Tuesday, June 20, 2017

Why I Choose To Stay In Debt: A critique of the Dave Ramsey methodology

Besides my passion for minimalism and small house living, I feel deeply and profoundly the importance of financial independence, living within one's means and spending resourcefully and responsibly. Not so that I can be wealthy in a monetary sense, but so that I can experience the freedom from stress and worry and obligation that living large and in debt can bring.

As we downsized our belongings and our home over the past three years, we have also downsized our budget. It was pretty simple: we started spending less and saving more. 

I'm one of many small living enthusiasts who has checked out Dave Ramsey and his seven steps to financial freedom. It's a straightforward plan that anyone can follow:

  1. Baby Step 1: $1,000 cash in a beginner emergency fund
  2. Baby Step 2: Use the debt snowball to pay off all your debt but the house
  3. Baby Step 3: A fully funded emergency fund of 3 to 6 months of expenses
  4. Baby Step 4: Invest 15% of your household income into retirement
  5. Baby Step 5: Start saving for college
  6. Baby Step 6: Pay off your home early
  7. Baby Step 7: Build wealth and give generously
(from www.daveramsey.com/baby-steps)

We've been following this plan for almost two years now, but not the way Dave says to. It turns out I'm all for breaking the rules when you find a better way to do it. Here's why I am not a strict adherent to the Dave philosophy of money management, and what we're doing differently - and with success:

  • If I wait until all my debt is paid off to start saving for retirement (Step 4), I'm missing out on years of tax-free principal stashed away in my IRA or 401k earning me compounded interest, and employer matched funds too. (And any financial advisor will tell you that 20% of your income is the real savings target.)
  • If I get fully and completely out of all my debt, with $1,000 in the bank, and then lose my job, I'm going to be in BIG trouble! $1,000 for a family of four is a great emergency fund when there's money coming in, but it's not a lot to live on during hard times.
  • I think it's important to build in myself and my family a habit of giving now (Step 7), even when we have bills and debt - and maybe even no nest egg. Giving should be part of our lives when we have and when we don't have. It can be big or small: a few items to the local food pantry is a good way to start. I want my children to think of giving as something we do, all the time, with whatever we have. 
  • Don't wait to start paying off a mortgage early. Even $5 extra a month can cut years off of a loan and save hundreds in interest payments. 
  • I would rather have money in the bank than be completely debt free. Why? Say, worst case scenario, my husband and I both lose our jobs. We can negotiate down our debt payments, but we're going to need cold, hard cash to pay for essentials - like groceries, healthcare, and gas. And having money in the bank gives me a sense of security that lets me sleep at night, without worrying about what would happen to my family in times of crisis.
  • New debt is generally more expensive than old debt. I'd rather stay out of new debt by saving money for upcoming expenses - like a new(er) car - than get out of debt. Our car loan is at such a low interest rate that paying it off early will save us a mere $37. But I'd have to spend much more than that if we don't have enough money in the bank to buy our NEXT car with cash.

  • Step 2 involves paying off your loans in order of their outstanding balance, smallest to largest. I know why Dave advocates for this - because you get the easiest reward and are more likely to stick with the program. But if you have time to sit down and figure it out (or just take my word for it), you can save hundreds - maybe even thousands - of dollars by paying off your highest interest rate loans first, even if it takes you longer. 
So after a lot of figuring, calculating, and planning, our approach looks something like this: 

  1. Done! Baby Step 1: $1,000 cash in a beginner emergency fund
  2. Done! Baby Step 3: A fully funded emergency fund of 3 to 6 months of expenses
  3. In Progress: Baby Steps 2 and 4-7
  4. Use the debt snowball to pay off all your debt but the house, 
  5. AND Invest 15% 20% of your household income into retirement
  6. AND Start saving for college
  7. AND Pay off your home early
  8. AND Build wealth and give generously

We decided to split our debt payments to savings in a 3:2 ratio, both on a monthly basis and whenever we find ourselves with "extra" cash at the end of the month. So far it's worked brilliantly, and our debts are almost gone!

So follow the Dave Ramsey plan, or make your own like we did. Whatever way you do it, and wherever you are on the financial independence spectrum, keep at it! 

Tuesday, May 23, 2017

Experiments in Dishes

Guys (and gals), it's happened. The unthinkable. The how-am-I-going-to-get-through-the-week disaster. When I told my daughter (she's almost 5), she said, "OH NO! Mom. That's NO good!"

Yup. Our dishwasher broke.

[Oh, yes. God bless us and our first world problems of earth-shattering proportions. Oh, the agony. Oh, the drama.]

But seriously. Who's gonna do the dishes? Cuz you know I got other stuff going on... work... trim my nails... laundry... facebook... work (did I mention work?)... spending two hours every night begging my children to PLEASE JUST GO TO SLEEP...

When it broke, I immediately jumped in my mind to replacement. Call the appliance store! How soon can they get a delivery here? What color should we get? Do they have a model that also cleans the mess under the table? Do we have enough paper plates to make it through this ordeal?!

Sure, our dishwasher is old. And loud. And not very pretty. But I reminded myself that I probably really truly should look into fixing it. Maybe get another year out of it (or a few?). Clean it up. Make the best of it. And maybe save a few hundred bucks in the process.

Without a doubt, it's nice to have new things. Somehow, it just feels good. Fewer worries. Better efficiency. But also it's a status thing. Like, "Hey, look at me - I can just run out and drop a pretty penny on this luxury appliance at random, just because, even when I don't need to. I have money, and stuff. Pretty stuff. I have arrived."

If I really had my way, I'd have a dishwasher (sure - a nice, new one), and just enough dishes to fit in it. So I could take them out when we need to eat, and put them right back in to get washed. "Unloading the Dishwasher" would be a chore of the past!

Not too long ago, we did try an experiment with our dishes. There's a facet of the tiny house community that goes for the one person, one dish lifestyle. One cup, one bowl, one plate, one fork. It's simple, and small. It sounds like a perfect structure for tiny house living.

John (that's my husband) and I decided to give it a go. There are four of us, so we kept four of each item in the cabinet, boxed up the rest and put it in the basement during our one week trial period.

At first, it was great! The clutter in our kitchen almost disappeared immediately. There were no dirty dishes overflowing the sink, the cabinets were neat and tidy and everything had some space around it. Minimalism in action!

And then it was lunch time. But, because we only had four plates, and we used those four plates for breakfast, we now had nothing to eat off of. Now you might not know this, but when a 4 year old and a 2 year old want to eat, they don't fully understand the meaning of the word "wait" or  "I can't right now" or "just give me one more minute..." My kids are good eaters. And they were not about to let the lack of a plate keep them from the agonizing, "MOMMY! is lunch ready YET?!" <repeat> cry.

So we stopped making lunch to do the dishes.

And, by day 2, we decided that we would rather deal with a little clutter and a few more plates to throw in the dishwasher (back in the good ol' days when it was working!) so we could have a little bit more time and attention to give to our kids.

And though I'm sure there are lots of podcasts, blogposts, twitter feeds and facebook messages dedicated to the energy and bodywork and enlightenment and deep connection with your own food source and other positive soul-cleansing you can attain from taking the time to hand-wash each and every one of your own dishes, truly NO ONE in this house was going to miss scrubbing plates, bowls and cups three or four times a day.

The box came up from the basement, and the dirty dishes now pile up. Experiment complete.
The two reasons why I need a dishwasher

As for our dishwasher, I am swallowing my pride. Last night I pulled out the racks, gathered up some tools, looked up some repair videos, ordered a part, and after two hours of work, $12.99 and waiting for the FedEx truck to show up, it should be back in business.

I did allow myself one miniature luxury: paying extra for 2-day shipping!

Because sometimes a mom just needs a break.

Thursday, April 27, 2017

Neiman Marcus got nothin' on me!

By now I'm sure you've seen the latest fashion offering from Neiman Marcus guaranteed to make you empty your wallet to make it look like you played in a mud puddle:
Robins Jeans from Neiman Marcus

Cue eye roll and gag noises from the minimalist peanut gallery.

$425? Seriously? (But please, if someone you know bought these - or is thinking about buying them - please, implore them to tell me why. I am seriously interested in the demographics and thought patterns of the target market.)

I recently made my own jeans-related booboo. Not a $425 one, mind you, but a mistake nonetheless.

I'm going to tell you a story...

It starts several years ago, when I am quickly shopping at a thrift store looking for the perfect pair of jeans. And by quickly, I mean my daughter is running up and down the aisles, followed by my husband trying to grab her, with my son in his arms crying. I don't even have time to go to the decrepit dressing room to try anything on. And by perfect, I mean the jeans that look good, feel good, and fit just right. For me, being 5 foot 1 and not skinny as a supermodel, that's basically a miracle.

Regardless, I'm determined. I run my hands down the row of second-hand threads, giving anything promising a once-over. I find something. I hold them up, flip them over, measure them across my waist and, with no exchanges no returns, decide it's worth the gamble.

$7.99 later, I get home to finally see if my choice was a good one. I try them on.
And, it's MAGIC! I found them!
I found THE perfect pair of jeans.
If you've ever found the perfect pair of jeans for you, you know. I don't have to tell you. There are no words to describe it. It's equivalent to finding the perfect swimsuit and the perfect brand and style of underwear in the SAME day.

Fast forward to now. I have worn these jeans religiously since that fateful day. And they show it. I've worn two nice holes in them and I sadly stash them in the drawer to await some other fate when I'm ready to finally let go.

I decide that I will never, ever have another moment like that moment at the thrift store. Oh, I've tried, I have. But these jeans are the only ones for me. So then I decide that the only thing for me to do, the only right thing for me to do, is to... replace them.

I go online. I type in the RN, the brand, the style. And would you believe it - I find them AGAIN! $12. With shipping, $18. Almost brand new. The picture looks exactly like my pair of darling dungarees. I pull out my handy dandy credit card (yes, I still have a credit card!) and I buy them.

Five days later, I get them in the mail. Angels are singing! So am I. I pull them out.
And they are not at ALL the same.
They are longer, and skinnier, and darker, and just not right.

I cry inside, a little.

Then I go online again, and I find them. AGAIN! This time, I check the stitching, the back belt loop that's diagonal, the pocket size and placement. This time, I got it. These are THE ones. And, they're only $8 (with shipping, $12.50). Woohoo!

And yeah, you guessed it, they weren't the right ones either. Made in 2007. Mine were made in 2005. Whatever. Screw you, Banana Republic!

So I realize I need to do what I should have done in the first place.

I fix my trusty old pair of jeans.

I find a video on youtube (though I end up referring to this blog post). My husband donates an old pair of beyond-repair jeans to my patch. I get out the sewing machine, and I carefully fix my well-loved pair of perfect denim.

I tell you all that to remind you (and myself, too) that:
   1. you can't always replace something you love.
   2. you shouldn't always try to replace something you love.
   3. things can be fixed.

So get out that sewing machine, or that toolbox, or that bottle of Gorilla Glue. Do yourself and the planet a favor and fix something today!
Me and my favorite jeans, post-patch
Inspired by The Story of Stuff and this post from Upworthy.

Tuesday, March 14, 2017

Life in Uncertain Times

Just when you get into this rhythmic routine: work, eat, relax, sleep, repeat...

A while ago I got a call from my supervisor at work. We don't talk on the phone often - it's usually email, conference calls and IM - so when there's a call, something needs attention NOW.

The word was that my consulting job in IT would be ending.

<Pause...> Oh...

It had a been a good run, I'd have to admit, six years into a contract I was told would only last one. Doing something I enjoy (love?). At home, where my husband can call me over to see the funny faces my kids make and I didn't have to worry about missing first steps, first words, first anything.

I took a deep breath. I knew we would get through this.... But HOW?

I started here:

I balanced our checkbook. I need to know exactly what is available to us in our accounts.

I checked the balances on all our debts and outstanding bills. What's the least I can pay every month and still stay current?

I revised our budget. What's the least amount we need coming in every month to squeak by? What do we really need to spend money on: mortgage, groceries, health insurance, gas, car.

I stopped discretionary spending. For us, it's mostly eating out, the Friday night bottle of wine, new books, these super nice flannel sheets with soft green trees that were on sale that I really really wanted to sleep on. Anything that doesn't directly relate to our survival or our ability to work.
I knew when our situation was stable again, we could add these fun buys back into our routine. (Then again, maybe we don't need to...)

When I checked the calendar, the next big expense we had scheduled was my trip to the salon. My favorite indulgence. I've been going to the same place since I was in college. They know me and my wild Calabrese hair. And they are AWEsome and worth every penny. But NOT NOW. So, I decided to cut my own hair.

If you decide to do this, be wary. I watched a bunch of youtube videos, BAD idea. (Well, mostly.) There were some cringe moments at the end of a few videos. But, it gave me the courage to try. I figured the worst thing that would happen is that I had to run to the salon for a fix or wear a hat for a few weeks. I picked up the scissors and...

I cut my hair. The next day, I got TWO compliments. Given the fact that I live in a small community, and that I'm not incredibly fashion minded, I took this as two thumbs up! But if sometime you see me around town wearing a hat for a few weeks, please. Don't ask too many questions.

We are maximizing other sources of income. You know what my favorite thing in the world is (besides saving money)? ... PASSIVE INCOME! I was a landlord for almost 10 years, and it wasn't easy all the time (okay, most of the time. okay, maybe sometimes it really sucked!) but it is true that real estate is a good investment.

We sometimes rent out our house when we're out of town, and we put the income towards paying down our debts if there's any left over after monthly expenses. Win-win-win!

And we didn't forget about our tiny house, which will soon become a seasonal stopover for area hikers, bikers, climbers, and any other vacationer looking for a minimalist and rustic space to call home for a night. My husband kicked it into high gear and, thanks to his (amazing!) hard work, we are just putting the finishing touches on the still-to-be-named tiny house rental.
2014 before the reno

Work in progress last year

I stayed positive. Because the alternative won't get me anywhere.

Because we have a small and modest life, with similarly sized responsibilities and financial obligations, we are able to weather major changes like losing a job much, much better than we were when we owned a big house. Downsizing has saved us major headaches in the here and now by simplifying our daily lives and by alleviating our worries for the future.

I got hired. We had a few very tenuous days of waiting, wondering, and a few days of running around getting paperwork in. But, very fortunately for me and my family, I ended up in a good employment situation after I got hired by the company I had consulted for. Our lives and our bank account settled back down.

The truth is, we never know what the future holds, but sometimes it is more uncertain than others. While I work on living life every day in a way that allows me to cherish the ephemeral moments of the present, I also recognize the necessity of being generally prepared for random uncertainty in the future.

I'm listening. For those of you facing tough times, whether it's losing a job or anything else that contributes to your everyday well-being: I wish you peace in your hearts and favor in your circumstances. And I've always got a listening ear if you feel inclined; you can reach me here.