March 17, 2009

We haven’t had a lot of snow this winter.  Experts are predicting a dry summer.  Dry spells aren’t any fun.  You water as much as necessary to keep things alive, but you don’t water everything because water is limited and expensive, and you don’t want to waste it.  What lessons can a drought teach us about our finances, in a time when we feel like our money is drying up?

Water what’s necessary

Just as you provide water to your best plants or trees during a drought, you’ll need to do some careful watering of your money, too.  You want to make sure you’re paying all your bills.  Don’t neglect to pay for the electricity, water, gas, and phones.  Food is fairly important; make sure there’s always some of it to put on the table.  You also need to keep up with basic maintenance on your home and car.  Repairs that seem expensive now might break the bank later, after you’ve allowed them to get worse.

Don’t water everything

On the other hand, there are some things that don’t make sense to spend money on right now.  Now is probably not the best time to sign up for cable or satellite TV.  You may not need the best new cell phone or the best new laptop.  A new car or an addition on the house also don’t make sense if you have other goals that are more important, or if you’re worrying about running out of money.

Once we’re through this financial drought, times will be better.  It may take us a while; it might be this year, or it might be many years from now.  Keep being sensible about spending, keep searching for a job, don’t leave a job without another one lined up.  Keep the dinners out and the new iPhones to a minimum.  And imagine the green garden waiting for us on the other side!

This article originally appeared in the March 11, 2009, edition of the Greenhorn Valley View.

emergency travel

December 31, 2008

I’m writing to you this week from lovely Ohio.  OK, not too lovely.  The temperature has been below freezing, and frequently in the teens, most of the time we’ve been here.  Thick curtain-like clouds obscure the sun.  The wind blows strong, chilling to the bone.  And all this without any snow to make it pretty.

Why would someone give up the grandeur of Colorado for the grayness of Ohio?  If you’re going to spend a mid-winter week away from home, why not make it Florida or the Yucatan?

We have family in Ohio, and we were called here by a family emergency.  Because of the nature of this trip, I’ve noticed several things about traveling that I haven’t noticed before.

Out of town guests are a strain on the host family, especially if that host family has other duties due to the emergency.  While we are always welcome at our hosts’ home, our hosts’ lives must continue in spite of us.  They have jobs, and a house to keep, and a sick family member in the hospital, and all of this is only complicated by having house guests.  We have attempted to make ourselves as useful as possible, but our efforts can only go so far.  Our future emergency plans will probably include a hotel stay, for everyone’s sanity.

Pet care is more difficult.  There are basically three options for pet care when leaving town.  You can take the pet with you, you can board the pet in a kennel, or you can find a friend to take care of it.  Taking the pet with you costs you travel time, as you still have to feed it and take it to the bathroom.  Boarding the pet costs you money, plus you leave the pet with a potentially impartial care-giver.  And asking a friend to care for the pet is difficult, because, let’s face it, nobody likes your pet but you.  In our case, we brought the dog with us, and we left the cat at our house and asked a friend to come by to check on it now and then.  When we get home, we’re going to spend some time making emergency pet care plans so we’re not left scrambling in the future.

An emergency fund is absolutely essential.  No matter how you handle the details, taking a last minute trip out of town is expensive.  If you do not have an emergency fund you will sink further into debt, turning a medical emergency into a financial emergency.  This is the first time we had to use our emergency fund since we started building it.  The difference between this trip and our past trips is like night and day.  If you have any desire at all to change your financial picture, you simply must have an emergency fund.  There is no substitute.

In short, while I wouldn’t wish an emergency on anybody, they are bound to happen.  At some point you will have an emergency.  How are you preparing to handle it?

This column originally appeared in the December 24, 2008, edition of the Greenhorn Valley View.

how to buy happiness

November 4, 2008

Making smart choices with your money frequently gets a bad rap.  Purchasing things brings happiness, but frugal sounds like a noise you make when you’re hit by a linebacker.  Let’s face it, nobody likes to put off a purchase of something they want – it ruins the fun and maybe even brings a little sadness.

Coming to grips with your money, or lack of it, is a herculean chore similar to loosing weight or quitting smoking.  If you don’t want it really bad, it’s just not going to happen.  You gain an awful lot, however, by coming to grips with your money.  So rather than focusing on the small things that we can’t have right now, let’s focus on the big things that we CAN have by being smarter about money.

The happiness we gain by giving up something immediate is happiness in the form of freedom.  Many of us HAVE to go to work because we have to have the income to support our chosen standard of living.  And we’ve chosen our standard of living largely based on the income we can bring in.  So if we wanted to take a lower paying, but more personally fulfilling, job, we’re stuck.  We can’t get out of our chosen lifestyle and so we remain in a job just for the money.  Imagine the freedom that would come from not having to work.

Many of us have a huge mortgage that consumes an inordinate amount of our income.  We have this mortgage so that we can have someplace to sleep after we spend all day working hard to pay the mortgage.  Imagine the freedom that would come from not having a mortgage.

The Joneses.  Oh how we hate the Joneses.  The Joneses just got a new car, fresh landscaping, and are going to St. Thomas – again – for a family vacation.  But they rely on credit cards and home equity to maintain this veneer of wealth.  If we didn’t have to keep buying things just because the Joneses do, how much better off would we be?  No new debt, rapidly paying off existing debt, rapidly building real wealth – the kind without the veneer – that will lead to real freedom.  Imagine the freedom that would come from not having to keep up with the Joneses.  (My apologies if your name happens to be Jones.  Nothing personal, you understand.)

So contrary to commonly heard advice, I think money CAN buy happiness.  Instead of buying the happiness that comes with a dinner out, or an iPod, or a tropical vacation, let’s focus on the happiness that comes from a big bank account, a house that belongs to us, not the mortgage company, or a job that offers more than a paycheck.  Our future selves will be a lot happier with real wealth than with the appearance of it.

This article originally appeared in the October 22, 2008, edition of the Greenhorn Valley View.

5 year plan

October 6, 2008
In five years I will still be married to my wife.  Our four children will be 16, 15, 12, and 11.  We will still be living in our current house, but we’ll have a new deck, new windows throughout, and a new driveway.  I (or my business) will own five rental houses, which will provide a good chunk of our needed monthly income.  We’ll own a minivan or similar vehicle capable of transporting all six of us, and a smaller vehicle for short trips.  We will have no debt other than our primary mortgage, and we will have sizeable equity in our home.

OK, your turn.

This little exercise will tell you a lot about yourself and your goals.  Answer these basic questions for yourself.  Be realistic, but don’t be afraid to dream a little, either.  Anything reasonable is great.  I’m a mid-30s kind of guy, so my five-year vision might be a little different than yours.  If you’re just starting out, you might dream of things like higher education, a place of your own, or settling down with that special someone.  If you’re on the other end of the spectrum, you might dream of shuffling off the 9-to-5 and sailing around the world, or taking the grandkids to Disney World.  Whatever it is, commit it to paper (or electronic bits).

Now, do you think you’ll make it?  What if you could reach your five-year vision in three years?  Or, what if you could do twice as much in five years as your vision states?  Would that be worth something to you?  Would it be worth doing something crazy like, oh, I don’t know, skipping one meal out each month?  Or one less soda a day?  Could you cut back on driving or other energy bills?

Chances are good you know somebody who never spends any money, someone you think of as “cheap.”  When you’re out buying your third iPod, they’re listening to the radio.  When you’re showing off your new ride, they’re putzing along in their 1998 Rust Bucket.  Chances are also good that this person has thought about their own five-year plan, and is working to make it happen.  Five years from now, when they are happy and debt free and you are still in the same position you’re in now, it’ll be their turn to laugh.

Or maybe they won’t laugh.  They won’t notice you because by then, they’ll be on to their next five-year plan, and probably a ten-, twenty-, and 100-year plan.  Think big.

This article originally appeared in the October 1, 2008, edition of the Greenhorn Valley View.

I am unemployed

September 4, 2008

I am unemployed.  I got a call last week from my company telling me they were doing more downsizing and I was the next to go.  This is the sixth time this year they’ve let a bunch of people go.

As a personal finance writer, you could reasonably expect that I have a big enough emergency fund to weather this storm.  Three to six months living expenses is the standard advice, after all.  But, woe to me!, I have only one month living expenses saved up.  From past experience, I know it takes about three months to land a new job.  So we’re praying for a miracle this time.

If you don’t have enough in your emergency fund to survive three months without a paycheck, might I suggest you make that your top priority?  Whether you know it or not, your job is probably as precarious as mine.  You could lose your job in a heartbeat, and then be left to wonder how you’ll put food on the table.  Do yourself a favor.  Scrimp and scrounge until you have an emergency fund (and don’t forget to check under the couch cushions), and then don’t spend it except in an emergency.

There were several times in the last year when I was tempted to put some feelers out, to see what other jobs might be out there.  But somehow this always seemed wrong to me, like I was being disloyal to the great job I already had.  I am now no longer worried about loyalty.

If you have a job, realize your job security is only as strong as your company’s ability to pay the bills.  If they’re having trouble paying the bills you can expect them to start cutting expenses, and employees are expensive.

If you are an employer and discover that one of your employees is checking out the job market, don’t fret.  That employee is just being sensible.  Unless you have reason to believe otherwise, that employee is probably not unhappy, but just trying to stay aware of what’s going on out there.

So now here I am, a week into unemployment, soon-to-be-penniless, with only a couple leads to go on.  But here’s something else I’ve learned: something will come up.  If you’re unemployed, just realize the one who knows when a sparrow falls to earth knows you need a job.  If you stay optimistic, you’ll save yourself a lot of ulcers.  You’ll also be in a better mental state to evaluate and take advantage of any surprise deals/offers/ideas you run across.  In the words of the immortal philosopher, “Don’t worry, be happy.”

This article originally appeared in the September 3, 2008, edition of the Greenhorn Valley View.

winter heating bill

July 23, 2008

Ah, winter.  It’s right around the corner, and you know what that means: an occasional frost, an occasional snow, and a consistently high heating bill.  And it doesn’t matter what you heat your house with, either – wood, propane, or nuclear fission, it all costs a lot more in the winter than it does in the summer.

What if there was a way to even out that expense and spread it over a whole year?  What if you could pay for your heat a small amount at a time, say $75 a month, all year long?  In exchange for paying even in the summer months, you would never see the monstrous winter bills.  Plus, you could add this expense into your normal monthly budget, and never have to wonder how high the bill is going to be.

As you may have guessed, I’m a big fan of such a system, and I’m going to suggest two alternatives for reaping these benefits in your own home.

Energy company alternative
Your energy company probably offers a plan very similar to this.  They’ll start with the entire amount you paid them in the last twelve months, add a small percentage for inflation, then divide that amount by twelve, and there’s your monthly payment.  At the end of the year they’ll settle up with you – you may get a small amount back, or you may owe a small amount more.

In this alternative, all the work is done for you.  The energy company does all the math and sends you the appropriate bills.  You don’t have to think about anything, and more often than not, you get a refund after a year.

Roll your own alternative
If you can handle this kind of higher math, you can achieve this same effect all by yourself.  Just pay a steady amount into a “home heating” bucket, and when the bills start rolling in, just pay them out of that bucket.

The nice thing about doing it yourself is you get to collect interest on whatever amount is in that bucket.  This has the effect of slightly lowering your heating bill.  On the other hand, if you slip up and spend your heating budget on shoes one month, or if you did the math wrong and didn’t pay yourself enough each month, you could end up owing more than you planned for.  So be careful.

Level billing can be a load off your mind, and you might even save a bit by doing it.  Take a look at your situation and decide if one of these options is right for you.

This article originally appeared in the July 23, 2008, edition of the Greenhorn Valley View.

talk to a friend

July 10, 2008

There are two types of people in the world: those who read personal finance columns, and those who don’t.  When talk turns to investing, saving, frugal living, returns, and percentages, some people salivate, while others flee as if the fiery breath of the very demons of hell was scorching their backsides.

If you’re in this second category, if you would rather undergo open heart surgery without anesthesia than talk about money, if you would rather do ANYTHING but think about money, let this be the one piece of finance advice you read this year.

There is somebody who will take care of this for you.  Believe it or not, there are people who actually LIKE to take care of this kind of stuff.  Even better, there is somebody in your life who would be happy to help you out in this area.  Think about the people you know.  It might be a parent who meticulously planned their retirement.  It might be your annoying sibling who knows the balance of their home mortgage down to the penny.  It might be one of your children who studied economics in college.  It might even be your college roommate – you know, the one who recorded every purchase, including candy bars and soda.

The very act of asking this person for help will communicate two things loud and clear.  You’ll be telling them that you value their knowledge and insight, and you’ll be telling them you value the sense of community created when people depend on each other.

The fact is, people who have their heads buried in their finances don’t understand how some other people can NOT be interested in money.  They think people like you are wasting valuable time and resources on things that don’t matter.  But when you admit a lack knowledge about finances, and that you need their help, you have sent an invitation the other person will not be able to refuse.

And don’t forget that help can flow both ways.  Just because a person knows something about money, that doesn’t mean they have a handle on everything else.  You probably won’t have to search very hard to find something you can help them with – people skills, for example, or appreciation of the arts.  And don’t think little of the web of interdependence created by people helping people.  Though one may be overpowered, two can defend themselves.  A cord of three strands is not quickly broken.

This column originally appeared in the the July 9, 2008, edition of the Greenhorn Valley View.