Category Archives: Money Philosophy

I Am the 1%

Don’t worry; this isn’t a political article. 

I recently discovered a thought-provoking website called the Global Rich List.  This website allows you to enter your income to see where it falls in relation to others globally.  As it turns out, if you are an American earning at least $47,500 per year, you are among the top 1% of the world’s earners.  

There is a link at the bottom of the site explaining how the calculations are made.  The data is derived from the World Bank Development Research Group, so I believe the information to be reasonably accurate.

The site’s creators state that their goal is to help people recognize that they are richer than they think and to feel more wealthy.  In turn, they hope that people will contribute more to charitable causes once they gain perspective about their place among the world’s earners. 

I love it.  One point that the Global Rich List site drives home with subtlety is that those of us who are “rich” but feeling poor are likely living beyond our means.  Yes, the United States has a much, much higher cost of living than most parts of the world.  We also have many more product choices and shopping opportunities that tempt us to spend.  If we can avoid being sucked into the consumer lifestyle, it is very possible to build wealth on a salary that is considered modest by American standards (and rich by the world’s standards).  We will even have some money left over to help those who are less fortunate.

How lucky I am to have been born in a prosperous country and to parents who had the resources to provide me with a healthy and stable childhood and educational opportunities.  Sometimes it’s so easy to forget how good I have it.

Viva la frugal!

P.S.  The currency default on the homepage for the Global Rich List is the British Pound, so be sure to change it to U.S. Dollars (unless of course, you’re British).

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To the Class of 2012…

Graduation season is winding down, and I’ve been thinking a lot about the college graduates who are now entering the “real” world.  The transition from college student to independent adult is mostly awesome, though it does entail some new challenges.  All you new graduates out there now have the freedom (and responsibility) to manage many more areas of your own lives, including your finances.  Even if you are still searching for that first job that will launch your career, you can and should begin to develop a relationship with money that is healthy and positive.

In the ten years since my own college graduation, I’ve learned a few things about money.  I continue to be a student of personal finance, but I hope you will allow me to share with you the most important things I’ve learned so far:

The way you spend your money is a direct reflection of your values and priorities in life.  It’s very easy to mistake success for “stuff.”  Wearing a tee shirt with a designer logo does not mean that you are successful; it means you are susceptible to marketing.  If you looked at your spending as a snapshot of who you are, would you like what you see?

Experiences make you much happier than “stuff.”  Experiencing something is truly living.  You and your college friends will be separated in the future by time and distance.  Spend less of your money on “stuff” so that you can afford to meet old friends for dinner, or even vacation.  Remain connected with people you care about by experiencing things together.

You will never, ever regret starting to save sooner rather than later.  Albert Einstein said, “Compound interest is the eighth wonder of the world.  He who understands it, earns it.  He who doesn’t, pays it.”  Personal finance can seem complicated, but the most important principal is easy enough for a child to understand: Save as much as you can as early as you can, and you will build wealth.  It really is that simple.

If you want to live a free and independent life, avoid debt.  You must give up your time and energy to earn money, so having debt means that someone else owns a piece of your life.  Sometimes debt is necessary, but be honest with yourself about the significance and gravity of obligating your time and energy to someone else.

You don’t need to have personal finance figured out all at once.  Slow and steady wins the race.  Small successes in managing your finances will make you feel incredibly proud.  Congratulate yourself on every small victory.  Use that positive momentum to learn more and to create new goals for yourself.  In a very short time, you will feel confident and in control of your finances and your future.

We all have our own definitions of success and our own ideas about what makes for a happy life.  Regardless of what your ambitions are, always remember that the lead role in your life should be played by YOU.  Money should never play anything other than a supporting role. 

Congratulations, 2012 Graduates, and best of luck.  Viva la frugal!

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Extreme Couponing: A Big Ol’ Hot Mess

The dumpster diving Extreme Couponers. Photo from press.discovery.com

A lot of folks on the interwebs have been writing about TLC’s new show, Extreme Couponing, so I’ll keep this short…  If you haven’t seen the show already and you have a fondness for watching train wrecks, it’s a must see.  These people are nuts. 

The extreme couponers featured on the show spend up to 40 hours per week clipping coupons and planning their shopping trips.  Many of them order coupons from special clipping services.  Others wander all over town rounding up unwanted newspapers in order to amass their coupon collections.  One woman even goes dumpster diving (along with her children), to recover coupons discarded by others.

These nutjobs achieve pretty spectacular savings of 90% or more for their efforts.  They shop at grocery stores that will double or triple the value of the coupons, and they take advantage of items that are already on sale.  Often, they end up getting items for free.  This all sounds good, right?  Why am I calling them nutjobs?

If you’ve seen the show, you get it.  If not, trust me… They are NUTJOBS!  First of all, this little hobby of theirs consumes their lives.  Virtually all of their free time is spent figuring out how to get 600 toothbrushes for a penny a piece or how to get 90 cans of lima beans for free.  Secondly, extreme couponers have ridiculous stockpiles of crap that they keep in their houses.  Basically, these people are highly organized hoarders.  Their garages are filled with row after row of shelves stocked with lifetime supplies of canned food and toiletries.

The strangest part of the whole thing is how protective these nutjobs are of their “stockpiles.”  One would think that a person in possession of 2,000 sticks of deodorant might be willing to donate some to a local homeless shelter, but not so.  Instead, they pay for supplemental insurance to protect their stockpiles.  If they move across country, they spend thousands to relocate everything.  When they take the cameraman through their stockpiles, the extreme couponers always have a weird look in their eyes… I’m just waiting for one of them to start running through their rows of shelving yelling “my precious!” in a super-creepy Gollum sort of way.

On the bright side, this show has made me feel slightly less bad about being lazy when it comes to couponing.  It’s nice not to feel associated with these people in any way.  Viva la sanity!

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Kickin’ Worry to the Curb

When I began living frugally and writing this blog, I really had only one goal: to live comfortably and never worry about money.  Anything more specific than that – building an emergency fund, paying off my HELOC, saving for retirement, etc. – was really just a tactic to achieve the overall goal of financial freedom and comfort. 

I thought that I would achieve this goal sometime in the very distant future.  I imagined that there would be some tangible measure or trigger that would let me know that I could finally stop worrying about money.  Maybe it would be paying off a mortgage and owning a home outright, or maybe it would be reaching a $1 million balance in my retirement accounts.  Whatever “it” was, I mentally prepared myself to wait a good 20+ years before I felt confident enough to say, “I no longer worry about money.”

In actuality, it took only 12 months to reach that point.

Now, don’t get me wrong… I certainly did not achieve any exceptional financial milestones in that time.  I didn’t generate an impressive investment portfolio, and I didn’t pay off my mortgage.  But after 12 months, I did have a focused goal, discipline, and enough progress to feel confident and excited about my financial future.  As it turns out, that’s all I really needed to stop worrying about money.

It’s probably important to clarify what I mean when I speak of worrying about money.  To me, worry is what I feel when I’m scared or insecure.  I worried about money when I asked myself these types of questions:  Am I going to be able to pay my full credit card balance this month?  If my house needs a major unexpected repair, how am I going to pay for it?  If I become really miserable in my job, can I afford to look for another one?  Am I going to have enough money to retire at a reasonable age?

When I worried about money, I didn’t have answers to these questions.  All it took to rid myself of worry was to have good, solid answers:

Q:  Am I going to be able to pay my full credit card balance this month?
A:  Of course.  My spending has been within budget so I’ll have the cash to pay the bill.

 

Q:  If my house needs a major unexpected repair, how am I going to pay for it?
A:  From my emergency savings fund. 

 

Q:  If I become really miserable in my job, can I afford to look for another one?
A:  If I ever feel miserable because I’m being put in a position that violates my personal or professional ethics, I can afford to resign and live off of emergency savings while I look for another job.  (Note: This is obviously an extreme situation, and not one I have ever been in or expect to be in.  But it’s very good for my peace of mind to know that I can afford to get out of a seriously bad situation.  If I simply didn’t like my job, I would probably never quit unless I already had another one in the bag.)

 

Q:  Am I going to have enough money to retire at a reasonable age?
A:  Yes.  I am contributing to my 401(k) aggressively and when I calculate my compounded return over the next 30 years, I can see that I’ll be in great shape. 

 

It was really important to realize that I could stop worrying about money simply by having a plan and sticking to it.  I’ve definitely lacked discipline in my spending over the last couple of months since I bought my new house, but I know I can get back on track.  In a way, getting off track has been good for me…  I absolutely love my new house and the things I’ve bought for it, but I hate feeling the financial worry creep back into my life.  This has been a good reminder that I love independence and financial freedom more than I’ll ever love things, even beautiful things that make my house look amazing.

The past couple of months have been a financial hiccup for me, but I’m going to take it in stride.  I’m going to use the worry that I feel to reinforce the importance of my long term goals.  There’s no reason why I can’t be worry-free again in a few months, and that’s something I will work toward with focus and confidence.

Viva la Frugal!

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Whoa Nelly: Job Hunting on a High Horse

Job hunting is a difficult process, and today I’m feeling exasperated and a little sorry for myself.  My current company brought me on board to work on a specific project that will be finished at the end of August.  After that, I’ll likely be unemployed unless I can land another job in the meantime.  It’s not exactly news that there are very few jobs available in the current economy.  Unfortunately, there are even fewer available to me because I have an aversion to working for many companies and industries.  Being on my moral high horse throughout this job search is starting to make me saddle sore.

I’ll admit that I might be taking the moral high ground to the point of being obnoxious (and possibly self destructive if it means ending up unemployed).  But there are certain industries I just will not work in: oil, tobacco, and gambling, for example.  The problem is that I work in sales and marketing.  To do my job properly, I must convince people to buy my employer’s products, preferably in large quantities and with great frequency.  I feel strongly that people and businesses should be trying to reduce their oil consumption, so how could I work for an oil company?  Using tobacco products and gambling is hazardous and a terrible waste of money, so how can I promote these types of products?

The sales and marketing thing bothers me even when it comes to more socially acceptable products and industries.  I hesitate to work for consumer products companies (like clothing, electronics, home goods, etc.) because I would feel guilty about trying to convince people to spend money they don’t have to buy things they don’t need.  It seems hypocritical for someone who has a blog called HotFrugal to develop a marketing campaign for products that are expensive and total non-necessities. 

If I worked in a field like accounting, operations, or human resources, I don’t think I would have these moral qualms.  I wouldn’t be actively promoting and selling products, so I would have some distance from the responsibility of influencing people’s buying decisions.  The truth is, I actually love being involved in sales and helping people make smart buying decisions.  I have a real passion for B2B (business to business) marketing, and I’m pretty damn good at it.  When I help customers figure out the best solutions for their problems, it makes me feel great.  I love knowing that I have helped customers make their companies stronger so that they can better serve their customers.

Unfortunately, there just aren’t many B2B marketing jobs available in industries that won’t make me feel icky.

There are a lot of good people who work in the industries I have issues with, including many of my friends.  I certainly don’t judge them or condemn them for the jobs they have.  The fact that I have made my financial philosophy so public puts me in a different position.  The last thing I ever want to be is a hypocrite.  It’s human nature to be hypocritical, and I’m sure I have done and will do things that are inconsistent with my frugal philosophy.  But I would prefer to make those mistakes accidentally, not consciously choose to do something that goes against what I’ve preached.

The self imposed restrictions in my job hunt are certainly not the only reasons I haven’t been able to find a job.  It doesn’t help that I’ve been limiting my search geographically so that I can stay near my friends and family.  I haven’t even considered working for non-profits because I can’t afford to take a major cut in salary.  Even with these restrictions, there have been many “acceptable” jobs to which I’ve applied.  It just makes me frustrated that there are so few jobs available in the first place, and then I feel like I have to narrow the field even further.  I know I’m probably taking myself way too seriously, but I want to feel confident and dedicated to any job I have in the future.  It wouldn’t be fair to myself or my employer if I had reservations about the work I was being paid to do.

This post was kind of whiney, and I apologize for that.  I needed to do some venting, and I’ve gotten it out of my system.  Thanks for listening.  🙂

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Yankee Doodle Frugal

Today is Independence Day, our nation’s 234th birthday.  Times have been tough in this country for the past couple of years, but I truly believe that America is still a land of opportunity.  I do sometimes worry, however, that our culture is losing the optimism and perseverance that are such definitive American qualities.  I worry that negativity and fear are becoming as American as baseball and apple pie.  There seems to be a sense of helplessness in this country that is crippling on both an individual and national level.

It is unfortunate that the United States has had a decade of trying times in which the nation’s leadership has asked nothing of its citizens.  After September 11th, there was a massive upwelling of patriotism as ordinary citizens, overwhelmed by the loss of human life and the sacrifices of so many police officers and firefighters, wanted to find ways to serve their country.  We waited for direction from our leaders.  We waited to be told what was required of us.  We were ready to make serious changes in our lifestyles and priorities.  But all that was asked of us was that we go shopping.

After President Obama was elected, there was an energy and excitement among many people, especially the nation’s younger generations of voters.  Not only had the country elected the first African American president, the country had chosen messages of hope and optimism over messages of cynicism and fear.  Not everyone was pleased with the election results, of course, but those that were felt energized.  Again, we waited to be told how to transform our energy into service for our country.  Again, nothing was asked of us. 

It has become clear to me that those of us who want to make our nation stronger cannot sit around waiting to be told what to do.  Many Americans figured this out long before I did.  I’m thinking of those individuals who joined the military or their local emergency response departments after September 11th.  I’m also thinking of those who went green long ago in an effort to preserve our nation’s natural beauty and reduce our dependence on foreign oil.  I’m thinking of those who have volunteered their time to local organizations that make their communities stronger.  These Americans deserve to feel especially proud this Independence Day.

For the rest of us, myself included, it’s time to stop feeling helpless and to actually do something.  One thing we can all do to make our country stronger is to take care of ourselves financially.  Many things that are part of a frugal lifestyle are not only good for our wallets, but good for our country as well.  As individuals, we can choose to drive smaller cars and put fewer miles on them.  We can do our small part to reduce the nation’s need to play Russian roulette with the Gulf Coast or the Alaskan shoreline.  We can stop giving so much oil money to nations that breed fanatical lunatics who would like to destroy us.  

We can take care of our local communities, which is generally a good way to take care of ourselves as well.  Think about all the services your local government provides that make your community stronger, healthier, and a more enjoyable place to live.  No matter where you live in the country, there’s a very good chance that your local government is broke.  Budgets have been slashed as far as they can go.  The county and municipal employees who haven’t been laid off are stretched thin.  Those services you enjoy are going to suffer as a result.  Find out what you can do to contribute to your library, parks, schools, or public hospitals.  Volunteer your time.  Fill the gaps where you can.  If you don’t want your taxes raised and you don’t want your services cut, your time can make a difference.  It is in your financial interest to have public places to educate your children, get some outdoor exercise, and check out books.

If we consider all of the things we can do as individuals to make our country stronger, there’s no need to feel helpless.  We can all choose to live below our means and make purchases that align with our values.  We can all lend a hand to our communities when they are in need.  If nothing else, we will have a positive impact on our own small spheres of influence.  We might even accomplish more than that.  After all, our national culture is just a conglomeration of over 300 million individuals’ values and lifestyles.  Each one of us who chooses optimism, responsibility, and financial independence shifts our culture just a bit in that direction.  It isn’t a lot to ask of ourselves.

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Finding Fault with Defaults

Despite the fact that it is very much a buyer’s market, I decided to sell my house a few weeks ago.  I priced it

istockphoto.com

 aggressively and was under contract within three weeks.  This is great news and I’m fortunate to have made a sale so quickly in this market, but the truth is I’d prefer to rent my house rather than sell it.  The rental options in my area are limited, so I could have easily rented the house for more than my monthly mortgage payment, including taxes and insurance.  So why did I decide to sell my house if it would actually be quite profitable to rent it?

I made this decision after a conversation I had with a property manager who handles many rental houses in the area.  She told me that it is extremely difficult to find reliable tenants right now.  Many people are in the rental pool because they’ve lost their homes to foreclosure.  Unfortunately, many of these now-renters see no problem with not paying their rent consistently.  Not paying rent is a small leap from not paying the mortgage.  I’m sure that this isn’t true of everyone who has been forced into the rental market by a foreclosure.  But it’s true of enough people that the property manager I spoke with is having serious problems collecting rent for many of the properties she handles.  At this point in my life, I can’t afford the risk of having bad tenants who don’t pay their rent.  That’s why I made the decision to sell my house.

I’m very comfortable with this decision and I don’t regret it, but it has made me think a lot about our culture and the role that individual responsibility has in our society.  It’s very frustrating that so many people think it is okay to simply ignore their financial obligations.  It really shouldn’t be a surprise that people see nothing wrong with defaulting on their debts.  I have read a disturbingly high number of financial advice columns in which an “expert” tells people they should just walk away from their mortgages if it’s difficult to pay each month.  Even worse, I read one column recently that suggested it is okay to walk away from your mortgage if you owe more on the property than it is worth, regardless of your ability to pay

The New York Times recently published an online article that addresses this subject (http://www.nytimes.com/2010/02/03/business/03walk.html?hp).  The article quotes a mortgage broker in Arizona who shamelessly admits that he has advised people to walk away from their mortgages:

“Since the beginning of December, I’ve advised 60 people to walk away,” said Steve Walsh, a mortgage broker in Scottsdale, Ariz. “Everyone has lost hope. They don’t qualify for modifications, and being on the hamster wheel of paying for a property that is not worth it gets so old.”

Mr. Walsh is taking his own advice, recently defaulting on a rental property he owns. “The sun will come up tomorrow,” he said.

It is frightening that so many people see nothing wrong or immoral about not paying what they owe.  When someone lends you money and you refuse to give it back, that is not some sort of clever financial tactic.  It is stealing.  It is taking what doesn’t belong to you.  I don’t care if the money came from a big bank that received a tax payer bailout and is now making billions in profits.  That has nothing to do with your individual responsibility.  When you make a promise to pay back a loan by signing your name, you are accountable. 

Speaking of stealing and accountability, just think about what Mr. Walsh is doing to the tenants of his rental property.  His decision to default on the property means that his renters will have a very rude awakening when a bank suddenly tells them they have to move.  Hopefully Mr. Walsh does not currently have tenants in his property and his decision will not hurt anyone other than his lender (and his own credit history).  

I know there are situations where people get into terrible financial positions through little or no fault of their own.  I can be especially sympathetic to those who find themselves in foreclosure or bankruptcy due to medical costs.  When taking on debt is literally a matter of life and death, it’s hard to scold someone for doing what they had to do to survive.  There are a lot of people in this country who have been unable to get health insurance, and their finances have been thoroughly destroyed by their healthcare costs. 

I can even be somewhat sympathetic to those people who were manipulated and misled when they signed up for their mortgages.  There were a lot of unethical salespeople and companies marketing financially dangerous mortgages to vulnerable people.  But at the end of the day, those people are still responsible for their own financial decisions.  Their mortgages may be burdensome, but they committed to paying them.  I feel bad that they have had to learn a painful financial lesson, but that doesn’t mean they should be off the hook for what they owe. 

The abdication of personal responsibility is very harmful to our culture, especially when it comes to money and finance.  Free markets require a certain level of trust that people will do what they say and keep their promises.  Capitalism is not about screwing anyone you can to make a profit and get what you want.  I know it can be hard to believe that when you hear something like the testimony of the Goldman Sachs executives earlier this week.  Those executives are Grade A bastards.  But if we want to hold them to a higher standard, we need to hold ourselves to a higher standard as well.

Here’s the bottom line:  Defaulting on a mortgage because you feel like it or because you bought a lot of expensive stuff you couldn’t afford is morally wrong.  Excusing this behavior because the money is owed to a big evil bank is a very slippery slope.  I’m not a big evil bank, but apparently there are plenty of people out there who would steal from me by living in my house without paying me rent.  It is time for our society to feel some righteous indignation about such behavior.  Let’s continue to express our justifiable anger toward the banks and financial services companies who have caused so much pain in this country.  But let’s also direct some of that anger toward the individuals who take the same screw-you approach.  Their behavior is just as morally reprehensible.

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