Middle Class Money

A mostly stay-at-home mom and her husband battle to defeat the debt monster in the face of daily money-hungry dragons.

Wednesday, November 01, 2006

No one likes to cry poor mouse

We are sitting not pretty, but not ugly financially. By working about 7 hours a week to supplement my husband's full-time job, I am able to stay home with our 13-month old daughter, pay our bills on time, and have such luxuries such as cable internet and cell phones. We have a positive net worth of $113,545. I am turning 30 this month, and DH is 31. Not too bad.

But, we still have a lot of debt: 2 car payments (totalling $21,839), 1 student loan ($16,097), and, of course, the 30-year mortgage ($187,870). And we don't like debt. At all.

So, we try to cut corners. We budget how much we spend each pay period on everything, including fun. Friends will ask us to do things, and we have to say "No" because our fun money has already been spent for that pay period. We hate to say," We don't have any money," because it just sounds bad. If we look around us, we have so much. We either sound cheap, or we sound like we over-extended ourselves. But the main reason I don't like to say we don't have the money is.... the peer pressure! The high-school peer pressure is kickin' in all over again. "We don't have the money right now," just doesn't sound cool.

It all comes down to priorities. And, sadly, prioritizing my friends. I would rather save the money so we can go out with A & B then spend it to go out with C & D. Yuck. And I like them all! I wish I could spend without conscience. Alas, I can not. We must persevere, and I'll toast them all when we retire early and move somewhere that my golf cart is my only method of transportation.

Many of our friends probably think we are just super cheap. Where is that fine line between finanically saavy and just plain old cheap? And how do you say no when people want you to do things you can't afford in your budget?

Finding the perfect credit card

Since DH and I are not big credit card spenders (we don't carry a balance, but they're nice to have if we need them), we have just been using the cards from our local credit union. This has a huge pain-in-the-ass factor, which you probably wouldn't expect since we have accounts at this credit union. The problem is, we buy something, but if you go to pay the credit card, it transfers you to an outside site. Then, the payment shows up in your account, but the payment is not credited to the card for days. Very annoying for people who don't like owing other people money. Plus, the card's website is not super user-friendly and we are only getting 1% cash back. In regards to that 1%, they aren't even showing that on our statement anymore due to a switch in some technology. Who knows what we'll even get back when it's all said and done.

Anyway, I am shopping for a credit card that will 1) give us more cash back and 2) be user friendly. Most of the "big" cards seems to be very user friendly... apply, pay online, redeem points online. However, the rewards things are a little confusing. Some give you "points" for each dollar you spend. But, I can't seem to find out if it takes a whopping 10,000 points to get a mere $10 Olive Garden gift certificate. Guess you already have to be a cardholder to get into that secret rewards vault. Also, a lot of them will give you extra money back if you shop at certain stores, which I do, or buy groceries or gas, which I do. What I generally don't do, is pay for gas groceries, and things at certain stores with credit. Just all part of the don't-buy-things-you-don't-have-the-money-for mentality.

I see several ways to solve this:
  • Develop some snazzy system to track gas and grocery purchases on the credit card and reconcile them with what I pay for with the credit card. If the new card's website posts payments right away, this will be mentally better for me. Then, I get teh extra percentage rewards back Mind you, I already have some pretty involved budget and spending spreadsheets, plus a 13-month old. The head is SPINNING people...is it really worth it???
  • Find a card that gives a percentage cash back from anywhere, similar to my card now, but that is more user friendly. And maybe has a few more fun incentives with it. And offers more than 1% back
  • Stick with my credit union card, and deal with that website drama.
What I think I'm gonna go with is:
  • Get a card that offers the certain store, grocery and gas rewards at 2%, and all others at 1%. Don't change any spending habits (i.e. keep using cash/debit to pay for gas adn groceries). Just get the same percentage I'm getting now at the credit union, but have a user-friendly website and, if I happen to use the card for gas or groceries, extra bonus. Maybe I can add just one more spreadsheet...
Any thoughts on a higher cash back rewards card from anywhere? I've been looking at www.creditcards.com to compare, but they all start to seem the same...

Tuesday, October 17, 2006

Escrow accounts: Don't believe what people tell you

As noted in a previous post, we saved up and had 20% to put down on our new home. This gives us 3 nice advantages: 1) No PMI, 2) No 2nd higher-interest loan to avoid PMI and 3) No escrow account where someone else is making money off our taxes and homeowners insurance savings. I realize that number 3 could be very risky for some people. Unless you are a dedicatated saver, it would be really hard to have an account of your taxes and insurance mohney just sitting there, begging you to spend it. But, DH and I are good at saving for yearly and quarterly bills, and had managed wihtout an escrow account on our old home just fine.

So, I had a conversation with our mortgage guy before closing that went a little something like this:
Me: We don't want our taxes and homeowners in escrow. We would like to save for them ourselves.

Mortgage Guy (MG): Even though you have 20% in your home, you will have to pay a $400 fee to not escrow for the 1st year of your mortgage.

Me: So, even though it is my right to waive escrow with 20% down, I have to pay for that right?

MG: Yeah, I know, it's ridiculous. Just call after the first year and tell them you're not happy with the service and then you can handle it yourself.

Me: (sick of this entire homebuying experience) Fine.
Then today, I was thinking about how many people screwed us on this path to homeownership, and I thought I'd call the mortgage company now, 3 months into our mortgage, to see if I could cancel the escrow account. I figured there would be some fee, but why not call? It went a lot better than expected. I was told we met all the qualifications to cancel the escrow service... EXCEPT we did not have a 6 month payment history. No fee to cancel, but we had to wait 3 more months. Better than the year our mortgage guy told us. I have my fax all prepared to send out after our January payment has posted. Then, I'll be managing our taxes and homeowners myself, and making money in a high-interest saving account like ING or Emigrant. I'll reserach my options there, and hopefully find one that takes the money directly from our paycheck so I don't even have to think about it. Chalk one up for the little guy.

Monday, October 16, 2006

Need versus want

This is one of the all important spending reduction questions. Is this a NEED or a WANT? My father very eloquently explained this concept to my husband one day while they were blowing up rafts for my parents' pool. Here's how this went down:
Dad: Why does she (my mom) have to buy all this useless #$%#? She buys these rafts, becuase she thinks we need them. Why do we need 10 rafts, no one even swims here anymore? I'm going to show you the difference between a need and a want. This raft here (long rectangle lounger) is a want, not a need! We have 2 of them already!

DH: nods head

Dad: For example, what is this thing (holds up triangle shaped raft)? I mean, no one could even float on this it is so small. "We needed it," that is what she'd say. I'd say this is a want, not a need at all.

DH: nods head, then looks at box that triangle shaped raft came in. Actually, this box says that that raft is not a raft at all, but a floating beer holder.

Dad: IT'S A NEED!!!
And that, is the difference between a want and a need in my family. If it has something to do with alcohol, it is a need. Just kidding. But, this does illustrate a good point. What one partner thinks is a need, the other thinks is a want. And this is where you get into trouble without the communication that all the relationship people are always talking about. WANT and NEED is probably the cause of 90% of those money fights you hear are the main cause of conflict in a relationship. "I needed to get my hair highlighted" and "I need to golf 4 times this week".

So how do you handle needs and wants in your relationship? My DH and I have come up with an allowance system. Each pay (he is paid semi-monthly), we get $50 to ourselves. We can spend it on anything we WANT or NEED. Going out to lunch, gym membership (though half of my membership is paid for through our "etc" fund because my husband has a free gym at work and doesn't have this expense). This doesn't count meals we eat out together, just meals we eat with friends or co-workers. The good side of this is that no one can complain about how you spend your allowance. The bad side is, it is hard to buy your wife those surprise diamond earrings that she NEEDS when you only have $50 a week.

My single-life debt... before the marraige

My husband and I met back in 1998, when we both worked at a local country club. Once you're surrounded by people for whom money is no issue, you can easily forget it is your issue. Though we didn't get together until 2001, we went about our dreamy world of spend spend on our own.

Me: I had racked up some college debt. I went to a private liberal arts college because it was cheaper than a state school. The first year anyway. The next year, the college found a bond my great-aunt had bought for me, and that was all counted as my money and hurt my financial aid. Lucky for my brother and cousin, they cashed in their bond long before their colleges heard about them, and got themselves nicer cars at 16. The total combined debt for my parents and I after 4 years of school was about $43K. My personal debt from this was $18,209.47.

Then, I decided to go to grad school, because what the heck was I going to do with an English degree but keep waitressing at the country club? I started off at a private college in Boston. Obviously, I did not learn my lesson about college debt. However, after a summer up there, I realized that I was taking out large student loans for EVERYTHING. I couldn't even park my car up there without a loan. So, off to state school I went. Good move. Bad part, not in my state of residence.

Anyway, the grad school thing worked out well. I was able to land a great babysitting job 4 days a week my first year, and the 2nd year, I got an assitantship which paid for a large amount of credits, gave me state tuition rate for the credits it didn't cover, and paid me real money. I kept the babysitting job two days a week, and still managed to have a little fun every now and then. I left grad school after 2 years with an additional $8000 debt and a job.

Once I graduated, I was looking ok with the exception of my student loans. Once you really sit down and look at those numbers, it kinda makes you sick. Everyone was pushing the "consolidate now" spin, so I did. At 5.5%. I think other people waited another year, and their loans are 2-3%. Even though the student loan companies continue to send me refinancing and consolidating stuff, I call and they say I can't consolidate. So, 5.5% it is.

Then, I rushed into getting my own apartment, instead of mooching off my parents and saving a little while, like the financially saavy. I had no savings, but I also had no credit card debt, so I figured I was good to go. But, I did accumulate some debt while furnishing my bachlorette pad... whoops. But, I think the living on my own was a great experience, and since it was only for 9 months (excuses, excuses).

BAM! The importance of an energency fund was thrown in my face. Along with a telephone pole. A woman ran a stop sign 3 blocks from my apartment (it really is true what they say about accidents being within a couple of miles from your home!), and slammed me, and my completely paid off car, into a telephone pole. I got about $3000 for the car and $2000 for time I missed work. So, I had no savings, no car, and about $2000 in credit card debt. I decided this was the time to get off that bad path I was heading down. I used the $2000 to pay off my credit card, and put the $3000 towards my first car with a car payment. Yuck.

Then, the boy and I got together, and the story goes on from there. All and all, I came into the relationship with not a ton of debt, compared to others. I have been lucky (assistantship) and loved (parents taking on some debt for me). I could have a lot more debt. I feel guilty that my parents have college debt for me, but I can't really help with that right now. When we started dating, I have college loans totalling $26,209.47 and a car loan balance of $10,3000. I could have made smarter decisions (cheaper car, cheaper college), but at that point in my life, I have to believe I would have just blown the extra cash anyway. Can't beat myself up over the past now, I guess. What have you wanted to change in hindsight? Are your parents paying college debt for you?

So I'm a personal finance blogger now, huh?

A couple of months ago, my husband (DH) told me about all the personal finance blogs (PFBs) he's been reading lately. I gave him a little eye roll, and continued about my day. But, a stay-at-home-mom/self-employed part-time professional can only read so much Perez Hilton while the kiddo is napping, so I gave the PFBs a shot. And I'm hooked. And now, I'm trying to write one. Stranger things have happened.

So, here's the skinny:

Our long-term goals:
  • Pay off all debt (car 1, car 2, student loan, house) in 20 years
  • Buy rental properties
  • Retire by 60, at least (this is probably a pipe dream, but people have better luck accomplishing goals that are written down, so here it is!)
Our short-term goals:
  • Decrease our discretionary spending fund --- we call it "etc" (clothes, gifts, stuff I think we need and he thinks we don't)
  • Find the best way to save for my retirement
  • Have both cars paid off before having another baby
Our debt includes:
  • 2 car payments
  • 1 student loan payment
  • 80% mortgage on the home we just bought
Our investments include:
  • DH's 401k (funded to highest match)
  • My Roth ($100/month)
  • My rollover IRA
  • DH's Roth (just with $500 to open, not funded beyond that)
  • At least 20% equity in our home.
Our challenges include:
  • Discretionary spending
  • A 1 year-old daughter and 4 year-old dog who take but don't make money (but we love them anyway)
Our big successes include:
  • Paying off my DH's student loan ($488/month) 6 years early so I could stay at home with our daughter
  • Putting 20% down on our new home
My DH takes care of calculating our net worth each month, thanks to the advice found on Make Love Not Debt. What is interesting to see is that our Honda Civic Hybrid is actually gaining value.

We're trying our best to get out of debt, but it sometimes seems like more headache than it's worth. I dream in spreadsheets....