Go Little

Most of us approach large purchases exactly wrong. When we are thinking about purchasing a house or a car we often start with the question: What can I afford? There are special calculators and numerous articles written to help you determine how much house you can afford. Yet there is very little advice to help you figure out how much you really need.

What do you need in a house? Obviously, in the strictest sense of the word, you need very little. Shelter from the elements, a place to prepare and eat your meals, a comfortable and safe place to sleep, a toilet and a shower are about all you need. So let’s start there. Next, we can ask what would make you comfortable. You probably want to be able to easily accommodate the whole family at once around a table for meals and it may be important to you to have a washer and dryer. You may not remember it, but there was a time in this country when kids shared a room with their sibs. And, everyone shared one bath.

In 1950 the average new house was only 983 square feet, but by 2007 the average new house had ballooned to a whopping 2,629 square feet.  This expansion occurred at a time when the typical family decreased in size from an average of 3.1 people/family in 1970 to only 2.6 people/family in 2000.  (LS3P Knowledge Center)

A bigger house means more in taxes, insurance, utilities and upkeep. And, of course a bigger price tag. If you want to own your house (and not have it own you), give some thought to what you really want. Do you want the freedom to travel, the money to participate in your expensive sports, funds to pay for your kids college?

Lots of people are going very very small. Here’s a video of a PBS Story on the tiny house movement. I’ve never lived that small but I find the idea fascinating.

The three of us lived in 640 square feet for four years. It was an old house and poorly laid out. The refrigerator was on the back porch and there were no closets. Even at that, I don’t remember ever being unhappy because we had limited sqare footage. Our extremely low expenses allowed us to travel, a lot. We sold that house when we had a need to be  in a different city. We bought our “new” house based 100% on location. It’s massively larger than the old house and of course the expenses are much higher, but we love the location. I think it would be cool to try and make 500 very carefully laid out square feet work for us.

What if you could be happy with housing that cost 20% of your income instead of 30%. What dream would that 10% allow you to follow?

Chasing a Dream

I am blown away by people who set outlandish and unconventional goals for themselves and then proceed actually to accomplish what they set out to do.

Recently I read a story of just that kind of person on one my favorite blogs – Get Rich Slowly. Here, Ian told his story of how he built his own house without a mortgage.

After deciding a normal career and suburban life was not for him, Ian made a plan to live on a big chunk of land in a home built off the grid house. Ian was able to buy 40 acres for less than $500 an acre in a place he would love living. He used a small inheritance from his great grandparents to buy the land.

After purchasing the land, Ian returned to college to finish his degree. When he graduated, he had $35,000 in student loan debt and no real assets other than the land. As much as he wanted to live in the boonies, he knew he could make more money in the city. Ian took a bar-tending job and paid off the $35,000 student loan in 53 weeks.

Editorial Comment: Did you catch that? He lived where he didn’t want to, doing what he didn’t long to, so that later, he could live his dream.

Ian then calculated that with two more years of living lean he would have enough money to build his house. He worked those two years and then returned to his land and started building. As most house projects go, Ian ran short of money before finishing.

Ian’s off the grid experience lead him to a job in the solar power industry. He now has saved enough to finish the interior and is currently saving to build a well-equipped workshop. Partially because Ian does not have to work, he does not mind working; but he still plans to retire by 30. Given what he has accomplished so far, I am sure he will be able to.

Ian consciously decided how he wanted to live his life and then he set out with great perseverance and determination to make it happen.

How about you? Are you chasing your dream with great perseverance and determination or just drifting along?

How to Dramatically Reduce your Housing Costs

A friend recently introduced me to Home Share, a very valuable local non-profit. Home Share provides a community housing option by careful screening and matching people needing affordable housing to those that have an extra room or two. This is one of those BeyondDave ideas. If you are really committed to changing your future, doing something a little beyond normal is often what it takes to start winning big.

This is not the sleep on the futon with pizza boxes and empty beer cans on the floor home-sharing option you may have experienced in college.

This is an extra bedroom, often with a private bath, in the home of someone who has more house than they can easily afford. In this economy, that’s a bunch of people.

The St Pete Times recently did a story on the service that you can read here.

Room Providers may be able to use the program to supplement their income enough to hold on to home whose mortgage or insurance is eating them alive. It can be a salvation to the under or unemployed.

If you are trying hard to pay off debt and have a spare room, what a great idea. Here’s $400-$500 extra to throw at that debt while helping someone else. Or maybe you give up your apartment and rent a room for much less a month; how much faster could you get out of debt or save for your own home?

People in transition may find this an option worth considering as well.  We all know that we are more inclined to make big mistakes when we are rushed or in transition. New job in a new place? Rent a room until you get comfortable.

Renting a clean, comfortable room in someone else’s home may be just the thing to jumpstart your new life. Using a service like Home Share insures that both the Seeker and the Provider will be carefully screened and that the match will be made based on common needs, interests and preferences.

A Tale of Two Families

Young Ned and his wife Sally really want a home of their own. Ned has been at the same job for a couple of years and Sally stays home with their 1 year old. They have been reasonably careful with their money. They have an old, but reliable, Honda Ned’s parents gave him when he graduated from college and no credit card debt. Ned makes $50K a year and Sally’s parents have given them $10K to use as the down payment. Ned and Sally go to an online lender to get pre-qualified for a mortgage. Using the lender’s  “Home Affordability Calculator” Ned and Sally are told they can afford a monthly payment of $1,499.76 including taxes and insurance.  Estimating taxes and insurance at $5,500, Ned and Sally start shopping for a $200,000 home.

Not too far away another young couple is dreaming of a home of their own as well. Paul and Janet have a new baby and are finding their tiny apartment rather cramped. Paul makes $50k a year but has 15% of his pay going to his 401K. Paul and Janet never see that money, so they budget as if it doesn’t exist.

Paul and Janet have recently struggled and sacrificed to pay off the credit card debt they ran up when they were in school.

Janet has been reading money management books and knows that they should put at least 10% down on a house and that their mortgage should be no more then 25% of their take-home pay. Using Paul’s take-home pay after taxes and the 401K deductions, Janet calculates a maximum mortgage payment of $764.  She knows they can afford a $100,000 home with a 15 year mortgage.

Before they can go home shopping, they know they must save the down payment and build their emergency fund to equal at least three months of expenses.

Paul takes on as many overtime hours as he can get at work and Janet takes the baby to the neighbors three times a week to watch their 3 year old. With this additional income and cutting their expenses as low as they can go, Paul and Janet are able to save $2000 a month for 8 months.

Ned & Sally end up with a $200,000 home. Their mortgage payment is $1,019 a month and taxes & insurance add another $450 per month. Paul & Janet have found a nice little starter home for $100,000. Financing their home over 15 years gets them a lower interest rate and shortens the term by half. Their mortgage payment is $671 and taxes and insurance add $200 a month.

Ned & Sally                        Paul & Janet

Take Home Pay $3550 $3056
Housing Cost $1469/41% $871/29%
401K After 5 years $0 $43,436
Interest paid on Mortgage after 5 years $45,614 $16,185
Principal Paid after 5 years $15,526 $24,083
Net Worth Increase $25,526 $77,519

Ned & Sally’s budget allows them to live on $2031 after housing costs.  Paul & Janet get just a hundred dollars more but their utilities and maintenance costs are about half of Ned & Sally’s. They have their retirement saving working for them and enough room in their budget to save and pay for a better car.

Paul & Janet were careful, after learning their lesson with credit cards, not to be lead astray by lenders who make more by lending you more. By the time they managed to pay off the old debt, they could not even remember what they had bought. They swore it would not happen again. They vowed to live on less then they make, to save aggressively and to give. We hope Ned & Sally get a wake up call soon.

How low can you go?

I want to teach you a cool game. The winners of this game get huge cash prizes; I won a paid-for house.

The game is called, “How low can you go?”

To play, we need to create a low or no-income budget.

I hear some of you saying, “Wait, what, another budget? I haven’t done the first one.”  Well, since this one is easier than your real budget – get going.

In some instances this really is a worst-case budget – as in you have unexpectedly and unhappily lost your source of income. In other cases this is a best-case budget – as in you have joyfully taken the leap to a new venture or retirement. Either way, let’s play the game.

If you lost your income, how little could you live on?

With no income, entertainment becomes a walk, a bike ride, a trip to the library. So scratch the movies, the bars, and the vacations.

Eating on as little as possible does not involve fast food or restaurants or steaks. E-Mealz (a really cool menu planning system) can provide menus and shopping lists that will feed a family of two for as little as $30 a week.

If you had no income would that AC be set to 68? Would you be jumping in the car and motoring across town 4 times a week; or might you consider exploring the use of the city bus?

Really get radical here – consider what you spend on clothes and nails and hair color; how can you look presentable for less?

Itunes, Netflix, Redbox ? Not with zero income.

Take a look at that cell plan; you have no income. You don’t know when you will have some again. Can you get it lower? Do you really need it?

Do you have an extra room? What if you got a roommate? No, not forever, could you do it for a while if you needed to?

Things you can’t give up:

Insurance: you need health coverage. If you have dependents you need term life. If you drive, you need auto and if you own a home you need homeowners.

Taxes: you must pay you property taxes, auto tags and renew your license etc.

If I stayed in our home (paid for), kept both cars (paid for) and the cell phones I could go as low as $2,100 a month.

Fully half of my as-low-as-I-can-go expenses are insurance (home, car, health and life) and taxes (property, tags). If I needed to go lower we could easily live with one car (saving insurance, tag and maybe some gas) and ditch the cell phones. But to go any lower than that would require a housing change.

Ok here’s the fun part.

It’s just a game (hopefully you haven’t lost your income or if you have you had already worked out a plan) but what if you played for real? What is the monthly difference between your as-low-as-I-can-go expenses and you normal expenses?

What if you went only half way to as-low-as-I-can-go and applied the rest of the money to reducing debt or increasing savings? If you played for 6 months what would your financial picture look like? How about a year?

This is how we paid off our house. We played the: “How Low can You Go?” game for two years. It really wasn’t about huge sacrifices because it was just a game; we knew we didn’t have to live that way but we wanted to win.

Riding the bus or your bike, going to the library, carrying your lunch, having friends over for dinner and a board game instead of going out is not a drag. After you do it for a while, you may find parts of your low income life that you actually enjoy more than your old free-spending ways.

Can you beat me?  What’s your as-low-as-I-can-go number?

The Long Haul

I sometimes struggle with consistency in my efforts – and I bet you do to. Making the decision to change your financial future isn’t all that hard; a moment of clear thinking is all that it takes to understand that you can and should be doing more with your money. Setting up a plan to accomplish your new found goals isn’t all that hard either; you know you need to spend less then you make, pay off debt, and save.

The hard part is to follow the plan long term – way past that first month. Why is this so tough?  Because in order to accomplish this, or any other behavior changes long term, you must change the way you think. That’s hard enough by itself; but you also have to maintain this new attitude in the face of incredible pressure from others to go back to your old non-thinking, fun-loving, easy-spending ways. Dang it! How’s somebody supposed to do that?


In our enthusiasm for change, or distaste for the stuff required to accomplish it, we often try to do it all in one night. So, you know that debt it took you 4 years to accumulate? Chances are you are not going to wipe it out tonight. And, if you did by some unexpected windfall have the ability to do so, chances are you would just run it up again. We need to change our thoughts and behaviors and the best way to do that is a little at a time.

Your first spending cuts should not be to expenses that are near and dear to you. Cut things you won’t notice  much or  find lower cost substitutes. In an earlier article, I named my first three cuts; I substituted purchased books for library books; I ironed my own shirts and we changed our phone service.  The phone service never bothered me for a minute; the books took a little effort; but I found that if I kept several unread library books at all times, I could easily talk myself out of the temptation to pick up a paperback when I was out. The shirts were a different story.

Of the three cuts, eliminating the laundering of my shirts offered the least significant savings, but it may have been the most important in terms of behavior change. Every Sunday, I spend 45 minutes ironing my shirts for the upcoming workweek. Sometimes I really do not want to iron those shirts, but once I get started, it’s not so bad. This active participation serves to remind me what our financial goals are and what we are willing to do to achieve them. If I spend four hours a month saving $35, I am much less likely to go over budget for something unnecessary. If you don’t have shirts to iron, what can you do that you used to pay someone to do? Find a way to be happy accomplishing the task and remind yourself about the mission you are on.

When you are comfortable with the first round of cuts, you can start round two. Don’t be in a hurry, deeply cutting an expense that you really care about can led to rejecting the whole plan.


Work has always been important in our house. Much of our fun has been working together on projects. We can even find enjoyment in everyday chores of cleaning or yard work as long as everyone participates. In our house, you won’t find anyone kicked up in the lazy boy while the vacuum is running.

The same goes for financial goals, we are all pulling in the same direction. Change is so much easier when you surround yourself with others on the same path. Seek out friends and family that can understand and support your efforts. It’s imperative that your spouse or significant other is on board; fighting their reluctance while trying to change is like waging war on two fronts. Put your whole plan on hold and get on the same page. You might have to go slower than you want in order to walk together – but it will be worth it.


Keep your plan simple. Do one thing at a time. It’s really easy to get sucked into trying to accomplish a whole lot at one time. It won’t work. Diluting your effort across a whole bunch of goals means nothing gets accomplished quickly. We need some quick wins to stay motivated. Focus with laser intensity on one small goal at a time and get it done.

Don’t Save for Retirement

One of the big mistakes we all make when considering making a change is trying to do too much at one time. We decide we need to eat better so we plan to eat less meat and more vegetables – better make those organic, and even though I don’t cook, I’ll make it all from scratch. On and on, our plan gets bigger and better and as a result, less likely to be executed.

What we should do is plan in baby steps. Start small and celebrate your successes.

Today while listening to a coach advise one of his clients, I just wanted to yell, “Baby Steps”.

The client was a 28-year-old living in Chicago making 45K a year. She has a student loan balance of 30K, a $1000 emergency fund and a very generous employer who monthly pays an amount equal to 15% of her gross into a 403b. The coach was harping on and on about getting this student loan paid off so she could save more for retirement.

Really? Come on; she’s trying to live in Chicago on 45K. First thing we need to do is throw this girl a party; she is a rock star – 28 with 37K in retirement and no credit card debt. Who does that? The answer is very few.

The coach was right when he said that she needs to focus on paying off those student loans. But let’s not try to inspire her by tempting her with calculations of how much she could be worth when she’s 67. She has a lot a life to live before 67. Maybe a really cool vacation, a wedding, a condo? Live a little, girl.

We need to give this young woman a chance to learn that saving is not a bitter pill; it is not a diet devoid of chocolate. Once she sees herself as a saver, her financial future will be much more secure.

The way to learn to be a saver is to start small. In the beginning,  it is a lot easier to save for a want rather than a need. So what do you want that we can get in three paychecks? How much can you set aside out of each check?

Swim with Manatees – $35 plus lunch and gas, $35 out of each check

Take your mom to Julio Iglesias – 2 tickets at $60, $40 from each check

4 night Cruise with your friends – $300, $100 out of each check

Try it. Pick a three paycheck goal, something fun and get going.

Once you can successfully do the three paycheck goal, try a six paycheck objective.

Visualization helps a lot; so draw a thermometer, post it on the fridge, and color it in after every check. Get the kids involved and they will naturally grow into savers.

It is easy-peasy to learn to be a saver:

1)       Pick a little goal

2)       Set the time period and the amount from each check

3)        Record each increment as you save it – in color on the fridge door.

4)       Party! You are a saver!

Of course you know that we do need to save for cars and retirement and less fun things like roofs and medical needs, but once you become a saver the rest is easy.

Don’t go it Alone

Many businesses spend lots of time and money blocking non-business websites from their employees. These businesses are trying to protect themselves from decreased productivity caused by high time-demand sites like Facebook, YouTube and twitter – as well as the problems caused by allowing access to inappropriate sites and the malware frequently found there.

Often the response from the employees to this restriction is anger. Employees grumble about not being trusted and being treated like children. Of course, if you are a business owner and your employees carry cellphones, you may have succeeded blocking the traffic from your network but you did not stop the access. I have spent some time on the management side of this problem and it is a sticky situation; you want to trust your good employees to be motivated and stay on task, but you know trust is not enough. Additionally, you understand that social media can be an important piece of your marketing efforts.

Unfortunately, most jobs have lots of boring or difficult tasks that are easily postponed by grabbing a few minutes surfing the web, checking your “watch items” on eBay or catching up with your friends on Facebook. Depending on the difficulty or boredom factor of the waiting tasks, a few minutes can stretch out to an hour or more without any problem.

I have recently made the move back to self-employment. I get to decide what I do and how and when I do it – and where my success is related directly to my productivity.

Guess who uses an internet filter now. If you want to get things done, be creative or just think – you need to focus. If you really want to focus, you need to eliminate distractions.

How to get stuff done:

  • Define the task and set a deadline.

Clearly define the objective. Are you writing a first draft or a completed report?

Need to make cold calls? Will you dial 15 numbers, make 10 connections, talk to 3 people or set on appointment?

How much time will you allocate to this task? Remember the task will grow to fill the allotted time. Set a count-down timer that you can easily view on your system or your phone.

  • Eliminate all distractions for the time period

Turn off email notifications (you should do this anyway).

Quiet the phone. Put it on DND; turn off the ringer or turn it completely off if you cannot ignore it.

Turn off your internet unless you absolutely need it for the task. If you’ve gotta have it, block your “time-suck” sites.

Freedom for Mac or Windows ($10) locks your networking for the number of minutes you set, up to eight hours. What to cheat? You’ll have to reboot!

LeechBlock for Firefox (free) allows you to block 6 sets of sites. You can block sites within fixed time periods (e.g., between 9am and 5pm), after a time limit (e.g., 10 minutes in every hour), or with a combination of time periods and time limit (e.g., 10 minutes in every hour between 9am and 5pm).

Put on your headphones; put up the “DO NOT DISTURB sign; close the door and make them leave you alone!

  • Focus fully on the task at hand

Stay with it. Calling? Then call; or sit quietly until you can. Writing? Then write; or sit quietly and refuse to get up until you actually write something. Don’t do anything except the task at hand. Remember why you want to accomplish this and get excited about it.

  • Count it down

Get it done on time. Check you count-down timer once in a while and see how you’re doing when focus fades.

  • Celebrate or recommit

You got it done! Yippee! Get up and take a walk, check that twitter feed and reward yourself. If you failed to accomplish your task, try to figure out where the train left the tracks and schedule a new session at a later time.

Focus takes practice; don’t expect to be perfect. Start with important tasks you really care about and set up your distraction-free environment for a short period of time. You will be able to use these techniques for harder tasks and longer periods as you progress.

The important thing to remember is to use every trick or tool available when you what to accomplish something. Don’t carry that credit card; don’t bring Twinkies in the house and turn off the internet when you need to get something done. You are a crafty devil and it takes a lot to keep yourself on track.

The Joy of Work

Several of the bloggers I enjoy espouse “minimalism” as a way to escape the need for a job – among other benefits. I can really get excited about some of the other benefits; for example I know renting or owning a house big enough for your stuff, rather than just big enough for you, can have long-term financial consequences and certainly, relying on the accumulation of stuff to feed your self-esteem is harmful. But to embrace simple living so that I could quit work? I don’t think so.

Work is what I do – not what I avoid. I met many of my very best friends through work. How better to forge and cement a relationship than by working side by side to accomplish or create something?

When I look around our self-remodeled home I see the results of many hard, but joyous hours of work.  One of my best-ever summers was spent with my four young nephews building our dock. It was very hot and incredibility strenuous work – requiring the sinking of new pilings, the driving (by hand!) of about a bazillion nails for stringer joist hangers and also the hauling, cutting and fastening of a lot of very heavy composite lumber decking. We did not work for pay. We worked for the challenge of trying to build something way over our heads. We enjoyed puzzling out each problem as it arose (including how to un-stick the eight year old who had been jet sunk in the mud just like the pilings). We loved the team synergy.

I’m blessed to have been happy with my work for most of my life – be it corporate, small business or self employed. I love solving problems, being challenged, and making a difference. You can find these kinds of opportunities almost anywhere.  If your current employment circumstances don’t allow you to experience the joy of work, then you are really missing out, plan a change.  Do not indefinitely forgo the joy of work in exchange for money.

The Redshirt Wealth Building Plan

I recently had a conversation with a very bright, but self-admitted and purposefully undisciplined woman. She wants to do better with her money but does not want to change her ways. No Budget for her – No way, No how.

This presents quite a conundrum for a whiz-bang financial coach. Someone whispers they want to become wealthy; I’m all about finding a way to make it happen.

Here’s someone who professes a desire to “do better”. With a bit of conversation, we could grow that tiny seed of desire into a little sprout of a goal. Unfortunately, without a willingness to change, our sprout, in all probability, will wither and die.

This woman has a lot of wealth-building potential. She’s employed and in a position that holds promise for future advancement. She is not overspending on her basic living expenses; housing, utilities and transportation costs are all reasonable.

But she is not ready to change. Every dollar that finds the way to her hand is going to be spent on “good times”. She’s not going to make a budget and she’s not going to track her spending.

Enter the Redshirt Wealth Building Plan.

You know how a college basketball or football coach might hold out a very talented athlete their freshman year, allowing them to grow and mature a little more without losing eligibility? Well, we use that same idea here. Redshirt freshmen get to practice that first year; they just don’t get to play in the games.

Participants in the Redshirt Wealth Building Plan:

Stop borrowing. Redshirts may not borrow. Hide, cut up or give your mom your credit cards for safekeeping.

Embezzle Funds. No; not from someone else – from yourself. Open a savings account; ing is easy and online. Do it right now. We don’t ask redshirts to think much just yet. Decide how much you could live without each paycheck and make that transfer happen automatically.

Pay as you go. Live your life using your debit card and the money in your checking account. Don’t look at your savings, don’t even think about it and definitely don’t touch it.

Measure your Progress. Set an appointment with yourself every 60 days and ask yourself two questions: Can you increase your savings amount? Are you ready to make a commitment to get in the game?

It’s OK to give yourself some time to develop some muscle; but be sure to follow the redshirt plan so we don’t have to waste your wealth-building efforts digging out of a hole.