Tuesday, November 5, 2013

Awareness: The Real Solution to Your Financial Woes

Be sure to read part 1, Why Earning More Money is Not the Solution to Your Financial Woes before reading this post.

Before you balk at the idea of setting up a budget, consider that perhaps the traditional advice you've been given regarding budgets is wrong.  Lots of people struggle with budgeting because they have no idea where to start.  It's all so overwhelming.

Before you can make a budget you need a baseline.

To get a baseline, you need to figure out how you are currently spending your money.  Which means you need to keep track of your expenses for at least a month.  If you spend most of your money electronically (credit card, debit card, online bill pay), this will be fairly easy.  You can simply pull your credit card and bank transactions online and get a good idea of where the money is going.

And here's the important part - write it down - as in pencil and paper. 

Make a line at the top of the page for Income.  Total up how much money was deposited into your accounts this past month.  (Don't worry about taxes, health insurance, retirement savings, or any other payroll deductions, just focus on take-home pay for now).  Write that number next to Income.

Underneath Income write Expenses.  Make a separate line for each monthly expense.  Start with your bills - mortgage/rent, electricity, water, gas, trash, phone, internet, cable/satellite, student loans, car payments, etc.  Ignore credit card bills for now, unless you are not charging on them and are only paying down the balance.

Once you have the bills covered, start looking through the rest of your transactions.  Total up groceries, gas, childcare, pet expenses, eating out, entertainment, clothes, car maintenance and repairs, house/property maintenance and repairs, etc.  Make sure you include all of your transactions for the past month.  (It can be helpful to print off your statements and physically check-off each transaction as you record it.)

Now comes the fun part, add up all of your expenses and write down the total.  Compare that to your total income above.  This exercise alone is usually quite elucidating for most people.  I've been tracking our spending to the penny for over 8 years and I'm still surprised by our totals some months.  Humans suck at keeping track of multiple small transactions over time.  That's why guess-timating our monthly expenses is so unreliable and why recording our expenses is so important.

Once you have a baseline, you have a good idea of how you are currently spending your dough.  (Warning: You might not like it!)  Then you can sit down with your significant other and make a plan for how you want to spend your money going forward.  We call these budget meetings.  I'm a nerd and I look forward to these sessions each month.  Glenn thinks this is a valuable and necessary exercise, but I don't think he would ever consider this "fun."

Tracking your expenses on paper is good for establishing a baseline, but would get really tedious over the long haul.  And yes, you want to continue tracking your expenses each month.  It may seem like a pain, but the extra effort is really worth it.

Case in point, we went through a season where all of friends and co-workers where either getting married or having babies.  We were invited to a lot of bridal showers, baby showers and weddings.  It seemed like every month our gift giving budget was getting bigger and bigger.  Glenn started to get the impression that we were spending gobs of money on presents and felt like things were getting out of hand.  I tried to assure him that this was just a temporary increase and that gift giving was a small part of our overall budget.  We went round and round until finally I pulled out our expenses for the year.  Gift giving was less than $200.  Glenn was floored.  He thought it was going to be closer to $2,000.  Our perceptions are often misleading, but numbers don't lie.

Note: While we only spent $200 on gifts, the retail value was mostly likely closer to $2,000.  I am an avid bargain-hunter and amateur seamstress.  I was also an avid couponer at the time.  When our good friends had their son, we gave them $80 worth of diapers, baby care products, books, and clothes.  Yet, I only spent $7 out of pocket.  Frugality and generosity are not mutually exclusive.

There are tons of options for tracking expenses. is very popular and easy to use.  You Need A Budget is also wildly popular.  It requires a bit more setup than Mint, but users say it's worth the initial investment.  There are numerous other programs including Quicken (which I use) and good old Excel.  It really doesn't matter how you record and track as long as you do it.

When you're establishing a budget and trying to get into a routine, it helps to meet weekly to go over the numbers for the past week and talk about expenses for the coming week.  Lots of budget revision is usually required those first few months.

Finally, don't be afraid to change your budget!  It's not the 10 Commandments carved in stone by the financial gods.  Tweaking and changing are not just normal, they are required.  And sometimes a full-blown overhaul is in order.  Remember, it's about accomplishing your goals.  Life changes and so should your budget.

Why Earning More Money is Not the Solution to Your Financial Woes

It's easier to save money than it is to make money. Few people realize this and I have a very hard time convincing friends and family that this is true.

We are programmed in our society to believe that more money (i.e. more income) will solve our problems. But we are also programmed to increase our spending as our income goes up. How many times have we rationalized purchases by saying, "I worked hard, I deserve this" or "I got a raise/bonus/commission, so we can afford this"? Too many to count.

And it doesn't end with one-time spending. The worst spending traps we fall into are the ones that follow us around every month asking for more cash. Choosing a nicer car with a higher payment, buying a nicer house in a better neighborhood with a higher mortgage, signing up for the $100 cable or satellite or cell package because our income went up, so we can afford a little extra.

The truth is all those little extras eat up all the income from our raise, our side job and our second income. So the end of the month rolls around, we have no extra cash, and we're left thinking, "If only we made more money..."

No one likes to hear this because it means that we are the problem and we have the power to change.

Some people argue that they have kids or elderly parents or some other responsibility that they believe requires wheelbarrows of cash and negates their ability to save. This is another common myth. Within my own family, I have seen a couple raise 2 kids and live well on a $35k income and another couple raise 2 kids and complain about money on a $400k income. It's all about our perspective.

We all have financial obligations and responsibilities, but very few of those are surprises. We don't wake up one day and find 2 strange kids standing in the kitchen demanding food. Just like, we don't wake up one day and discover our 35-year old house needs a new roof. We know that houses require maintenance and repairs as they age, in the same way that children require more food and bigger clothes as they grow. We know these expenses are coming. We may not be able to predict exactly when the kids will need new clothes or when the water heater will fail, but we know it's on the horizon.

We can avoid so many financial pitfalls by planning for our future expenses. And yes, planning means creating some sort of budget.

Read part 2, Awareness: The Real Solution to Your Financial Woes

Sunday, September 29, 2013

The Case Against Big Houses

Have you ever sat down and figured up how much it cost to live in your home?

We're in the middle of yet another maintenance/repair project for our big house.   Not only do these projects chew up our weekends, they also cost a pretty penny.

Halfway through the project, I decided to sit down and calculate how much it cost us, on average, to live in our home for a year.  (I'm not sure what prompted me to do this.  Maybe all the manual labor provided some much needed mental clarity.)  We have lived here for over 4 years and I have kept detailed financial records the entire time, so I feel like this is an accurate estimation of our annual costs.

I included our mortgage, property taxes, homeowners insurance, maintenance and repairs, as well as space heating and cooling costs. (drum roll, please....)

$20,000.  That's the total I came up with.  It costs $20,000 per year to keep a roof over our heads.

Does that sound as crazy to you as it does to me?

And here's the kicker - that $20,000 is after taxes.  Assuming taxes take roughly a third of our income (7.65% FICA, 7% state & 15% federal), we have to earn $30,000 per year just to pay for our housing!

Just typing that makes me feel sick.

We don't live in a mansion or an expensive city.  Compared to the national average of 2,438 square feet, our home is a modest 1,800 square feet.  The cost of living in our area is on par with the national average, so that's not driving up our costs either.  If anything, I think our numbers are on the low end.

We took advantage of low interest rates and refinanced our mortgage earlier this year, so our payment is less than $1,000/month.  We live in an unincorporated portion of the city, so we don't have to pay high city taxes, only the lower county rate.

Despite being older, our house was in great shape when we bought it, and needed very little in terms of repair.  The vast majority of what we do is maintenance.  Plus, we do all of the work ourselves.  That alone is a huge cost savings.  I cannot imagine what it would have cost to hire a landscaper to replace our retaining wall and fix our drainage issues.  Most likely, thousands of dollars.  (I shudder to think what non-DIY homeowners must spend in housing costs per year.) 

While the annual cost of living in our big house makes me want to puke, the annual costs of living in our tiny house make me smile.  We don't have actual data, but here are our estimations.

Mortgage: $0; Property taxes: $150; Homeowners Insurance: $0; Space heating and cooling: $150; Maintenance & repair: $100; Lot rent: $3600

Total: $4,000 per year to live in our tiny house :)

There will be no mortgage and no homeowners insurance, so right away we're seeing huge savings.  Our property taxes will be a fraction of what they are now, as will our space heating and cooling.  With no attached yard and new construction, we're assuming maintenance and repairs will be negligible.  We will, however, have lot rent until we can find a plot of land to purchase.  

Even with the expensive lot rent, annual tiny house costs are a fraction of our big house (which was $20,000, in case you forgot).  The Scratch Pad might be humble in size, but the potential for financial freedom is enormous.

What would you do with an extra $16,000 per year?

Wednesday, September 11, 2013

Trailer Subfloor Installation

For the subfloor we chose to use 23/32"  tongue and groove Advantech. This comes in 8x4 foot sheets that can span a max of joist spacing of 24 inches on center. This stuff can be left out in the weather for 300 days with no edge swell, and if stiffer and stronger than any other product on the market.

Fortunately we were able to salvage the subfloor panels even though they had been smashed up in the accident. The biggest problem was the tongue and grooves, which are required to tie the subfloor together properly. I made all my cuts so the broken sections were waste pieces.

The sublfoor is glued down with polyurethane construction adhesive.  This helps prevent squeaks in the floor when walking. We needed 4 tubes and used a caulking gun to apply thick beads to the top of the 2x8's. Then we dropped the sheets into place and hammered them down with galvanized nails.

Next is wall framing!

Sunday, August 25, 2013

Not Your Typical 4th of July Fireworks

The July 4th holiday did not leave us with much to celebrate.  Glenn experienced his first auto accident and we experienced our first major hiccup....

Our little 4x8 utility trailer was rear-ended on the way home from Lowes.  Despite fully-functioning brake lights, clear skies, and very little traffic, a local college kid still managed to plow into the back of us.  Thankfully, no one was hurt.  Although I can't say the same for our trailer or our lumber.

It took about 3 weeks to get everything settled with insurance.  The trailer was totaled, but they agreed to repair Glenn's car and compensate us for the damaged subflooring.  It really could have been a lot worse.  We were afraid they might total Glenn's car as well.  The trailer and the lumber absorbed most of the impact, so the damage to Glenn's car ended being relatively minor.   

Our luck continued with the subflooring.  Most of the damage was limited to the corners.  The rest of the tongue and groove, which is critical to the installation process, was intact and still in good shape.  Thankfully, we were able to cut off the damaged portions and make use of the rest of the sheets.  (We'll have a post on the subfloor up soon!) 

It looks like my next task is to find a lumber yard that delivers!    

Trailer Porch Beam and Framing

Since The Scratch Pad has a porch, there, at some point, needs to be a framing member to support the gable end wall.  This serves to delineate the house from the porch.  If we relied on one of the existing steel C-channels (that are 24" on center), it would restrict us to a porch that is either 2 or 4 feet long; neither matched the size we wanted.

So we needed some sort of beam to provide this support.  Since we have decided to use collar ties in our roof, the gable end will bear no roof load.  However, it still needs to bear the weight of the gable wall, the door, part of the porch, and any people standing in the doorway.  I decided on a built-up wooden beam made from three pressure-treated 2x6's.  This should be enough to support the load without too much deflection.

This beam was glued with titebond II and clamped until it dried.

One problem arose when I looked into joist hangers to support this beam from one side of the trailer to the other.  The joist hangers I found in home improvement stores are designed to allow joists to be connected to a beam or ledger that is made from wood, not metal.  So I decided to fabricate my own joist hangers out of  1/8" steel.  These are designed to be hung with (8) 3/8-inch lag bolts that penetrate the trailer frame and screw into the trailer extensions.

I went to Lowes and picked up a 3 foot piece of L-shaped steel channel which I cut and welded into the two beam hangers using my homebuilt arc welder.  I drilled the holes for the bolts, and painted them with self-etch primer and black engine enamel.  They are much stronger than ordinary joist hangers.

This small 110V arc welder is what I used to fabricate the joist hangers.

I clamped the joist hangers to the trailer and marked the bolt holes with a sharpie.  Then I drilled through the trailer at those locations, being careful not to drill into the wood on the other side.  The wood of the extensions provides something to 'bite' into, which prevents the lag screws from simply falling out.  After some trimming with the circular saw, the beam dropped into place, and I secured it with a few nails to the joist hanger.

At this point, we could begin work on the porch framing.  The porch is framed using 2x6's that I ripped down from 2x8's.  I enclosed the center C-channel with 2x6s and used carriage bolts through the center to strengthen it.  I also a hung a 2x6 ledger off the other C-channel.  These provide a nailing surface to attach the joists, which are spaced 16 inches oc (on center).

Because the porch will be exposed to weather, I used triple galvanized (zmax) joist hangers for these, and all of the nails are hot dipped galvanized.  Screws are all coated deck-screws.

Next step is to install the subfloor.

Thursday, August 1, 2013

Embrace the Pink Toilet and Other Thoughts on Keeping Up Appearances

We recently went furniture shopping at our local thrift store.  It was time to replace our uncomfortable, throw pillow-laden, froo-froo sofas with something we would actually enjoy sitting on.  We took great care in picking out our new pieces, but once we got them home, discontent started to creep in.  
Even though I love our new couch and chair, I struggle with the fact that they don’t match or look “magazine perfect.”  I keep telling myself that I don't care about appearances.  I care about comfortable, low-maintenance furniture with no throw pillows to fluff or cushions to straighten. 
But I do care about appearances.  I worry over what other people will think.  Nothing matches.  Nothing coordinates.  And that embarrasses me.  So I resist inviting anyone over.  I don’t want them to see the mismatched and obviously second-hand furniture or the unswept front porch or the cat hair everywhere.  
But if these things were truly important to me I would prioritize them.  I would spend the money to buy matched sofas and tidy my front porch each morning.  (The cat hair is a losing battle.)  So why can’t I let go of this desire to impress others?
It's not limited to the big house either.  I want everything  in our tiny house to be magazine perfect and luxurious.  But do I really care about a fancy tile bathroom or am I just hoping to gain the admiration of a society that is fixated on HGTV?
As much as I am willing to be counter-cultural and blaze bright new trails, I can't seem to shake this obsession with appearances.  Somewhere along the way I’ve confused “being liked” with “having the right stuff in the right places”.  How did this happen; and why is it so hard to overcome?
Turn on the TV, open a magazine, or hop on Pinterest.  Advertising is everywhere telling us that our lives are inadequate – planting the seed of discontent in our minds.  And it’s subtle. 
Commercials and ads are pretty obvious, but what about daily life as portrayed in TV and movies?  Houses are up-to-the-minute stylish, devoid of clutter, and spotlessly clean.   The inhabitants typically match their homes - beautiful and well-dressed. 
And the people who don’t live in fabulous homes with manicured lawns?  Those poor souls go to great lengths to rise above their “circumstances.”  It's rough living with shag carpeting and a pink toilet, you know.
Point this out to anyone and the response is almost always, “Yeah, but stuff on TV is made up. Everyone knows it’s not real.” Of course, we know the characters and the story aren’t real.  
But the message is real.  And we hear it over and over.  Every. Single. Day.  
If your house is beautifully decorated, your car is shiny and new, and your clothes are stylish, you’ll have a happy life.  Great friends, an amazing spouse, lovable kids, and a dog that poops lemon-scented rainbows will all be yours.
It’s a lie.
The truth is, no one really cares what our houses looks like or what we're wearing or what kind of cars we drive or which gadgets we have in our pockets. 
People care about how they are treated.  A smile, a kind word, and basic manners say volumes about us.  The biggest impression we leave on others is through our actions, not our appearances.

I know this.  So the next time I find myself shying away from hospitality because my house doesn’t look like a magazine, I will log off of Pinterest, close the lastest issue of Martha Stewart Living, and remind myself that the advertising is a lie.  The contents of my house, big or tiny, don’t matter.  My relationship with my friends and family – that matters.