A Finance Guru For a Day

~ Laura

That charlatan, Jim Cramer, was on the Today Show this morning predicting pulling out of his ass several sectors where we would see growth in 2014. One of the hot, hot, hot sectors for investors, he declared, was the New Frugality. We’ve talked about our efforts to cut back on spending on this blog, especially since the economy hasn’t improved for average Americans. But I didn’t realize that “The New frugality” was a thing. I don’t quite understand why people will spend money to learn how to be frugal making it a good area for Cramer’s investments, but whatever.

After 2008, we cut back a bit, but never spent that much money anyway. We were only a couple of years away from the poverty of grad school, so we hadn’t gotten used to spending money on fancy things. In the flush years, we paid off chunks of our student loan debt and shored up our sagging house. Steve tallied every single receipt into Quicken every Sunday. Despite our penny-pinching ways, we had to cut back even further, after Steve lost his job and became a consultant for a year.

We saved money by not having a babysitter, house cleaner, or lawn service. I stopped spending money on stupid food, ie food that is convenient but not especially yummy. I make dinner five days a week. Steve and the boys have brown bag lunches four days per week (well, we’ve always done that).

Some savings happened without too much effort. We aged out of certain expenses. When we moved to the suburbs, we had to buy a sofa, beds, a table – pretty much everything. We had to buy dumb things like door mats and garbage cans and outdoor brooms. Stuff that people gradually acquire through their 20’s, we began to purchase in our late 30’s. Now, we’re set.

Dave Ramsey created a big blog storm last month. Background here.

If I were to cash in like Dave Ramsey and give people advice about frugality, what would I say? I’m not sure that I should give advice, because my family — at least by national standards — isn’t average. We are able to save on labor expenses, because my time is flexible. I’m able to make dinner while I’m helping Ian with his math problems. Also, I imagine that different families have different priorities. We’ve always driven really, really old and battered cars. We’ve saved a lot of money by not being picky about our vehicles. Would I tell a family from Iowa that they should also drive a crappy car, when they might have to drive much longer distances? I don’t know. At the same time, there is something very appealing about telling people what to do. I imagine that it could be a lot of fun.

If you were a Frugality Guru, what advice would you give?

Published by Laura

23 thoughts on “A Finance Guru For a Day”

  2. Leftovers! Furnish forth the marriage table with baked meats from the funeral…

    I’m with you – it’s hard to figure out how to make money from other people’s thrift. Invest in lunch bag companies? They are commodities. Short Del Monte and go long on makers of store brands? I think Del Monte actually has lines canning things up for the store brands. Buy UPS stock in the expectation that Amazon will kill Target?

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  3. For a family of four, two adults, two children, I think the median family income is something like $65k a year, probably take home around $3800 a month. For a family like this I think the most important things to do are 1) develop an achievable plan to significantly reduce their non-mortgage debt over a five year period 2) own a modest house with a PITI of no more than $1500 a month, and 3) be diligent about saving at least a small amount each month. Spending on little things can certainly add up but it’s not usually what sinks a family like this.

    Anyone making money off of frugality is a shyster.

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  4. I think the growth sector is in providing services for the 1 %. Tutoring, personal trainers, cooking,organization, private lessons. For the kids, but, also for the adults. Have to manage the tightrope between expertise and servility, but if you can manage it, there’s some money there.

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  5. My frugality guru says never buy a house that takes two incomes to pay for; don’t listen to the real estate agent when it comes to determining how big a mortgage you can afford. Also, don’t pay for TV.

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  6. 1) Save as much as you can in your 20s, after you get jobs, before you have kids, and while your living standards are still pretty low. This means maxing out all the contribution rates on your initial employment paperwork, then picking an apartment with rent you can afford on what’s left over.
    2) Buy a modest house on one income.

    We turn 40 next year, and happened to deal with a full financial review immediately before our wedding anniversary date. It’s really sobering how much our savings rate has plummeted as we’ve had kids and paid for daycare, built on to the house, and cut back on (paid) working hours. It seems that all the college savings we did for our kids was done before they were born — often with other accounts (see that employment paperwork) we funded not having any idea what it’d be used for.

    Financial advice is a tricky thing. What I wrote above is directed at someone in the position we were in in our early-mid 20s, and my advice to people in our position in high school or their early thirties would be different. Moreover, most people aren’t in “our position” at any of those points — we had poor grades and came from poor enough class backgrounds that high-prestige, savings-killing grad school wasn’t even on the radar. People in radically different circumstances have totally different trade-offs to make. You can tell someone with a really high income that a vacation home is a better use of their leisure budget than a foreign vacation, but how useful is that to a 19-year-old apprentice electrician whose main decisions are about a stable $12/h employer who’ll pay for continuing education vs. a more-unstable $15/h employer who won’t, but who offers potential for a raise?

    I feel like even if I listed everything I knew–all the “tips” I’ve acquired by watching what worked and what didn’t for the cohort who graduated with me, the resulting list would be of minimal use. The only metric I can see a a rule is that frugality works a lot better than the alternative.

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  7. Here’s a preliminary list:

    1. As Elizabeth Warren says, hold fixed expenses to under 50% of income. That rule means that even if your income is cut nearly in half, nothing really bad happens immediately.

    2. As most financial gurus say, hold housing expenses to under 25% of income. Less is even better.

    3. Do we really need to go to lousy restaurants where they put a cup of cheese on all the salads? They get their food off a truck in cardboard boxes and the chicken tastes like it was extruded. Do we really need to pay $40 for that?

    4. If you or a spouse can be encouraged to think of household maintenance as a hobby, that would be great. Since May when we bought our house, for instance, my husband has changed all of our locks, changed out the alternator from our car, added an actual light to the fan in our master bedroom, changed out a toilet, changed out a leaking kitchen faucet, figured out why water was dripping down through a vent in our daughter’s closet and stopped it (loose overflow valve in upstairs bathtub), and put in a new part to the water filter.

    5. We can’t have the extra nice version of everything. We can have nicer-than-necessary versions of one, two, or three major things, depending on income level. (Our households trade-offs are to have a larger house than we need, private school, and lots of routine help with cleaning and yard, while doing a lot of repairs in-house, driving one $2k car, doing very limited restaurant spending and very little travel.)

    6. If we don’t need it, it’s not a deal.

    7. I’ve stopped “saving” money by buying stuff.

    8. Extra income is good. My husband 1) has his day job 2) has extra administrative duties that he gets paid for 3) can get paid for reviews and some kinds of refereeing and summer seminars and 4) has a small hobby in writing apps that generates several hundred dollars a month in royalties (and in the Christmas season, it brings in considerably more than that). As we quote in our family, a married man will do anything for money. Presumably, I will eventually be able to start working, too.

    9. At our house, we keep a list of items that we call “virtual savings” and a fairly sizable fraction of our monthly budget flows into those categories. It’s not actual accounts, but it’s sort of imaginary savings accounts for particular items, so that large non-routine expenses will not sneak up on us and bite us. We do virtual savings for such things as Christmas, Medical/dental/therapy, summer camp, birthdays, travel, car maintenance/replacement, house maintenance, electronics replacement, etc. For example, this month we have $200 allotted to car maintenance/replacement (as well as $1059 that has previously been saved). If we make it to the end of the month without car expenses, that will mean that we will add the $200 to the $1059. Periodically, you find yourself paying the occasional $1,000 bill for car repair, but we have so far (tfoo tfoo) kept one step ahead of the mechanic, which is all you need. Our experience has been that you can drive a $2,000 car without it messing up your life, but you need to have at least $1,000 at all times ready to keep it on the road (plus understanding friends).

    10. I keep a huge wish list of stuff, ranging from two new bath towels to a minivan. I review it periodically and try to figure out, what is the one thing that we need most right now? At the moment, the answer to that question is “minivan,” so extra resources need to be directed there so that by the summer we can pay cash for a 2010 or newer KIA Sedona (we get extra summer money for some of my husband’s administrative work, so that it’s not an unreasonable plan). That does mean, however, that there will be no major home project this summer.

    11. Figure out the unique opportunities and advantages of your situation. We have, for instance, discovered that we can take our entire family to dinner at our very good dining halls for a grand total of about $16. We are all over that.

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    1. I really depends on the restaurants you go to. I can get a grilled chicken salad that is a huge meal for $6. I’d never be able to come close to that variety of stuff on the salad at home. I’d have to grill a chicken breast, hard boil an egg, cook some french fries, grate some cheese, and keep six kinds of vegetables in the crisper.

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      1. I’m talking about the lousy chain dining that lines the interstates. Obviously, there are good ones, but there’s a whole category of restaurants that are neither very good nor very cheap.

        By the way, you lost me around “cook some French fries” in your salad recipe.

        Here’s the salad I had for lunch today at home: baby spinach, alfalfa sprouts (sprouted at home), one hard boiled egg (I do half a dozen at a time for me and the 3rd grader), a little bit of apple smoked fontina cheese (not sure if I got that right–really good stuff, by the way) topped with Kraft’s Asian toasted sesame dressing.

        An alternate recipe might involve avocado instead of the cheese or egg.

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  8. I would recommend you check out your library’s copy of _The Tightwad Gazette_, by Amy Dacyczyn. If you’re feeling not so frugal, you could buy a used copy for about $13, including shipping.

    I’ve enjoyed reading these interviews of the children: http://thefrugalshrink.blogspot.com/2013/05/dacyczyn-interviews-laura.html

    It strikes me that the children raised under this system are at ease about money. Very grounded and grateful.

    What would I tell people to do? Well, it depends, doesn’t it? For us, using the library helps a great deal. And daily expenses which you don’t notice as expenses do add up–the often-cited frequent Starbucks Latte, cable tv, netflix, subscriptions you don’t read (but are available at the library), yearly subscriptions which still show up on your credit card.

    One expense people overlook is having too much stuff, and a house which is too big to hold it all. I am gradually giving away and getting rid of much of the baby and toddler stuff we had. I can see the sense in downsizing, as it would mean a smaller mortgage, lower heating & cooling costs, and lower property taxes.

    I do think there would be a market for a cookbook which showed how to eat well, within a budget, without processed food. Or a home decorating book, which showed how to furnish houses nicely without spending too much. It fits the spirit of the times.

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  9. Don’t work for Oxfam in Moscow.

    * They will not give visa support to your partner (if unmarried; helpful advice from HR: “Get married!”), necessitating his/her leaving the country every 90 days.
    * They will not pay for the Russian import tax on household goods (€4/kilo); in fact, they will not even know about this tax, and you will learn about it from the moving company.
    * They will not increase the moving allowance to reflect the above, nor will they make any provisions (beyond offering a loan against future salary) for having furniture, given that they would not pay a €20,000+ tax bill for bringing furniture into the country.
    * They will not give anything in return for switching your kids from English-language schools (first year at Anglo-American School of Moscow: $30,000 per elementary-age child) to non-English-language (though not local public) schooling at well under half the cost.

    In fact, not working for Oxfam in Moscow probably saves you and your family about $50,000 a year.

    Other than that, not much advice from me.

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    2. Thanks, Laura! Things are much better now as that employer recedes further in the rear-view mirror. It would have been interesting to see them in court, but the solicitors we spoke with rightly told us it costs as much to recover ten times the amount we were seeking as it does to recover what we could reasonably claim. Lacking insurance for those costs, we decided redress was out of reach.

      Anyway, there’s such a taboo concerning speaking out about employers who have treated you or your family very badly. It preserves an unequal power relationship, entirely to the benefit of the more powerful side. I’m done with that in this case.

      I will note for the record that an international person was not recruited to fill the vacancy created at Oxfam when we left Moscow. (Also, the company where I regularly appeared for business meetings — because being an employee would have arguably been a violation of my visa terms — was full of terrific, interesting, educated people, and on the whole a really good place to be.)

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      1. I think that in some cases–both in the UC-Riverside TT-interview case and this one–naming names for public shaming may be more effective at changing the culture and improving conditions than any regulatory/judicial/legislative option. In a lot of cases, only a small part of an otherwise-excellent organization has serious problems. Pointing the bloggy finger might focus organizational attention on the problem part more effectively than any other option.

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      2. I’m glad you’re speaking out and have made your escape–hopefully somewhere cheaper now?

        That was such spectacular incompetence that it’s something that even donors would want to know, too. If I were a regular Oxfam donor, I would certainly think twice now about donating to them. The household good tax thing was especially spectacularly horrible and avoidable, as presumably you could readily have avoided that if you’d had the time to strategize (sell or ship old stuff “home”, buy new at IKEA in Moscow, etc.).

        This isn’t whining “people were mean to me,” it’s just an absence of basic management on their part.

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  11. Get married/partnered and live within easy driving distance of the relatives and friends you like most and/or in a reasonably interesting town. I am the sort of person who would be quite happy puttering around my home town and going on short driving trips if I had someone to do this with. As it is, I fly out of state (and beyond, now that my sister lives in another country) three or four times a year, and so I spend a lot of money on travel.

    Otherwise, though, my cost of living is extremely low – mortgage payment that is less than 15 percent of my take-home pay, a five-minute commute, etc. Learning to cook well is also important; almost no good restaurants in my area, but even if there were I’d be pretty happy cooking for myself and friends, and having them cook for me.

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  12. Here’s a suggestion for college faculty and staff (particularly in expensive areas)–consider doing an in-residence gig. We did one for four years in DC and while it was the equivalent of a second job (we consistently did around two student events a week during the school year, plus meetings), it probably saved us at least $1800 a month in rent, transportation and utilities compared to what we’d been paying and perhaps even $3,000 a month if you considered the market value of the real estate we were occupying (it was a large 3BR/3BA unit).

    Our first two years in DC, we’d been living out in the suburbs and paying $1560 a month in rent, which was a very dangerous amount for a family at our income level, although I did not understand that clearly a the time (we were bumping the 50% mark on housing costs, at least with regard to take-home income–I remember at the time we had $800 available for the two and then three of us for food, clothing, transportation, utilities, and incidentals which was not nearly enough). At the time, I just wondered why we felt so poor, even though we had twice the income we’d had in Pittsburgh. Well, nearly tripling your housing expenses will do that.

    At our new location in Texas, the college gym is free to faculty families (although the kids are restricted to certain times). That’s a very valuable perk, especially since we live within walking distance to the gym. The college also offers highly discounted speech therapy ($75 per term if I remember correctly for college families–slightly more for non-college people) as part of their training for students.

    Figuring out all of this stuff is not at all straight-forward, as a lot of it is not highly publicized. There is, or used to be, a special arrangement at one of the cafeterias where if you showed up with your whole family on the correct night, you could all get in one one card swipe (i.e. $4). We had been here probably 3 or so years and eating a lot in the cafeterias before I learned about that.

    Anyway, any place you live is going to offer unique opportunities as well as unique disadvantages (i.e. Doug’s stupid Oxfam story). It takes time to figure out the nuances, but there are always nuances.

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  13. I am weighing in as part of a family in Iowa. We drove a crappy used car for 10 years (I drove, my husband took the bus). This perplexed my colleagues for years (Why don’t you buy a new vehicle? You *share* your vehicle? Why? NOTE: we like to refer to them as ‘vehicles’ here.). After a decade that included some added job security and slight upgrades in both salaries, we treated ourselves to a couple of sensible, fuel-efficient Toyotas.

    I fully endorse the “buy a house you can afford on one salary” advice posted earlier. This makes our parents sad though. Our continued presence in a “starter home” baffles and irritates them to no end. We prefer not to be up to our eyeballs in debt and have some money for occasional travel, etc.

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