All My Worth

I started reading All Your Worth last night.  I’m a big fan of Elizabeth Warren, and recommend All Your Worth for its incredibly simple saving, spending, budgeting plan.  I use Mint.com but, deep down, I’m not a fan of tracking every penny spent or of budgeting.

Warren breaks finances down accordingly:

• 50% should go to must-haves
• 30% should go to wants
• 20% should go to savings

Buy the book (it’s $5 at Amazon) or check it out from your local library if you’re interested in why this method works so well.

Warren states that this plan will alleviate worry, and that is one of my goals: Although I save what I think is a reasonable amount, I always worry that I’m just not saving enough.  Today, I followed the exercises in the book to see where I fall.  

Must-Haves (monthly)

• Rent – $860 (includes utilities)
• Mortgage (includes property taxes; does not include extra payments, which belong elsewhere) – $2,374
• Assessments – $203.36
• Food – $180 (This is not all actual expenditures on food; just a place holder number for the minimum you’d need to survive.)
• Utilities (only cell phone for me) – $65
• Transportation (no car; just a monthly transit pass) – $45
• Healthcare – $14
• TOTAL MUST-HAVES: $3,538/month (This does not include my homeowners insurance, which is a one-time payment of $354 and is not a monthly expense, so for my own convenience I omitted it here.  Normally you would include all insurance in the Must-Haves category.)

Savings (monthly)

• 401(k) – $1,154
• Emergency fund – $500
• TOTAL SAVINGS: $1,654/month 

Income

• Salary income (after taxes) – $91,311/year
• Rental income – $12,000/year
• TOTAL ANNUAL INCOME: $103,311 (approximately $8,600/month, if there are three Fridays in the month – we get paid every-other Friday.)

What did I learn?

• My must-haves are less 50% of my total income… as long as my condo is rented for $1,500/month.  There’s the rub!  Without my rental income, my must-haves would be more than 50% and I’d be in a much tighter spot.
• I am saving 20% of my income almost exactly (probably more, since I occasionally throw in birthday money, extra money from checking, or a tax refund).
• I’m already less worried.  I now feel that I’m doing what I should be doing and that it’s enough (which was the missing piece).
• These findings also confirm other suspicions I’ve had for a while.  I can now prove that I can’t afford a car (even though, with a post-tax salary income of $91,000, many people think you CAN afford most anything even if you don’t WANT or NEED it) and be doing what I should be, financially.  
• We absolutely could not (in our present situation, all things being the same) afford to have children and keep doing what we should be.  Now that I’ve gone through this exercise, I am even more shocked that anyone can live in the Bay Area AND make less than we do AND have a car AND kids.  How can you possibly do that and maintain the 50%/30%/20% plan?

2008 Financial Year in Review

Oh heaven help me!  Do you KNOW how much I charged on my credit cards in 2009?  This is surely the single most horrifying thing about my financial review of 2008.

$14,600.55

Now.  That is not my balance: I paid my cards off, in full, every month (save one).  

Still.  That is NOT OK!  Just because I can pay my balances does NOT mean I SHOULD spend that much.

Some of that $14,600.55 was business expenses.  Some of it was property maintenance for my new renter.  But most of it?  Oh you KNOW most of it was crap I didn’t need.  There’s one thing to fix in 2009.  Lord in HEAVEN.  I will NOT spend that kind of money in 2009.

Moving to a calmer state now…

How did I do on my 2008 financial resolutions?  Pretty well, to my own surprise.

2008 Resolution #1: STAY out of debt.
SUCCESS.  But, as we’ve already seen, I still spent too much.  Sometimes it was difficult to pay off my monthly balance – and that’s almost as bad as carrying a balance, in my book.

I currently have a $1,500 balance due by January 18.  I’m going to pay it in full, but I FEEL bad just having it there, in existence at all.  I am going to use my credit cards a lot less in 2009, for nothing except major stuff like travel, property maintenance, and business expenses.

2008 Resolution #2: Save 20% of my income ($22,000, or $1,800/month) between emergency and retirement savings (probably $12,000 to 401(k) retirement, which puts me below the $101,000 ROTH income limit so I can put… $4,000 into a ROTH, plus $6,000 to emergency savings). 
I only put $8,700 into my 401k this year – well under the $12,000 mark.  Gee, you think a few thousand dollars of what went on my credit cards could have instead gone to retirement?  You know it could have – clearly, the money was there for shopping, so it was there for retirement.  In 2009 I want to hit my $15,000 limit, but I’m not sure I will.  That’s nearly double what I put in this year, and I’m still focusing on having accessible, substantial emergency cash for something like a long period of unemployment.

2008 Resolution #3: Have at least $10,000 in emergency savings by the end of the year. This should not be difficult since I’m approaching $4,000 right now, so $10,000 is the bare minimum.
SUCCESS!  There is just over $11,000 in there as of today.  Again: A few thousand of what I spent on crap could have gone into emergency savings instead.

2008 Resolution #4: Pay $100 extra to principle on my second mortgage every month.
SUCCESS!  I’m still on auto-pay for $100 extra per month and will continue in 2009.

2008 Resolution #5: Continue to use Mint.com to track spending (which shows I’m spending more than I think and estimate in my head).
SUCCESS.  And, as you can see and much to my chagrin, Mint.com is showing me exactly where my money is going.

2008 Resolution #6: Do not buy a car for another year.
SUCCESS!  Thank goodness I didn’t need to get a new job that required a driving commute or something awful.  This one also carries over to 2009.

Catch as Catch Can

I am playing catch up on the credit cards, again.  I followed my plan, made easier by the fact that a bonus appeared in my Nov. 15 paycheck (and in everyone’s paycheck).  I work for a small company so “bonus” means “a few hundred dollars,” every penny of which is one I didn’t have before.  I’ll happily take it and it helps a lot – and most folks in the world right now would probably agree, and be happy to have a bonus of ANY kind.

But I digress.  I have:

• Paid off my $1,937 balance (today).
• Paid off my $420 balance.

That leaves about $200 on each card, all of which are business travel expenses that will be reimbursed in my Nov. 30 paycheck.  And that’s it.  No more charging.  It’s all debit card use for everything except business travel from now on.

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.

I Love Barb at National City Mortgage

In my post of July 8, I mentioned the stroke-inspiring letter I received from National City Mortgage, saying my monthly payment was going up by a little more than $300/month. “But, but I have a 30-year-fixed mortgage!” I protested. “How can this be?

It was due to an escrow analysis for property taxes, which I realized after much adding and subtracting was $2,000/year too high. I called National City Mortgage, walked patient customer service people through my math, faxed letters, downloaded documents from the Cook County Tax Assessor site and faxed those, and so on.

Look at today’s date.

It’s Thursday, July 17. Today marks exactly one week since I received that escrow analysis from National City Mortgage.

And it’s all fixed. In a week. My payment for August is back to normal, thanks to St. Barb.

These days, I call service like that a miracle. I now have no desire to refinance my mortgage.

In the past week, two customer service representatives called me of their own accord to follow up. Yesterday, Barb, sweet angel o’ mine Barb from the escrow analysis department, called me to apologize (I do not lie, reader, when I tell you that Barb still has those antiquated things we call manners), and asked (sit down if you’re not already) if “she could walk me through the revised numbers to see if they sounded right to me.” I nearly collapsed at my desk. “See if they sounded right?” Barb is either genuinely an angel or a Ph.D. in rhetoric or both, but it worked on me.

But she meant it! We had EXACTLY that conversation today, reviewing numbers…

And her math matched mine, to the penny. Bless you, Barb. You’ve averted one more nervous breakdown… and saved me $300/month that I REALLY need right now.

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.

Mind Your Money

Because no one else will.

I am now the project manager of my property taxes, which involves Cook County and National City Mortgage.  You might think that I’m their client but, oh no, it’s me who is the project manager here.

On Thursday I received a letter from National City telling me that my monthly payment was going up to $x.  No explanation was included, just a “This is your new balance due August 1.”  I found this odd because 1) I have a 30-year fixed-rate mortgage and 2) my taxes haven’t changed.  Cook County reassesses triennially, and that happened in 2006 so the taxes stand until 2009.

I called and learned that the increase was due to a recent “escrow analysis.”  National City escrows money from my monthly payments for my property taxes and they pay Cook County directly.  Future home buyers, don’t ever agree to this arrangement.  Escrow your own damn money and earn interest on it.

“But,” I thought, “I am almost paid up for the 2007 tax year.   Why would my escrow go up now?”

I spoke with St. Jennifer today, ran her through all the numbers I ran this weekend (“but see, I’m overpaid”) until we realized that National City thinks my property taxes are 50% higher than they actually are.

How did this happen?  Oh, typical flawed thinking: National City took my entire 2006 property tax payment ($4,000) and added the first tax installment for 2007 ($2000) to it, to come up with “an annual total property tax bill of $6,000.”  The thing is: It’s not.  My property taxes are $4,000/year, NOT $6,000.

I now have to get Cook County to send me and National City a copy of some sort of statement showing what my total tax bill is for ONE year.  I’ll let you know how much time this simple task actually takes to complete.

Don’t you love this sort of thing?  I did absolutely NOTHING wrong.  The bank made a wacky assumption not based on any real information (certainly not on the tax bills, which show clearly that I owe $2,000 twice each year).  Yet I’m the one who gets to spend hours fixing this AND paying the consequences.  I am, for example, currently over paying my escrow but… this is what the bank says my payment is.  Their word trumps mine, faulty as it may be.  If I pay less than the monthly payment (according to my bank, reality be damned) while this is getting fixed, you know full well what will happen to my credit score.

And oh, it has already taken about four solid hours, looking at records on the phone with National City, waiting on hold for 22 minutes with Cook County, etc.

Be vigilant about your finances.  Question everything.  No one will do a better job of it than you.

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.