Essay: Patricia’s Money Philosophy Series. Part IV of IV: Tracking & Involving Others.

I believe in paying attention to your money.  I think that how you care for it and what you spend it on make a difference—not only for your own piece of mind, but also in the context of the universe and energy and whatnot.  Money ignored is money that won’t be around for long.  So here’s an incredibly long and detailed four-part series about how I manage my money.  To see the entire series look for the tag “Money.”

I devote time to tracking my money

My money management system is overkill.  I know this. But it brings me comfort to keep an eye on my cash.  Please keep in mind that if you develop a system to regularly manage your finances, it need not be this complex.

I keep track of my accounts two ways:  the analog method and the digital method.  I still have checkbooks and savings account registers which I fill in with pencil and use a calculator to do the addition and subtraction for me.  My early pledge to always figure my checkbook transactions in my brain led to many hours of fixing addition and subtraction errors before I decided to depend on technology to keep my sanity in this area.

I also use a computer program to keep track of the activity on my accounts, but also to tally my budget and keep track of how much money I have in each spending category.  My software program of choice for many years was “Microsoft Money” which came free on a computer I bought in 2001.  I used this in conjunction with a spreadsheet from the Simple Dollar to keep track of my budget spending amounts.  This changed when Microsoft decided to not continue updating the Money program and I bought YNAB (You Need a Budget, pronounced “Why Nab”).  YNAB keeps track of my daily spending, helps me adjust my budget each month, as well as keeps track of category spending levels.  It’s a really amazing program and I highly recommend it.  It was a bit of an investment ($60.00) but has saved me time and is easy to use.

Here’s what my money tracking looks like.

Ideally, I check in (hah!) daily with my checking and savings accounts and update them.  Actually this happens about one to three times per week.  First, I check my electronic statement from my bank and update the pen-and-paper checking account and update all the math in the register.  I used to use a physical calculator to do this once upon a time, but then eventually realized that there was a calculator on my computer and I use it instead.  Lately, I’ve set up an Excel spreadsheet to do the math for me because I find I make fewer mistakes if can see a string of entries and what I have typed in for the number.  I also use this time to check off anything that has cleared the bank.  I don’t check it off using the official column where you check off items used for monthly statements, instead I make a checkmark on the line that divides the transaction description line and the payment amount.  This helps me keep track of how much money is actually in the account.  It also lets me know when I’ve entered something in the wrong checkbook, or paid cash for something and written it down in the checking account.  When everything around the item has been pre-checked off, and that one still has not, I start thinking more deeply about how the transaction was transacted. This part takes five minutes if I’ve kept up with the accounts or it can take longer if I’ve been neglecting my baking tasks.

After that is done, I do any transfers necessary.  I have two checking accounts and a savings account and the boyfriend and I have two checking accounts so there are usually transfers to do.  The reason I (and we) have two checking accounts is because of Mary Hunt.  Hunt advocates for a regular checking account for all the regular purchases you pay monthly (Groceries, student loan payments, mortgage) and then a Freedom account where you regularly transfer monthly amounts of money for things that you don’t pay monthly, but come more intermittently. Think car insurance, vacation expenses and—in Portland—the Water/Sewer bill which only happens every three months, for some unknown reason.  We used to keep track of these amounts on a spreadsheet or ledger and then pay the bills when they intermittently arrive.  Having two checking accounts keeps a person from the psychological mistake of thinking, “Oh, I suddenly have an extra $200.00, I can buy that overcoat I’ve been wanting) and then spending your car insurance payment on said coat, leaving you scrambling for money when the insurance bill arrives.  I’ve also found that having two checking accounts means fewer errors in computation.  However, the budget/money management software I currently use manages the category spending amounts so well that it eliminates the need for more than one checking account.  But we soldier on with two.

The transfers I do between my own accounts are generally one big transfer at the beginning of the month to move my Freedom money over from checking.  I’m paid once per month which is tough until you get used to it, and then it seems normal.  The advantage of once-per-month pay is that what is there at the beginning of the month needs to last until the last day of the month whether the month is 28, 30 or 31 days.  It’s also handy because most people are taught to budget monthly and the money arrives with the beginning (or end) of the month.

Our joint checking accounts do not have debit cards attached to them.  When we set them up we opted to opt out of that technology as the things the joint checking pays for all work well with checks and I didn’t want the extra confusion of us both having debit cards or us trying to manage one debit card together. You will hear more of these categories in the last segment of the series when I talk about how we manage our money jointly.  Transfers between joint accounts and my own happen most often when we go out to dinner and I use my debit card to pay for the dinner.  In that case, the dinner gets charged to the account “Money Loaned—For Home” and I make a note in another spreadsheet of transfers to do.

I’ve found that for some reason, making transfers is my biggest stumbling block in keeping the checking account running smoothly.  I have to force myself to do it and I’m not sure why.  Perhaps it is because I am miserly to my core, with hints of a spendthrift who pops out now and then, and I don’t like to see any money leaving my account.  Plus, there is room for error. I might transfer from the wrong account into the wrong account leaving me with more transfers to make to put things right.  When it’s time to transfer, I take a deep breath and give myself a good mental push.

After that, I type the information from my paper and pencil ledger in to YNAB, my money management program.  After entering each transaction, I compare register balances to ensure my math is correct.  This helps tremendously to catch computation errors and it’s the main reason I keep both a paper and pencil record and an electronic record.  Once that is done and all computer account totals match paper account totals I am done.  If I’m keeping up on a regular basis, this daily routine takes fifteen minutes or less. If I’ve fallen behind it takes longer.  Sometimes I devote a bigger chunk of time to catch up, other times I set a timer for 15 minutes and work several days in a row.

Monthly, I have some other things to do.  At the end of the month, right after I am paid, I make sure all my transactions for the month are entered in the register, and I count my cash to see what I haven’t correctly recorded this month.  I have chosen to keep track of my cash as if it was a checking account, and reconciling the difference at the end of the month.  This means I count my change every month.  I realize that most people would find that a bit much, but I have always loved stacking and rolling coins and because it gives me great comfort I do it monthly.  I’m usually off in my cash account by a few dollars, but I put those into the Cash register in the category “missing money” and then subtract the amount from my Random Fun Things to Do category.  I only keep track of cash in my electronic software, I’m not quite so obsessive to also use a paper register.

Once the cash is reconciled and the checking accounts are updated, I look at a report in the budget software that tells me my income and expenses amount.  These numbers get transferred to a separate spreadsheet which has income and expenses, as well as account balances at the end of the month.  Looking at this spreadsheet I can see my account balance total for the month as well as the monthly difference between income and expenses, which ideally would be a positive number, indicating a bit of savings each month, but is not.  This is mostly because of some big-spending months (the time around Christmas for instance, or, when I am taking college courses, when tuition is due) when I am spending down categories in which I have budgeted larger amounts.  Businesses avoid these fluctuations by depreciating things, but my budget is already complex enough.

I’ve involved my partner

When the boyfriend and I moved in together the first thing we did was open up a joint checking account.  People who know me and my feminist self, are sometimes surprised that I have a joint checking account with my partner, but I agree with Suze Orman and she thinks having a joint checking account is a good idea.  Here’s why.  We both have retained our own money that we may spend however we please.  We pay our joint expenses into an account once per month which makes it easy to pay our bills.  It also allows us to adjust what we pay based who makes more money.

Right now, Matt and I are pretty even in salary.  He pays 53% of our total joint expenses into our account and I pay 47%.  However, figuring your total joint expenses and dividing the total by percentage is one of the better pieces of advice for couples I’ve seen.  What if suddenly one of us gets a high-paying job and is making much more than the partner?  Would it be fair for someone making $100,000 per year pay 50% of joint expenses when the other partner is making $25,000 per year?  No.  So if the couple’s joint expenses were $1,000 per month (probably not likely, but I’m using this example for the ease of the math) and each were paying an equal percentage of their own salary into their joint account, the person making $100,000 would pay $750.00 per month and the other person would pay $250.00 per month.  Both are contributing equally to the joint living expenses and each partner still has their own money for their own expenses.

The second thing that happened is that we established what our joint expenses would be.  The current categories are:

Food—we currently buy our own groceries, but this pays for our fruit delivery and for about one meal out together per month.

Mortgage, land lease fee—Because we bought our house through a land trust, we pay a small amount each month for the land our house sits on, as well as a maintenance reserve.

Electric

Internet

Phone—Matt has a cell phone, which he pays for himself, but we both still use the landline so this is still a joint expense.  It’s also part of our internet expense as we get our internet through a local provider who also contracts with our phone company.

Supplies—the things in the house we both use including soap, detergent, toilet paper etc.

Water/sewer—Portland combines these two expenses into one bill, for better or worse.

Furniture/decoration—the category appeared when we bought a house.  We’re set on the furniture, and this is mostly toward decoration at this point.

Garbage—we both make the garbage and so we both pay it.

Insurance, Life—This is another category which appeared with the house.  When we bought it, we took out a joint term life policy for $200,000 so if one of us dies we can pay off the balance and have some money left over as a cushion.  This is a pretty small amount for a life insurance policy, but our mortgage was not very much, we both work outside the home and we have no children.  If any of those things were different our policy would be much more.

Insurance, House—back when we rented, this was renters insurance.

Yard—a nominal amount is paid each month for expenses related to the yard.  This includes new plants, or straw to put down.  Someday it might include gravel for the paths in the yard or bricks for a paved walk down the side yard.

Alarm—this category appeared after our house was broken into.  We budgeted to pay for the alarm, but never actually got around to activating the alarm system and so the money eventually went to buy our new washer and dryer.

Vacation—for our joint vacations, this account is underfunded, but perhaps will expand as we continue to work and ideally, get raises.

Dates—for joint dates such as plays and the like.

Cleaning—each month we combine our money into a $50.00 pot.  During the month we keep track of the chores we do to keep the house running and at the end of the month we tally our efforts and then pay out an amount to each of us based on the points split. It is both of our goals to get back more money than we put in.  I then use this money to fund my Random Fun Things to Do category.

Floater

Another category of our budget is what I have termed “floater” which is our joint savings account for the house.  Various sources recommend homeowners save various amounts per year for big maintenance projects such as a new roof or painting the house.  Our current “floater” amount saved is just under 10% of our total combined expenses.  This way we have joint savings and I have individual savings.

We meet regularly to pay our bills.

This was an idea from various sources such as Steven Covey, Suze Ormond and my friend Kelly.  Matt and I meet most Sunday evenings to check in with each other about the state of our relationship, plan time together and to manage the household expenses.  I think it’s especially important to do this if one partner would entirely be in the dark about finances and what bills should be paid if the other partner became incapacitated.  We have a regular agenda which means that we regularly pay into our joint account, the bills are paid in a timely manner and both of us share in this task.  I’m confident that if I were to be hit by a bus Matt could carry on with the finances side until I rejoined him.

So that’s my financial system.  It has evolved over the years and will continue to evolve and change as needs arise.  For many, my process is labyrinthine and complex and overwhelming, but I believe that everyone can develop a financial system that works for them.  Your money deserves your attention and care and you will feel peace of mind.

Essay: Patricia’s Money Philosophy Series. Part III of IV: Learning & Saving

I believe in paying attention to your money.  I think that how you care for it and what you spend it on make a difference—not only for your own piece of mind, but also in the context of the universe and energy and whatnot.  Money ignored is money that won’t be around for long.  So here’s an incredibly long and detailed four-part series about how I manage my money.  To see the entire series look for the tag “Money.”

I learn

When I was first out in the world on my own, I started reading heaps of personal money management books.  It got so I would just wander over to the section of the Dewy Decimal System in the library to see if there was something I hadn’t read that caught my interest.  Most of them say the same thing in different ways, so after you’ve read five, you can move into skimming mode once you hit say, the “how to budget” section.  From time to time I dip back in if a book interests me.  I’ve gleaned good advice from these books, and all for free.  Thank you, public library system. 

If you are looking for somewhere to start I recommend Your Money or Your Life, All Your Worth by Warren and Tyagi. I have also found the debt-free philosophy of Mary Hunt to be inspiring.  Also, anything by Suze Ormon is good.  You can also follow my example and find the personal finance section at your local library and choose books at random.

I save

Since my first job in high school, I’ve always put some percentage of money aside.  Not that the money has always gone toward my far-future.  In fact, the savings from that first job financed my personal spending in college.  I’ve saved various percentages of income over the years, from as little as $50.00 per month during the grim, incredibly boring and low-paying job I got after graduate school all the way up to 20% of my net pay in a brief heady time when I finished paying for my certificate program and other things hadn’t cropped up.  With all that saving, I’m probably sitting on a pretty big pile of cash right now, right?  Not so much.  Though it’s a bigger pile then I’ve ever had. 

In my mind, “saving money” is a particular thing where you put money aside and never, ever touch that money so it grows and grows until you retire when you can use it.  I’ve never met that standard with my savings.  A graph of my savings account over the last ten years would show peaks and valleys.  For instance, I saved over $5,000 to fund my move from Massachusetts to Portland.  Well done!  Those were the years where I had no debt and my living expenses were quite low.  I made the most of my savings, concerned about the many potential expenses that could crop up during the move.  So the move took up $2,200.00 of the savings and the subsequent unemployment while looking for work ate away at some of the rest.  I took on temporary work and the company hired me and I had a brief period of saving until I entered graduate school. 

Beginning with graduate school, I began to draw down the savings.  This was not an easy time for me.  Once, while once again withdrawing money from savings, I sighed while handing over my paperwork.  The bank teller inquired as to what was wrong. 

“I hate having to pull money out of savings.” I told him.

“But that’s the point of savings accounts,” he replied, “so you can draw from them when you need them.”

This concept was exactly the opposite of my “put money in account never touching it until you retire” savings concept, but I had to conclude that he was right.  Without that savings account I would have exited graduate school with not only student loan debt, but also credit card debt.  It’s always better when you can be your own emergency credit card and I still hear that bank teller’s words from time to time today.

So the savings account was humbled by graduate school, but the six months of unemployment following graduate school made an ever bigger dent.  I counted on steady temporary work, as I always had found in the past, but temp work didn’t materialize over the summer.  Nor did any jobs.  The temporary work picked up in the late autumn, giving me a new appreciation for the paycheck incredibly mundane tasks provides.  Then I made a rather large financial mistake and took a job I was extremely overqualified for.

In my year and a half as a secretary, I went slowly crazy, both from boredom and disgust at my pay rate.  I was paid less than $10.00 per hour, which at the time was only a few dollars over Oregon minimum wage.  I’ve never had to watch my finances so closely.  My rent took nearly half of my gross pay and I shopped carefully for everything.  If I had loved the job, or even liked it, I would have done these things happily, but there was little work to do at my workplace and that made the scrimping even more grim.  I was barely putting anything aside, and my goal to save $5,000 was being fed by a trickle of $50.00 per month.  I didn’t want to do the math to see how long that would take.

Things improved when my boyfriend and I moved in together.  The rent we paid together on our one bedroom was only a bit more than I paid on my studio and sharing expenses really gave me some breathing room.  I eventually landed my current job, which came with an $8,000 per year pay raise and my savings could begin again in earnest.  Over the last six years, the graph of savings has been more of a steady upward climb, though it has dipped now and again, as things have cropped up.  I accept those dips, and set my course to recover the savings as soon as I am able.

Essay: Patricia’s Money Philosophy Series. Part II of IV: Debt

I believe in paying attention to your money.  I think that how you care for it and what you spend it on make a difference—not only for your own piece of mind, but also in the context of the universe and energy and whatnot.  Money ignored is money that won’t be around for long.  So here’s an incredibly long and detailed four-part series about how I manage my money.  To see the entire series look for the tag “Money.”

I avoid debt as much as possibly can.

Aside from a brief period in my twenties, where I combined my lack of skills with an iffy job market and no clear idea of what I wanted to do for a living, I have avoided credit card debt.  At the time, I had about $800.00 charged to a high-interest card, which was the only kind I could get due to the fact I did not establish credit while in college.  I also had a $2000.00 computer loan and $16,000 in student loan debt.  And I had no job.

I often read financial stories of people who come into a windfall and happily pay things off, or realize that they could sell the rental property they own and make more money than being a landlord.  These stories leave me with an intense feeling of jealousy.  “I wish I just had a windfall like that.” I mutter to myself.  But the truth is, I had a windfall and it saved my bacon.

Beginning when I was in elementary school, a check used to arrive every month made out to Patricia and Chris Collins.  Every month my brother and I would endorse it, with me grumbling that I had to write my full name (I was Patty then) while Chris got to write his nickname.  The check was for $128.00 and change and was a mortgage payment made on my father’s boyhood home.  I’ve never really understood why we got the mortgage payment monthly, but it happened for twenty years.

The money was deposited into an annuity account, which I’ve since learned was a horrible investment vehicle for children still in elementary school.  My brother and I cashed out the annuity in our twenties and the amount I received was enough to pay off the credit card, the computer and the student loan, along with putting something in savings.  This gave me the heady feeling of being debt free, which not only was an amazing feeling, but also kept me from ever wanting to carry credit card debt again.  So I had my windfall and something good came of it.  But I am also happy to accept windfalls in the future too.  I am just putting that out there, universe.

I do have debt, though.  When I went to graduate school I took on student loan debt again.  Because I had used the windfall to pay off my undergraduate loans I left graduate school with loans that totaled just a bit under what I expected to earn my first year as a teacher. Loans equal to or less than expected first-year salary is the phrase that is bandied about when advice is given about student loans.  I’ve slipped into the passive voice in that last sentence because I know that I read that advice multiple places and yet I’m not sure who is giving it, or if it is good advice.  I’ve been paying those loans for seven years now and have thirteen years left to go and I’ve yet to work a year as teacher.  To say these student loans drive me crazy would be an understatement.  My monthly payment is one I can easily meet each month. I was faced with bleak employment prospects coming out of graduate school, so I chose the graduated repayment plan over 20 years.  Right now I pay $160.00 per month.  Would I love to accelerate those payments and get rid of this debt early? You betcha.  Would I be willing to work 40 hours per week instead of 32 to do so?  Not in my current job, no.

The other debt is the mortgage.  Mortgage debt seems a fact of life for everyone I know, so I don’t begrudge the debt, though when I look at the interest-to-principle ratio my tightwad self shrivels a little.  However, while I regret the student loan debt, I think we did it right with the mortgage.  For one thing, we didn’t overbuy.  Our house is modest, but is as much house as we need, as far as I’m concerned.  Also, we bought our house from a land trust, which means that the land trust owns the land below our house and we pay a small fee for the lease. Since the value of the land isn’t included in the purchase price, our mortgage is that much less.  When we bought the house, I felt comfortable that I could lose my job tomorrow, pick up temp work while I looked for a new opportunity, and still be able to meet the mortgage.  In addition, should we ever decide to sell our house, it will be resold to another first-time homebuyer, which preserves an affordable stock of housing for people who would have otherwise been shut out of the market, like we were.  This is a very important concept to me.

For me, owning a house was important psychologically—once we got into the house and unpacked, I felt incredibly settled.  Here was where I could live for the rest of my life, if I so chose.  This brought a feeling of peace that was not present through the apartment living period of my life.  Apartment living has its advantages, but I always felt an underlying bit of tension.  You never know when the landlord is going to raise the rent, sell the house out from under you, or tear down the beautiful building to build a parking garage.  I didn’t like that feeling of insecurity.  There are tradeoffs, though.  Before I bought my house, homeowners told me that they were astounded at the amount of time they spent on the house.  “Oh, but I will love that time spent,” I told them, all heady with the idea of projects.  I’ve done a lot of projects over the five years we’ve lived here and they have been mostly satisfying.  Before the house, I used to be bored on a regular basis.  After the house, I think I’ve been bored maybe two days.  This is good and bad.  Sometimes the house can seem a bit overwhelming, but at least I don’t have a regular sense of ennui.

Essay: Patricia’s Money Philosophy Series. Part I of IV: Budget

I believe in paying attention to your money.  I think that how you care for it and what you spend it on make a difference—not only for your own piece of mind, but also in the context of the universe and energy and whatnot.  Money ignored is money that won’t be around for long.  So here’s an incredibly long and detailed four-part series about how I manage my money.  To see the entire series look for the tag “Money.”

I have a budget.

My first forays into budgeting involved a modified envelope system.  I was working at Pizza Hut in high school and I had three categories.  Savings, spending, and my favorite category:  saving up for something good, which I called SUSG.  The percentages are hazy, but I think half of my pay went to savings, and the other half was split between the spending/SUSG category.  I don’t actually recall what “good” things I was saving up for, but I think they were items like clothing that cost more than $50.00 or do-dads I bought from catalogs.  Ah, the life of a middle-class teenager, when everything is covered except for extras.  Still, that savings category meant that I could offer to kick in money for my college education.  My mother suggested I keep it instead and use it to live off of.  This was rather brilliant on her part as I blew through half of it in a freshman freedom spending orgy. Unlike many freshmen, nothing was spent on drinking or drugs as I lived on a dry campus, didn’t drink and wasn’t into drugs.  There was, however, a lot of catalog buying. At the end of the first semester, I found myself horrified at my spendthrift ways, reigned myself in and from then on paid for most of my expenses while in college.  Granted, my parents were paying my tuition, room and board, and later rent, but I managed to work enough to procure my own supplies, clothing and sundries and, when I moved out of the dorms, food.  I kept an eye on what I was earning and what I was spending and I think this was a good stepping stone for supporting myself in my post-college life. 

My budget works for me.

My budget now is inspired by two systems: Your Money or Your Life by Dominguez & Robin.  I also use the 50/30/20 principle first proposed in the book All Your Worth by Elizabeth Warren and Amelia Warren Tyagi.  Your Money or Your Life teaches you to think of your money in an entirely different way and I feel it is recommended reading, even if you don’t follow the program exactly as planned.  What YMYL does is teach you how to personalize your budget to your spending patterns.  Before this book, I would buy notebooks at the store with pre-made budgets.  I loved them, because they had a sense of order, but I usually quickly grew disillusioned as the categories didn’t fit me.  They always included a line for “childcare” that I didn’t need.  I crossed it out and wrote in something else, but the pencil line through the printed text annoyed me.

With YMYL, I tracked my own spending and created a budget filled with categories I actually used.  I dropped the entire budget into an Excel spreadsheet and have been using it ever since.  Not the same one, of course.  Any time something changes financially—every six months or so, but as often as every three or four months—I revise the budget, changing amounts or sometimes even adding or subtracting categories.  My categories are pretty detailed and split into several sub categories, see below for a complete listing.  Despite my thoroughness, I believe you can have a budget with as few as five categories: Savings, Food, Shelter, Clothing, Misc.  However, those categories are going to become unwieldy, unless you make very little money.

I like the 50/30/20 principle because it gives me a good idea of how I should be spending (and saving) my money.  Before I read this book I would always wonder if the amount I spent on groceries (or whatever) was too much.  In this system, Warren and Tyagi propose that 20% of your net pay goes into savings, 30% is spent on wants and 50% is spent on must-haves.  They define must-haves as the bills you have to pay month after month and wants as some fun money right now. 20% goes toward saving for the future. 

Though I was attracted to the 50/30/20 plan’s big emphasis on saving and the firm, and large, percentage, I don’t want you to think that I’ve got the plan implemented.  However, I just reviewed my budgets since I adopted the program and I can tell you that since May of 2008, I have only met the percentage goals with two of eleven budgets made during that time.  So it’s still a stretch goal for me.  This may be because I work a 32-hour week, but am still living as if I work 40.

Current budget categories

Food

Subcategories of groceries, joint groceries, dining out and garden supplies. 

I’m thinking of adding a further category of “sweets” because my dining out category has been over spent a lot the last few months and I think it’s due to the cookie habit I have formed.  The food category as a whole has been tough the last few years.  I’m budgeting much more than I ever have, but still struggling to keep expenses down.

Shelter

Mortgage

This is a joint category.  I’ll talk more about how we handle the joint expenses later.

Bills

individual categories:

student loans, school, cat, car, house holding

The “school” category came about when I was paying for a certificate program to add to my degree.  It has not yet gone away, but has been reduced to a minimal amount.  The “house holding” category is for maintenance of my household supplies.  Like a woman with a dowry, I bring all the kitchen stuff to the relationship. I aim to take all the kitchen stuff with me from the relationship if it ever comes to that and I don’t muddy the waters by buying anything with joint funds.

joint categories:

phone, land lease, life insurance, homeowners insurance, garbage, electricity, water/sewer, yard, internet, saving up for big appliances, joint savings, joint vacation, dates, household supplies, furniture/decorating, cleaning.

The “cleaning” category is how we pay ourselves for housework completed.

Clothing

Work, fun, sport

These used to all be separate categories, probably because I was in my 20s.  Now it’s all just one thing.

Transportation

Bicycle

This category used to contain a category for public transportation, but I’ve been lucky that my employer has provided a monthly transit pass for the last six years.  I guess the “car” category from bills should go here, but I haven’t ever moved it.

Health

Personal care, doctor/drugs, gym

Personal care is all the “stuff” to maintain me, like toothbrushes, shampoo and tweezers, etc.

Recreation

Plays and lessons, vacation, newspaper, computer, random fun things to do

The plays and lessons category used to be horribly overspent until I spent a year pledging not to take any classes.  Now it is only moderately overspent now and then as I want to see more plays than I budget for.  That said, it’s a very minimal amount budgeted each month. I would love to increase it. “Random fun things to do” is my general spending money each month.  I found it easier to lump the movies, the occasional book bought or entrance fee paid in one category than to make separate categories for all of these items.

Gifts

Personal gifts, Christmas, public radio donation, church donation.

I have a budget amount for family/friend birthdays and a budget amount for Christmas.

Savings

3 month

I could technically rename this “8 month” because I finally met my three months of living expenses saving goal.  But I like the historic flavor of it.

Did it!

Nearing the end of the month, I replenished my vegetable stores and bought some salmon. I spent just under ten dollars at New Seasons and just over ten dollars at Fred Meyer.

New Seasons: -9.75
Fred Meyer: -10.20

Remaining balance for the month: 10.85.

Net growth in my checking account: +20.85

Good job me. I fell down on my vegetable production, so I would have been better off to only be +10.00 at the end of the month, but I'd rather be up than down.

The level of debt you feel comfortable with.

In Brent Hunsberger's financial column on February 15 in the Oregonian, he discusses why we need to all step up and help people facing the foreclosure of their homes. He gives as an example, the Gott family who three years ago "bought a new, four-bedroom house in Albany for themselves and their two girls." At the time, their annual income was $64,000/year; both parents worked, the father in building supply and the mother as a special ed. assistant. They had no car payment and no credit card debt and felt their $1,900 payment on their $260,000 home was reasonable.

Hunsberger describes what happened when they lost 23% of their income. He then goes on to explain how concerned he is by comments left on his blog when he posted their plea for help. "Several readers skewered them for getting into a house above their means and not shutting of cable or a cell phone." The Gott husband argues that cutting those things off wouldn't make a difference and Hunsberger goes on:

"Sure, it's unfair when those who made a mistake get bailed out while the rest of us foot the future tax bill. But the carnage could affect everyone if we don't step up and deal. As employers shed jobs and cut pay, millions of other US homeowners will find themselves in a similar fix.

"A foreclosure doesn't just hurt them. The lender loses money. Surrounding property values drop. That makes selling homes more difficult, puts more homeowners underwater and leads to more foreclosures. The cycle feeds itself."

I agree with Hunsberger's closing argument, but let us return to the Gotts for a second. Was their home purchase reasonable. I've just Googled "How much home can I afford?" and found the following paragraph on the first hit.

Here's the super-quick rule of thumb: Most people can afford a home that costs up to three times their annual household income, if they can make a 20% down payment and have only a moderate amount of other debt. If you have little to no debt and can put 20% down you can probably buy a house worth up to four times your annual income. (http://michaelbluejay.com/house/howmuchhome.html)

The article doesn't mention how much down payment the couple was able to make, but let us run the numbers as if they did. $63,000 X 4 is $252,000.

So according to this quick look the Gotts, with no debt, have overbought a bit.

Then I plugged the numbers into the financial calculator at the bottom of the page. I entered their monthly income ($5333) and their debt payments ($0) and I gave them a down payment of $10,000, though it has been my experience that a lot of people in the last five years bought their first homes with little to no money down. According to the calculator, with a 6% interest rate, a 2% property tax/insurance rate (those were defaults I used) if the couple takes out a 30 year mortgage, the most house the couple could afford is one for $201,853 with a monthly payment of $1546. So according to this rough calculation, the Gotts have overbought a lot.

But here is my real point, (I'm quite good a burying the lead). When times were good, the Gott's house payment was 35% of their expenses. When their income decreased, the payment suddenly took up 48.5% of their income. The smart spending money blog states that you shouldn't spend more than a quarter to a third of your before-tax income on housing. In good times, the Gott's only exceeded that by a bit. But currently they are in completely over their heads. Should they have committed so much to housing their first time around? I think this is where their initial mistake was. If they had limited themselves to a house payment of 25% of their current income ($1333 per month) when that income dropped to its current level, their house payment would only take up 34% of their budget, less than their original percentage.

Though I think the Gotts made an unfortunate choice, I can understand why they did so. I started looking at houses in 2004. I was hoping to get my first teaching job and become a home owner shortly afterward. At the time in Portland, there were still houses available for $130,000. They were old and some of them needed a lot of work and all of them were tiny, but they were available and I was looking forward to the challenge. I didn't get my first teaching job and my financial situation was not good for a few years. When I began looking again in late 2006, it was difficult to find any home in Portland proper for less than $200,000. Home ownership seemed very, very far away. It was frustrating and depressing.

I, unlike a lot of people in the country in the early 2000s, did not believe that the good times would always roll. I've never felt that the income I earn from work will continue to be there, either at it's current level or in an ever increasing amount. It probably has to do with messages I got growing up, (though my family's income did grow in slow but steady amounts) and the many bad employment choices I made throughout my 20s.

I'm also very uncomfortable with debt. I currently have no credit card debt and I hate that I took out $30,000 in student loans for graduate school. When I was planning to buy my first home, there was no way I was going to commit 35% of my monthly income to mortgage, etc. It seemed too risky.

In 2007, with my income, a partner in graduate school and home prices at record highs in Portland, I faced the facts that there was no way I was going to be able to afford a home in the next 5-10 years. The story of how I bought my first home ends happily: I found the Portland Community Land Trust, we happened to income qualify, a house came available we could afford, family generously gave us money for more of a down payment and we bought it. We were incredibly lucky. My partner has subsequently graduated and now has a job. I just did a rough calculation and our house payment is 13% of our combined income.

Here's where I have a problem with the Gotts. In "stretching" to buy their first home, they bought more home than they could afford. They are no different than many, many people across the country. I can't tell you how many times I read the dubious advice to "stretch a little" to get into your first home. Who was giving that advice? People who gave loans. People who sold houses. People who stood to make money off of the "stretching". All that stretching drove up home prices and left people who weren't willing to stretch with the following options: keep saving and renting and hope for a downturn; give up and "stretch"; or find an alternative way to home ownership.

When I worked for Census 2000, one of the things we said a lot when kidding around and giving each other a hard time was "you are part of the problem." As in, "Why aren't the reports done? Because you didn't finish proofing them. You are part of the problem." I think of that phrase now and then, and lately a lot in context of the housing problem. Who is part of the problem? The lenders and real estate agents. The crappy oversight, sure. But people like the Gotts? They are part of the problem too.