Happy Financial Friday, everyone! This is a long one, but it pretty much covers how we handle our money. Enjoy!
One of my sisters has dubbed me her financial mentor. In her opinion, I have it all together, though I don't always see it. Mostly, we have been very lucky and have made somewhat wise choices with the luck we've been offered.
I listen to at least four financial advice books a year. Many of them advise basically the same things--budget, save for retirement as early as possible, buy housing and vehicles you can afford, and avoid debt whenever possible. Most don't completely fit the life we have in particular, but they have allowed us to develop our system, which looks like this right now:
1. If your employer offers a 401K with a match, take advantage. I love free stuff. I have a whole basket of hotel soaps in my bathroom, a good portion of my furniture came from other people's downsizing attempts, and in the before-times, I would totally try everything at the Costco sample stands. Fuzzy's company offers a good match, and they offered a stepping system that bumps his contribution up one percentage point every year until we hit the savings goal we set (10% in our case). We started at 7%, because that was what we could swing, so we should be up to the goal in the next year or so. We've started late, due to a lot of little and big issues through the years, but we're on our way with that.
2. Buy used cars, with cash if possible. With the exception of the car Fuzzy's father bought him a couple years ago, we have never owned a new car. It's a fact well recognized that you can save thousands by getting a good used car. It gets even better if you can pay cash for it. The last time we needed to buy a car (The previous car had failed smog testing, despite being a hybrid. I'm still sad about it, because it was such a trooper, and I wanted so badly to get it to 200,000 miles. ), I raided the emergency fund, which wasn't the most perfect solution. I didn't have to get funding or add another monthly payment, something we wanted to avoid with Tiny due in a few months. Instead, we focused on getting the emergency fund back into shape as soon as possible. I drive a car that looks suspiciously like a peanut M&M, but it's ours, free and clear.
3. Discuss the big purchases. I'm amazed by the people who drop hundreds on random things with no discussion with their partners. Are you kidding? We're in a partnership, and we recognize that if that partnership is going to survive financially, we need to make decisions together. This doesn't mean that we rule over each other, or that I have to call from the store to get approval for the big tray of chicken. It means that, when we are thinking of replacing an appliance or something along those lines, we talk about it. We set a budget and discuss the options. We talk about what features matter to us, and then we make the choice together.
4. Discuss the windfalls. Any time we receive money in chunks larger than Fuzzy's biweekly paychecks, like tax refunds, bonuses, or stimulus checks, we talk about it ahead of time. Money is like a group of volunteers. You can get a lot done with it if you are organized and can tell it what to do, but if you don't have a plan, it can fritter away quickly. Over the years, we've come up with this system: we agree on a no-questions-asked amount for each of us to "blow" as we choose. Fuzzy usually chooses a couple Lego sets, and I often opt for upgrading sewing equipment or new shoes or something for the girls. After that, we divide the money up into paying off debts, getting ahead on the mortgage, and savings. I make sure that none of it sits around in the checking account, waiting to slowly disappear. For example, when the stimulus check arrived in April (May? It's all running together), we gave ourselves $50 each, then made a mortgage payment to get ahead, then put the rest of it into the emergency fund.
5. Build an emergency fund, and add to it automatically. Just about every financial advisor agrees that one of the best things you can do for your financial health is to get an emergency fund that covers at least one month's expenses to start, preferably building to six or eight months. It's up to you to decide what that actually means. Some people want to replicate their full income, while others choose to replicate their bare bones budget. After all, in an emergency, you will probably make minimum payments on as many of the bills as you can, and it's a lot less likely that you're going to do the everyday extras you indulge in right now. Plus, in the case of a job loss, you will be spending less on the job-related expenses, like commute gas and tolls, dry cleaning, and coffees and lunches. We've done a blend of the two, with a bit over the bare-bones budget, though not fully replacing the full income. I figure that we have about five to six months at this point, so there's still some work to do, but we're getting closer. We add to it with an automatic monthly transfer from the checking account. It took five minutes to set it up on our bank's website, and it's much more effective than promising myself that I will remember to do it when we have money someday at some point.
6. Plan and save for big events. We have a second savings account specifically for Christmas. I figured out how much we would need to be able to afford what we like to do for gifts, decorations, wrapping, etc. for the holidays, and then I divided it by twelve. That amount transfers automatically from the checking account every month. I set it up at the same time as the emergency fund transfer, so that five minutes on the bank website several years ago has really paid off. I know several people who do the same thing with their plans for vacations and season tickets.
7. Don't stretch too far for a house and get a fixed rate mortgage. The real reason we can do all that we do with the jobs that we have is that we bought at the bottom of the market and didn't do anything dumb with the mortgage. My father gave me some very valuable advice when we first started shopping for a home: if they can't explain your mortgage to you in less than two sentences, don't sign anything, and if the paperwork on closing day doesn't match what you've been promised, raise hell. Bless him--he was so right. For the first house while I was in grad school, they tried to get us to agree to a piggy back mortgage for the down payment, although we had assured them multiple times that we had the down payment at hand. We have a boring mortgage here in California. The payment is pretty much the same as the payment we had at the beginning. It was a little bit of a stretch at the beginning, and it has been tough in other years, during spotty employment, but it's an unbelievable deal at this point--half of what similar homes in our neighborhood rent for. Lucky us. At this point, I throw extra money at the mortgage pretty regularly. My plan is to pay off the house completely by the time Kiddo finishes high school, so that we will have some more room in our budget to help with college costs. I feel that it will also assist with our retirement planning to have the biggest bill out of the way.
8. Make do and mend. Despite being larger than I was ten years ago, I still have clothes that are pretty old. Anything that still fits and feels decent gets kept. If it develops a small hole, I darn it back together. If I stain it, I attempt to remove the stains. Fast fashion is doing a real number on not only our pocketbooks, but also our psyches and our environment. If you can't see wearing it more than a dozen times, why are you buying it? Especially now, when so many of us are working from home or off work for a while? It's worth asking yourself why you are buying something to outfit your house or yourself--is it to buy something, or is it because you need it? I organized my closet a few weeks ago, and discovered I own several black cardigan sweaters in various shapes. It didn't stop me from seriously looking at another black cardigan on my way to the checkout.
9. Clearance, used and hand-me-downs rule. When Tiny was in her first few months, she had so many clothes that they didn't all fit in her closet. I had purchased about four of the pieces. The rest were gifts and hand-me-downs. When she outgrew them in a few weeks, I packed them up (except for a few sentimental ones) and passed them on to other new mothers, who were thrilled to have such a great variety of soft, warm clothes for free. I hope they passed them on, too. Half our furniture and decor also came to us at low or no cost to us from friends and family who were downsizing, redecorating, or moving. That solid-wood dining set that you're tired of storing in your basement? I'll be glad to take it off your hands! That cute dresser in your garage sale for (gasp!) ten dollars? Take my money! My mother-in-law went to culinary school and used to run a catering company, so if I need something cooking related, I am required to ask there first. My father-in-law was personally offended when we mentioned that we were considering buying a cooler for sodas at parties. He had gathered all of theirs from various storage spots around the house...and they had ten. As our parents retire and start clearing out their homes, we are positioned to be offered a lot of stuff. Some of it is going to be better quality and more stylish than what we can buy, and our parents want to give it to us. Stop wasting your money and start shopping castoffs. The world will be better for it.
10. Side hustle your dreams into reality. Full time jobs that pay all the bills are a hard thing to come by a lot of the time. Fuzzy has his full time job, but he also works at a local church/community center as their A/V tech and builder of odd things (the set for the summer bible camp's play, the stage for outdoor entertainment, the houses for their attempt at breaking the world record for the largest game of Monopoly, etc.). Right now, he's usually only working on Sundays, running the video camera for their outside church services, and a smattering of hours to maintain equipment and create storage space for their upcoming holiday outreach supplies (they give away thousands of toys, gifts and meals in November and December every year and are anticipating an overwhelming need this year), but he still brings home enough every month to at least pay the power bill, and when gyms reopen, one of his benefits is a complimentary family membership to the center. My career, when it comes back together, is a whole series of side hustles that add up to a nice amount of flexible money for us, along with a decent trickle of comped tickets to shows and events and some really nice castoffs from stock culls and show strikes. We can get by on just Fuzzy's full time job, but we accomplish a lot of our extra goals on the side hustles.
So there you have it. This is just about all my financial wisdom in one handy post. We're not rich, but we are also far below the national average of debt for people our age, and we have something to work with if the bottom drops out. My favorite financial authors are Dave Ramsey, Suze Orman, David Bach, and Gail Vaz-Oxlade (Her show, 'Til Debt Do Us Part, is on Amazon Prime Instant Watch right now), if you want to start learning how to take control of your money.
No comments:
Post a Comment