Beyond Dave

Spending more than you can personally afford on “good” things like education, food and housing is no better for your bank account than overspending on entertainment, fashion or cars.

Lately it seems I have been talking to many people that are enduring financial hardship but are not necessarily overspending on luxuries. They are not getting their morning caffeine fix at Starbucks nor do they have 30 pair of shoes in their closet. Many of them have not taken a real vacation in years or even forever. Still they struggle to meet their monthly obligations.

Most of the time, I find people in this position are suffering from an unrealistic view of where they are.

Comparing our lifestyle to others does not provide an accurate measure of the reasonableness of our spending. Your rent may be cheap when compared to other housing options; but how about when it’s compared to your income?

If almost everyone in your community owns a car, it does not mean you can afford to own a car right now. Your income and your other obligations determine what you can truly afford.

If you are not paying your bills on time, do not have an emergency fund equal to six months expenses, cannot form a plan that gets you out of debt except for the house in 24 months; you are broke.

You need to take moment to be where you are.

Broke is not a lifetime thing. It is recoverable, but it may well take spending less, even much less on necessities for a while.

While working with clients that are financially out of control, I have oft times observed the magical moment when hope re-enters their lives. This occurs way before any significant financial progress is made.

In our new cable free life, we have enjoyed watching some different TV series on Netflix. We’ve both  enjoyed some pretty good shows that we never would have found on cable, like BBC’s “Luther“. One show that I watch alone is “Heavy“. Jim just doesn’t get how I could possibly enjoy watching these extremely obese people struggle to lose their weight.

It’s not about the weight, it’s about that moment. You can see it happen right before your eyes. These people have been without hope for years. Most of them are carrying not only hundreds of extra pounds but also, tons of emotional baggage. Many can trace the beginnings of their spiraling weight problems to the death of a loved one or abuse they suffered or some other traumatic event. They show up at this residential weight loss resort; either hoping for a miracle or expecting to fail.

The fact that they are both the Problem and the Solution never occurs to them. Some are modern-day princesses; they have never done anything hard in their whole life (at least not on purpose). They whine, they shirk, they rationalize and they blame others. But the trainers just keep pushing, pulling, encouraging and demanding of them. There is a constant effort to re-focus the client on their ultimate goal. The trainers absolutely refuse to listen to the “I can’t, it won’t work, I am trying” whining.

And then it happens. Sometimes you see the start of it at the first weigh in, sometimes it takes several weeks but you can see it the day the switch flips. They suddenly find hope and take ownership. The trainer isn’t eating 1200 calories or working out 4 hours a day; the client is. When the client figures out that they are doing this and that maybe they can achieve that goal; their whole attitude and outlook changes. What once was a downward spiral reverses and every day they get more hopeful, more confident, and more determined.

This same scenario plays out every time we re-learn self-control in any area of our lives. We find, much to our surprise, that we do have choices, we can control our lives, and there is reason for hope.

We don’t have to finish to find this place; we only have to start.

As with most things, it is a lot easier to talk the intentional living talk than to walk the walk. Each of us has our long ingrained financial decision-making weaknesses.

For some, including myself, letting go of stuff you no longer need is really hard. I got my first sailboat when I was 13. My parents gave it to me as a kind of bribe to get over the heartbreak of moving. It was probably really for all of us kids but I’m the one that wanted it and the one that used it. I loved that boat and it did have its intended consequence. Getting that boat changed my life, after spending 13 years landlocked; I developed a deep love for the water. And, that love affected every aspect of my son’s life.

Even though I sailed that boat a bunch when I was young; in recent years it was seldom used. This past weekend it was one of several boats that were sold (actually I gave this one away) in my long-postponed Fleet Reduction Sale. I had tried several times in the past to force myself to sell my unused boats, but I couldn’t quite get it done. This time I did.

Letting go of things is psychologically hard for many of us. When the item has memories attached, it makes it even harder. There is an unreasonable desire to keep the stuff in order to relive our happy experiences.

If you have a hard time letting go, it may help to ask yourself these questions:

1) Why should you sell?

If you have an immediate need or a use for the money, that is an excellent reason to sell your unused stuff. I know I have some home improvement projects to fund from  the sale proceeds.

Upkeep: Stuff takes space, it takes time, and it requires upkeep and maintenance. I asked myself if I was really willing to allocate the time to wash and wax and repair these boats I rarely used.

New: Keeping the old makes it hard to get new. If there is a new model or style that would suit you better, that might be a good reason to sell the old.

2) Why are you reluctant to sell?

I might want to use it one day is the thought many people have. But, what if you did not own it anymore and you wanted to use it – what would you do? Could you borrow one, rent one or use a substitute?

Sentimental Value: Will selling the stuff destroy your happy memories? Of course not! Taking pictures of the stuff you hold dear might just help you bridge the gap so you can let go.

Finding a good home for the stuff you love is not as hard as it sounds. A good home is a place where your things will be used and valued.

I saw my old boat out on the lake Sunday, changing some new kid’s life.

Haiti is one of the poorest countries in Western Hemisphere; certainly you witnessed some of the country’s abject poverty during the media coverage of their earthquake in 2010. In the past 100 years, Haiti has been repeatedly devastated by earthquakes, hurricanes, mudslides, and flooding. Tens of thousands have died in these natural disasters. How can one tiny country be so subjected to so many tragedies?

One piece of the puzzle certainly has to do with the extraordinarily narrow focus of those that have held economic power. There have been no coherent national policies on environmental conservation, no building codes, virtually no functioning public education system.

The focus of the often-corrupt few with power has been ME and NOW.

They have allowed and encouraged building houses of straw. “In Haiti a block is maybe an eighth of the weight of a concrete block that you’d buy in the U.S.,” says Peter Haas, the executive director of the Appropriate Infrastructure Development Group. This might result in buildings now, but it results in many unnecessary deaths in time of natural disasters. “Earthquakes don’t kill people,” says John Mutter, a seismologist and disaster expert at Columbia University’s Earth Institute. “Bad buildings kill them.”  Haiti had some of the worst buildings in world.

They have ignored the deforestation and allowed environmentally unsound agriculture practices resulting in a land vulnerable to flooding and landslides. For years, the Haitians have used wood as their primary source of energy resulting in nearly complete deforestation of the country. Mudslides have been responsible for massive losses of life and have washed away whatever precious top soil might have once existed.

This poor country’s substandard ways and means do not invite natural disasters, but they do exacerbate the destruction the disasters bring.

Too many of us rule our financial lives just like Haiti. It’s all about ME and it’s all about Now. We ignore the fact that “disaster” is just around the corner. We don’t invest enough in the future. We rationalize how we “deserve” the many conveniences and comforts in our lives and we “need” them right now.

I want you to have what you want; even if it is fancy vacations, $5 coffees and a shiny new car.

But I implore you to think of the future first.

Invest in your career, read, study, take classes, and attend seminars. Have a plan for your advancement or for your next career.

Choose wisely. Don’t select the leather seats or the exciting high risk investment over your family’s security.

Save a sustainable emergency fund to help mitigate disasters.

Don’t be Haiti.

Transportation costs amount to a significant portion of most American’s budget (10-25%).  Taking the time to fully consider the total cost of car ownership and how you might reduce that cost can have a huge affect on your net worth.

When the total cost of car ownership is calculated (deprecation, taxes, fuel, insurance, maintenance and repairs) even if you pay cash for the relatively inexpensive ($17,970) high mpg (27/33) Honda Fit; it will cost you $29,182 for 5 years. Step up to a stripped down Prius that gets 51 mpg for a purchase price of $24,939 and that 5 year number  jumps to $31,961 again, even when you pay cash. Given these numbers, it is no surprise that the “normal” American cycle of replacing cars every three to four years can sink your dream of being financially secure. (Try out your make and model at Edmunds True Cost to Own)

If cars are your thing AND you are out of debt, AND have a fully funded emergency fund AND are contributing at least 10% to your retirement savings – I’m not talking you. Otherwise, listen up. In our quest for financial freedom, we need to beat down costs in order to have the funds to do what is important to us.

Once we have money we can spend some on cars if that is what we want; but until then it is ridiculous to spend $30,000 over five years to get from here to there. While you may be absolutely in love the new car smell and the feel of the leather seats the first three months, how will you feel about  it $20,000 from now?

The first step in driving down the cost of driving is to determine what you will need. Remember our goal is to fill our transportation needs safely, comfortably and reliably as inexpensively as possible.

How many miles a week do you drive? Is your job on the road? How many people do you transport? What stuff do you need to carry?

If most of your driving is in town, don’t buy a big car for its comfort on the yearly road trip to grandma’s house; you could rent something once a year. Nor would it be financially reasonable for you to purchase an SUV capable of serious off-roading if you don’t need to drive off-road. Choose your vehicle to fulfill its primary intended purpose.

Maybe you could even do without a car or without one of your two cars.  How far you live from your job or school, the hours you work, the weather and available alternate transportation help determine if you must have a car. If your commute is 35 miles in an area with no public transportation and harsh weather, going without a car is going to be tough. However, if your commute is less than 15 miles a bike may be an excellent option. Trains, buses and subways work in many parts of the country.

If your job is on the road or your commute is too long you may need to have a car. In a recent post, Go Little, I asked that you consider what you need before calculating what you can afford when purchasing a home. Use that same thinking when considering a car purchase. Start with what you absolutely have to have and add from there. Just because you have 12K available does not mean you need to spend 12K on a car.

Maximizing your Car Purchase Dollars

Pay Cash. You must pay cash for your car. If you already have a car loan and you can be debt free in less than two years including that loan, you can keep the car, otherwise you should seriously consider downsizing your car.

Buy & Keep Cheap. To get to the lowest overall costs of ownership:

Avoid new car depreciation by buying a 3-5 year old car.

Work to get the best possible purchase price, do your research and have patience.

Check the gas mileage and compute your estimated yearly fuel expense for all models you might be considering. Be very careful not to assume that replacing your guzzler with a sipper will save you money; actually compute the total cost of ownership for each.

Check insurance rates on the models you are considering and factor that cost into you decision.

Control Maintenance & Repairs costs.

1. Buy cars rated highly for reliability. Check Consumer Reports and Edmunds True Cost to Own for predictions as to what the repair costs will be for your make and model
2. Be able to afford the maintenance. Do NOT make the mistake I once did. I owned a BMW 325i many years ago. I stretched my auto budget to the max to afford that car and every single maintenance or repair bill wreaked my budget and made me miserable. Performing the regularly scheduled maintenance is crucial to happily keeping a car long term.
3. Drive less. Tires, oil changes, gas, insurance are all cost per mile expenses.

Keep It Forever. Ok maybe not forever, but drive it into the ground. The longer you can keep a car the lower the overall price of ownership.

Can you do better with your next car purchase?

Trent, over at the Simple Dollar, recently wrote a post that quickly received many comments. The blog, Small Steps to Buying a House (and More), was about a friend of Trent’s who recently paid cash for a house. Trent contends that his friend’s little cuts in expenses allowed him to save enough to pay cash for a fixer-upper. Eliminating his home internet, not buying coffee or meals out and opting for free entertainment were examples of his small steps.

Instead of providing his readers with hope (as I sure he intended), the story seemed to reinforce for many of them the reasons they can’t pay cash for a house, get out of debt, or achieve financial freedom. Some of the comments left:

For those of us who live in cities this is not possible, no matter how many “small steps” we take.

Maybe for one of those war-torn Detroit homes you see in the news

Something tells me the friend is single and earns a whopping salary while living on practically nothing with Mom and Dad.

extremely high salary in an area with a relatively low cost of living

incredible deal on the house

A feat like this is just so completely geographically dependent as to render the message virtually useless

It is mathematically true that eliminating your morning latte in most areas of this country will not yield enough savings in a lifetime to buy a house.

It is also statistically true that no matter where in this country he lives, or how much he makes, or how much he paid for the home – Trent’s friend is remarkable. Very few pay cash for their first home.

I have written how the small budget cuts we made were instrumental in our ability to pay off our home.  These small cuts provide you with an opportunity to re-commit daily.

Anyone that has turned off his internet at home and refuses to buy an occasional soda at the gas station probably pays significantly less than average rent. I bet they turn off the lights, keep the thermostat high in the summer and low in the winter. Their clothing budget is probably very small, as is their budget for personal care.

This is someone who has made a decision not to incur debt, even for the purchase of a home, and now tries to align ALL his choices with that decision.

If you choose to live in an area where housing costs are very high, it will be difficult to be mortgage free unless your income is also very high.

If you choose to have children, you will have expenses that childless people do not.

If you choose to be content with a low paying job you will have less to spend, less to give and less to save than someone who constantly works to upgrade his or her skills and value.

Get what you want. If it is a paid-off house then make the choices that will lead to that. If its 7 kids in San Francisco on a low paying job, make it happen; but don’t begrudge the small family living debt-free in Iowa .

Very few people really choose what they want and then commit to that choice.

We should openly and enthusiastically celebrate someone who actually does the work to achieve their goal.

Way to go, Trent’s friend!

Three Things to do Today

I have an aunt who can be a bit irreverent (age does have its privileges). Once, during a polite discussion around the dinner table, she told my sister to “quit pissing around with it” and get done with grad school. There was a definite moment of shocked silence but then a realization that maybe it was what needed to be said.

You say you want out of debt, you daydream about having no payments, you hunger for the freedom that savings will give you but you are still just “pissing around with it”.

Changing your relationship with money is not easy; it is not what everyone else is doing and it will not happen overnight. It requires commitment, knowledge and most of all ACTION.

Here are three ACTIONS you need to take RIGHT NOW:

Tell Someone

Commit. I want you to tell someone that matters to you what you are doing and why. This could be a simple phone call or email; but do it. Call your mother or your brother or your best friend and express to them how living beyond your means has affected your life and tell them what you intend to do about it. Do this even if you do not yet have a specific plan. You are NOT looking for help in terms of a gift or a loan. However, if offered you should graciously accept words of encouragement or promises of prayers.

Find a Face-to-Face Group

Helping someone else by sharing your story is one of the best ways to reinforce your commitment. If you are located to the Tampa/St. Pete area, sign up for our no-cost informal BeyondDave Meetups here. Or you can try Financial Peace University which is Dave Ramsey’s 13 week class offered at many churches. Find one near you here.

Get Consistent Encouragement & Advice

You will not finish this today or next week or next month. You will have days when you want to quit, just quietly slide back into your old behavior. Let me help you. Sign-up here to have my blog post delivered to your inbox three days a week.  I will give you the information and the encouragement you need to get this done.

I recently read this article in the St Petersburg Times about Showhomes, a national home-staging company. Showhomes has a pretty cool sounding business model. They match high-end vacant, for sale homes with people who have great furnishings and need temporary housing. This temporary tenant (Showhomes calls them a Home Manager) gets a huge break on rent in exchange for keeping the home show ready.

The seller wins because the house shows well with the manager’s furniture and there are no worries about the common vacant home problems.

The Home Manager wins because they get to stay in a very nice place for cut-rate rent.

Just take a look at some of the before & after photos showing vacant vs. furnished and staged. If a potential buyer saw them on the internet, which do you think attract more showings?

In this difficult real estate market, you need to do everything you can to help your chances to sell.

Maybe the vacant property you have on the market isn’t high end – could you do something like this yourself or with the help of your realtor?

First, get the house ready for sale

This includes deep de cluttering and cleaning. Do any minor repairs and paint if necessary. Get others to walk through the house to point out the flaws; grimy switch plates, torn screens and stained carpets all must be fixed. Spotless is the description we want.

Next Stage it

You can hire a professional stager or you can study up what works and try it yourself. Sparse but tasteful furnishings and brightly lit spaces with just touch of decorative interest is the look we are after. Tour some high-end model homes to get an idea.

Get Perfect Photos

90% of Buyers look on the internet first. The photos your realtor uses need to be perfect. Can the room look better? If so, fix it and re-shoot. Take a lot of photos (or if you can afford it, hire a pro) and make them really good.

Pick the right realtor

Choosing the right realtor is hard. Let me help you determine who it is not. It is not someone you know from church that has been in the business for six months. It is not someone who has sold 25 condominiums this year if it is a single-family house you are trying to sell. And, it is not someone from out of town.

You need a local, experienced, realistic realtor with a track record of success both long term AND in this tough market.

Interview at least three and please do not automatically choose the one that suggests the highest sales price.

Pick the right price

It is critical that you do your homework here. Price it too high and nobody even looks. Languishing on the market for months and months while repeatedly dropping the price is not our goal.

Use comparables not just for current listings but also for recent sales. Ask each agent you interview to give you their estimate of the market price and how they arrived at it.

Be realistic.

Selling a house today in many markets is very hard but some homes are selling. Like all other ventures hard work, perseverance, and preparation will pay off.

Commitment

In the world of personal finance, commitment is not something you can do once and be done. You can’t stand up and promise to live within your means and then never think about again. There are forces, very strong dark forces working against your plan to live intentionally.

If you do not control the influence the media has on you, you will be bombarded by images and narrative that screams you must buy more stuff; you deserve finer things; NOW is all that matters. In addition to the advertising media, you are also subject to the opinions of others. Living on less than you make is not normal; you will find that most of your friends and neighbors will not understand or appreciate what you are trying to do. You may also be faced with family members that try to insist you buy a better car, take better vacations, and invest with them in the next great thing. What is a newbie frugal person to do?

Re-Commit

Often! In the beginning, you may need to re-commit hourly.  Small actions help solidify that commitment.

Two things that helped me were my watch and my shirts. When we committed to get of debt, we knew we wanted to make our home mortgage part of the commitment. That meant we were facing a $220,000 mountain. There was no one big thing we did to eliminate that debt. We cut expense and lifestyle , in every way we could find. Some of the cuts we made had a significant impact on our debt. Others may not have affected our debt in a big way but they did force us to re-commit. Often!

Ironing my own work shirts saved me maybe $10 a week in real money but I’m sure the re-commitment it forced, multiplied those saving by a bunch. I spent an hour most every Sunday ironing my shirts for the upcoming workweek for those two years. During that hour, I was forced to face the fact that I needed to do things I might not want to do in order to achieve our goal. What do you think were the chances of me ironing those shirts for $10 on Sunday just to go out to lunch on Monday and give it all back? I can tell you pretty close to none. By the time that determination was slacking, it was Sunday again and time for a refresher course.

I wear an Eddie Bauer watch that I brought for $99 about 12 years ago. Near the start of our debt free journey the band broke. I could not find an off the shelf band to fit. Jim (no Mr. Fix-it) managed to put it back together. It broke again, and again out came the pliers. After many episodes like this, Jim took it to a cheap jeweler, $5 fixed it for a while longer but the bracelet still came undone easily.

Here I was making really good money, wearing crisply pressed shirts, suits and heels and this battered old watch. Sometimes that stupid bracelet would open and there would go that watch skipping across the floor. That would make me think of a cool Tag Heuer and how good it would look and how much I deserved one and how everyone making that kind of money wears a good watch. And then, I would remember most of those people were broke!

We did eventually find a good jeweler who fixed that watch right and I still wear it.  Every time I look at it I’m reminded it’s not the outward signs of wealth that matter, it’s the peace and security you can have by living intentionally.

Fault and responsibility are not the same thing.

It is counter-productive to try to find fault for a person’s financial situation. With my clients, I definitely have a “No Shame – No Blame” policy.

However, if there is going to be change it is essential that we take responsibility for where we are. If we look around at people from similar circumstances, we will find some have failed and some have succeeded. Our responsibility is to analyze both and choose our actions with intentions.

Most of us get into financial trouble not because we made terrible choices, but because we failed to make good choices over and over again.  Overspending by a little bit here and there, failing to save or having no plan eventually catches up with us.

The early symptoms of “death by a thousand cuts” are:

• Carrying balances on credit cards that you used to pay off every month

• Credit cards or Equity line balances that are creeping up

• An inability to name what you spent the money on

• NSF Charges or paying bills late

• Failing to contribute to retirement

• Having no emergency fund or failing to rebuild a fund after an emergency

Will our good decisions always lead to success? No, unfortunately they will not.

This presents a challenge to our irrational thinking. Once we start trying to make intelligent choices with our money, we want to believe that financial hardship is behind us, that only people making “dumb” decisions incur financial pain. Conversely, we want to believe that all financial successes come from smart choices.  Neither is true and when you stop and think, you know it.

Bad things happen to people who are doing the right thing. They lose their jobs, their parents get ill, and their retirement funds lose value in a down market. And, occasionally, people engaging in very risky (day trading, zero down house flipping) financial behavior win.

Overall, consistent, informed, intentional decision-making will greatly improve our chances at financial success. In addition to improving our day-to-day lives, this pattern of intention will soften the blows of the inevitable hardships that we will encounter.