Don’t buy a house if you can’t afford it

I see the advice all the time not to buy a house if you can’t afford it, but rarely do I see a good explanation of what that means.

It’s really easy. Let me explain it, as someone who paid off a 30-year mortgage in five years and now co-manages rental property and has to determine if someone can afford to rent from us or will be over their head. And no, just because I’m a landlord doesn’t mean I think everyone should rent. There are definitely times when buying makes sense. Read more

The Debt Tsunami is a gimmick, but it probably doesn’t matter

I saw some people passionately advocating both for and against a new method of paying off debt: The “Debt Tsumani,” which focuses on paying off debt in the order of its emotional impact on you.

As someone who paid off more than $150,000 worth of debt over the course of about four years in the last decade, maybe what I have to say about that matters to you. Read more

Plain, pure and simple advice from the guy with a credit score of 848

One day a Cleveland-area man walked into a Bass Pro Shop, and they offered him a credit card with a promotion that would pay the sales tax. The savings amounted to $50, so he accepted. A few weeks later, he received a letter in the mail informing him that his credit score was 848. Perfect score is 850.

 My credit score raises eyebrows when people see it, but mine is still a pretty fair distance from that.
This Cleveland Plain Dealer article has some down-to-earth advice from the guy with 99.7% credit. Read more

Feeling poor on $100,000 a year

Yahoo! Finance! has! a! first-person! story! about! struggling! on! six! figures!

Silliness aside, you might be surprised to hear I–an infamous stingy Scottish miser–am at least a little sympathetic. Read more

Using child safety outlets to save energy

I got a new book recently about saving energy. I’ve read several of those, but this one had two tips I’ve never seen anywhere else: caulking baseboards and putting child safety covers on electrical outlets.

It didn’t explain caulking the baseboards, but I will. Frequently there’s a gap in the wallboard where it would normally meet the floor. Maybe it’s laziness—it’ll be covered by the baseboard, after all—but that gap is also a handy place to do after-the-fact wiring, reducing the need to cut into walls and then patch and repaint. The gap makes the area prone to drafts, however. So caulking where the baseboard meets the wall, and where it meets the floor if it’s not over carpet, makes rooms less prone to drafts.

Child safety outlet cover
These child safety outlet covers team up with foam gaskets (pictured below) to make a good energy-saving combo

The child safety outlets make for another interesting trick. I’ve talked before about foam electrical outlet inserts and their companion for light switches. And I’ve wondered about putting a child safety plug in. But recently I bought child-resistant outlet covers, after seeing them on This Old House. They come in varieties that twist or slide.  I like the sliding ones better, both from an insulating and usability standpoint. They’re convenient because you can just slide the cover out of place, rather than having to remove an insert. And these covers do two things: They put more material between you and the gap in the wall, and they cover the outlet plugs themselves, eliminating that last little source of drafts. And when you have small children like I do, they’re a necessity anyway.

I do insulate interior walls as well as those that face the outside. I didn’t used to bother. But this book mentioned that gaps in interior walls can cause them to act like chimneys, drawing heat out of the room. So I’ve changed my ways.

Foam electrical outlet insulatorsBoth of these are inexpensive upgrades that don’t take long to accomplish. When you buy the switch covers in bulk, it gets even cheaper.

I get ridiculed sometimes for talking about saving energy so much, but think about it. Energy isn’t getting any cheaper. My local utilities ask for rate increases just as frequently as the law allows them to, and more often than not, the state grants an increase. Not always as much as they ask for, but something.

More energy saving ideas

I’ve done a number of other things to help me save energy over the years. Most are pretty inexpensive. I installed thermal blinds and thermal curtains. Then I insulated my hot water pipes. And of course I use LED light bulbs.

My electric usage dropped 19 percent in 2011, so these things work.

Surviving a recession

I saw a link to a short story on Get Rich Slowly called What to do during a recession.

I think I can do a little better. So I’m gonna try.You might not lose your job, so don’t become a self-fulfilling prophecy. The story states that most people don’t lose their jobs when the economy goes south. That’s important to remember. I lost not one, but two jobs in 2005, not the worst year on record but certainly not the best for either of those two employers. I was pretty certain in both cases that there would be cuts and I would be one of them. I couldn’t do anything about the second case because an edict came down from a new CEO to get rid of all contractors, and I was a contractor. In the first case though, yes, I probably made myself a more likely target for downsizing. I wasn’t as bad as the guy in Office Space who got hit by a truck, but if management thinks you think you’re on your way out, they have an excuse to not feel as bad about letting you go. After all, if you saw it coming and you’re not prepared for it, it’s your fault if something bad happens, right?

So if you think you might be on the short list, don’t let anyone know you think that way, and be quiet and discrete about finding your next job.

Work your contacts. When I lost that job, I knew some people who’d asked me at one point or another if I might be interested in opportunities elsewhere. Of course I called them within 24 hours. None of that panned out for me, but at least I got some practice interviewing and some good resume advice out of the deal.

I think it’s a very good idea to ask your friends once a year or so if they know of any openings. In the event of an emergency, it gives you a much better idea of what might be out there.

Build an emergency fund, just in case. Having an emergency fund is also important. When I got hired on at my current job, my boss told me to try to have half a year’s salary in the bank. Some vote of confidence, huh? But the reality of our business model is that we can be forced to make cuts at any time, with no warning. It even happened to him once a few years ago. The upside is that the pay is pretty good and we get at least one or two opportunities to make some extra money each year, so we put up with it.

Six months’ salary can be hard to save, but you should have at least two, and more is better. Sometimes I can find a new job in less than two months, but I can think of two times in my career where my new employer dragged the hiring process out by a month. That was fine the first time it happened, because I still had my previous job, but it really stank the last time, because I’d been out of work a month.

Make a bare-bones budget. I also suggest having a bare-bones budget. Make up a spreadsheet listing the non-negotiable expenses that happen every month (mortgage or rent, car payment, utility bills, car insurance). Then figure the cheapest you can feed yourself for a day. I have a coworker who might try getting by on three packs of Ramen noodles and feed himself for 30 cents a day, but for most people, $3-$4 per day for food is about as low as they can go. Multiply that number by 30 and add that as a line item. Then add a few bucks for gas (it costs money to drive to the store and to job interviews too). It’s much easier to make a budget like this before you need it than when you need it.

You don’t necessarily need to kick into the emergency bare-bones budget the day you lose work, but I did. It helped my savings last longer.

Start saving money now. Knowing where to get things cheaper will help you build your emergency fund faster, and it will help you when you can’t afford to pay full price. Find out where the nearest day-old bakery is. If there’s a thrift store near you, wander into it sometime to see if it’s any good. If there’s a farmer’s market near you, check it out and compare its produce prices to your regular grocery store–and prepare for a pleasant surprise.

Don’t bail on your stocks. This might be the most important thing. When the stock market takes a dive, a lot of people hop on the phone and take their money out. Unless you own marginal stocks, that’s exactly the wrong thing to do. You don’t need to know what to do with marginal stocks when a recession hits. If you own stock in companies that can’t survive a recession, you should sell them now and buy stock in companies that can. I had a relative who made himself rich by investing in boring companies like General Electric and Coca-Cola–companies that sell things that people buy no matter how much money they have–and holding those stocks for several decades.

That money vanished after a generation (and no, I don’t have any of it), but that’s another story.

There’s a financial cliche that poor people run to buy when stores have a sale, but when Wall Street has a sale, they rush to sell.

The thing to remember is that stock prices are purely theoretical unless you sell. So when they go down, you don’t lose anything. If the company still has decent products to sell, its price will rebound if only because vast heards of rich people will come in and buy more of the stock while the price is low. If you have some savings and you know how to stretch it, there’s absolutely no reason for those rich people to be buying that stock from you.

How to find motivation to balance your budget

This week I read a story on Get Rich Slowly about a couple who refuses to budget. The conversation ended when the person who needed to budget bragged about getting five shrubs on sale for $10 each. She didn’t need them, but the deal was too good to pass up.Consumerism is an easy trap to fall into because of easy credit, and the messages are all around us. Most people who know me probably categorize me as an extreme cheapskate. Certainly there are lots of things I could be doing that I don’t, but even by doing a few little things you can improve your financial situation immensely.

Watch less TV. I think this is a really big one, because TV is the primary source of marketing messages. It’s not just the commercials either. The TV shows give lots of messages about how you’re supposed to live. It’s not a realistic picture.

At one point in my life I was able to go a year without watching TV, just watching the World Series each year. I watch more now. I try to catch This Old House on Sunday evenings and sometimes I’ll watch a show with my wife, so I probably watch 3-4 hours a week now. But that’s a lot less than average.

My advice to someone who wants to watch more TV than I do would be to watch older movies (1940s-1960s), as that would make it harder to compare your life to someone else’s. Plus, there’s a lot less product placement and other marketing shenanigans going on, and if you watch it on video, no commercials.

Have realistic expectations. A lot of 20-somethings seem to think they have to have furniture as nice as their parents. That’s unrealistic and sometimes impractical. The previous generation didn’t always have what they have now. Walk into the home of a 50-something, and some of the furniture will be new, but some of it will be 10-15 years old, possibly more. The furnishings were bought over the course of many years. Plus, nicer things are impractical when you have kids running around. There will be spills and stains and dirt. Kids need to be taught to respect things, but what’s the point of ruining a $1,000 sofa to teach the lesson? It’s better to put something older and cheaper in harm’s way instead–much easier on the credit card and on your sanity.

Budget. A budget isn’t some mystical thing. It’s a simple list of your money as it comes and goes. It can be as simple as a spreadsheet. In one column, list all your sources of income–your paycheck, plus anything you make on the side. Add up that total.

In another column, list your monthly expenses. That’s everything–your car payment, rent or mortgage, credit card bills, utility bills, gasoline, food, and entertainment. You may have to save your receipts for a month to do this realistically. Add up that total. Hopefully it’s a smaller number than the first total.

I first did this in college when I was treasurer for my fraternity. We were in serious financial trouble but nobody knew why. I grabbed the checkbook, did the simple analysis I described above, and figured out we were spending more than $400 per member every month. We were only charging $380 a month for people to live there.

When we couldn’t raise rates, I started cancelling things. I cancelled the Super Bowl Party. I cancelled cable TV in the lounge. If it wasn’t a basic necessity of life, it went. It made me unpopular and it didn’t balance the budget, but it cut the shortfall.

I’m guessing most of the people who voted against me raising rates are having more trouble paying their bills today than they need to.

The expenses involved in a personal budget are different than for an organization, but the principles are identical. You still need to have more coming in every month than comes out, and if you can’t figure out how to make more, the only way to have more money is to spend less.

Reward yourself. Practically. A few years ago my budget was tight and I’d taken on an expensive hobby. Then I realized what I spent on food every day. It started with $1 for a cup of coffee and a doughnut. Lunch was $5 at the cafeteria. And usually I spent another dollar or two in the vending machine. I let my ego tell me it wasn’t worth my time to pack a lunch.

Then I did this math equation: (365-52-52-10-10)*7 and came up with $1,687. I was spending $1,687 a year on (mostly) bad food because I thought I was too important to pack my own lunch.

I was also making about $15,000 a year less than I make now. Dice.com tells me I’m slightly underpaid now, let alone then. Who was I kidding? That $1,687 was a luxury I couldn’t afford.

So I went to the store, bought a Thermos and a big can of coffee, bought some instant oatmeal and some breakfast bars and granola bars, and started packing fruit and sandwiches. What was left became my hobby budget.

I couldn’t motivate myself to cut that expense just to have more money, but being able to afford something I otherwise couldn’t was enough motivation for me. Eventually I shrunk the hobby budget and started using that money to pay down debt.

But had my situation been different I don’t think it would have been a bad thing, necessarily, to keep using that to fund a hobby. It’s easy to get discouraged when it seems like everyone else is passing you by, even if they’re passing you by on borrowed money.

Look at opportunity cost. Opportunity cost is about the only thing I remember from college economics. The theory goes like this: The cost of a new car isn’t $20,000. It’s what else I could have done with that money. So the cost of a new car is a plasma TV ($5,000), a high-def DVD player ($500), a nice computer ($1,500), a new high-efficiency furnace ($4,000), a nice vacation ($3,000), all three current generation video game systems (roughly $1,000), a new living room set ($2,000), and you’d still have $3,000 left to replace two or three appliances with high-end models, or all your major appliances with new low-to-mid-range models.

Would it be worth driving an older car for a few more years to be able to afford to go on a home-improvement binge like that?

Or here’s the way I prefer to look at it. I could invest that money conservatively, using a no-load index fund that just does exactly what the Dow Jones Industrial Average does. Historically, money invested in the DJIA doubles every seven years. Some seven-year periods are better than others, of course. If I dump $20,000 into that kind of a fund, it will be worth $320,000 in 28 years.

The sticker price on the Honda Civic sitting in my driveway was around $15,000, but that’s not what it cost me. It didn’t cost $16,500 either (I paid some interest on it because I didn’t have the cash to buy it outright immediately). It cost $264,000.

I know some people look down on me for driving what’s now a five-year-old car, but I can build myself a very nice nest egg just by keeping my cars two or three times as long as everyone else does. Will they still be looking down on me if I retire at 65 and they have to work 10 more years because they still have debt to pay off?

If the cost of a secure future is driving a car typical of what 16-year-olds drive, I’ll pay that price. It’s a bargain.

Don’t pay interest. If you have a choice between financing something and waiting a while and paying cash, wait and pay cash. Paying interest is like paying rent. It’s paying money off and having nothing to show for it in the end.

I do use interest-free periods to buy things because that gives me a little more time to get the money together. I financed a furnace earlier this year because they offered 6 months same as cash. I probably could have paid cash on the spot but it would have been less comfortable. Being able to spread my payments out over six months allows me to pay more on the mortgage, which does charge interest.

I helped my girlfriend move this weekend

It’s been a long weekend and I’m exhausted, but I like the situation my girlfriend finds herself in now. She has an apartment in the Holly Hills neighborhood in south St. Louis.Holly Hills is a pretty swanky place to live, if you have a house. The apartment situation is a bit different. A comparable one-bedroom apartment in the working-class suburb where I live would cost about $200 a month more than what she’s paying, and some of her utilities are included. You won’t find that in Mehlville. What you’re more likely to find is an apartment like the one where I lived for nearly five years, which was in a fairly safe neighborhood, but the building was about 20 years old and was falling apart, in spite of them wanting $550-$575 a month for a one-bedroom apartment with a kitchen so small you couldn’t have both the fridge and the oven doors open at the same time.

And I noticed, as I looked down Gravois Ave. towards Holly Hills Ave. from Loughborough, that this neighborhood still has class. A block up the street is an old sign that reads 4 Sports & More. Twenty years ago, that was called The Baseball Card Store. The name of the guy who owned it escapes me, but I remember going there frequently to buy baseball cards. He retired about 10 years ago. Under the new ownership, the shop didn’t last long. It’s a shame, really.

Next door is what used to be a Rexall drugstore. I don’t know if the Rexall was still there 20 years ago. It’s a payday loans place now, a sign of the times. It wasn’t as easy to get a credit line 20 years ago, so it wasn’t as easy to overextend yourself.

On the end of the strip is an old-fashioned hardware store. The couple who own it are getting up in years so I don’t know how long it’ll still be there. It’ll be a shame if it closes. It’s not like those big box stores. Those two know exactly where everything is in their store, and they can tell you exactly what to do with it. No, I’m not being impolite. The two of them really are handy. And from what I can tell, she’s the handier of the two.

Across the street, there’s Elicia’s Pizza. It’s a local chain that serves up St. Louis-style pizza. It’s ultra-thin and sliced square. As far as famous St. Louis chains, it probably ranks fourth, and it may be a distant fourth, in numbers and fame. Quality-wise, I’d rank it second behind Fortel’s. We ordered pizza from there on Saturday. I kid you not, they had it ready in less than 10 minutes flat.

I have no idea what the proper name for these things are, but there’s a big clock on a pole on the street, too. It looks like the ones you see in a movie, or on a train layout or one of those ceramic villages. And it works.

It’s obviously not the bustling commercial district it once was, with about half the storefronts closed up, but it has charm and character. Who’s going to get nostalgic at the sight of a strip mall in Mehlville or Oakville?

Closer to her apartment, it’s a residential district. On the way there, you can see $200,000 homes and you can see a handful of $500,000+ homes. It’s near a big city park. The homes are old, so the trees are mature. One of the streets is even split to allow more trees to grow in the middle. It’s a gorgeous sight in the fall.

I’m happy for her. She has a nice apartment. She’s free from a very overbearing roommate. Her utility bills are about to take a dive. She has three grocery stores within two miles. And the neighborhood looks like a postcard.

I wish I’d known about the place when I moved back to St. Louis six years ago.

This is a so-you-know-I’m-alive post

I don’t expect my daily doings to be interesting to anyone. I mean, c’mon. Who wants to read ordinary? But since I haven’t posted in forever, I’ll post what I’ve got, which is this.I’m getting a lawnmower today. That’s good because I can’t get anyone to mow my itsy-bitsy yard for less than $25. For that kind of money, I’ll do it myself.

A friend is coming over this afternoon to help me install a programmable thermostat. That’s good because my utility bills are out of control. If I’d done it in December, I’d be about $400 richer right now. I’m also looking at some other creative ways to knock utility costs down, like compact fluorescent light bulbs, which use about 1/5 the wattage of a standard bulb and have about 10 times the life expectancy. They claim to save you about $30 in energy costs over their life expectancy. Multiply that by the 20 or so bulbs around the house that they’d be suitable replacements for, and you’re talking some real money.

My DSL connection has been sporadic the last couple of days. It seems to finally be stable. I’d get better reliability by upgrading to a static IP, but that won’t happen before summer. I’m still dealing with those unexpected expenses that creep up on new homeowners, and, well, I’m young. I don’t have the kind of resources someone 10 years older than me would have.

If I can find a steady writing gig, that’ll help.

I’ve got a couple of tape backup issues to look at for work. And that’s pretty much my day.

I wrote what I thought was a decent piece on bleeding-edge hardware. But somehow I managed not to save it. I may get time to rewrite it tomorrow, depending on how productive I am today.

Oh, and, tee hee hee, my Royals are 8-0. The last team that started the season 8-0 won the World Series. It was the 1990 Cincinnati Reds, who beat an awfully good Oakland Athletics team. And there’s reason for hope: The Royals have been doing it without Carlos Beltran (leg injury), and yesterday they won in spite of half the team battling the flu. Beltran and Mike Sweeney are the Royals’ only star players.

But the 1990 Reds only had two bona fide stars too, in Eric Davis and Barry Larkin.

Do I really think my Royals will win the World Series? Not yet. But I think this is going to be a fun year.