The Book That Changed My Life

February 8, 2010 at 6:51 pm | Posted in Nonfiction, Personal Finance | 7 Comments

In my second week working at home as a wanna-be writer, I wanted to share a little about the book that started it all:  Your Money or Your Life, by Joe Dominguez and Vicki Robin.  (Hey, it looks like a new edition came out in ’08!)  I was lucky enough to stumble across this book in 1997, and I’ve probably read it 3-4 times since then.

The sad thing about evangelizing a favorite book of this nature is that nobody is interested.  I’ve tried to lend it out half a dozen times, and each time it comes back slightly skimmed.  I can say quite frankly that this is one of only two books I’ve ever lent out that I’ve actually gotten back!  Not only that, but usually within a couple of weeks.  I’m sure I’ve lent out at least two dozen books in my life that flew away never to return.  I’m giving up now, but perhaps this little paean of praise will inspire someone else to check it out from the library or perhaps even buy it.

I won’t summarize too much, except to say that YMOYL is a textbook on how to think frugally, learn to save money, and become financially independent – all without resorting to multi-level marketing, chanting, flipping real estate, or whatever else the Easy Money books teach you to do.  This is what I learned:

  • Money is life energy.  Every penny you earn represents part of your life that you never get to re-live.  When you spend it, you’d better be sure you’re really glad you traded part of your life to buy whatever it was.
  • Debt is a cancer.  When you spend more than you earn, you pay dearly for the privilege.  There is no pair of shoes cute enough that I want to pay for them three years from now!
  • Planning is crucial.  No matter how busy or tough things are, you have to take the long view with your finances because the years are going to go by regardless.  Whether you save or spend, you’re gambling on what your circumstances are going to be like further down the road.  Better hope you’re right.
  • It is possible to become financially independent.  Even if nobody in your entire family tree ever had two nickels to rub together.  Even if your income has never reached the national median.  All you have to do is know how much you really need to get by on and keep saving until your investment earnings reach that level.  If you want it badly enough, you’ll do whatever it takes to save as much as possible to get there.

What my husband and I did last month was to look over our finances for 2009, compare them to the five- and ten-year plans we made last winter, and realize that the time was right for me to Quit My Day Job.  We’re still paying off his ex-wife’s debt from six years ago, and he still has to pay child support as well, but in three years we’ll be done.  In the meantime, we figure, even if my writing doesn’t get anywhere, I can continue to pull my weight with temp jobs from time to time.  In three years, when our little bunny goes off to college and we’re debt free, my husband can make his own jump.  We know what we need to earn to afford our minimalist lifestyle, and as an engineer and a secretary we can pretty much go anywhere in the world to work.

Ironically, my first week at home, Sweetie Junior caught a nasty cold and my husband wound up having to pull 31 hours of overtime.  Words cannot express how much my being at home improved our standard of living, at least that week.

What’s it like?  We spend less than 25% of our net income on our rental house, which is both bigger and nicer than we would have settled for.  We have one vehicle, which is paid off at just over 100,000 miles.  He buys his clothes at Costco and I buy mine at a local thrift store, or we shop at Ross.  We pretty much never go out – we spend $15 a month on Netflix and maybe $60 a month at restaurants for the three of us.  We don’t drink alcohol or coffee.  He has one credit card – a mileage card – that we use occasionally for convenience, but otherwise we’re debit-only and have been for years.

It might sound grim to most people.  It works for us, possibly because we’re both of Scottish extraction.  We started discussing and planning our finances together long before we even began dating!  It was a few weeks after we set up our 5- and 10-year plans that he proposed.  We have our fun cooking together and trying new recipes, reading aloud from library books, playing with our pets, working out together, and talking a lot.  Sometimes we talk about what it would be like if we spent our time sacked out in front of the TV or driving back and forth to the mall, eating fast food, and we both shudder.

There have been times when I’ve listened to my friends – all of whom earned more than me – chattering excitedly about Shopping and I’ve just felt like crying.  Not for me, though; for them.  My husband and I have compared notes, and every single one of our friends has debt problems that won’t seem to go away.  We know because over the years they’ve all come to us and told us about them.  They all also seem to have major dreams that they’ve felt forced to put on the back burner.  For instance, we have a friend whose dream is to “mow rich people’s lawns” when he retires, and another who wants to deliver flowers.  Both of these guys could quit and start doing those jobs tomorrow if it weren’t for debt, you know?

It does take years and it does mean saying goodbye forever to Cute Shoes and it does definitely put you outside the mainstream, which can be uncomfortable.  But it is possible to get up one day and say, “You know what?  I’m going to live my dream now.”  And if you can do it, you should do it, for yourself and your family but also to inspire others, whose dreams might be cooler than yours.

“America’s Cheapest Family”

July 12, 2008 at 6:48 am | Posted in Nonfiction, Personal Finance | Leave a comment

(October 16, 2007)

You can imagine how a book with a title like this might stop me in my tracks.  America needs frugality now more than ever before, and things just haven’t been the same since the Dacyczyns retired.  The question is, can the Economides family fill their shoes?

I realize you may not be a tightwad.  It’s okay; this is an equal opportunity blog.  I’ll explain.  Back in the 1990s there was a newsletter called The Tightwad Gazette, the purpose of which was to help people cut their expenses, get out of debt, and save money.  It was self-published by Amy and Jim Dacyczyn, parents of six children.  They were a phenomenon – the books were best-sellers, and they appeared on Donahue.  After a few years, they felt they’d said everything there was to say on living cheaply, so they retired.  You can buy the complete collection in paperback format, get it from the library, or come over and look through my annotated copy, tabbed for quick reference.

So choosing the moniker America’s Cheapest Family is on the order of throwing down a gauntlet:  is the Economides family actually cheaper than the Dacyczyns?  True, both families live without debt; raised a large family of well-behaved, thrifty kids on one income; and have been willing to do things others wouldn’t in order to save money.  There are some key differences, though.

The Economides family has five kids; the Dacyczyns have six.  The Economides lived on an average income of $35,000 (though Steve still works and they earn closer to $60,000 now), while the Dacyczyns did it on no more than $30,000.  (Jim Dacyczyn was also able to retire early, in his 40s).  The Economides family goes on vacation all the time, dines in restaurants, and drinks (gasp) soda.  The Dacyczyns’ message was always that you don’t need those things, and if you’re willing to forego them you might have a happier home life.  They also discussed how our choices impact the economy and the environment.

The Economides family lives in Arizona, while the Dacyczyns live in Maine, which may explain some things.  Maine seems to be an environment both more supportive of frugality and more tolerant of eccentricity.  The Dacyczyns were unafraid of being laughed at for reusing tinfoil and quite straightforward about the spiritual and environmental benefits of living cheaply.  The Economides seem to want to live a lifestyle distinguishable from their neighbors’ only by their family values, saying there’s no need to go to extremes.  For them the thrill is in beating stores at their own game and getting the best deal, more than proving we don’t need consumer goods to be happy.

As far as budgeting, though, the message is the same:  you must find a way to live within your means.  What does this mean?  It means you should have money left over every month after you pay your bills and buy groceries.  It means you’ve estimated how much you need for expenses that don’t come up on a monthly basis, and you’re saving for that as well as in case you lose your job.  Living within your means is when you know how much you earn and how much your lifestyle costs, and it doesn’t take credit cards to pull it off.

If you spend more than you make, what could be a simple run of bad luck can turn into financial catastrophe.  If enough people live beyond their means, we’ll find half a generation of people (Boomers, are you listening?) with no retirement savings, slated to live longer than any generation the world has ever known, crushing the future of their children and the nation’s economy.  You have to make plans and take accountability for yourself.  If you don’t, multiply your behavior by 300 million and consider the ramifications.

“Generation Debt: Why Now is a Terrible Time to Be Young”

July 12, 2008 at 6:14 am | Posted in Economics, Nonfiction, Personal Finance, Politics | Leave a comment

(June 14, 2007)

Here I am, reviewing another book about why Generation X struggles so much economically: Generation Debt, by Anya Kamenetz.  I felt compelled to read it, after Strapped, which I reviewed several weeks ago, to see whether Kamenetz covered any new ground.  (Also, I had read all the other personal finance books available at the library that day, and I needed a fix).

It’s true, the cost in real dollars of housing, education, and medical care have all risen substantially between the Boomer Generation and ours. I take these trends as signs to do three things that have been proven effective in every economic climate: Work Hard, Avoid Debt, and Keep Your Overhead Low.  My advice has always been “Focus!”  So I picked up this book expecting to shake my head over yet more whingeing about how young people are “forced” into debt and how Someone Else needs to come along and improve conditions for us.

Unsurprisingly, Kamenetz makes many of the same points Tamara Draut did in Strapped.  Surprising to me, though, was that this time I found them convincing.  Kamenetz focuses more on economic and political trends.  She also presents a population that includes lower-class, less educated people as well as children of the middle class.  This was refreshing for me, as I admit I can’t be bothered to feel much sympathy for people who leave the parental nest and suddenly find they can’t afford to live “in the manner to which they have become accustomed” – because most of the world never gets a taste of that lifestyle, much less lives it for two decades.  There’s time for us, after all, and we have to be prepared to build our own nests over a few years before we expect to live our parents’ lifestyles.

That said, times have changed, and it’s entirely possible the majority of us will never see a lifestyle like our parents’ – certainly not our grandparents’! – no matter how hard we work and save.  Here’s why.

1. College.  Not only is college literally ten times more expensive than it was 30 years ago, but the world of funding has changed.  Pell Grant awards have remained stationary for years, and are spread between larger numbers of students.  The vast bulk of funding, therefore, is being offered in the form of loans, not grants, meaning most students will have to go into debt that may take years to repay.  Further, the year before I graduated high school, eligibility standards were changed, forcing students under 24 years of age to include their parents’ incomes with their own on their financial aid applications, regardless of whether they (like me) were financially independent and lived alone.  In the 1960s and ’70s, it was possible to work a summer job through high school and college, and graduate debt-free.  Hoo boy, is that no longer the case!

2. Usury, by which I mean Credit Cards.  Credit cards are what get many students through college.  I don’t mean for pizza, either – there is an increasing trend of putting tuition on the card.  Textbooks, too – it’s common to pay $300 a term for books, and the money has to come from somewhere.  Now, debt is bad enough, but the interest rates, fines, and fees go far beyond what banks were allowed to charge in the past.  Somebody went and deregulated the banking industry, and now they are allowed to charge up to 30% interest.  Fees are up in the $40 range, for infractions as trivial as being one penny over limit or sending in payment one minute late.  In the past, a credit card that was over-limit would be denied.  The new trend is to allow the charge and tack on the fee, though most users say they would prefer to have the card rejected. Fees are the new cash cow for credit-issuing banks.  Sadly, the young are more likely to be both naive and broke, making them easy marks for the card companies that set out tables all over campus, enticing their victims with free t-shirts and other goodies.  One moment of dumbness and a few weeks of reckless behavior can now quite quickly result in thousands of dollars of debt, silently building and building and sucking the marrow from our youth.

3. Jobs.  The economy has changed incredibly since the 1960s and ’70s.  In those days, it was possible to get a factory job and earn a solid middle-class income with just a high school diploma.  Automation and globalization have effectively removed the vast majority of those jobs.  What we have now is a “service economy,” meaning most new jobs are turning up in retail, fast food, and customer service, for example at call centers answering billing questions.  Another factor affecting us is that seniors are living longer these days, and increasingly postponing retirement.  When Social Security was put into place as part of FDR’s New Deal, the average lifespan was 62, so a retirement age of 65 seemed almost far-fetched.  Generations later, people in their 60s are possibly more physically active, as a group, than people in their 20s, and they just don’t feel like retiring yet.  (Plus, they have credit card debt too, and they can’t afford it!)  What that means to us is that the really excellent, interesting jobs will be increasingly hogged by aging incumbents.

4. Temporary jobs.  (As opposed to Real Jobs).  Again, up until the 1980s, the expectation was that you would get a job, work there until retirement, and receive a pension.  There’s a reason the word “temp” is of recent coinage – the idea that a business can extract work from someone who can be let go with a single phone call and no notice, paid minimally, and offered no benefits is an idea of recent vintage.  (It’s an idea that still has scorch marks and a whiff of brimstone wafting off it).  Even a college-educated person with a strong work ethic may find that temp work is the only gig in town.  I worked in tech support a few years back, and it was company policy to hire only temps, excluding management.  This meant none of the 1200 people who came to work there every day was eligible for health insurance, much less paid holidays.  This sort of policy is by no means uncommon, and will undoubtedly become more common still as health care costs continue to rise.

5. Benefits.  As more and more people, especially young people with limited work experience, must forego health insurance, the personal costs of this changed economy of ours will be felt with greater force.  When you’re already reeling under the staggering burden of student loans, getting hit with a serious medical issue can be all it takes to drag you under.  Kamenetz relates the terrifying tale of a gal who was diagnosed with bone cancer at age 21, then contracted a second form of cancer from the chemotherapy.  Luckily, she was covered by her mom’s insurance until she finished grad school, and was able to get a job with insurance right before she aged out of that coverage.  (The cancer is in remission).  Not everyone is that lucky, however – what if her mom hadn’t had insurance either?  Large medical bills are one of the major causes of bankruptcy.

6. Social Security.  Oh, don’t get me started!  Many people perceive Social Security as a sort of investment – pay in while you work, collect when you retire.  The way it was set up, though, the first collectors received far more than they deposited.  For instance, Kamenetz points out, the first person to collect a Social Security check, one Ida May Fuller, paid in $24.75 and collected $22,888.92 by her death at age 100.  Current workers pay for current retirees – they don’t pay for themselves.  Our generation is much smaller than the Boomers’, and chances are that our grandparents will still be collecting while we’re paying for our parents’ retirements.  So, not only will we be paying large sums into Social Security that we will most likely never see back, but we face a pension-free economy as well.  SS was originally meant to be “one leg of a three-legged stool” including a pension and personal savings.  So, we won’t have Social Security and we won’t have pensions.  If we’re lucky enough to have 401(k) accounts, we face the possibility of another Enron and watching our money flush down the tubes.  How are we going to have personal savings when we start our careers dragging tens of thousands of dollars in debt, can’t get health insurance, and pay these outrageous rents?  Sigh.  No stool to sit on – we’re going to be on the floor when we retire.

7.  Medicare.  You think Social Security is expensive?  Take a look at Medicare.  Medical procedures are going to continue to get more expensive, along with prescription medication.  Once a procedure is available, in the medical world, it’s a necessity.  There is no “sorry, we can’t afford to offer this procedure to millions of people” in the world of politics.  Again, it’s paid for by current workers, and as it costs more, our taxes must rise to compensate.

8. Demographics.  There are more of them than there are of us.  Simply put, if every eligible voter actually voted, Generation X is so soundly outnumbered by Boomers that we could never outvote them on generational issues.

9. The National Debt.  Thanks for that, older folks!  Love ya!  Y’know, a national debt is a fairly recent invention too.  Kamenetz notes that prior to 1946, the federal budget ran into deficit spending for brief periods – budget surplus was the norm.  During the Reagan Years, the United States went from the world’s largest creditor nation to the world’s largest debtor nation.  That ol’ National Debt keeps snowballing.  (It brings to mind the Sta-Puft Marshmallow Man scene from Ghostbusters: “What did you do, Ray?”)  What’s going to happen is that those chickens are going to come home to roost.  Sooner or later, probably sooner, our nation is going to have to stop postponing payment for today’s policies.  Either taxes go up or benefits go down – more likely both – and it’s our generation and the ones that come after that are going to pay for it either way.  (My prediction is, the day of reckoning is not very many years off, because we’re going to see more and more natural disasters, and those have to be paid for somehow too).

10. Families.  In days of yore, you could count on finding a mate, raising children, and staying nestled in the bosom of an extended family.  Families supported each other – taking care of each other in times of sickness, helping out with new babies, sharing meals when times were hard.  Now?  It’s hard to know who to go to if you have two sets of step-parents.  Even the most old-fashioned, marriage minded, conservative, religious young person may be hard pressed to find a mate with similar qualities who wants to Marry For Life.  Times have changed, forever, and the old marriage-house-baby path is barely visible any more.  This can make a huge economic difference for a young person.  If you stay single and live in an apartment, obviously there’s nobody to take care of you when you’re sick.  There are no housewarmings, no wedding gifts, no baby showers.  Maybe you’re cohabiting, but if not, there’s no sharing of household expenses.  Most of all, there’s no sharing of incomes, no trading off if one spouse loses a job or the other wants to go back to school.  The trend toward later and rarer marriage is an expensive one, in some ways, on the individual level.

Kamenetz concludes, like Draut, by inciting readers to become more politically active.  Specifically, she suggests financial aid reform, reinstating usury laws, and unionizing.  She goes beyond this, talking in detail about reconsidering college, spending more time planning a career (that may not require further training), cooperative housing arrangements, and learning to live on less.

One area of Generation Debt worth discussing is the idea of a new station in the life cycle.  Kamenetz posits that social changes and longer lifespans have created an exploratory phase of life, ideal for travel, personal expression, and career research (in the form of job-hopping).  While it’s true that this is a trend that can be easily observed in action, it’s debatable whether our society can afford to encourage such a phase, especially in light of all the economic ills Kamenetz presents.  She suggests “stakeholder grants” – giving young people money for ventures other than college – not necessarily a bad idea in itself.  She weakens her argument, though, by pointing out that 9 of 10 new businesses fail, and that some young people could use the money to “take the extra time and independence to find out that for what they really want to do, they don’t need college. (228)”  Where is the money supposed to come from?

Generation Debt is clearly written for Generation X, although 90% of it would serve our generation better if it were aimed at Boomers.  Kamenetz shoots us in the foot here, for example by using the phrase “old people.”  There’s no pressing economic reason for our elders to care what happens to us – the impetus behind the book was, after all, to prove that our situation really was the result of a multitude of larger historical forces. The book may have had greater effect if it had been aimed at a more general audience.

“Get a Life: You Don’t Need a Million to Retire Well”

July 12, 2008 at 5:56 am | Posted in Nonfiction, Personal Finance | Leave a comment

(April 29, 2007)

I just finished a really unconventional book on retirement planning: Get a Life by Ralph Warner.  It’s so different and fantastic that I wanted to share it, although I imagine most who read this probably aren’t focusing too hard on retirement right now.  (Myself, I plan to retire at 45 and live to be 90).

The basic premise of Get a Life is that most people work hard for decades to save as much money as possible for their retirements – not only to the point that they don’t enjoy their youth, but also to the point that when they retire they are unhealthy, can’t remember how to have fun any more, have few friends, and aren’t on great terms with their families.  So they have a pile of money and little else – they just sit in front of the TV all day and wait to die.  Depressing, huh?  By that analysis, there is no amount of money in the world that can buy someone excellent health, solid friendships, a happy marriage, or devoted children.

The other problem with conventional retirement planning is that it is simply impossible to know how long you will live or how much money you’ll wind up needing.  It’s all absolute guesswork.  Even worse, almost all retirement planning information available is paid for by the advertisements of various investment firms, or supplied by authors and publishers who feed off the anxiety that makes people buy investment books.  None of these materials will advise you to talk to actual retired people about their lifestyles.  Most assume you’ll look forward to playing a lot of golf, going on cruises, or maybe even buying an RV.  (Three elements of my worst retirement nightmare!)

The first chapter of the book advises that we seriously analyze our retirement fantasies.  If we plan to volunteer, do a lot of travel, go back to school, or work part-time, Warner warns that it may not be all that easy to jump into these activities immediately upon retirement.  It’s far better to rearrange our priorities and schedules now and gradually start working these interests into our lives.  That way we’ll be able to find out whether they really are everything we thought they’d be, whether we’ll be healthy enough to handle them, and whether we’ll be able to make ourselves a niche.

Next Get a Life covers health.  It turns out that exercising or not exercising has very little to do with our life spans – and absolutely everything to do with how healthy we are and how much we’re able to do when we are into advanced age.  So, if you’re going to live to be 85 one way or the other, you’d do better to get in shape and start eating a healthy diet as soon as possible, or you may wind up being old and sick for many more of those 85 years than necessary.

Warner goes on to advise that we build our family ties and start making friends in different age groups.  He gives the specific example of getting over it if your children have made lifestyle choices you don’t approve of (including homosexuality), because if you let it get in the way you’ll be an awfully lonely old person.  Likewise, if you’re relatively young now, it will pay to make friends who are a lot older, so you can learn how to age gracefully.  As you’re getting older, it’s a good idea to make younger friends, because they can share interests that will help you think like a younger person.  Both groups have a lot to offer each other.

The second half of the book discusses financial concerns.  The first of these is how to avoid nursing homes – puncturing the idea that long-term care insurance will actually benefit many people because the benefits are only paid out if you really can’t care for yourself at all.  Remaining chapters talk about calculating how much money you will need, where to get it, how to save more, and different investment vehicles.  Warner talks frankly about issues such as a parent remarrying, and how to reassure the kids that the new spouse isn’t a gold-digger.  He also discusses how the Amish deal with their elderly, and talks about how older people can help each other by being roommates.  (It’s probably easier to have roommates who don’t play loud music, keep strange pets, or have a revolving door for new lovers – a whole different story in your 70s than in your 20s, you know?)

One of the neat features of the book is that each chapter ends with an interview with a really interesting, active retiree.  Some of these folks are into their 90’s, and it’s incredible all the things they do.  Some of them have had to live through rotten disasters: one woman lost her husband only two months after their house burned down.  Yet they are all cheerful and they all sound totally together.  I found myself wanting to make friends with a few, who happen to live in Berkeley.

Essentially, Get a Life has a very positive message.  The only alarm notes are that it’s never too soon to slow down and appreciate life more, and that it’s incredibly important to take care of your health as much as possible.  And, of course, there’s an entire section on credit card debt and how we must pay it off as soon as possible.  That’s probably the one area of the book that will give you the same advice you’ll read in any other personal finance book.  Pay down that debt!

“The Average Family’s Guide to Financial Freedom”

July 12, 2008 at 5:52 am | Posted in Nonfiction, Personal Finance | Leave a comment

(April 14, 2007)

Or, “How You Can Save a Small Fortune on a Modest Income”

This book, published in 2000, describes how the authors, Bill and Mary Toohey, have reached a sort of financial independence.  For those of us who love the idea of not having to go to work any more, it’s a fascinating read.  Unlike most personal finance books, the authors talk about their day-to-day life and how their strategy really has played itself out.  They also talk freely about mistakes they feel they’ve made and possible problems that could delay their retirement – whereas most books will assure you that if you simply follow the steps, you are guaranteed fabulous returns.

In the introduction, the Tooheys explain that their combined income began under $35,000 and is still under $60,000.  They were able to completely pay for one daughter’s college education, pay off their house and two cars free and clear, and rack up $467,000 worth of assets – while raising three children, one of whom was born severely mentally disabled.  They say they have enough put away to pay for all expenses for the rest of their lives, excluding part of their medical, which is why they are still working.  They save 46% of their gross income.  They have my attention!  At the time the book came out, apparently they made a number of television appearances on various talk shows.  (I haven’t spent much time around TV in the last 15 years, so I must have missed them).

The book begins with a discussion on how to change your mindset and prepare as a couple to do the work necessary for financial independence.  The next chapter covers how to handle a major life crisis – like finding out your baby has a series of frightening medical problems.  The Tooheys go on to talk about how to live comfortably in a small house, including sharing one bathroom among five people, and how important it is to remember the conditions our grandparents grew up in and to be grateful for what we have.

One theory the Tooheys present is that “saving doesn’t work.” The idea is to simply focus on cutting back spending as much as possible.  This includes planning for all possible expenses.  They discuss bargain shopping for a home, cars, and college education, and how important it is to control debt and increase your standard of living only slowly.

Two pages cover “some things we don’t skimp on because it just isn’t worth it:” (78-9).  Hot water; restaurant meals; vacations; home and car maintenance; school activities; cable TV; air conditioning; heat; computer; internet; a home decorator; and VCRs (they have two).  I don’t have to pay for hot water where I live, and I keep my thermostat set at 64 (it used to be 62, but I got a raise this year).  Personally I feel I can continue to live without several items on that list, particularly air conditioning (which I hate), but everyone’s list is different.  I like to splurge on cookbooks, soap, and hand cream.

The book includes chapters on taxes, maintenance, research, things to learn to do yourself, parenting, and of course the Toohey family investment portfolio.  Most chapters are very brief, some only one or two pages.  It’s particularly interesting how they make connections between such seemingly disparate ideas as having a happy marriage, good parenting, and saving vast amounts of  money – but it seems completely obvious how these things have worked out so well in their own life.  It’s true that “fighting over money” is the most common cause of divorce in our country.  How much better would couples do if they could make sure to agree on how to run a household?  In light of this, I will summarize the “Killer of Love” list from the book:

1. Control – feeling like your spouse gets to tell you what to do, when all you want is to spend some money
2. The Ball and Chain – feeling like your spouse is the one spending all the money, and you’re the one doing all the work
3. “the Joneses” – feeling deprived compared to your acquaintances
4. Fairness – feeling like the things you want to spend money on are considered frivolous, while what your spouse wants are “necessities”
5. “It’s too hard”
6. “It won’t work”
7. “I’m doing the best I can” – so stop criticising me for what I spent

It’s an interesting take – most books do not spend much time addressing the psychological factors behind working toward financial independence.

One caveat about the Average Family’s Guide to Financial Freedom is that it really does apply to average families.  If you make significantly less money, do not have health insurance, do not live in a small town (which is part of their official strategy), and/or are trying to do it alone, not all of these methods may work for you, and it may take longer than it took the Tooheys.  Of course,  if you want to attain financial independence you will have to pick some strategy sometime.  And if you’re willing to go without vacations, restaurants, or a home decorator, it’s possible you could do it even sooner.

“Strapped: Why America’s 20- and 30- Somethings Can’t Get Ahead”

July 12, 2008 at 5:48 am | Posted in Economics, Nonfiction, Personal Finance, Politics | Leave a comment

(April 13, 2007)

Strapped, written by Tamara Draut and published in 2005, aims to prove that current American economic conditions are different for Generation X than for the previous two generations.  Education costs have skyrocketed, job opportunities have shrunk, paychecks are increasing less, a corrupt banking industry has seduced millions into crippling debt,  real estate prices have launched into the stratosphere, and children have become more expensive to raise.  Not only that, but Generation Xers have been excluded from politics because our sheer numbers are fewer than those of our elder generations.  This book has garnered a great deal of attention.  I read it and I thought I would share my observations.

First of all, I am well within Generation X, defined as those born between 1971 and 1987.  I fit many of the statistics in the book:  I had to wait to go to college until I was 24, worked full-time and took a full course load during my freshman year, worked part-time the other three years, graduated with over $20,000 in student loan debt, do not own a home, and would definitely feel raising a child to be outside my budget.  My income was average compared to the case studies in the book.  Yet I did not find I could identify with those case studies, did not find the book inspiring, and did not agree with most of the author’s interpretations.

The first paragraph of the introduction relates the tale of Draut and her husband sorting through CDs to sell to cover bills.  They had $19,000 in credit card debt, built up by “eight years of start-up costs” including household goods, travel to friends’ weddings, and unemployment (and, apparently, compact disks).  Draut devotes an entire chapter to debt, using the epidemic of credit card debt in the last couple of decades to show how the economic climate is hurting Gen X.  She paints a sympathetic portrait, explaining how various people got into debt for “going to the dentist or fixing the car” (11), and how a $35,000 salary was “quickly eaten up by rent, groceries, and bills” (76).  She uses the terms “survival debt” (110) and “unavoidable debt” (115) (racked up in travel to friends’ weddings and family visits).  She describes how any expense such as “an out-of-town wedding, a busted computer, dry cleaning – gets charged to the credit card” (12-13).

The “out-of-town” wedding theme comes up several times in Strapped.  This appears to be an entirely recent trend.  Draut explains poignantly that “to beg off is to lose a friend” (93).  Is she really saying that it is better to live beyond your means and incur crippling debt than to miss a wedding?  Those of older generations generally made the effort to hold either the wedding or the reception in the home town – maybe have one in the groom’s hometown and the other in the bride’s.  If it proved to be impossible to attend someone’s wedding, it was considered good form to send a thoughtful letter and a gift.  (For instance, one of my best friends got married the same day my brother did, at the same time, in a different city).  It was also understood that sometimes people moved away.  If the relationship was strong, letters and calls were enough to keep the friendship alive.  If it was not, well, people learned to make new friends, right?  In either case, one wonders what sort of friend would make spending money you couldn’t afford a condition of the friendship – and what kind of person would get sucked in by that kind of attitude.

Education is the subject of the book’s first chapter.  Draut makes a very convincing case for how earning at least a bachelor’s degree is far more important for Generation X than for those previous.  She has all the numbers for how costs in real dollars have increased at an astonishing pace, and how most students start their adult lives dragging the shackle of thousands of dollars in student loans.  (I found this chapter painful to read, because it echoes my own frustrating situation – and I got a much later start than most of the examples in the book).  She goes on to demonstrate that these costs keep many students from finishing school, leaving them with large debts but without the degrees that could actually lead to higher earnings.

Is this a tragedy, though?  College students have always been poor.  Literature is full of examples of students wearing holey clothes, living in drafty garrets, using grocery money to buy textbooks, etc etc.  Students of the Baby Boom generation got through school by eating spaghetti and beans and rice, having small wardrobes, and skipping haircuts (and defaulting on their student loans before going on to comfortable lives – thanks for that, by the way).  Students have always expected to be poor and hungry during the college years – knowing with certainty that it would be easier on the other side, and cherishing the opportunity to “build character.”  (Does anyone use that expression any more?)  Now students expect to own cars, eat in restaurants, and have fashionable wardrobes, not to mention go on vacations, study abroad, and go to concerts (which are also more expensive than they used to be).  Dropping out of school before completion, while still incurring debt, is like swimming halfway across a river and then turning back because “it’s too far.”  If you’re already committed enough to suffer debt either way, can’t you just stick it out a little bit longer?

Draut aims her book at the children of the middle class.  She says that to write about illegal immigrants, high school dropouts, and the poor would require “a wholly different book” (25-6).  No kidding.  As a person who entered the middle class, let’s see, last year, I was shaking my head over this book from the first word.  I knew in kindergarten that if I wanted to go to college, have my own family, and own a home one day, I would do it by the sweat of my brow and it would take a long time.  My parents put each other through school and bought a home in the 15th year of their marriage.  Having anyone else shoulder the financial burden of my college education was never on the table.

It’s true that my generation is having a tough time, and it’s true that economic conditions aren’t what they were in the 1950s or the 1980s.  But when have people in their early 20s and 30s ever had an easy time, piling up money in bushel loads, drinking mai tais by the pool?  Youth is the time to make big plans for the future – over a bowl of cheap starchy food – and scrimp and save every spare penny.  Draut uses statistics to show that Gen X’s debt load is similar to that of Baby Boomers at the same age.  There’s a reason she doesn’t compare it with that of the “Greatest Generation,” our grandparents who grew up in the Depression Era.  They did not go into debt, plain and simple.  Complaining that we learned our consumption habits from our parents is pretty feeble.

Yes, of course I would like to be debt-free and own my own home.  I’m not silly.  In fact I’m on track, although I graduated class of 2004 and have barely scraped the skin off the top of my debt.  I put aside the maximum match for my 401(k), have zero credit card debt, and save an additional 10% of my income.  How do I do it, when in all other respects I share the horrible economic conditions of my peers?  Simple – I spend virtually nothing on entertainment.  I never go to concerts, buy CDs, or go to bars, I rarely travel – and that with a $100 budget – and I don’t have cable.  I don’t eat convenience foods or buy clothes that require dry cleaning – and I don’t pay retail.  I budget for those entirely predictable expenses like going to the dentist and car maintenance.  I have a month’s rent saved.  If I lost my job I would walk out the door and call the temp agency.  When money is tight, I clean house on the side for extra cash.  If I had to ask for someone to lend me “$10 for something to eat” (38) it would last me a week.

If there is one message Generation X should get from this book, it is an emphasis on the extreme importance of planning ahead.  If we can’t live within our means, come up with ideas for better careers or new businesses, and save and save hard, we’re just never going to be able to keep up.  Ours is a time of increased global competition, increased corruption (Enron, WorldCom) eating into possible investment proceeds, increased costs in every arena, and catastrophic climatic and ecological conditions.  Times may very well get worse before we reach old age.  If we sit around waiting for politics to take intest in us, try harder to catch our attention enough for us to participate, and solve our problems, well, we may be exhibiting the most patience we’ve ever shown.

Not Buying It

July 12, 2008 at 5:35 am | Posted in Memoir, Nonfiction, Personal Finance | Leave a comment

(July 10, 2006)

I just finished reading a book called Not Buying It, by Judith Levine.  It’s an account of the author’s decision to stop buying anything except absolute necessities for an entire year.  Those of you who know me have probably realized what a bone-deep tightwad I am, and thus will instantly understand why I was so eager to read this book.

I’ve read other books along these lines, including Your Money or Your Life and all three volumes of the Tightwad Gazette. I was raised by a man who once carved sporks out of driftwood, and a woman who actually knew how to darn socks.  Pinching pennies is old hat to me.  In fact, I was so excited to read a review of this book that I did a “Buy Nothing” all through January in anticipation.  (I did succumb at one point, over a $0.69 kitchen sponge).

I went through a bit of angst over reading the book.  Do you buy a copy of a book called Not Buying It?  Is it like buying Abbie Hoffman’s Steal This Book?  I, like, never buy hardcover books, and $25 is still a lot of money to me.  Yet I really wanted to read the book, and I did believe in supporting the author.  I looked in the library catalogue, but my county doesn’t have a copy.  I found the book at my local Barnes & Noble (buried in the upstairs back corner in Memoirs, not exactly in a dazzling table display).  I sat on the floor and read the first three chapters.  Then I felt too guilty and left.  Finally Matthew checked it out from his library and mailed it to me.  (Total cost: $8.80 for combined postage).

Not Buying It is a fascinating and intellectual treatise, written by an astute and learned lady.  Yet I did not find the kindred tightwad spirit I had assumed I would.  She and her man divide their time between Manhattan and Vermont. They actually own property.  During their experiment, they manage to pay off over $8,000 in credit card debt in six months.  I barely earn that much in six months!  Right from here, we know we’re dealing with dilettantes.

The most interesting question in the book, the one that intrigues the author’s friends, is, what counts as a necessity?  What do you have to buy?  Well, okay, let’s start with food.  Do you have to make your own bread?  Can you count something like, say, bananas, that you could not obtain locally?  Our heroes give up pre-mixed salad greens.  They argue over whether wine counts, and when they finally run out (around fall) he has to learn to make his own beer to compensate.  Hmm.  This is one that escapes me – I think I’ve bought one bottle of wine in my life, and it was a little half-size picnic type bottle.  It doesn’t make my list.  Gives me a headache – and then I would have to decide whether to splurge on OTC meds, right?

Get this – they run out of Q-tips and don’t buy any more for the rest of the year.  Yet, they buy the newspaper every day.  Ya know, you could skip the paper for one week and save enough to buy a small box of Q-tips.  I personally would skip a meal before skipping Q-tips…

The author caves in and buys a pair of lime green pants for a special event.  In a boutique.  They cost $100.  I’m not sure I know where to find a boutique that sells pants that cost that much. Not to mention my feelings about the color lime green.  (I often pray that the color will fall out of fashion soon, for many many years, and it can take that ugly olive green with it).  Of course I could be being unfair, since I can sew and I’m famous for my thrift store spelunking abilities.  Not everybody has tightwad chops.

I sigh.  This book may prove worthy of perusal and discussion by elite East Coast intellectuals, some of whom may examine their own consumption habits.  Probably not, though.  People who see fine wines and artisan breads as absolute necessities are probably not going to make lifelong commitments to living lower on the hog.  A book of this nature aimed at the highest of the upper crust, however, probably would have no readership at all.  The rest of us can go back to the Tightwad Gazette.

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