broadsideblog

How to manage your money

In aging, behavior, business, domestic life, education, family, life, Money, parenting, work on January 7, 2013 at 10:02 pm

There are so many people eager to tell us how to do it.

But how many of them are right?

I recently recently reviewed a terrific new book, by a fellow New York writer, Helaine Olen, called “Pound Foolish: The Dark Side of the Personal Finance Industry” for The New York Times; here’s my full review.

She’s largely scathing of the Big Names who make a shitload of money telling us what to do with our own — (my finger slipped and typed “yelling.” That, too!)

English: CNBC’s “Mad Money with Jim Cramer” ca...

English: CNBC’s “Mad Money with Jim Cramer” came to Tulane University’s Freeman School of Business Oct. 19, 2010 to broadcast in front of a live audience as part of the show’s “Back to School Tour.” (Photo credit: Wikipedia)

People like Jim Cramer, Suze Orman and Robert Kiyosaki.

In 2012, I wrote a personal finance column for five months, every week, aimed at Canadian readers. I learned that every personal finance author seems to have a different opinion:

Love ETFs! Hate ETFs! Bank six months’ savings! No, three! Mutual funds are great! No, never!

Personal finance is deeply personal, affected by family, culture, education, understanding, (two very different things!), greed, fear, hope, comfort, wishful thinking. And the larger economy. In the 1980s, I earned 18 percent on my Canada Savings Bonds. Not today!

At 19, I was handling my money alone. Like every other, it’s a skill best acquired through practice. I was living alone, earning income as a freelance writer and photographer, putting myself through university and living on a stipend of $350/month in Toronto, where my rent, for a tiny studio apartment in a lousy neighborhood, was $160 a month. That left me $190/month — or $2,280 for the year for everything else: dentist, haircuts, clothing/shoes, laundry, food, phone, answering service.

Oh, and tuition and books; University of Toronto then (mid-1970s) cost $660 a year.

My parents never helped me out financially — beyond the cost of my small, cheap first wedding. And no chance to go home and live free or cheaply for a while after the age of 19.

Mutual Funds for Dummies ... U.S. Funds at War...

Mutual Funds for Dummies … U.S. Funds at War — Too simple? (Monday, June 4, 2012) …item 3.. Music to Help Study and Work – 26:39 minutes … (Photo credit: marsmet545)

Here are some of the many factors affecting our ability to earn, save and invest, in bold:

One reason we’ve been able to save a decent sum for retirement is having no children, an estimated annual cost, per child, of $10,000.

I chose a profession, journalism and publishing, that often pays crap. I did expect to have a steady income, and a staff job making $60-80-100,000 a year throughout my 30s, 40s and beyond. But my first New York magazine job, in 1990, paid $40,000 — $5,000 less than I’d earned at a  Montreal newspaper in 1988.

(Thank God for my pre-nuptial agreement, and alimony, both of which gave me time to get back on my feet and find a well-paid staff job.)

Yet three recessions since 1989 — with 24,000 journalists fired in 2008 — and ongoing upheaval in my industry have put paid to any notion of a steady, high income.

Once you’re earning beyond your basic needs, (and learn to keep your overhead low,) save like crazy and invest thoughtfully to keep your nest egg growing, no matter how slowly or how small.

Luckily, Jose’s staff newspaper job is steady, union-protected and a kind of work that does not damage his health or strength. Unlike many Americans, we’re extremely lucky he has a company pension to look forward to. He has also been responsible enough to make a will and designate me the beneficiary of all savings to protect me financially if he dies before I do. (I did this for him as well.) If you have assets, and dependents, protect them!

Do you play the CPW game? Cost per wearing? Better quality clothes and shoes, even pre-owned and repaired, typically last longer than cheap crap you have to keep replacing. (And earning more money to pay for!)

I bought an apartment in June 1989, a one-bedroom. I’m still here. I certainly didn’t plan that, and fear I’ll never live in a house. I’d kill for a fireplace and backyard! But that real estate decision, (a long term mortgage with a decent rate, and low maintenance costs) allowed me to do good work I enjoy, even freelance, living alone, and allowed me to save 15-20 percent of my income every year, even when it was laughably low.

Read this life-changing book, and decide what is truly worth most to you — owning even more/bigger/newer stuff or enjoying free time. You can’t ever buy more time!

We drive a used, paid-off car, with no plans to replace it any time soon. (See: low overhead.)

Managing your money intelligently and attentively is a wearying life-long game of Whack-a-Mole. Just when you think things are going smoothly, boom! The car or house needs a costly repair or your kid needs braces or you lose your job — or all three happen at once.

Here are a few tradeoffs that work for me:

I don’t write a lot of checks to charity — but donate my time and skills to several volunteer boards and organizations instead.

I chose not to continue my formal education beyond a B.A. — but I attended Canada’s top university and, ongoing, read widely, attend conferences and network assiduously to stay current in my industry. Until or unless I know the ROI on an advanced degree, I won’t assume any educational debt.

We drive a battered old car — but it takes us safely, affordably and comfortably 10 hours north to Canada to visit family and friends.

We live in a smaller space than I’d prefer, with no second bedroom for my office or a bed for guests — but it allows us the extra cash to travel, save and entertain.

Managing your money means making choices, every single day. It means determining what matters most to you, and examining — truthfully — why that choice matters right now more than anything. (Designer labels, a trip to Paris, a new pair of skis, a second bedroom, a fourth child, grad school….)

Do you manage your money well?

Where did you learn those skills?

Personal Finance

Personal Finance (Photo credit: 401(K) 2013)

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  1. I do manage my money well, considering I learned how to do it mostly by myself. However most of my money goes toward tuition and bills, so it’s tough sometimes, especially when it comes to paying my tuition and having to worry about the hit my bank account is going to take.

  2. On the CPW: a few months ago I read Overdressed: The Shockingly High Cost of Cheap Fashion and it was eye opening. The fact that there is a section of the fashion industry (and by section I mean vast majority) that is dedicated to creating articles of clothing meant to be worn a handful of times at most is bizarre, sad, and a bit frightening. It’s a good read (and for me at least, an interesting one alongside Malled in a lot of ways for look-ins about the dark sides of consumer culture).

    I love your emphasis on choice making. It’s baffling to me how so many people can’t think long term, or just choose not to (as in, if I buy this now, I can’t afford rent later).

    • I have to admit to a little literary sibling envy — the author of that book, from the same publisher as Malled (and Helaine!), has gotten a TON of press and reviews, but it sounds like a very smart book and I admire her for writing it and drawing attention to the issue.

      It all seems pretty clear to me, but I had a clothing allowance at 15. Twice a year, I was given a set sum of cash. That was it. I *still* remember some of the great clothes and shoes I bought with it: loved the stuff, really enjoyed what I owned, much of it fairly classic. If I wanted more $$ and more stuff — well, that was what my life-guarding job was for!

  3. “I spent a lot of money on booze, birds and fast cars. The rest I just squandered.” – George Best

  4. I took a lot from my maternal German grandfather, whom I never met but have heard a lot about. He worked extremely hard, had nine children and despite becoming prosperous later in life, always refused to buy a car or spend on anything non-essential.

    My work is irregular and insecure. I have no choice but to live cheaply. I shop around for all my groceries. I’m a vegetarian and can live very healthily for little money. I am beginning to pay a little more for good quality and ethically-sourced garments. I don’t drive and I have a good deal on rent, so although I don’t earn a lot, I’m not wanting for anything either.

    Money has a lot to do with personality. Risk-averse and rather dull, I am naturally cautious with mine. I have expenses, like travel, which I will not forgo since leaving families and friends behind in Ireland. I read about a study recently which linked saving habits to language. Apparently, speakers of languages that require separate tense constructions when talking about the future are more prone to sensible saving behaviour.. Notwithstanding the many confounding variables connected to that hypothesis, it’s an interesting notion!

    • It’s really interesting to me where we learn (or do not) how to handle our money.

      I am someone who seems to rush towards creative risk — but am, very wary of spending my own $$$ on it. I struggle with this cheapness. You have to spend $ to make some money, in many cases.

      Fascinating theory about $!

  5. Sadly that is one thing that is not covered in a public school education, at least in the school I went to. Abe Lincoln and I were classmates. I tried to teach my sons that the most important thing they can do is no matter how much you make, you have to pay yourself first, put at least ten percent in the bank. Tithing ten percent To God actually comes before that. all my sons have done this since very young and I have to admit I don t know how it works but it does. my second son just purchased his first house and has over thirty thousand dollars in his bank account. I wish I could manage my own Finances as wel as him.

  6. Well, I know how to stretch a dollar, learned because I came of age before banks handed credit cards to teenagers. Or students.

    Unfortunately, we aren’t in good financial shape, some having to do with poor decisions when our income first starting shifting downward, but much of it has to do with relentless medical expenses.

  7. Great post! I am soon to turn 25 and have no saving or investments of any kind. I don’t have any debt either – no student loans or credit card debt – but I do realize that I really do need to start saving, even if it is as you said, a small amount every month. Thanks for writing this post and making me think again about my financial future!

    • You are in great shape! Congratulations…

      Make a habit of saving and know that you are, automatically, unusual and rare among your peers for so doing. It sounds weird, but being praised for it (to tell a a few people you are doing this) really helps. Every year my accountant would tell me that I save more of a percentage of my squidgy little income than people warning FAR more. His professional admiration really put my efforts into context and every year I do whatever is necessary to meet my goal ($6,000 a year, the tax haven max at my age.) I still don’t make a ton, so that’s still a concerted effort. Pick a number and make it happen.

  8. Money is such a tricky thing — for me, I’ve had trouble reining in my spending more often than I like to admit, but now I’m (trying my best to keep) being good. I work in publishing, so I too don’t earn the big bucks, but I love my job and I can still save a bit while living reasonably comfortably. One thing I’ve learnt about managing money recently is sometimes planning too far ahead makes me itchy — if I try to save for something I think I might want/need some months down the line, I cave early and end up not reaching my target or saving at all because something else more interesting comes along. I’m paying back a holiday just now, which I’ll be taking in June, and I’ve been good at that — perhaps it’s about being motivated and having something really worth saving for.

    Thanks for the advice — a great post :)

    • I hear you! We’ve now booked two weeks in early September for our Newfoundland vacation and it feels too far away to start saving now. Hah! I think you really do have to set specific targets and then you can clearly visualize what you will have at the end.

      I think that’s why saving, especially young, for “retirement” is a fairly useless phrase, because it’s too vague.

      “I do not want to live in a cardboard box and eat cat food” is a more specific set of goals for me! :-) I have been dreaming for decades of my house in France, not sure where, or rented or owned, but I can assure you that very powerful goal keeps me on track!

      • Good luck! My other half and I are starting to save for our first house this year, and I’m pretty excited about beginning — after credit card debt has been cleared, we’ve got the green light, and something tells me I’ll even be willing to live off cereal and sandwiches until I get those keys! A house in France is a pretty awesome target — yeah, I wouldn’t stray from that either :)

      • Good luck. Your goal sounds very cool.

  9. Credit card companies, banks, etc. don’t really want us to be frugal. If all of us were, their profits would plunge. They have therefore helped to create a climate of want and have provided us with the “means” to get what we want. Together with the exhortation to spend so that the economy stays healthy – something that Harper in Canada has now changed his tune on; he’s started telling us to save – and the sense of entitlement & expectation that we have built into our kids, we’ve created a real mess.

    Good review and post. I read with great interest. Thanks!

    • Thanks much…everyone needs to be taught, young, the crucial difference between a want and a need. Needs: food, shelter, water, air, paid work, access to affordable health care.

      That leaves out a lot!

  10. Yeh, for a few years I wasn’t managing my money well, and I made 2010 my year to get it on track. and I did with a sizeable savings. I’m still working and for 2013 I’m looking to make better changes such as increasing my retirement contributions and paying off all those credit card debt. I did splurge on a nice washer/dryer set! :-)

  11. I wish I’d been more fiscally prudent from the time I started working, but I wasn’t so now I have to make up. I’m nearly 50 (yikes!) and the spectre of retirement scares me because I know that I am a poor money manager.

    I have credit card with a very low limit and I a high interest online bank account (that I don’t see when I log into my bank account – out of sight, out of mind) that any spare $$$ goes into, plus $100 per week. We’ve had to dip into that account, but it’s slowly building up. My superannuation took a huge hit during the GFC and was expensive to run so I’ve just moved it to a lower fee, more commercial, fund that should earn me better dividends in the future.

    We’ve nearly paid our house off and I love (& own) my car. Hopefully we can claw back some of the investment we’ve made towards our business – that will all go towards our future fund.

    • You sound pretty diligent to me! $100/week is very healthy — as is a paid-off house. It’s different here in the U.S. because mortgage interest is a tax deduction, so there is less incentive to kill the mortgage quickly. Having said that, we’ve decided to get rid of ours in half the time, so we can be done with it and, hopefully, make plans without that hanging over our heads.

  12. And I live in a country with universal health care, so that’s one less worry.

  13. I like to think that we manage our money well. Don’t get me wrong, we’re carrying a lot of debt (mostly mortgages), but we have savings set aside for emergencies, retirement, college for our children, etc., and we live well below our means. Our cars are completely paid off–and we’re getting ready to sell one!–and we cover insurance to protect all of our assets.

    The one thing we haven’t done yet is update our wills and powers of attorney, but that’s coming in the next couple of weeks. It’s important–we need to protect ourselves and our children!

    • Fantastic! This sounds really good.

      Living well below your means is THE key that so many people choose to ignore. We could arguably “afford” a bigger apartment or a house, but I don’t want the financial stress of having to scramble to meet the mortgage/taxes. I’ve trimmed some of my desires (more space and privacy) for the peace of mind that we can handle our costs and still save well.

      It’s quite overwhelming to take care of every piece of being fiscally responsible, but it’s calming once you get a handle on it.

      • I totally agree. We could also afford a bigger place–and frankly, could and would use it well–but when we bought, we chose a place that was big enough and that had the potential to create revenue in the future. Also, it’s pretty and we love it!

      • So smart! We are not allowed to rent our our apartment and that is a real hassle. We live in a co-op full of old people terrified of any change that might affect their home or investment. That is annoying as we’re not $$$$$ enough, likely, to afford multiple homes and we like this one a lot — but I am DYING to travel and get the hell out of NY/USA for a while.

      • That’s unfortunate, because I can guarantee that renting out an apartment in NYC would bring in a substantial income on a monthly basis. No matter–it appears as if you and Jose have a good handle on your (very personal) finances!

      • We are not in NYC but a suburb 25 miles north. Very different scenario.

  14. one piece of advice for someone who really wants a degree, esp if in an area related to education, is to get a job at a college or university if possible. they will often pay for most or all of your tuition and usually put a higher premium on folks who attain further education (so you can often move into a better job or request a raise after you get the degree they helped you pay for). They also usually provide discounted tuition for dependents. My employer, a university, paid for my master’s degree, all except books. It was so nice not to have incurred the educational debt.

    the other thing that it took a long time for me to do is taking a hard look at status quo and not allowing certain extras just b/c everyone else has them. ex – we have no cable tv and have one tv set. also deciding not to have to give cards and gifts for every instance that’s declared by others as a holiday or special day.

    • Thanks! What a great tip.

      I agree that succumbing to peer and media pressure to spendspendspend serves NO one but retailers and credit card companies and storage locker owners. Good for you for deciding on your own priorities and sticking to them.

  15. “Managing your money means making choices, every single day.” I just want to say that I appreciate your post, especially this comment. While we are planning for the future there is a choice right in front of us that is often disregarded. Thanks.

  16. I very much agree with your comment that “Until or unless I know the ROI on an advanced degree, I won’t assume any educational debt.” Unfortunately, I think way too much emphasis is placed on getting an advanced degree (in the US anyway – not so much in New Zealand) without actually running the numbers to see if it makes financial sense. I know so many people who spent an exorbitant amount of money on a degree (generally a graduate degree) only to be making the same amount of money or less than those without the fancy degree (as I mention in my Austerity Measures post on my blog (iheartthebrazil.com), the fancy letters behind my last name are doing little to nothing for me at the moment). I had a $90,000 scholarship to a top law school, but I still came out with a ton of student debt (tuition of nearly $50k/yr + 5% tuition increase/yr over 3 years + living expenses = financial disaster). I’m not saying that I regret getting my degree, but I think that more emphasis needs to be placed on figuring out how much the degree will cost you and whether the return justifies the investment before committing to it. Sadly, this seems to be more of an afterthought for so many students, only figuring out that the ROI is negative after already taking on $50k-$250k in debt.

    • The U.S.employer uses the American college degree as a sorting mechanism. Ivy League grad and undergrad, write your ticket.

      In Canada, where I attended U of T for relative pennies, no one could — and still cannot — game the system with SAT prep etc.

      The larger question is why go to college? Why pay so much? If you need access to a professional (MD, etc) program, or acquire a Phd, they own you for years. If not, get out as fast as you can. I did and am glad I did. I don’t like sitting in a classroom paying $$$$$ when I could be out in the world using my skills, building my networks, earning income and proving my value through that measure, not some grade on a paper I wrote.

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