Thursday, January 22, 2009

The Economy, Hitting Home

You hear of nothing on the news and read of nothing else in the paper (online, that is) but how hard the economy is, how many people are out of work and how much of the country is spinning out of control. Car companies are bottoming out, housing prices continue to plummet and the unemployment rate is the highest its been since the early 80s.

My main client, which accounts for 95 percent of my income, has tightened up their drawstrings, and the trickle down has now affected every contractor on my level including me. Our contracts changed drastically this year which means I will be earning less than I did last year unless I work twice as hard. It is as if the small raise I got last year never happened. In addition, accountability has risen to ensure that every penny they spend is earmarked to a specific step of a specific project.

It was the last straw for me and our current way of living. I had had enough of seeing our money blow out the window every time someone opens the front door.

Even before this came down the pike, I promised that the year 2009 would be a tight year. The writing on the wall is that the world’s economy isn’t done scraping the bottom of the barrel yet and that it will get worse. I’m not sure what that means or where it will go, but I for one don’t want to get stuck out in the cold for not preparing. Our savings accounts are at the lowest they’ve been in a couple of years and I’d like to build those back up as quickly as possible.

I heard interest rates were extremely low, so I called a trusted mortgage broker who told me that I couldn’t refinance my house because it is worth less than what I owe. How depressing that my house is worth half of what I paid for it…but at least it is only on paper. Unlike a lot of people, I’m making my payments, which seems to not be doing me any favors. I called the bank that handles my mortgage a couple of weeks ago to see about modifying my loan to get a more favorable rate or a lower payment with a different program, and I was told that as long as I’m able to make my payments, they won’t help me. Which, if you think about it, is wrong. I’m one of the ones that is preparing for the worst and they won’t even talk to me until I start skipping payments.

Sometimes it is frustrating to be responsible, and I wonder why is it worth it and what’s the reward? My FICO score is at the top one percent of the country and I can’t be considered for a loan now because all of the dumb asses at the bottom of the list didn’t understand their mortgage contracts and have screwed it up for the rest of us. Everyone blames the greedy unscrupulous corporations for taking advantage of the little guy, and that maybe partly true, but if you’re signing your name to a 50-page document that’s in a language you don’t read and you really don’t know what it is you’re signing, you deserve what you get. I have little sympathy for shortsightedness and blind trust of strangers who will make money on your signature.

Anyways, for the last couple of years, spending at this house has been on par with the government. If we had it, we spent it and we asked for more. We even over spent into a deficit using the American Express card. Sure, we have a host of savings plans that I’ve instituted, from a dollar a day going each of the kids’ savings accounts and five dollars a day going to one for Kara and I (along with some automatic mutual fund payments each month) but every other dollar in the checking account was fair game for anyone to take and do what they like with it. I saved what I need to make the property taxes and I try to squirrel away as much in savings as possible, but most times it was very little.

We irresponsibly sucked too much of it away with little or nothing to show for it.

Do you want to buy an insulator collection and then not know what to do with it? Sure, go ahead. Do you really need a dozen new books to add to the 1500 you already have? Why not? Let’s go out to eat for the fourth time this week; it’s only $50 for a family of our size. New shoes, shirts, 15th pair of jeans, telescope, tires/wheels for the truck, toys, games, wine—my God the wine—and who knows what else?

One night, as the year drew to a close, I got to wondering what 2008 looked like from a financial perspective. Impartially, as an amateur accountant, what did we spend and where did we spend it? I built an Excel spreadsheet and dragged out the bank statements, the bills, the receipts and our online spending accounts and added them all up.

It took me two days to calculate and I was floored at the results.

I’m running a small country here. Last year, it cost us $97,000 to run this house. That is equal to 18 cents a minute. Every minute that went by, all 525,600 of them in 2008, cost me 18 cents.

Twenty-five thousand dollars of that went to groceries, Target, WalMart, Trader Joes, haircuts, PTA dues, party supplies, clothes, trips to Disneyland. We spent $600 at amusement parks last year (not including our Disney passes, which was another $700). We spent $2379 eating out at restaurants, $1693 on clothes, $497 at WalMart, $1037 on camping supplies, $2350 in ATM withdrawals.

What have to show for it? Pictures that we rarely look at? Souvenirs we’ve misplaced or lost interest in? What a waste.

This year will be different. Kara and I have banded together and put our collective foot down to stop the hemorrhaging.

We’re not going to spend $425 on party supplies or $276 at Toys-R-Us. We’re not going to spend any of it because we don’t have to. Those things aren’t necessary. The kids have enough toys, and gifts will only be dispensed on holidays and birthdays. No more will treats be purchased merely because they really, really want them or that they’ve been extra good. When I was a kid and wanted something, I never got it. My parents always said, “We can’t afford it,” or a simple “no.” That’s not to say it paid off at Christmas time, because it did, but that’s what makes those holidays so special. You wait all year to get the things you been wanting to get, instead of having a steady flow of new prizes and gifts and toys each month.

My new mantra isn’t “I can’t afford it” because that would be lying. It’s “I don’t want to afford it.” I don’t want to spend $12 on another stuffed animal for Matthew because he doesn’t know where the other 25 of them are, and I don’t want to fork out $15 for a doll for Natalie because she is still in the flavor-of-the-month mentality when it comes to her possessions. She has some favorites, but there is just too much already for her to play with that I’m sure it is overwhelming her. There are toys in her room she hasn’t seen since she got them, I’m sure.

I have enough socks and shoes. I have four pairs of jeans and a closet full of clothes, which is more than enough. I’m not into fashion, so why should I pay for it? We don’t need random office supplies, as I avoid printing anything and try to cut down on postage, if at all. We don’t need CDs and books (spent $286 on those last year), as you can find most music for free online. We certainly don’t need to go on any trips, as the monthly excursions with the trailer is enough (add them all together and it is as if we went on a two-week vacation!).

The State of California is cutting down its spending by 10 percent (yeah, right), and I’m going to aim for 25 percent. At the end of the month, I want to see 25 percent of our income still in the bank. I don’t think that is too much to ask.

We work too hard to waste our money on things we don’t need, and I’m sure it isn’t just me. American society seems to be that way. We are judged on our performance on Black Friday or the Christmas season’s spending. Why? Is it because we are guilted into buying stuff in the ploy that it helps the economy? Maybe we should stop importing crap from China so we don’t feel compelled to buy it for the good of the world’s economy. If you have to buy something, buy it locally, buy it from Americans, and above all else, buy quality (which isn’t always American, sadly).

Then there’s money spent on running the house that is a must, without it, there would be no house. This includes, the mortgage, insurance, property taxes, car registration, phones, gas, electricity, the trailer, etc. This is the bulk of what we pay each month/year, money that we can’t get out of paying unless we drastically change our lifestyle. And that isn’t too likely.

Now, what about the things that we do need and the things that we have gotten used to needing? Groceries for one is an obvious necessity. In 2008, we spent $4149 at Albertsons, $2036 at Sam’s Club, and $1003 at Trader Joes. That’s $7188 on food, or roughly $138 a week. And there’s never anything for me to eat in the house… if there is, it doesn’t last long.

We have fancy cell phones and a high-speed Internet connection, access to Netflix and a decent satellite package for our TVs. I’m quite used to having those things and I don’t think I’d like to do without them. Sure, we could drop our Netflix down to one movie at a time and save four dollars a month and I don’t really need a cell phone—as nobody calls me but Kara—but we’ve had them for so long, picking up my keys and wallet without grabbing my cell phone would feel weird.

I’ve got a guy that prepares my taxes for me and I’ve got a guy that tells me how to prepare for retirement (like that will ever happen), but other than that, I don’t need a gardener or a maid or a cleaning lady or a nanny. We don’t hire someone to clean our carpets and I don’t take many things to the dry cleaners. Nothing gets delivered regularly like bottled water or propane, and there’s nothing at the house that needs service, like a soft water system or a pool. I’m happy for this. We don’t have car payments or student loans to pay off. We have no revolving debt or high-interest credit cards hanging over our heads. We worked hard over the years to get rid of all these things in our lives, and I’m proud that we don’t.

The only service we have is a pest control guy who sprays for spiders, and as soon as the mid-year is up, I’m going to cancel it. Last time the guy was here, he told me that the chemicals he uses are the same as the those you can buy at Home Depot. The only difference is the staying power. Theirs lasts three times as long.

For the last six months or so, I’ve noticed a steady influx of crab grass and dandelions sprouting up on my front and back lawn (it doesn’t help that the kids like to blow the “bubble flowers”). It’s been bothering me for the sole reason that I want my lawn to look nice. It’s still green, which is better than some of the dead lawns in front of a couple foreclosed houses in the neighborhood, but it isn’t lush and nice. I mow it regularly and that’s about it aside from sprinkling some fertilizer on it now and again. I don’t pretend to be a good gardener. A salesman came to the door from TruGreen yesterday, one of those fertilizer services that, for $40 each visit—every six weeks or 10 times a year—they would make sure our lawn is the best it can be. He told me that I have good grass but it is just sick and need some help.

I was frank with him. I told him it would have been a service that I probably would have taken advantage of a year ago, but now that the economy being the way it is, I consider lush green grass a luxury. I was happy with its current hue and that digging out dandelions isn’t that big a deal. Plus, the healthier it is, the more often I’d have to mow it! I was surprised, but he understood and left.

What it comes down to is that we’re consumers and I’m tired of it. We buy produced goods and use them, wear them out and buy new ones…or buy new ones because the old ones don’t look as nice as the new ones. For example, my hair brush. I had this red hair brush for years. It had chew marks on it from the dog, the bristles were kind of frayed at the ends and I throw it in with the wash when it needs cleaning. I liked it. It worked well, and I only used it when my hair got to a certain length, which is usually a couple of days before I get it cut. But I decided that I needed a new one, so I had Kara get one for me when she was last at Target. It’s by ConAir, if that means anything to anyone, but it isn’t as good as my last one. Every time I use it, I feel like I’m brushing my head with a horse brush. The bristles are fine and really close together, parting each hair away from one another on my head. I don’t like it, so I rarely use it, and when I do, I wish for my old one back.

It is things like this that will change for 2009.

We’re going back to the motto of our grandparents of the Great Depression: “Use it up, wear it out, make it do, or do without.”

Mostly, I plan on doing without.

Wish us luck.


Yard Sale Princess said...

I absolutely love this post. It is my favorite of your 2009 posts :). I called Hubs over to read parts to him and tell him "this is a great point", "let's get down and dirty too". We will be having an all out discussion when the kids are out for the night. Thanks, Ryan, for getting the fire started! This is why we need to go "junkin".

Grant's Mom said...

Very inspiring post! I am going to set the same goals with Scott. We spend, spend, spend, too! I think the camping thing will be an inexpensive form of entertainment!


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