or to carry a balance on a credit card (not even for one month) to deal with this. Right now, this translates to $322 left until pay day (July 15, I’m lookin’ at you, lovely little calendar square that you are).

And isn’t it something?  My behavior changed instantaneously, the moment my renters called me.  You lose your job and suddenly you’re cutting coupons and selling things on eBay, presto!  Ka-zam!  Your renters call and you turn around to call the YMCA to cancel the sort-of-rarely-used $44/month membership and shooting amorous glances at your dried lentils and red Bhutanese rice.

I spent $135 this weekend, more than I’d anticipated.  I spent $17 on four skeins of yarn to make a baby blanket for friends, who have been on an adoption waiting list for months and just got a brand new baby girl born on July 3!  We are SO excited for them.  They’re the most wonderful people ever.  But you see, that’s the thing about adoptions – you don’t know when they’re going to happen!

The remaining $118 was spent on groceries, though we at least have a LOT of food to show for it and NO reason to eat out.  It’s Sunday night and we already have leftover fish stew, leftover pasta with summer vegetables, and lunch made for a few days this week.  We had better pancakes and bacon at home today than we could have had at most places in San Francisco.  Now we just need to make sure not to let leftovers go to waste.

I am determined not to eat any lunch out this week or buy coffee… or, come to think of it, anything else.  I’m going to see how long I can go without spending a cent.

When I get a little panicky like this, though, I have to remind myself of what’s real:  Right now, everything is fine.  I am healthy, first of all, which means I have no real problems.  I have $322 in my checking account until pay day – and there isn’t a single thing I need, so I can just calm right down about that number.  Oh, I remember many a time when I was down to $5 or $15 before pay day.

What am I worried about?  Since the day my renters appeared, I’ve used almost every check they gave me to pay off credit card debt and, when that was done, threw each check right into savings.  I’ve been treating the rent checks like gravy and am so glad I did.  I have no credit card debt to worry about right now, and it’s the idea of not having rent coming in that is scaring me more than the reality.  I know what it’s like to live without those rent checks – that’s what I’ve been doing!

I also need to focus on feeling grateful for the karmic blessings that have come my way in the past week, and not just on the “my renters are leaving” thought.  I found out that my friend, who lives two blocks away from my condo, will be out of town for the exact same days when I’ll be in Chicago dealing with my condo.  I am sad not to see her, but this means that I can tend her garden and get her mail while I have a free place to stay for a week – a place that could not be more conveniently located for running back and forth for painters, cleaners and, lord willing, prospective renters.

I am also grateful for the karmic timing in all of this.  I already had a plane ticket to Chicago for a school meeting that will take place 10 days after my renters leave.  Sure, it might be a little better if I could come in sooner.  But you know what?   The flight cost less then than it would now, and those dates mean I have a free place to stay convenient to my needs.  I can still kill multiple birds with one plane-ticket stone: school meetings, seeing friends, dealing with my condo.

The fates have smiled on me with this synchronicity that makes my life so much easier.  If this has to happen now, it’s all happening in the best possible way so far.  I am so fortunate and I must remember to acknowledge that.

Just Say No

I stopped at Nordstrom on my way home last night, to see just how dead my shopping desire truly was.  And… it’s dead.  I didn’t love a single thing I saw… well, except for a $425 pair of Italian oxford wingtip shoes that I can’t stop thinking about and fortunately can’t find online, which will prevent me from setting a photo of them as the background image on my monitor.

Italian oxford wingtip shoes aside, most things at most stores looked exactly the same.  Everything in my visual field just blended together after a while, one pair of striped seersucker shorts indistinguishable from the next, which flowed seamlessly into yet another halter dress with a large colorful print, into still another pair of ballet flats with a buckle.

Frankly, it was boring.  Shopping is fun if you want to look exactly like everyone else in nearby shopping range.  Retail homogeneity is no fun.  Sundresses in San Francisco in JUNE?  When it’s cold?  We don’t get summer until September… why the sundresses?  Oh right, because it’s summer most other places so just ship ‘em to San Francisco too.

I found a pair of long jeans (praise baby Jesus!) that fit me like a glove for $26, and that’s all I bought.

In other news, don’t you LOVE when you get a freebie for something you use all the time?  I got a second-yoga-class free coupon from Practice SF – yippie!  $15 saved!  I also found a $20 coupon off for Aveda (less poisonous) hair color at participating salons.  That’s TWO coupons for things I genuinely love.  Made my Friday.

Waste Watchers

A few days ago, I wrote about how I got out of debt and some of the happy-accident side effects of that process (like absolutely deadened desire to spend money). What I call Waste Watching was another one: When I realized where I was wasting money, I became much more conscious of waste in general – garbage or paper packaging I didn’t need, for example. Once you’re watching monetary waste, other waste awareness isn’t far behind.

Just as I’d always considered myself frugal, I’d also considered myself green. Just like I had lots of room for improvement in the frugal department, so I had room for improvement in the green department. For example:

• When I calculated my Latte Factor, I also realized how many paper cups and plastic tops I wasted. My home brew is carried in a $3 stainless steel mug (probably made in a slave labor camp, I know) so this is a win in two ways.
• Same goes for eating lunch out. Unless you’re dining in, that carry out comes in a container, with wax paper wrappings and napkins in a paper bag. All those raw materials to accompany me for… five blocks. What a waste. Fortunately, some carry out comes in compostable containers like those from Michigan Green Safe. The only catch is you actually have to… compost them.
• We signed up with 41pounds.org. When you’re trying to get out of debt, junk mail brings catalogs containing lots of luxe you just don’t need. The spring sweaters from J.Crew in Wizard-of-Oz technicolor, the cough-drop polished-pebble looking Crate & Barrel bowls – you don’t need that in your face when you’re $10k under, no way! It’s also a huge waste of paper. I can testify that 41pounds.org has worked wonders at our house and highly recommend it.
• I’m a compost freak now. I see the tops of strawberries, for example, and get kind of giddy because I can add them to the compost. San Francisco makes it easy on us because they pick up compost with the trash, but it’s not too difficult to compost at home. I swear up and down, between recycling and compost we throw out one bag of garbage every 3-4 weeks now.

If I may, a brief diversion on composting…

Right now, identifying another item suitable for the compost bin is like the feeling you get when you use a double coupon or get something you want and actually use for free – that feeling like you’re winning a challenge? The challenge is “How little garbage can we create?” because hey, when you’re out of debt you’ve got to have a new challenge waiting! I think Man might leave me if I don’t stop pointing at paper towels and pistachio shells and saying only “Compost!” It’s getting pretty bad but, oh well – debt is worse!