Monday, February 13, 2017

Thoughts on money and how we spend (or save)

Based on feedback I received after touching upon budgeting and finance, I've decided to expand and share some of my thoughts on money, money, money.

I like to think of spending and saving as a sliding scale.  Imagine a horizontal line with SAVER on the far left and SPENDER at the end on the right.  It's similar to the left brain/right brain analysis.  You may be an extreme saver, falling all the way to the left of the scale.  Or maybe you're a spender with a tendency to save just a little, so you land past the middle, towards the right side of scale.  There can be different degrees of saving and spending.

Rich and I sit on the saver side.

While I may be a saver, my personality type is the cause of some internal conflict.  I like nice things.  Really nice things.  Perhaps this is why we stay at deluxe resorts when we vacation at Disney.  My personality type pushes for expensive items but I have frugal Irish blood running through my veins.  I'm also a hoarder and I suppose hoarding can apply to money as well.  Better that than shoes and bags.

Rich and I were both in our 30s and well established in our careers by the time we married.  I had saved a hefty down payment for a house and Rich owned a condo.  This is an important piece to our financial story as a family.  We both had similar childhoods that consisted of just enough.  We never went to bed hungry or lacked weather appropriate clothing but there were certainly times when money was tight.

The first house we bought was the least expensive listing for a single family home in that particular town.  There were a few different reasons why we made this choice.  The real estate market was out of control at the time and most properties were selling for much more than they had a few years earlier.  Purchasing a home inflated in value didn't seem like a smart move to us.  We wanted property that would increase in value.  The home we bought was an antique and needed repairs and updates, which is why it was listed so low.  Our financial plan was to increase our wealth through the increased value of this property which would occur with time and our repairs and restoration.  And sweat equity, of course.

We never intended to stay in that house beyond two children, which usually takes a few years to happen, and suddenly, there we were with three. The real issue was that we barely had any closet space.  If you've ever lived in a home built in the 1800s, you'll understand where I'm coming from.  There was baby stuff everywhere.  So in a sleep deprived haze, we placed our home on the market.  What happened next was an important lesson.  We found a house with closets and slightly more living space and made an offer.  This house was more expensive than our first home - a step up, if you will.  We were making more money than we had been when we married.  I had changed jobs and seen a significant increase in my pay.  We were doing what most people do - you make more money so you spend more money.

And then it all blew up.

The real estate bubble popped and houses seemingly decreased in value overnight.  Our buyers had to back out because they couldn't sell their home (contingent sale.)  We were too far in the process to comfortably back out of purchasing our home and decided to move forward.  I was planning to return to work in a few months and two mortgages for a short period of time wouldn't be that big of a deal.

I lost my job.

For a few months, we were in a financial position I never wanted to experience.  There was a question of whether or not the new house would be appraised high enough to support the mortgage - that's how far property values had fallen - and no reasonable offers had come in on our home for sale.  Luckily, we had savings and very low debt.  It all worked out in the end.  We like the location of our current house and the school system but I do miss the character of an older home and will probably never buy a newer house again.  I've always believed in real estate as an investment and before the girls were born, we had been researching/discussing investment property.  We kept our first home as investment property and rented it for eight years before selling it when the market recovered.

A few years after I returned to work, I began to bring home some significant bonuses.  Again, we were in a position to move up in life.  Should we buy new cars or rip out the kitchen or buy new furniture for girls' bedrooms or remodel the bathrooms or move to a bigger house.  We didn't do any of that.  Almost all of those bonuses went against our mortgage.

We drive our cars for a really, really long time.  I'm in my 40s and I've only owned three cars.  For the past ten years, I've been driving a bare bones minivan.  Rich is still driving his 2004 Volvo we bought used when I was pregnant with Abigail.  Unfortunately, I think we're going to replace that car soon as it has reached the point of costly repairs.  Hello, $800 for a new fuel pump.  After the girls were born, I fought a good fight against the minivan but we just couldn't come up with reasonable alternative.  With Anna in the NICU and bound to be released in a few weeks, we needed a replacement for my Volvo sedan.  Rich was looking at used minivans but they were outrageously priced considering they had already accumulated 30,000+ miles.  The dealership had a brand new, bare bones model for the same price as these used ones.  I have no extras on this thing and I could care less.  When I was in college, I dreamed of owning a new car (personality type flaw) and after working for many years, I bought a brand new, shiny blue Volvo with buttery leather seats.  I drove it for eight years, until the girls were born.  Maybe it's because I've already had that new car experience - I don't really care what I'm driving now.  Yes, you can survive without automatic sliding doors.  With triplets!  You can do it!  Funny, the only thing I miss is having an outside temperature gauge.

I try to only buy what the girls and I need for clothes and not more.  I also wear clothes and shoes for a really long time.  I have items that are more than ten years old and these aren't expensive, investment pieces.  I'm talking Ann Taylor, Loft and The Gap.  When I returned to work after the girls were born, I was eventually able to pull some of my old work clothes from storage.  I still have stuff in my closet that is 15 years old and in good shape.  For work and usually in general, I don't buy trendy clothes for myself and I tend to wear the same things over and over.  For example, I always have a pair of black dressy pants for work that I wear once a week.  I almost always buy clothes for myself and the girls during sales too.

My Tips/Final Thoughts

*Make your bank work for you.  I've always used smaller local banks who don't charge fees.  Bigger isn't always better.  Shop around, you may even be able to earn interest on your checking account.  Keep your savings separate so there's no temptation to spend.

*When Rich and I met, we were working for a mid-sized financial institution that serviced organizations and mutual funds, versus individuals.  They offered a program to employees whereby funds would automatically be deducted from your paycheck and deposited into mutual funds.  I participated in that program for several years and between what was taken from my paycheck ($300 a month) and gains, I had almost $20,000 in savings that was needed when I lost my job.  Whether you have difficulty saving or not, I think having funds pulled from your paycheck before you're able to touch it is an excellent way to save.

*Pay extra on your mortgage each month.  For example, if your monthly mortgage payment is $1,300, set up an auto payment for $1,400.  Over time, a little bit goes a long way.

*Just because you make more money, doesn't mean that you need to spend more money.  Forget about the Joneses and decide for yourself what you really need.  (It's okay to want and treat yourself too.  Life is sometimes about give and take.)


Tracey's Life said...

Sarah, you make very good points. Nothing is ever certain such as jobs and income. I lost my job at the age of 48 after working for a company 23 1/2 yrs as I was downsized. Fortunately I had very low debt, and did receive unemployment for almost 2 yrs and a nice severance and had substantial savings we continued on. We don't go out to eat very often because it is cheaper to eat at home, and my cars have always lasted a long time. I adopted a want vs. need manner of thinking. It works for me. Everyone has their own way of managing what works for them I guess.

kdliberty said...

I love my LOCALLY owned bank. I find the service better then a big bank. I am currently house hunting. I have set a price limit much lower then I can afford. I live in an area were my $85,000 max buys me a nice house. Your morgage example just blows my mind. In my area I could buy a farm for that. It always amazes me the cost of living expenses in other parts of the country...

Anon said...

Thank-you for sharing, it's good to hear that even with some difficult financial events occurring that the savings mindset helped keep everything in check.

How involved are the girls when it comes to finances? Are you trying to 'teach' them any financial lessons, or are you taking a more passive positive role model type approach?

BreezieGirl said...

I find myself usually sitting towards the middle of the spend/save scale. I tend to be very frugal with most things and I automatically transfer from my checking to my savings every weekday ($5.25, haha) in addition to some larger planned saved as well. But, I also missed out on some wonderful opportunities in my 20s because I didn't want to spend the money... so now I'm more willing to bust out the CC when an opportunity arises because I regret not doing that in the past (but, this is also why I save every day too... to hopefully not need to use the CC).

The housing situation in sunny SoCal coupled with my NPO job doesn't help the budget though. Ouch.