Christmas Presents

I’ve decided on a Weapons Theme for the holiday season.

I’m buying the little nieces and nephews little pocket knives, and the older ones folding utility tools.

So far, I bought the two utility knives.  The pocket knives are on order with a generous “friends and family” discount from a store-owning family friend.   I’m considering a digital New York Times subscription for my husband.  A mind weapon?  Sort of?

I start buying Christmas presents in September.  I buy in dribs and drabs as the weekly budget allows.  I add ideas to my Amazon wishlist throughout the year, so I’m never in a “hm, what should I buy?” situation.

Our entire Christmas present spend comes to $600 – $700.  This is an absurd amount because in addition to getting the kiddo presents, there is an adult exchange and group gift that comes to $400.  It’s something that I would rather skip, but my husband feels strongly about our participation.  The man doesn’t ask for much.  So we fork up the money each year.  The other $200 – $300 is gifts for the kids (10 nieces and nephews), my parents, and my sister and brother-in-law.  There’s no required dollar amount tied to these gifts, luckily.

It’s a lot of money.  It’s an annual expense that I count in our list of annual expenses (i.e. car insurance, $1000; home insurance, $1000; life insurance, $1000; property taxes, $4,100) and I budget for it each year.  That amount of money would be very difficult to tackle all at once.  By spreading out the pain, Christmas can be about days off with family, food, and wine.  Gnawing stress about the January credit card bill is  avoided.

May we all be this relaxed at Christmas.

May we all be this relaxed at Christmas.

 

 

 

Dashboard Confessionals

I drive a new car.

Well, it’s more than 2 years old now.  But I bought it brand spanking new.

When my husband’s Oldsmobile 88 met its maker, he took my old car and I went on the hunt for a new car.  I wanted a little hatchback.

I hunted around Craig’s List and ended up at the dealership to look at their used options.

So there was my car.  It was a year old, 20,000 miles.  A moon roof.  $17,100.  Seemed like a lot for a used car, hm?

Beside it sat the new car.  Same color, same everything, just minus the moon roof and miles.  Oh, and with leather seats.

The sticker price on the new car.
The sticker price on the new car.

I offered the sales guy $15,000 for the used car.  He said “no, but why don’t you let me price up this new car.”  I hadn’t expected that.

With the trade-in of the Olds 88 ($2,500?!  I couldn’t believe that, but who was I to argue.  I don’t think the mechanics out back looked at the undercarriage) and who knows what other voo-doo magic, the price of the new car dropped by several thousand dollars.

Then the salesman told me they were offering $1500 off new cars if the buyer signed up for Ford Financing (at God-knows what interest rate).

With the Ford Financing discount, the new car came down to $17,400.  Seemed like a bargain compared to $17,100 for the car with 20,000 miles right next to it.  They probably saw me coming from a mile away 🙂

So we got it.  We never paid a cent of interest to Ford Financing.  We paid for the car in cash well before we received the first monthly invoice.

Was it the right decision?  Probably not.  I probably should’ve gotten a much less expensive car.  This happened just over two years ago, before I started in on the “Kill the Mortgage!” effort.  If I had been in the market more recently, I would’ve done things differently.

In the end, I paid cash for a reasonably priced, efficient little car.    There are worse things.

 

Booking.com is Awesome

I have no affiliation with www.booking.com.

That said — what an awesome website.

My husband and I went on a road trip three weeks ago.  San Francisco to Los Angeles in a rented car.  It was such an amazingly beautiful trip, and it ended up being our favorite vacation to date.

Big Sur!
Big Sur!

We were so lucky to meet up with three couples along the way.  Dear friends whom we rarely get to see because they live so far away.  We stayed with friends in Santa Clara, Ventura, and Redondo Beach for 4 nights of our 8-night trip.

For three of the other four nights, we took a risk.  Because we didn’t know exactly where we’d be each day, we decided to make our  hotel bookings each night.

The first night, we brought up the booking.com website around 6PM, after blissfully watching dolphins and whales and pelicans off the coast of Half Moon Bay for an hour.

So many options!  We sorted the options from lowest to highest.  We chose a $70 room with an 8+ rating.  It was a “last minute value deal” with a full price north of $150.  It was a fantastic room, extremely clean, super pleasant owner-operator, and a modest continental breakfast to boot.

The following two nights we got even bolder and booked $65/night rooms.  More success!  Super cute old-school drive-up rooms.  All owner-operated with pride, all clean and quiet, all in great locations.

I’ve also used booking.com in New York City at the last minute with great success.

I don’t know if it was because we didn’t care about name brands, or if we lucked out with our trip timing, or if booking.com is huge in California, or if this is even something I can really recommend trying.  A quick search for a downtown Boston hotel room for tonight is… sobering.  $309 is the cheapest room in downtown Boston on a Tuesday night?  Yikes!

All I know is that during our California trip, www.booking.com was our best money-saving tool.

 

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.

Update, 10/7/16- we’re grateful for putting aside the money pre-tax this year for the HSA, but holy smoke is this health insurance stuff eating us alive.  We are healthy people with minor problems!  $4,713 out of pocket so far this year, NOT including the bi-weekly paycheck deductions for the plan itself.  We have another round of big bills coming our way.  At this point we’ve hit the deductible for the year, but not our “out of pocket max,” so we will continue to pay 20% of the negotiated insurance rates until we hit the “out of pocket max.” 

$4,713 for out of pocket medical expenses through October 7, NOT including bi-weekly paycheck premiums.  I miss the old system.
$4,713 for out of pocket medical expenses through October 7, NOT including bi-weekly paycheck premiums. I miss the old system.

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.