My SHINY Nickels

Live Smart. Save Money. Retire Early.

Would You Rather Have Money in the Bank…or Look Like You Do?

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A few weeks ago, while sifting through an old memory box, I came across one of my childhood diaries.  It looked so aged; the bright pink and blue pattern on the cover had faded over time to dull pastels.  But the sight of it brought me right back to that time. 1987.  I was 9 years old.

I couldn’t help myself.  I cracked it open.  I began to read the excited, innocent and often dramatic musings that I wrote as a young girl.  One entry struck me.  It read:

“Dear Diary,

Yesterday was the best day ever.  We’re so rich.  My parents bought a new Camry, and my brother and I got a bunch of new toys. I also got a new pink sweater from Mervyn’s.  It’s SO CUTE! [entry continues…]”

Logic as a 9-year-old was that if we’re buying these new things, then we must have a lot of money.  But, we really didn’t.  My parents were financially responsible, so the fact that a new car coincided with a couple of new toys and a sweater was purely coincidental. It provides an interesting peek, however, into how I perceived wealth and money at that age.  A new car, toys and clothes were indicators that we were financially set.   But the reality was that while we were not living in poverty, we were not wealthy either.  We were a typical middle-class family with my dad as the wage-earner and my mom who was the stay-at-home parent.  We always managed to have enough, but we were far from rich.

The day I wrote that diary entry, I remember well.  I recall the excitement I felt.  But my feelings were connected to something greater than the thrill of newly-acquired material possessions.  I couldn’t have really known, or even described the greater sense of relief I felt, but looking back now, buried under the excitement was a calm peace that comes with financial security.  It may have been an illusion, but I felt it nonetheless.

Has Anything Changed?

This retrospective look back at my view of prosperity at 9-years-old got me thinking.  26 years later…what are my perceptions of wealth now?  What does it mean to be successful/prosperous/wealthy?  I can already say for certain that I’ve passed through several “stages” during these last 26 years.

In my late teens, being well-off meant your parents bought you a brand new car for your 16th birthday, and at anytime you could request a small lump sum of cash for a trip to the mall. You would not be questioned as to whether your household chores had been completed, as you had none.  Then came the “house-poor” 20’s.  I had a well-paying job; it was a race to see how much I could acquire, and I figured that the bigger the house, the more successful I must be.   Cars, a larger home, TVs,  nice furniture…check. Going into my 30’s, I began outsourcing various tasks I found unpleasant.  A weekly cleaning service was hired, a gardener began to take care of the yards, a trip to the nail salon every week or so, an expensive hair stylist, and a monthly restaurant expenditure of $1,500 a month.

What those years represent is the chasing of a feeling.  The constant, relentless pursuit of that moment when you feel that you’ve arrived and you’re finally living in abundance.  But despite the fact that I was surrounded in nice things, in a spacious suburban home, with hired help taking care of less-desirable tasks, that moment didn’t come.  I was still viewing prosperity through the glasses of a 9-year-old girl; if I just acquire enough, it will mean I must have lots of money.  It will mean I’m financially secure.  But, I wasn’t.  I had cars, but no money.  I had nice furniture, but no money.  My kids were in private preschool, but I…had…no…money.  While my gardener mowed my lawn, he probably had more in his checking account than I did.

Do You Feel Successful Now?……How About Now?……Or, Now?

But what I find interesting, is that during all of the mad, crazy spending I never felt “prosperous”.   It was just my life.  Even though our bank statements showed some nice deposits, it showed withdrawals at the same rate or faster.   Every month was just another run on the hamster wheel.  Money comes in, money goes out, without anything meaningful to show for it.  Annual pay increases would come, and…nope, still didn’t feel financially secure; and they were often spent before they were earned.

When my spending finally caught up with me a few years ago, I had my first financial wake-up call.  I had reached the bottom of a giant chasm, and there was nowhere left to go but up.  We turned our finances around with a fierce intensity. Soon the $40,000 in debt was paid off, and then we had our second financial wake-up call.  It wasn’t long before money was being saved…at a very fast rate.  The chronic stress I didn’t realize I had, was falling away.  With every deposit into our investment account, I had a feeling of exhilaration.  And the “high” wasn’t temporary.  At any time, I could check our account, and see the progress we were making.   I was no longer chasing the high that comes with the consumption of “stuff”.   I moved from the “law of diminishing returns” to a place of increasing returns.  Returns on investments that were growing on a daily basis.

For me, feeling financially at peace didn’t lie in what we spent, but in what we kept.  For so long, we spent all of our money and energy chasing the ILLUSION of prosperity, instead of prosperity itself.

And while we spend less and save more than we ever have before, we’ve managed to simultaneously increase our satisfaction with life.   I find happiness in things where money isn’t necessary; playing board games with my children, making s’mores in the backyard, a bike ride and picnic with my husband.

The Milestone

I’ll never forget the excitement when we reached that first $100,000 milestone.  In 2 years, we had gone from $40,000 in debt to $100,000 saved and invested.  I stared at the number, took a screen shot on my laptop to capture the moment, and smiled.

100kMilestone

Sitting there on the sofa in my living room, the smile soon turned to a release of tears.  Not a flood, but just a few.  I could barely grasp what we’d accomplished, yet I could see our future in my mind; imagining where we’d be in a month, a year, 5 years.

The excitement was familiar to me; but this time it wasn’t connected to the thrill of newly-acquired material possessions.  This time it wasn’t an illusion of financial security as seen by a 9-year-old girl.  I was excited and at peace, and this time…it was real.

 

How to Avoid “Lifestyle Creep” (and Start Saving!)

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Let’s paint a mental picture together…you’re at work, and you get a phone call.  It’s your boss…telling you…you’re GETTING A RAISE!

You calmly set the phone down…acting very cool and collected as you let the good news sink in for a moment…then suddenly…you valiantly rise up from your tiny cubicle in your ill-fitting khakis and begin performing acrobatic leaps through the office, whistling “Eye of the Tiger”, while fleeting images of all the amazing things you can buy begin filling the lobes of your brain…and……….“POW!”  

Hi…it’s me again, giving you a solid punch in the nose, in an effort to interrupt this ridiculous daydream you’re having.  So snap out of it.  (Yeah, I realize I kinda led you right into that one. Sorry, I can be cruel at times.)

Here’s an ice pack, now let’s move on.

We get a raise, and what’s the first thing we all do?  Start figuring out how much more our paycheck will be and visualizing what we’ll do with it; how we can “live a little higher on the hog” with this increase in extra cash.  Now, I’m not a complete killjoy; no doubt getting a raise is something to celebrate (heck, pop open some cheap champagne if you like), but let’s be smart about it…what you do with it, is where you can separate yourself from everybody else.

When you think about it…pay raises are sneaky little buggers…they result in a slow and steady rise in income, which nearly always leads to what has been called…(insert drum-roll here)…“lifestyle creep”.   For your convenience, I’ve provided a lovely definition here:

Definition: “Lifestyle Creep”

“A situation where people’s lifestyle or standard of living improves as their income rises.  As “lifestyle creep” occurs, and more money is spent on lifestyle, former luxuries are now considered necessities.”

— courtesy of Investopedia.com

In other words, when you make more money, you spend more money.  If you’re anything like I was, no matter how much I made over the years, I managed to spend it…all.   I never had “extra” money; I was yet another victim of “lifestyle creep.”  My pay would go up, and the spending would follow soon after, without even trying.   The thing about small incremental pay raises is that, individually, they’re not enough to be life-changing.  But my point is that while it may not seem like enough to bother saving it, it’s also not enough that you should really miss it, either.

The days of just letting your money and your finances happen TO you, are OVER.  You need to be in the driver seat, in control of your finances, fully conscious and acting with intention.

So where do we go from here?  It’s time to be strategic about our pay raises.  These are bright, shiny opportunities for us to make a difference in our financial situation, for the better.  Trust me, you won’t even miss these little increases to your paycheck.  JUST. TRUST. ME.  To do this, we’ll let the good ‘ol Direct Deposit* system work to our advantage.

* I realize not everyone has direct deposit at their disposal, but this was written with the assumption that you do.  If you don’t have direct deposit available at your employer, you’ll just need to be all the more diligent about tucking your money away with the same method I describe, but manually.  

Let’s get started…

1.   Determine what your monthly net (take-home) pay is.  For this example, let’s use $4,000.

2.   Determine what your monthly expenses are.  Add up your bills, groceries, gas and a modest (but satisfying) amount of spending money, and set that number aside.  For this example, I’m going to use $3,000 as the monthly expenses.

3.   Next, divide your monthly expenses amount by the number of paychecks you receive in a month.  I get paid twice a month, so I will divide $3,000 monthly expenses by 2, to get…$1,500 of expenses per paycheck.

4.   Now I have the FIXED AMOUNT that I will have sent to my CHECKING ACCOUNT……$1,500.   Perform the calculation yourself, and enter that amount on your direct deposit form with your checking account information.

5.   Next, direct the REMAINDER of your paycheck into your SAVINGS ACCOUNT.   Once you’ve entered your savings account information, there should be a checkbox that says “Remainder”, or something similar, where you indicate that you want the rest of your paycheck sent to your savings account.  Now turn in the form to your HR department. 

6.   One last step.  Please now engage in the acrobatic leaps I described in our daydream earlier (ill-fitting khakis are optional), because you just made a huge step forward in managing your finances.  You have made a conscious decision to make your spending and expenses a fixed amount, and allow your savings account to grow right along with your future raises.  Here’s a virtual high-five in the air, because you have managed to do what a majority of working people don’t.  (And yet they wonder…year after year, raise after raise, why they still feel broke).

You will be amazed how quickly the balance in your savings account grows.  Then, year after year, with every pay raise, you’ll smile with glee as you see that beautiful little pile of extra cash deposited into your savings account without you lifting a finger.  The fact is, humans are emotional creatures; the more we put our finances on auto-pilot, the less damage we can do.

So I’ll leave you with this…get up out of your cubicle (I know you’re reading this at work…you naughty little thing) and contact your HR department.  Start the process…avoid “lifestyle creep” by fixing your expenses and allowing your pay increases to be escorted straight to your savings account.  This LITTLE change will reap you HUGE rewards.

Living on Less: How to Maximize your Pleasure-Per-Dollar!

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When I was a kid, I loved cardboard.   Shoe boxes… shipping boxes…and oh nelly…that rare occasion when a large refrigerator box would come my way. You better believe the clouds would part and the Hallelujah chorus would start playing.  They made for ENDLESS building opportunities; I would spend hours and hours crafting castles and dollhouses and…ATM machines.  (I was an odd kid; I guess my interest in money began early.)

The fact is, kids love to play with everyday junk.  We’ve all seen it…a child sitting among the post-Christmas carnage of wrapping paper and toys…playing with…a button.   Never mind the $100’s (or sometimes $1,000’s…ack!) worth of toys surrounding them, they are enamored with the simplest of things…and, above all else, HAPPY.  HAPPY. AS. A .CLAM.

Which leads me to ask, why are we satisfied with getting only minimal pleasure from expensive things/experiences? While some financial bloggers out there would crucify us for splurging on Starbucks, or dining on a high-priced, high-quality meal at a renowned restaurant, that’s actually not where I’m going with this.  I see things a little differently.  I like to think about it in terms of “Pleasure-per-Dollar”.

Example:  One of my favorite things to do is enjoy a “coffee shop date” with my husband.  Hot beverages.  Conversation.  Some quiet, cozy book reading in plush leather chairs way in the back.  To me, this is divine.  And it costs a whopping $6 for the two of us. (Mocha Frap for him, house coffee for me. You know you were wondering.)   Now I can already hear the cries from the crowd of extreme frugalists ringing loudly…”NOOOOO!!!! You paid WHAT for a cup of coffee?  You could have made your own at home for a nickel!!!  YOU WASTEFUL GLUTTON!!!”

But making my own cup of coffee at home would be missing the point completely.  It’s not about the coffee; it’s about the experience.  The pleasure factor for me on these coffee shop dates is high. So…let’s go ahead and have some fun with it, and assign it a somewhat-arbitrary “pleasure score” of 80 out of 100.   With zero being minimally pleasurable things like watching paint dry, and 100 being something off the charts like eating a fresh wood-fired thin-crust Neapolitan pizza at the top of Mount Everest.  (Maybe it’s just me, but that sounds out-of-this-world amazing.)

So let’s have some fun with this, shall we?  We’ll take the pleasure factor of the coffee shop date of “80”, divided by $6, which gives me a “Pleasure-Per-Dollar” ratio of 13 pleasure points per dollar spent.  Did I lose you already?  Stay with me here.

Now for comparison, let’s look at a recent trip to Outback Steakhouse that Randy and I had last week.  The total bill with tip came to $54.40, for two entrees and two iced teas (we really live it up when we go out).   This is a fairly typical cost, maybe even on the lower end, for 2 people at a chain steakhouse.

The food was decent, the ambience was typical (crying babies, clinking of utensils and shouts of “CORNER!” emanating from the kitchen staff), and in less than an hour, we were out of there and moving on with life.  I’ll give that dinner a pleasure score of 40.  Now let’s do my favorite part…the math!  Pleasure factor of 40, divided by $54.40 spent, gives us a ratio of 0.7 pleasure points per dollar spent….that’s less than 1!  Ack!

Outback Steakhouse = 0.7 Pleasure Points per Dollar

Coffee Shop Date = 13 Pleasure Points per Dollar     —- WINNER WINNER, CHICKEN DINNER!

By now you’re thinking, “Yeah, yeah, yeah…enough math, get to the point already, lady.”   It’s this…I’m getting FAR MORE pleasure-per-dollar-spent from the $6 coffee date than I am from the dinner at Outback.   We’re spending large amounts of money on things/experiences with low pleasure factors.   Don’t get me wrong…it’s not about denying yourself of every luxury in the name of frugality either.  It’s about getting smart.  Smart with our money and what we do with it.  If you find true happiness in painting, then gosh-darn-it, buy only the painting supplies you need, but buy the best quality supplies you can find.  Then trim back on the things that don’t make your soul smile. It’s give-and-take, spend a little more here, a little less there.

The key is to find what really makes you HAPPY, what gives you the most PLEASURE, and spend more loosely in those areas. Randy and I occasionally enjoy a luxurious dinner at a place called Hawks (it’s the same place we had our celebratory debt-free dinner, by the way).  For us, it’s a place that is worth every dollar, but we only go every once in a while.  We spend money on the things that COUNT.   New cars?  Nope.  Big fancy house?  Not.  Designer stuff? Ha!  We spend money on the things we LOVE.  Travel…coffee dates…and good food.  These things make our soul smile, and when you maximize your own Pleasure-Per-Dollar, your soul will smile too.

Don’t Be Afraid to Make a BIG Change

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“Downsizing”…it’s been a buzzword for the last few years.  Companies are downsizing, folks are downsizing their homes, heck even my Nature Valley granola bars are smaller than they used to be. (Did they think we wouldn’t notice? Sorry, off-topic.)

Fortunately, I haven’t been on the receiving end of a company downsizing, but we did choose to downsize our home.  This was part of our “let’s get all ninja-like” on that $40k of debt we had. Plus, we knew we had to get our living expenses down ASAP if we were going to stop living paycheck-to-paycheck.   Naturally, we looked to our  biggest expense…housing.

Our mortgage was about $400k, give or take.  The PITI payment (Principal + Interest + Taxes + Insurance) was just shy of $3,000.   Aye, aye, aye.  So we did something drastic.  We sold our house and MOVED.  Now, let me tell you that I get it…I really do…people are attached to their houses…”Waaaaaah!!! I brought my babies home here…I installed the tile in the bathroom myself…the concrete driveway has our handprints embedded with our cutie-patootie names scribbled next to them! Waaaaah!!!”

I didn’t say it was easy.  NOT AT ALL.  But the house no longer fit our financial goals, plain and simple.  Was it nice living a cushy life in the suburbs, sitting in a 2,600 square foot house with an elegant two-story entry and custom backyard?  Um, yeah.   But was it too much space for too much money?  Absolutely.   It wasn’t hard to come up with the “cons” of downsizing; it’s a pain in the @ss to move, we liked our nice roomy house, we wouldn’t have 3 bathrooms anymore, where would everyone gather for Christmas, blah, blah, blah.  We had to think a little harder to get our list of “pros”, but we did…

  • Less square footage to clean / maintain / furnish
  • Smaller home encourages more family interaction
  • Lower heating / cooling costs
  • Lower insurance costs
  • Lower property taxes
  • LOWER MORTGAGE PAYMENT!

So we did it.  And we don’t regret it for a single second.  We sold our primary home and moved in to the 980 square foot rental we owned, that also happened to be my husband’s childhood home.  The home was passed down to him, so the only debt associated with it was a small $75,000 remodel loan he used to spruce it up and modernize it.  As a bonus, the tax basis of the house also passed down to my husband from when his parents owned it, so our TOTAL ANNUAL property taxes were now only $500.  Yes, only 2 zeroes there.

Here’s the breakdown:

Big House Small House
Utilities 420 190
Insurance 100 35
Property Taxes 410 42
Mortgage Pmt (P+I) 2,390 500
Monthly TOTAL $3,320 $767
ANNUALIZED $39,840 $9,204

Just looking at the monthly difference, our cash flow increased over $2,500 from that one change alone.  That’s OVER $30,000 ANNUALLY.   Remember, this is just MY experience.  Yes, we had another home at our disposal with a very low loan and ridiculously low property taxes.  My case may be an extreme example, but even if someone downsized and had half the results we did, that is a SCORE.  And I haven’t even mentioned home equity.  In northern California, where we live, there was no equity to be had when we sold.  But for some of you, it may be smarter to sell your house, move into a rental, and throw that equity at your debt/savings.

So this is the point where you start looking at priorities.  What’s important to you?  Continuing to pay that too-expensive rental/mortgage payment…or get out from under the high cost, the high stress and get control of a major expense? For some of you, it may not make sense to go through the hassle of moving just to save $200 a month.  But I’m fairly sure that for many of us, we’re spending too much of our income just to keep a roof over our head.  I dare you…run the numbers yourself…what do you see?

The Journey Begins…

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Interestingly, the business trip that started our whole debt-elimination journey ended up cancelled. Figures. But the fire that had been lit by that circumstance was far too hot to fizzle out at this point. I was determined and I was focused; we would start a savings account and then throw everything we had at our debt. I went into a Google-frenzy; searching and finding all sorts of personal finance articles/gurus/blogs.

My my my, the things I found. It seemed that for every true financial mentor that was out there, there were 10 more that were purely charlatans, masquerading as a financial know-it-all in the interest of making a buck. In these early days, I was drawn to Dave Ramsey. (Now before you start ‘flaming’ me with anti-Ramsey comments, go back to the beginning of that sentence, emphasis on ‘early days’). He had a simple approach, what he calls “Baby Steps”.

He begins with building a small emergency fund, and moving on to knock out debts one-by-one with the “Snowball Method”. For those who don’t know what the “Snowball Method” is, google it and come back. There’s plenty of people on the web who describe it much more eloquently than I could hope to. Moving on…

And frankly, this worked for us. We didn’t follow his plan to the letter, but he provided the basic framework as well as some motivational stuff to chew on. We saved up our $1,ooo emergency fund rather quickly. Then aimed our efforts towards our debt pile. It may not be as high as some, and it may look gargantuan to others, but we had about $40,000 in debt across a few credit cards, a couple personal loans, and an auto loan. This does not include our mortgage, which was about $400k at the time. (Even now, that number still makes me cringe.)

I’m an impatient person by nature, and this whole debt nonsense…well, I wanted to get ‘er done. Like yesterday. But where to begin? Well, there’s a few ways you can start the debt elimination process. Some start with the debt that carries the highest interest rate, others start with outstanding debts to friends/family, and some start with the smallest balance in order to get a quick, psychologically-satisfying win right off the bat. Unless you’ve already forgotten the very first sentence in this paragraph, you should be able to guess that we went with…the last option. I needed some quick results to keep my momentum up. Normally I’m much more strategic in how I approach problems, but in this case, my impatience won out. But oh how glorious those first few “wins” were. We started with the easiest one…a Capital One credit card with a balance of $1,500.

From that point, we moved from debt to debt, until we reached our last one, an auto loan for $15,000. However, let me step into the confessional booth and pull the curtain behind me for a moment. (Wait, is there a curtain? Or am I thinking of a photo booth?) Anyway…we weren’t perfect. We had moments of “we’re doing fantastic, I deserve a (fill in ridiculous materialistic item here).” But what counts is what you do MOST of the time, not what you do SOME of the time. So while we may have delayed our debt-free status by a month or so by squirrelin’ around, we got there eventually.

On April 19th 2013, we celebrated. We were officially debt-free (except for the mortgage, but that’s a whole other post…soon to come). Mr. Nickels took me out to my favorite high-end restaurant and we enjoyed a luxurious dinner…and paid with CASH.

The First Wake-Up Call…yes, there’s more than one

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I’m blissfully sitting at my kitchen table, working.  It’s 2011, late December, just before Christmas.  My husband is just home from work, relaxing in the family room, where our dog, Piggy, is curled up tight in her favorite napping spot, snoring.  Then it……well, happened. An ordinary moment from the outside, but one that would change my life more than I could have imagined. This moment would never make the front-page news or even be worthy of a Facebook status. But none of that mattered.  It was my first wake-up call. Telling me I was BROKE.

As I said, the moment was rather benign and ordinary. I get an email from my boss, saying that I’ll need to make a business trip.  “Go ahead and book everything, and submit your receipts when you get back,” she said.   The travel policy was for employees to front the cost of the flight, and the company would reimburse us after the trip had completed and all receipts had been submitted.

No problem. Let me just check my credit card statement.  (The fact that I went there first should already be telling you something.) The number sitting under ‘Remaining Credit’ caused things to move in slow-motion. $90.  That’s all we had available?  When did that happen?  Ok, maybe we have enough in our checking account. Being in the last days before  payday, we had a hefty ‘ol $52 in our bank account.

I sat there for a few minutes, frozen.  For so long, I’d always made it work.  I could usually juggle things well enough to get money from somewhere, or put it on the trusty credit card if I had to. I’d made a fairly reliable routine of paying it down “just enough” to get more breathing room.  But this time, there was no way out. I sat still and silent for a few moments. Once my reality had some time to sink in, the tears started flowing and so did the inner monologue.   “How the HELL did you get to this point?  How can someone make decent money yet be so poor?  You’re pathetic, you can’t even float a $400 plane ticket…”

I continued to sob.  Then I sobbed a bit more.  Finally, the tears dried, and I felt a surge of financial self-preservation kick in.  “This madness ends today”, I told myself.  The days of living paycheck-to-paycheck were over.  And with that, the journey began…