When to Replace a Car

“My car has X miles.  I’m going to get a new car now, while the trade-in value is high, before my current car starts to have major problems.”

Here is what this person is actually saying:

“I want a new car.  My current car is perfectly fine, so I need to come up with a justification for the new car.  I know.  I’ll present the purchase as if it will save me money.”

But it doesn’t sound smart.

It’s sort of like buying and selling single stocks on the market.  Don’t try to outsmart the market.  You’ll go broke.  Just buy an index fund and ride it out.

A paid-off car is almost always less expensive than a new car.  That tipping point is much, much further down the line than people convince themselves it is.  Years and years.

Car payments are the worst.  Why, why, why don’t people talk about being “car poor”?  People talk about being “house poor,” but I suspect many are “house poor” as a trickle-down effect of being “car poor” from a crushing $450/month car payment.  For 60 months.  Ouch.

Our last car purchase two years ago replaced a 1997 Oldsmobile 88.

My husband bought it for $3,000 from a former high school classmate’s mother.  He gave it regular oil changes and replaced the tires a few times.  He stapled the drooping ceiling fabric back to the ceiling, before ripping it out and letting the yellow foam underneath shine through.  The headlights were clouded over with a weird film that refused to be cleaned.  It was a really ugly car.  Even little kids thought it was ugly, they would climb on it, jump on the hood, will it to die.

We don't have many pictures of my husband's old Olds 88.  She wasn't too photogenic.
We don’t have many pictures of my husband’s old Olds 88. She wasn’t too photogenic.

Many mechanics refused to work on the car.  The bottom was super rusty.  I think the last straw was that the bottom of the gas tank rusted through, and gas was leaking.  But when they took out the gas tank, it turned out to be holding other rusted components in place.  (Can you tell I’m not a car person?  Not very technical language here.)  The transmission was also gone.  This was our tipping point.  The car was worth about $1000 in scrap metal.

My husband got endless shit for driving this car for 10 years.  The car was a long-standing joke at his workplace.  Our friends made comments.  Even his family ribbed him.

But you know what?  The whole time he was driving this thing, he had the down payment for our house sitting in his bank account.

It wasn’t that he couldn’t afford a new car.  It wasn’t that he liked driving a jalopy.  He was planning for the Big Picture, and in the Big Picture, a new car can derail things, big time.

 

Is Debt Consolidation Good? (No. No it is not.)

Debt consolidation.

If you have debt, best thing is to get it all on a super low interest rate, right?

I’m not a fan of debt consolidation.

Debt Consolidation makes you forget about debt.  It’s a trick.  Back away quickly.

Recently a friend did a massive debt consolidation.  He refinanced his home to a 20 year fixed mortgage with a lower interest rate (great!), and in the process, he rolled in the credit card balance, the outstanding balance on the car loan, and his son’s first year of college (not good, not good at all!).  His overall payments went down by several hundred dollars a month.  So he sees it as a good thing, right?

Well….

Before the debt consolidation, his payments were higher but he was 3 years from a paid-off car (if he did nothing more than keep with the monthly payments).

Now, his car won’t actually be paid off for 20 years.  He won’t even be driving that car for several years as he continues to pay for it.  How long to people drive cars typically, 7-8 years?

Of COURSE the monthly payment went down.  He took a 3 year loan and spreeeeeeeeaaaaaaaad it out over 20 years.

That doesn’t make any sense!  It really, really doesn’t.

Think about it.  Would you ever take out a 20 YEAR CAR LOAN?  If someone suggested that to you you’d tell them to go screw. But that’s what you do when you roll your car loan in with your mortgage.  You take out a 20 year car loan, and you put your house up as the collateral.

And the craziest thing?  He has tricked himself into thinking that he no longer has car payments!  I heard him say that the other day to someone, “we don’t have car payments any more.”

It’s just not true!  Just because he played a shell game and rolled the car loan, the credit card balance, and a year of college into the mortgage… that doesn’t mean those payments went away!  They just got spread way the hell out.

I don’t believe debt consolidation is a good motivator.  I don’t believe that the freed-up cash is put towards paying off debt.  I believe the new situation is evaluated and more times than not, debt consolidation folks go out and get themselves a new debt with that freed-up money.

This is the same phenomenon with pay raises.

People tell themselves that if only they get a pay raise, they will have an easier go at things.  Life will be easier.

But it doesn’t happen, because when we get a raise, we tend to raise our spending level commensurately.  That’s why nearly half of people earning between $100,000 and $149,999 have under $1,000 in their savings accounts and 18 percent having nothing squirreled away.  Nothing!  That’s crazy.

Debt consolidation is a mind-f$%#.  It gives people a false sense of doing right, of being smart.  Like the elliptical machine, or fat-free cookies, or rented solar panels on your roof.  Debt consolidation is a false bargain, and false bargains should be avoided at all costs.

The truth is that getting out of debt sucks.  Lifestyle changes are hard.  Cutting back is hard.  It takes a long time.  But by keeping debts in discrete accounts, there are W’s along the way that are crazy-motivating.

Paid off that $1,000 Macy’s card that’s been sitting around for two years?  That’s a W!

Killed your car payment 2 years early?  W!  No car payments is fantastic!  Have 3 glasses of Bota Box Malbec, you earned it!

So instead of avoiding debt through consolidation, I suggest facing it straight on.  Cut back, think big picture.  Line up your goals and celebrate the W’s along the way.

 

 

 

 

 

 

Stop Losing Money in the Kitchen

Life isn’t Million Dollar Listing!

We live in a 24-7 HGTV world.  Magazines, websites, internet shopping, luxury lifestyle reality television… coupled with cheap, readily available credit…. have folks convinced that a super high luxury level is the minimum acceptable baseline.

Nowhere is this trend more out of control than in the kitchen.

It’s so nonsensical.  People are cooking less than ever before (what with going out to eat and prepared grocery meals), yet demand for high end appliances, marble countertops (“stainless and granite!” should be HGTV’s tagline) a farmhouse sink and a subway tile backsplash has never been higher.

Kitchens are now a status symbol.

But just like a 2008 Ford Focus will still get you from Point A to Point B, a 1990 kitchen will still churn out great food.

Here’s my kitchen.  White appliances, laminate countertop, linoleum floor.  Horrible layout.

Every time my mother walks into my kitchen, she talks about how someday I’ll update it.  Maybe, but probably not.

For one thing, I’m not convinced it would be a “dollars in/dollars out” situation.  The house has so many pluses – location, driveway, yard, space, charm – that I’m not convinced an updated kitchen would add to the value all that much.  We did the wrong thing in terms of real estate in that we bought the most expensive home on the block.  In our case, sinking money into a kitchen upgrades would literally be sinking money.

Second, we don’t plan to move any time soon.  Therefore even if the home did come up in value commensurate with a kitchen renovation… it doesn’t matter.  Bottom line, it would be dollars out of our pocket.

Third, it would be crazy to spend tens of thousands of dollars on home renovations while we still have a mortgage.  Financing a renovation is out of the question.  We believe that decreasing the equity in our home is a bad idea.  Therefore we pay for any home upgrades with cash.  It just doesn’t make sense to use our emergency cash fund for a non-essential, luxury upgrade.

So where does that leave us?

It leaves us in an awesome house with a dated kitchen.  So what? The kitchen is clean.  I got a little rolling island to add to the counter space.  And importantly, the food I cook in our dated little kitchen tastes the exact same as if it was prepared on a granite or marble or corian countertop and cooked on a stainless steel 6 burner with red knobs.

There will always be a way – several ways – to spend lots more money in the kitchen.  There will always be nicer knives to buy, cooler pans, a more beautiful countertop, a fancier this or that.

  • Got a cool $4,894 burning a hole in your pocket?  You can now buy a fridge from Samsung with interior cameras and a digital display that connects with your smartphone.  You can see your food while avoiding the “hassle” of opening your fridge door.  That’s absurd.
  • Kitchen all tricked out with the latest?  Well now you need two!  Two ovens (and a warming drawer!).  Two dishwashers.  Two (or three) sinks.  Two islands, even- “kitchen with two islands” populates on google search!
  • Already have double everything?  What about restaurant-grade appliances? A deep fryer, an Italian espresso machine, a wine fridge, a pizza oven…
  • Have all that?  Well what about an outdoor kitchen?  Sure, you already have a grill, but a grill is just a small component of a tricked out outdoor kitchen.  Don’t worry, HGTV can help you if you need ideas.

The point is that a kitchen – like a car – will only be the latest and greatest for a moment.  The next moment, a new thing or trend will emerge that makes your perfect kitchen seem lacking.  I sat next to a kitchen designer on a plane in April and she told me she’s done a $250,000 kitchen renovation!

I’m not anti-kitchen updates.  I spend a ton of time in my kitchen, and theoretically, sure, I’d love it to be updated.  But kitchen updates need to make sense.  All updates should be done with cash.  Big updates should be undertaken by people without debt.

I’m constantly surprised by the friends and coworkers who classify financed kitchen upgrades as “needs.”  It’s difficult to stick with a budget when we’re constantly barraged by so many convincing voices telling us that we need beautiful things, and we deserve the best of the best.  It’s so hard to keep the Big Picture in mind!  But the Big Picture is: no house is perfect.  Don’t sacrifice a trajectory to financial independence by trying to spend your way to perfection in a house.  Decide what elements of a home are most important.  Size, location, kitchen?  Be prepared to make trade-offs.  Don’t go broke chasing perfection.  Find contentment.  And remember, food tastes just as good when it’s made on white appliances 🙂

 

The HSA

High deductible insurance.  Yuck.  We’ve had high deductible insurance for the past 3 years, and it’s been so stressful.  We have to spend $2700 out of pocket before the insurance actually kicks in, and even at that point, we still pay 20% of all costs until we hit some stupid-high annual “out of pocket max.”

Last year, I started to wise up.  I put $1500 into the HSA but blew through it and still ended up with another $1100 coming out of my pocket, post-tax.

This year, we were quickly approaching our $2700 out-of-pocket max with only $1500 earmarked for the HSA when I finally fully woke up.  I changed my withholding for 3 paychecks and fully funded the account.

The HSA (health savings account) is the FSA (flexible spending account) of the high deductible insurance world.  The stressful part of the FSA — use it, or lose it — is removed from the HSA.  All money rolls over to the next year, then the next and the next.  HSAs are only available to high deductible plan holders.

2016 HSA limits: $3,350 for individuals, $6,750 for families.

The money is “triple tax advantaged” – it goes into the HSA pre-tax (it lowers your taxable income), it grows tax free, and it comes out tax free when it is used to cover medical expenses. You’ll also save on FICA taxes when it goes in. “Worst case scenario,” you are healthy, and take it out without penalty at age 65 as if it was an IRA.

Some folks like to take the tact of using the HSA as a second IRA from the beginning.  They fully fund the account and pay for deductible out of pocket. Here’s a link to a list of HSA-allowable expenses.

Not us.  We’re on a rather tight budget in our household.  A $400 bill for blood work or whatever other nonsense is difficult to absorb into our week-to-week operating budget.  We use our HSA money to pay for bills as they come in.  I particularly like that it lowers our taxable income.

Two side comments:  one effect of high deductible insurance plans is that it makes you hesitate to call the doctor.  The second effect is that you start to hate doctors, fast.  All they seem to do is order tests and bill, bill, bill.

 

I Loooooove to Buy Presents

Lots of personal finance bloggers have a “no presents” policy.

Not me!

I really enjoy making and buying and giving presents.  I enjoy it so much, that I usually can’t wait for the event, I usually give the presents right away.

A quilt for my niece
A quilt for my niece

My hobby is quilting, and I love giving quilts as gifts.  But because the quilts take me so long to make, I don’t get to give them as often as I’d like.

For kids – most of the presents we buy are for kids – I’ve found that presents are typically super hit or miss, and never the way anyone anticipates.  I was obsessed – obsessed! – with buying adorable twirly skirts for my nieces a while back.  The skirts were crazy expensive, $56 each, but I loved them and I was convinced the nieces would love them too.  Nevermind that I haven’t spent $56 on a skirt for myself in years.  The nieces did not love them.  I’m not sure that they’ve ever been worn.

The twirly skirts were an important lesson – I now try to spend the least amount of money (aside from the quilts) on gifts, as the “miss” probability is so high. Kids love to get gifts, but they just don’t give a hoot about how much you paid for things.  It’s not on their radar.

I’ve had some success with Venus Fly Traps for kids under 8.  ALL kids under 8 love Kinder Surprise Eggs.  This is a no-fail gift, and not too expensive per kid (they’re a little hard to get, but worth the reward if you can find ’em).  For kids 9 and up, for Christmas and birthdays, I like to go to the bank and get a stack of $2 bills and Sacajawea coins.  $3/kid is very reasonable in my book.  Water guns are a hit at every age, adults included.  Bike bells are another win with younger kids.  I got half a dozen headlamps last Christmas at $2.99 a pop (batteries included) and I was hero for a good 45 minutes.   And who doesn’t love a brand new bouncy ball?

My point is that over the past year, while we’ve been focused on paying off the mortgage, we haven’t by any means stopped giving gifts.  We’ve just re-evaluated and scaled back.

West African Chicken Stew, http://thehealthyfoodie.com/west-african-chicken-stew-well-fed-2/
West African Chicken Stew, http://thehealthyfoodie.com/west-african-chicken-stew-well-fed-2/

For adults, my favorite gift is a dessert or a freezable meal.  The casserole!  Whatever happened to gifting dinner?  Or extending an invitation to dinner?  When and why did giving food fall out of style?  Did it happen as we collectively decided to stop cooking and start squandering our retirement in restaurants for several meals a week?  Food is the nicest gift you can give, so much nicer than a gift certificate to a restaurant.  The recipient knows you put time and love into the gift.

When we spend Big Money on gifts, it tends to be for weddings, and we usually stick with two things: doormats and address stamps.  Doesn’t sound too appealing, right?  But actually they’re both great gifts, I promise.

The personalized 22″ x 36″ $69 coconut husk doormat is the best thing Pottery Barn sells.  Frankly, it’s the only thing they sell that’s worth buying firsthand, in my opinion (I own several Pottery Barn items via Craig’s List).  Grab a 20% off coupon (only a fool would pay full price at Pottery Barn) and order this thing for your best pals, particularly if they now share a last name.

The personalized address stamp is my other favorite go-to.  Practical and pretty!  Sign up for the Expressionery emails and only purchase during 50% off sales events.

If we really like someone, we’ll buy them a t-shirt.  We’ve bought a dozen “Another Beautiful Day in TOWN, STATE” shirts from Ann Arbor T-Shirt Co (also available for men).  Always a big hit, and without breaking the bank.

Gifts don’t have to be expensive or excessive.  A 6-pack of skull spoons is $11.99 – that’s less than $2 a skull spoon!  Affix a ribbon and Voila! You win the night’s gift-giving competition.  Coworkers, gift swaps, relatives – who doesn’t want a skull spoon?

Nostalgic aside:  There was an elderly beekeeper near where I grew up who used to sell local honey for $5/pound.  Even later when he raised the price to $6/pound, it was such a bargain.  It came in a nice jar, with a pretty blue label.  I would buy a dozen 1-pound jars of honey each Christmas season, my husband thought I was nuts.  Sadly the beekeeper passed away a few years ago, in his mid-90’s.  I still kick myself for not having the foresight to buy several years ahead…. it was such an awesome gift.

Back to the point –

The most important thing about gifts is that they work within the week’s budget.  If there’s no money for a gift in a given week, there’s no gift.  End of story.  Gifts are a luxury.

For each other, we also work gifts into the budget.  It’s not like birthdays and Christmas hit us out of the blue.  Most years I end up buying my husband a t-shirt for about $20.  I need to come up with a new gift this year, he’s run out of space and begged me to stop buying t-shirts 🙂

If you see that a huge portion of your money is going towards gifts, it’s time take a step back and re-evaluate.  Spend time with the people you love.  Call them on the phone, write them notes.  Buying and giving gifts is a blast, but you don’t need to spend a whole bunch of money to let someone know you care.

I’m not gonna Work Hard to Give You My Money

We generally live by the rule that we refuse to work hard to give away our money.

Why should we?

That means:

  • If there’s a line at a coffee shop, we turn around and walk out.
  • If no one acknowledges our presence at a sales counter within about 30 seconds (this seems to happen a lot in coffee shops), we walk.
  • If we sit at a bar and don’t get acknowledged for several minutes (and the bar tender is not serving other customers), we walk.
  • We don’t put our names on waiting lists at restaurants – unless we’re very thirsty and don’t mind waiting with a cocktail 😉
  • We don’t wait in line all night for new products.  We don’t get on waiting lists for new products.
  • If a salesperson is rude, we walk.
  • If I’m at a store and ready to pay, but there’s a crazy-long line (Victoria’s Secret, Anthropologie, Old Navy, Costco, TJ Maxx and Marshall’s come to mind) I put down my would-be purchases and leave.
  • If it takes a contractor too long to call us back, or give us a quote, we call a different contractor.

This saves us a good bit of money, and also generally helps to keep us out of stores.

I want to feel good when I part ways with my money.

Will a Pedicure Derail me Financially?

Around here, a pedicure costs $28 (before tip).

I was looking at my consolidated annual credit card spending report last week – it was extremely illuminating!

Most of the charges ranged from $30 – $70, but to a quick eyeball analysis, the numbers that seemed most frequent were in the $30-range.  Tens of thousands of dollars spent $35 at a time.

This summer I finally changed my mindset from “it’s just a pedicure” to “what a damn stupid way to waste my money, I can paint my ugly toes myself.”

I struggle with beauty-related spending.

On the one hand, I don’t wear much makeup, I don’t buy perfume (but I sure try to grab samples whenever I can!) I don’t get massages, I don’t wear fancy clothes or have a shoe addiction.

But on the other hand, I’ve been known to get my hair highlighted and low-lighted and glossed and cut for up to $190 and pay $60 for a few ounces of skin cream from the department store.  I love pedicures and botox and acupuncture.  I did Crossfit for two and a half years ($140 – $190/month).  It never occurred to me that any of the costs were excessive.

But now that we’ve set a goal – to pay off the house as quickly as possible – I’m re-evaluating things.

I switched to a different stylist and tried Nice’n Easy the last time I colored my hair.  I haven’t gotten a pedicure this summer.  I’m not currently Crossfitting.  I’ve been using up all the half-full bottles of fancy shampoo and conditioner and soap and mascara and given up my Venus razor for the Dollar Shave Club.  I have more laugh lines this year than ever before.  I’m plain old running outside instead of burpeeing and squatting and kipping (“that’s the kind of stuff they do in prison,” my husband mused, puzzled, when I started CrossFit.).

My feeling is this:  we’ve set a weekly budget for ourselves.  If I decide that one of those things is super duper important to me, my husband and I will have a discussion and maybe make room for it within our weekly budget by cutting out something else.

But for now, I’ve been getting along well enough without pedicures.  I haven’t even bothered to paint my toes myself.

The biggest take away that’s come along with all of my beauty “downgrades” – no one has noticed!  No one has noticed that my toe nails are naked, or that my hair cut is less expensive, or that I’m using Oil of Olay.

The most important factors in looking nice – eating well, and not too much; staying active; keeping out of the sun; avoiding sugar; staying hydrated; avoiding alcohol – don’t cost money.  That said, I do miss the botox, not gonna lie.  But I just can’t justify it right now.  It doesn’t make any sense.

Instead of losing our money $35 at a time, we’re paying off the mortgage $35 at a time, and that feels really good.

 

Life isn’t fair, Princess.

  • Income inequality exists.
  • Some inherit heaps of money.
  • Some have more than others.

Just because your friends have X, doesn’t mean you “deserve” X.

A whole bunch of someones will always have a whole bunch more.

Don’t make crappy financial decisions and then start screaming that you’re a victim.

The moment is the whole.  What you do day-to-day matters.

Make a financial plan, tune out the noise, and stick with it.

 

 

Time for a new Credit Card

I love credit cards.

To be more specific – I love rewards credit cards.

We charge just about everything.  Gas, groceries, medical bills – I wish we could charge the mortgage payments.  We don’t carry a balance on the cards.  A balance is not an option, it’s a crazy-stupid waste of money to deal with credit card interest rates.  We pay in full about once a week or so.

There are many great options, but I’ve really enjoyed the Capital One Venture card for the past two years.  This card has a 2% “purchase eraser” gimmick.  2% of of your total purchases can be used towards travel (plane, train, car rental, hotel, public transportation) purchases – 2% cash back, in essence.

The best part is the $400 sign-on bonus, which is awarded if $3,000 is charged in the first three months of having the card.

Last week, we closed the Venture card account in my name (to avoid the $59 annual fee) and opened a new account in my husband’s name.

To date we’ve received just under $1,500 cash back from this card.

The new $400 sign-on bonus will go towards our next trip.

I never say no to free money.

 

My Cell Phone Costs $15/month

My husband and I switched from Verizon Wireless to Republic Wireless about a year ago.  We have Moto E 2nd Generation phones, currently $99.

Our Verizon bill was $128/month.

Republic Wireless charges us by our usage, and our combined monthly bill hasn’t yet cracked $30.

I have trouble understanding why anyone would pay so much more for essentially the same product, but it’s a pattern that’s repeated over and over and over again (cars, clothing, wine, computers, etc, etc).  I’m embarrassed that it took me so long to make the switch

Absolutely no complaints.