Friday, August 25, 2017

The effects of growing up poor...

When I stop to consider why I gave my blog name Sense with Cents, I suppose that it seemed to be the most obvious name. "Sense with cents" is something I've always had... or rather what I had to have....

I was born of a teenage pregnancy.  My mother found out that she was pregnant with me shorty before her 17th birthday, at the end of her Junior year in high school. My mother was above average in intelligence, though fairly average regarding academic scores.  At the time, my father was twenty.  He had stopped attending high school a few years before that. He had taken a full-time job opportunity at the local grain elevator, and I suspect that he felt he wasn't necessarily an academically inclined person, although he certainly had a high level of intelligence measurable in other ways. They loved each other and proceeded to marry several months before I was born.

My mother did not complete her senior year of high school in the traditional sense.  She wanted a high school diploma rather than a GED.  So, she enrolled in a correspondence program, and spent the next two years completing the work necessary to earn her high school diploma.  During that time, she had also taken a job waitressing in a local restaurant.  My father's job offered benefits, so we were covered on his insurance.  We were very thankful for that.  He also had a retirement account through the elevator.  His job was very secure, but the pay wasn't necessarily the highest.  You could probably safely say that we were poor. We were making it, but poor.  When I was 4 1/2 my sister was born, and within a year of that she was diagnosed with Cerebral Palsy.

When you're already economically disadvantage, a severe disability coming into play takes things to a whole new level.  My mother was already a frugal person, and wasn't someone that took on debts, but this new set of circumstances required her to go from frugal to resourceful.  She learned how to navigate complex systems not because she wanted to, but because she had to.  She had to learn how to meet my sisters individual needs (medical, developmental, social) and simultaneously meet our family's financial needs, which were growing ever more complicated. A few years later, and through no one's fault, my parents divorced. My father continued to be involved in our lives both physically and financially.  Despite his continual support, our financial lives were still a struggle.

Low Skills = Low Incomes.

The financial struggle was almost unavoidable.  My parents both came from backgrounds with very modest incomes.  Neither of them had above high school level education.  They had two children, one of which had a severe disability. That is what I would call having the financial deck of cards stacked against you.  During these years, my mother learned how to find every loophole, and jump through every hoop imaginable.  If there was a resource that would help make our family's life easier, better, or richer, she'd find it.  She could find resources that would keep us feed, clothed, and cared for within budget.  She learned how to utilize services for the disabled whether available through government sponsored programs, or non-profits of various natures.  She was committed to making sure that her children didn't lose out on opportunities because we were "economically disadvantaged."  Finding the resources you need is really difficult.  She became VERY good at it because she HAD to...

Increased Skills = Increased Income

Eventually, my mother decided to go to college and pursue a degree.  She didn't want to feel as
though she was climbing uphill for the rest of her life.  During this time we became a blended family adding my stepfather and step brother.  My stepfather also returned to school.  They worked as much as they were able, being full-time students and raising us...(There were years they worked full-time while attending college.  There were a few years they didn't.) So, there we were: a family of five, living primarily off student loans.  In those days, we grocery shopped once a month for the majority of our food: buying in bulk, repackaging, and freezing items.  Finding out about food outlets where we could get savings, using double coupon deals, taking advantage of grocery store samples for "lunch."  We did back to school shopping about a month into school because that's when student loan disbursements came in, we used a budget, second-hand stores, hand-me-downs, and department store sales.  These were the years of family game night and helping my parents survive college algebra.  We had chores, and got an allowance.  No raises, though; couldn't afford one. We had to budget our allowances, or be broke.  I learned the words "I can't afford that," and it didn't occur to me that there was anything "wrong" with saying it.

In fact, there are things that I learned by growing up poor that many people aren't lucky enough to have learned.  I learned how to use a budget, and basically budget to zero.  I learned how to look for discounts, combine discounts, and use coupons.  I am the QUEEN of the LOOPHOLE: I even went to an out-of-state school as an in-state resident because my mother and I found the loophole.  I learned how to navigate complex systems: I was actually able to claim financial independence from my mother for purposes of financial aid while I was in college.  I learned how to survive without spending money, and make it my "normal," my "baseline."

It's pretty ironic that I grew up "economically disadvantaged."  I mean, seriously, middle class was pretty far away....  But that "disadvantage" has really given me an advantage over a lot of people. I really had no choice but to learn to be really with my money moves.  Just like my mother, I learned to succeed when failure wasn't an option.  While I don't suppose I would really wish a "poor childhood" on anyone, I would wish them the lessons that went with it because I don't really know anyone that is better with money than I am.  I wouldn't trade that for anything.

And for those of you who are interested, my mother now has a Master's Degree, works for a University as a Professor, owns rental property, has no debt, and owns her home outright.  I guess those lessons have served us both well.

Wednesday, August 23, 2017

Invading Middle Class

About five years ago, I made a decision that uprooted my whole life.  I decided to move to New York.  I had many reasons to want to do this.  One reason was financial.  I had an employment opportunity that would more than double my income.

You see, I had started working full time in the summer of 2008, right when the economy went south.  I was lucky to become employed full time in a position that offered me medical and retirement benefits.  Furthermore, I liked the company quite a bit.  The problem was that I never earned more than $27,000 a year (before taxes).  I grew up poor and as a result, I became like Houdini with money.  It seemed like I could make it appear out of nowhere.  The reality is that I was just REALLY good at budgeting.  I spent five years working for that wage.  During that time, I bought a house, contributed to my 401k and got the match.  I had a minimal amount of credit card debt, was repaying a private student loan, as well as a federal one (barely).  I stayed out of trouble financially for the most part.  The trouble was...  I just couldn't get ahead.  I was taking home around $700 every two weeks after the taxes came out.  My mortgage payment ate up an entire paycheck.  That leaves about $700 for the month.  How was I supposed to get ahead on that?  The truth was that I couldn't.  Now, I am sure someone out there would've been able to move in with their parents, live rent-free, save a boat-load of money....  But that sure wasn't my circumstance.

In order to change that situation for myself, I literally had to change industries...  You see, unfortunately, I had become pigeon-holed.  At least that was the way I saw it, and employers must have too, because they weren't offering me positions that were at a higher level and paid more (even when I was more than qualified)...

My work history had begun to speak louder than my other qualifications.

If I stayed in my city and in my industry, I would only receive more of the same.  I could probably climb the ladder a little bit, making it into the $30,000 range, and eventually closer to the 40's.  The experts are still out to lunch a little on the exact numbers but a recent CNN report suggests that most of them agree that middle class STARTS around $48,000 respectively...  The way things were stacking up for me, I was going to have to work for the next ten years to reach an income that would still disallow entry into the middle class.

There were bars of steel and iron keeping me firmly locked out of middle class.

The only things that would change this were either: work 2-3 jobs, or change cities and industries.  I did the later.

I took an opportunity in New York City, doing something completely different.  I also now have a Master's Degree.  Changing both cities and industries required a LOT of work on my part (and from my partner).  In the process, my income alone has more than doubled, and that's without considering our rental income or my partner's income at all.    In the past, I really felt like there was an iron gate between being poor, and middle class.  But the truth is, I annihilated that gate.  I have now completely
invaded middle class, and I am not going back.

I haven't let lifestyle inflation get a hold of me in the process.  Every single dollar of my new earnings have a very specific job, and it feels amazing that I can do some things that were absolutely impossible for me before.  I have zero credit card debt, and just paid off my private student loans.  I am rapidly working on my federal student loans.  I have a savings account for emergencies.  I invest.  I can afford to update our rental property.  This life change was really hard on my partner and I, but we have persevered, and come out much better.

How many people experience upward class mobility?  The truth is that I have already experienced class mobility in my lifetime, and I am extremely grateful.  I am also taking advantage of the opportunity to secure my future.

Have you or someone you love experienced upward class mobility?  What did they do to secure their future?

Sunday, August 6, 2017

Does "doing it yourself" save money?

This might come as a surprise to you, but, I haven't actually done my own laundry in about four years.  You see, I'm all about saving money.  I take back cans for a return on the deposit.  I pick up change from the sidewalk.  I used coupons when they come my way, but I also recognize that there are situations where doing something myself isn't really saving me money.  Sometimes, In fact, it's actually cheaper to pay for a person or service to take care of something for you.  This takes me back to my laundry.  It actually provides a perfect example of what I'm talking about.

Let me explain.  I live in a New York City apartment building that does not have a laundry facility in
it.  In order to do my laundry, I have to bundle it up and take it down the street to a laundromat.  Then, I have to sit there for two hours washing, drying, and folding.  I have to spend money on each of the machines, not to mention detergent, etc.  Then, you factor in the two hours I spend sitting there actually doing my laundry.  Two hours of my time alone is worth $90.  After factoring in the money for machines and supplies, this is well over $100.  Pretty expensive load of laundry, huh?  When I drop it off at the place on the corner, they charge me about $30 (depending on weight, so more in winter, less in summer).  The only time I have to spend is dropping it off, and picking it up the next day.  Dropping it off seems to be about $70 cheaper so far.  Furthermore, I'd likely be doing a side-gig for 3 hours on most Saturdays, which is my typical laundry day.  I make $135 during that three hours and it's pensionable, meaning those dollars will factor into a pension that will keep paying me even more money in my retirement, so this $135 Saturday earning is worth a lot more than that.  If I was doing my laundry on Saturday morning, I would not be in my side gig, and not earning the $135+..  So, if I combine the time and money saved (the $70 from before) with the money I can also earn instead, this is more than $200.  Doing my own laundry would actually cost me more than $200 per week!  Sounds crazy right?

While I am not hiring out every task that needs to be done in my life, I have learned to evaluate whether or not hiring the task out is financially advantageous.  Lucky for me, it turns out that doing the dreaded laundry isn't really worth my time, so for now, I will just keep dropping it off!

Is there anything in your life that you have found is actually more advantageous to hire out as opposed to doing yourself?

How much is your time worth?

You know what?  I love getting paychecks: regular paychecks, bonuses, overtime, side gig paychecks, checks in the mail, direct deposits...  I love them all.  It's easy to take for granted that another one will be coming...  We keep working; checks keep coming. Every time I get one I have this burning realization of how long it took me to get that paycheck.  How much of my life I sold in order to receive it...  Don't get me wrong, I like what I do for a living.  I don't make a practice of doing things that I don't like for money; that seems like a terrible way to live your life, and I choose not to live that way.

Regardless, I feel hyper-aware of the amount of time each dollar takes me to earn.  I earn about $0.75 per minute.  If I go somewhere to sit down for a cup of coffee or a glass of wine with my friends, I know that a $9 glass of wine costs me 12 minutes of my time to earn; a $5 glass costs me about 7 minutes..

My point is not that you need to sit around and figure out how many cents per minute you earn and compare it to the things you pay for, but it is an eye-opening experience.  While I don't typically spend my time calculating how many minutes it takes me to earn each of the things I pay for, I do know how much money I earn per minute (roughly...I am a salaried employee, not hourly).  It's a bit of a strange thing when you really think about it, trading my time for money.  While I can always get more money, time is a commodity I will inevitably run out of, and I can't really earn more of it.

This is why I am so meticulous about my money moves.  I traded something I can never get back in exchange fore each dollar I earn.  I have no plans on squandering any of my dollars because it seems like wasting time, literally.  All of my dollars have a job because eventually, I will have used my money so wisely that I can stop trading in my time...

Double My Money!

I was talking with my mother recently, and the conversation at hand was money and our investments.  She was in the process of doing a little bit of financial housekeeping, and make some decisions in the process.  What I would like to share with you, is a little trick that she was able to use to give her some clarity on a few of the decisions she was facing.  This trick is called The Rule of 72.

The Rule of 72

Let me start by saying that I did NOT invent the Rule of 72, but I do use it for my own quick figuring.  The Rule of 72 is a quick-math method of being able to figure out how long it will take your money to double.  The exact formula for the exact calculation is pretty complex, and requires a calculator.  This will easily get you in the ballpark using simple mental math.

All you have to do is take 72 and divide by the compound annual rate of interest.  The answer is the number of years it will take for your money to double.

72/rate = # of years

For example, I have a retirement account with a guaranteed 7%.  Using the rule of 72, I know that it will take 10.28 years for my money to double (about 10 years and 3 months).  I know this because 72/7=10.28 roughly.

Why do I want to know when my money will double?

This information is pretty valuable when trying to decide where to invest your money. Let's use that retirement account of mine as an example.  I've been looking a some of the other funds that are options in my retirement plan, and am considering moving into one of those instead.  The rate isn't guaranteed, but I'm seeing that they have a track record of about 10% over the last five years.  While there's no certainty that it will stay at 10%, if it does, my money will double in 7.2 years (72/10=7.2).  On the other end of the spectrum, I have a savings account at my local credit union.  I use that account for my emergency savings, but not at all for investing.  It hasn't made more than about 1% in years.  At 1%, it would take 72 years to double my money.  Hmmm... Not sure I want to wait that long.  So, that's why I only have my emergency savings in that account.

So, while you can get more exact using a more precise formula and a calculator, The Rule of 72 should also do the trick!

Wednesday, August 2, 2017

The Landlord Files: Emergency Savings

We've talked about our own emergency funds, but haven't really discussed the specifics of being a landlord and having an emergency fund.  As you probably know from a previous post, I keep a completely separate account for my rental property, and it has it's own emergency fund.

How much do you really need to have in it?  I have to be honest, that isn't as simple as a straightforward number.  The first thing you need to consider is: What possible scenarios could come up, and how much would they cost me?  Let me give you a few that we've encountered:

  • Break-In (While it was empty):  setback $6000
  • Vacancy (Between renters):  setback of 1+ month's mortgage plus cleaning and maintenance fees.
  • Plumber:  setback $100+
  • Electrician:  setback $700+
  • Roof Repair (small repair):  $300+
  • Roof Replacement:  $5000+
This list goes on and on.  The numbers I've listed are approximations based on experiences that I have actually had.  These figures can vary hugely depending on the nature of the problem, and where you are, etc.  My point is that the last thing you need/want is to need to take out a loan to fix any of these kinds of issues.  The purpose of having a rental is to make money, not borrow more of it.  

All things considered, I've settled on 6-8 months worth of the mortgage payment.  In my situation, that is enough to cover pretty much all of the above listed items.  It would even cover a combination of those items.  

If you are considering getting a rental property, and have never done so before, you might want to make your own list of possible expenses and dollar figures to go with it.  That way you can decide safely whether 6-8 months of the value of the mortgage would suit your emergency savings needs, or if you need more than that.  Remember:  vacancies, repairs, and maintenance are all very real needs.  They don't need to be stressful if you're prepared.

For further reading, see also: