A Life Without Debt: Dealing With Unexpected Expenses
Recently we got a bit of a shocker to our budget. The washing machine, out of nowhere, decided to give up on us. I can’t say I’m totally shocked; the poor thing was thirteen years old, after all. But still, it gave no warning before deciding to conk out completely. Turns out that the motor [...]Save Money On Housing: Live Well In Less Space
Speaking of internal frugality, I’d say one of the most basic ways to save on rent or mortgage payments is to… live in a smaller place. No, wait, really. Let’s think about it.
Even though it’s easy to make fun of 10,000 square feet McMansions, they are only a side effect of an overall trend towards larger houses. According to this 2006 NPR article, the size of new houses has more than doubled since the 1950s. The average new home sold in 2007 was a whopping 2,629 square feet.
Maybe as a whole we’re getting fatter and need a bit more space to move around, but not by that much! In fact, the average family size has actually been decreasing over time. Here are some stats I pulled from the U.S. Census:
Source: U.S. Census Bureau
From 1970 to 2004, the average household shrunk by 27%, but the average square footage grew by 66%. Using median numbers gave similar results.
There are several theories as to why this is happening. For starters, we may simply want a higher standard of living. (Sharing bathrooms? That’s for people in 3rd-world countries!) Perhaps it’s from us continually one-upping our neighbors. Maybe builders are pushing bigger homes through marketing. Or it may be a result of the breaking up of the American family, and how we don’t like spending time together anymore.
Most importantly, we don’t need the extra space. If a family of four could live well in 1,500 square feet back in 1950, there is no real reason they can’t do so today. It’s just a choice like any other, and we have to examine whether it is really worth the price.
Finally, it doesn’t stop with the bigger sticker price. There’s the higher property taxes and insurance rates. A bigger home costs more to heat, cool, maintain, and repair. More rooms means more furniture, more wall decorations, more room for clothes, and just more stuff in general. More appliances mean more electricity used. The list goes on and on.
In my opinion, many people don’t even notice that they are stretching to buy homes that just keep getting bigger and bigger. They just follow the crowd. This unconscious choice may partially explain why many of us feel so much more stressed financially than our parents.
Reframing the Economic Crisis
Okay, it’s no secret that the economy is in the tank. And it’s likely that this has you worried, angry, upset, and stressed out. And it’s no wonder. You’ve probably watched your investments fall, your retirement may be on hold indefinitely, you may have been laid off, your house is possibly worthless, and your credit [...]Internal vs. External Frugality: Different Ways of Saving
So I am trying to kick off one of my planned 2009 projects, which is to methodically go through each major expense area and explore ways to save money there. I started out last week with on housing costs (here and here), and still have a few ideas left. But while brainstorming an outline of future posts, I noticed that there seemed to be a divide in the types of strategies out there.
One set of ideas usually has to do with reducing the amount paid for a specific item or service. I call this external frugality, because you aren’t changing anything about yourself, just the price tag. For example, to save on what you pay for your house, you could look for a buyer’s agent rebate to save something like 1.5% of the purchase price, or carefully shop for mortgages with the lowest combination of closing costs and interest rate.
Another set of ideas usually involves either changing the type, amount, or quality of something. I call this internal frugality, because you are changing your consumption habits. An example of this would be realizing that you don’t necessarily need to same house as everyone else. You could look in more “up-and-coming” neighborhoods, or live in an older house with less square footage.
There are plenty of other examples out there:
External: Calling a cable company and asking for a lower rate.
Internal: You cancel cable completely. You could read more, watch episodes on your computer, or use a low-cost Netflix plan.
External: You find a cheaper long-distance plan, or switch to VoIP.
Internal: You get rid of your landline completely.
External: Learn ways to haggle down the price of a car.
Internal: Don’t own a car. Use public transportation.
I don’t think either or worse, but they are different. In general, it would seem like external frugality is at least initially easier to implement, as you don’t have to actually change your habits. However, I can also imagine that in many situations using internal frugality would lead to both greater absolute savings and also more enduring lifelong savings. But changing habits is really tough.
Next time you think you’re being frugal, examine if you’re doing it externally or internally.
10 Seconds to Free Stuff
Last month, I registered my e-mail address with a local pizzeria. It took me all of ten seconds and, for my trouble, the pizzeria entered me into its daily contest to win a free lunch. Every day since I registered, I have received an e-mail announcing the pizzeria’s daily specials and the name [...]Credit repair facts, hints and mistakes
SEC Says Millennium Bank Was Indeed a Ponzi Scheme
Well, it was about time. The SEC released a press release yesterday stating that they have frozen the assets of the offshore Millennium Bank and its parent, United Trust of Switzerland S.A.
If you don’t recall, Millennium Bank offered certificates of deposit paying insanely high rate north of 8% APY for the last several years. I stopped short of calling it a scam, but pointed out that common sense would state that such increased return could not exist without significant added risk. From the press release:
Washington, D.C., March 26, 2009 — The Securities and Exchange Commission has obtained an emergency court order halting a $68 million Ponzi scheme involving the sale of fictitious high-yield certificates of deposit (CDs) by Caribbean-based Millennium Bank.
The SEC alleges that the scheme targeted U.S. investors and misled them into believing they were putting their money in supposedly safe and secure CDs that purportedly offered returns that were up to 321 percent higher than legitimate bank-issued CDs.
The bank was supposedly based in the Caribbean nation of St. Vincent and the Grenadines (SVG), which had access to high-yielding, safe investments. In reality, the SEC managed to trace the money sent by gullible investors from the offshore back to a US bank account in Napa Valley, CA, where the defendants “misappropriated a vast majority of the investor funds to enrich themselves and pay personal expenses, while making relatively small Ponzi payments to investors.”
According to the SEC’s complaint, the $68 million was raised from more than 375 investors since July 2004. I wonder how much is left. Another case of greed blinding people…
Please don’t confuse this bank with the legitimate and FDIC-insured Millennium Bank of Illinois.
Standards for Living Expenses
If you’re trying to scale back your spending and live within your means or just save a little more each month, how do you determine reasonable spending amounts for each category of spending in your life like food, clothes, and transportation? Well, there are several government standards that you can use as a guideline. The Internal [...]Six Ways to Force Yourself to Save
I have mentioned my elder son, who tends to pursue a less than industrious path at times. In contrast, I also have a son who zealously protects every penny that he gets in the hope that he can purchase a condominium and become his brother’s landlord. As my thrifty son pointed out, he [...]Save Money on Housing: Move To a Lower Cost-of-Living Location… Like Austin, Texas?
As you may know, I own a house in an expensive area of the country. I love my house, and I love where I live, but I also admit that I occasionally daydream about moving somewhere with a lower cost of living.
In my experience, many people don’t like the idea of moving elsewhere because it involves something unknown and unfamiliar. However, if you ask people to think back to the places they have been, they’ll speak fondly of those places. Specifically, I think about moving back to a place that I spent several childhood years in - Austin, Texas.
Now, there are many things to consider before moving besides costs. These may include:
- Can you find a job there? If so, how will the pay change? Will it offset the change in cost of living?
- Do you enjoy the local culture? Can you easily participate in your hobbies and interests?
- Love, family, weather, traffic, nightlife, cultural diversity, etc.
I think a lot of people who haven’t lived in Texas (and most other areas) may have a misconception or stereotype of what it’s like to live there, and that is especially true of Austin. What I like about the area includes the relatively temperature weather, a large university center, a strong tech industry, and of course a low cost of living and tax burden. As for the financial details, I grabbed some graphs from the Austin Chamber of Commerce website, which were based on independent data.
Cost of Living Index, 4 Quarters Ending Q2 2007
The index takes into account the combined costs of housing, utilities, transportation, healthcare, and other factors. According to this CNN calculator based on the same index, if you are earning $100,000.00 after tax in San Jose (CA), the comparable after-tax income in Austin is 61,217.
Average Home Price, Middle Management Housing, 2007
(For the chart, a “middle management house” is a single-family dwelling model with approximately 2,200 sq.ft., 4 bedrooms, 2 1/2 baths, family room, and 2-car garage.)
These might have changed a lot since 2007, but the median home price in Austin is still a shade under $200,000. If a house in California costs $600,000 that only costs $200,000 in Austin - how many more years of work would it take to pay for an extra $400,000 plus mortgage interest? Would you move to Texas if it meant you could retire an entire decade earlier? Hmmm…
Tax Burden: State & Local Taxes Per Capita, 2005
So not only do things cost less, but I can also earn a lower salary and still get the same after-tax results. In general, Texas ranks 45th out of the 50 states in terms of total taxes per $1,000 of income. With no personal income tax, the primary taxes in Taxes are property and sales tax. In Austin, property taxes are about 2.2% of appraised value per year.
Quick Summary
Going by the numbers, moving somewhere else can certainly seem attractive. For me, not only do things cost less as a whole, but my income would take much less of a tax haircut as well. Now, I don’t think everyone should move, and I have no plans currently to do so myself. But if you are re-examining your financial situation, it can be worthwhile to keep an open mind and consider the possibilities. Everything is a trade-off, and what you gain may be worth more than what you lose.
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