Five years ago, I came across an article about "the invisible rich": the millionaires who don't look like most people's idea of a millionaire, the ones who have accumulated their millions largely by not living the way people expect millionaires to live. I compared my lifestyle against the nine secrets of the invisible rich covered in the article, as outlined in Stanley and Danko's The Millionaire Next Door, and was pleased to find that my lifestyle scored eight out of nine on the millionaire-next-door (MND) scale.
Well, a few years later, I reread that post, and it occurred to me that there was probably enough material here for a Money Crashers article. It took a couple of years for it to make it to publication, but fortunately, the advice about how to live like the invisible rich is pretty much timeless. So here, none the worse for wear, is the article — complete with info about MNDs' work, their home life, what they do and don't spend money on, and how copying their lifestyle could potentially make you a Millionaire Next Door to your neighbors one day.
Showing posts with label wealth. Show all posts
Showing posts with label wealth. Show all posts
Thursday, September 3, 2020
Sunday, November 6, 2016
Thinking wrong about wealth
Today, in a desperate effort to avoid thinking about the upcoming election, I started looking again at some of the material I used for my article on the middle class in America. And this time, it struck me that the various ways of defining the middle class (and, by extension, the wealthy and the poor) were not just different, but in some ways contradictory.
Take us as an example. According to this article at CNN Money, the "most common" way of defining the middle class is based on income. There are various ways you can divvy up the U.S. population to figure out who's in the middle, but most of them agree that Brian and I are part of it. The article cites one common formula created by the Pew Research Center, which defines middle class as anywhere from two-thirds of the median income to twice the median for a given household size. And according to this calculator on the Pew website, a household of two people with our income falls smack dab in this middle range. So according to Pew, we're neither rich nor poor; we're solidly middle-income.
But, of course, there's a problem with defining wealth based on income alone. As CNN points out, your social class really has more to do with how much you spend than how much you make, because this "more accurately reflects your well-being." If your income varies widely from year to year (as mine does), you don't suddenly cease to be middle-class just because you're having an especially good or bad year.
So CNN also cites the formula created by Professor James X. Sullivan of Notre Dame, which measures class based on how much you spend on all your needs (food, housing, transportation, etc.) and wants (such as entertainment). It specifically excludes costs for health care and education, since those could be considered investments for the future rather than expenses in the present. Sullivan defines the middle class as those whose spending in these areas falls in the middle quintile for all U.S. households. For a family of four, that's $38,200 to $49,900.
Now, if you define middle class this way, it looks like Brian and I no longer make the cut. Our annual spending (not counting "investment" spending like health insurance and retirement contributions) is lower than the minimum for a middle-class family. Granted, our household has only two people, not four, but there's nothing in the article to suggest Sullivan actually makes any adjustment for this. So it looks like, as far as he's concerned, we're too poor—or at least, we're living too much like poor people—to qualify as middle-class. And we certainly couldn't be considered wealthy.
But there's a problem with this definition, too. Defining class based on spending, rather than income, makes it possible for a family to raise its position by borrowing money—living a middle-class lifestyle that's financed with debt. But a family that takes home $45,000 a year and then spends all of it and then some isn't really well off; it's steadily losing ground. It hardly makes sense to say they're better off than a family down the street that's bringing in $40,000 and spending only $30,000, gradually building up more wealth every year.
Based on that reasoning, it makes more sense to define class based on overall wealth—in other words, net worth. CNN cites a third formula, developed by Professor Edward Wolff of NYU that defines the middle class as all those households whose net worth falls into the middle three quintiles for the country as a whole—that is, anywhere between $0 and $401,000. And according to this definition, Brian and I still don't qualify for middle class—but for the opposite reason. Wolff's formula bumps Brian and me out of the middle class and into the ranks of the wealthy. So while Sullivan considers us too poor for the middle class, Wolff considers us too rich.
Now here's what's bothering me about all this. Most people looking at the CNN article would tend to assume that the various definitions of the middle class, the poor, and the wealthy generally apply to the same group of people. Sure, using spending rather than income may put a few more people into the middle group, while going by wealth may include fewer. But in general, those who make the most money are also those who spend the most and, over time, accumulate the most—right?
Well, no, not really. Because when you look at the numbers for me and Brian, it's plain to see that our net worth is higher than normal for our income, while our spending is lower than normal. And once you think about those three numbers together, it makes perfect sense that this would be the case. The whole reason we have more money than most of our peers in the same income group is because we don't spend as much. Spending less than your income naturally means you save more, and saving more naturally means you build up more wealth. This isn't a surprise result; it's exactly what you'd expect. Except that, if you were relying on the standard definitions of the middle-class and the wealthy, you wouldn't.
The real problem here is that each formula is looking at just one of these numbers—income, spending, or net worth—by itself. But in reality, these three numbers are linked—and not in a positive way. Yes, it's often the case that the more you earn, the faster your net worth grows. But the more you spend of what you earn, the slower your net worth grows. And a real understanding of wealth needs to account for this.
So I think the most important number to consider isn't income (how much you make), or expenses (how much you spend), or even net worth (how much you have already). Instead, it's a frugal person's favorite line in the budget: how much you save. By looking at this one number, you can tell instantly, at a glance, by how much you're getting ahead—or falling behind—each year. That's the number that people should really be comparing if they want to see how they're doing relative to their peers.
Now technically, this number doesn't measure how wealthy you are right now; instead, it measures how much wealthier you're growing. But here's the thing: I think for most people, that's what's they really care most about. As this article from the Christian Science Monitor points out, a classic definition of the middle class centers on "upward mobility coupled with a measure of financial stability": not just where you are, but where you're going. Simply put, people are more likely to feel well off when their financial position is getting better—regardless of where it is right now.
I'm not the first person to suggest this. Financial reporter Bob Sullivan, in "The Restless Project," argued that many Americans who look well-off on paper feel financially insecure because "they are working harder, and perhaps making more money than they'd ever dreamed, but yet falling behind anyway." And conversely, financial writer Donna Freedman declared back in 2007 that she was not just surviving but "thriving" on $12,000 a year, because she was building up her savings and even had enough to give to charity.
I don't have enough actual data to come up with a full-fledged formula for gauging your social class based on your savings rate. I can feel pretty confident in saying that anyone who's saving more than half of what they make every year—no matter how little that is—is doing well, and anyone who's saving nothing is not. There's a lot of middle ground in there, and I'm not sure at what point along that spectrum the average person would feel financially comfortable. But I do know this: it has to be somewhere in that range. Anyone who is saving nothing—no matter how much they make—is not going to feel financially secure, nor should they.
I'm not saying that savings is the only number that matters, and income and net worth are irrelevant. But it is definitely a number that matters—and as far as I can tell, it's the one number no one is looking at.
Take us as an example. According to this article at CNN Money, the "most common" way of defining the middle class is based on income. There are various ways you can divvy up the U.S. population to figure out who's in the middle, but most of them agree that Brian and I are part of it. The article cites one common formula created by the Pew Research Center, which defines middle class as anywhere from two-thirds of the median income to twice the median for a given household size. And according to this calculator on the Pew website, a household of two people with our income falls smack dab in this middle range. So according to Pew, we're neither rich nor poor; we're solidly middle-income.
But, of course, there's a problem with defining wealth based on income alone. As CNN points out, your social class really has more to do with how much you spend than how much you make, because this "more accurately reflects your well-being." If your income varies widely from year to year (as mine does), you don't suddenly cease to be middle-class just because you're having an especially good or bad year.
So CNN also cites the formula created by Professor James X. Sullivan of Notre Dame, which measures class based on how much you spend on all your needs (food, housing, transportation, etc.) and wants (such as entertainment). It specifically excludes costs for health care and education, since those could be considered investments for the future rather than expenses in the present. Sullivan defines the middle class as those whose spending in these areas falls in the middle quintile for all U.S. households. For a family of four, that's $38,200 to $49,900.
Now, if you define middle class this way, it looks like Brian and I no longer make the cut. Our annual spending (not counting "investment" spending like health insurance and retirement contributions) is lower than the minimum for a middle-class family. Granted, our household has only two people, not four, but there's nothing in the article to suggest Sullivan actually makes any adjustment for this. So it looks like, as far as he's concerned, we're too poor—or at least, we're living too much like poor people—to qualify as middle-class. And we certainly couldn't be considered wealthy.
But there's a problem with this definition, too. Defining class based on spending, rather than income, makes it possible for a family to raise its position by borrowing money—living a middle-class lifestyle that's financed with debt. But a family that takes home $45,000 a year and then spends all of it and then some isn't really well off; it's steadily losing ground. It hardly makes sense to say they're better off than a family down the street that's bringing in $40,000 and spending only $30,000, gradually building up more wealth every year.
Based on that reasoning, it makes more sense to define class based on overall wealth—in other words, net worth. CNN cites a third formula, developed by Professor Edward Wolff of NYU that defines the middle class as all those households whose net worth falls into the middle three quintiles for the country as a whole—that is, anywhere between $0 and $401,000. And according to this definition, Brian and I still don't qualify for middle class—but for the opposite reason. Wolff's formula bumps Brian and me out of the middle class and into the ranks of the wealthy. So while Sullivan considers us too poor for the middle class, Wolff considers us too rich.
Now here's what's bothering me about all this. Most people looking at the CNN article would tend to assume that the various definitions of the middle class, the poor, and the wealthy generally apply to the same group of people. Sure, using spending rather than income may put a few more people into the middle group, while going by wealth may include fewer. But in general, those who make the most money are also those who spend the most and, over time, accumulate the most—right?
Well, no, not really. Because when you look at the numbers for me and Brian, it's plain to see that our net worth is higher than normal for our income, while our spending is lower than normal. And once you think about those three numbers together, it makes perfect sense that this would be the case. The whole reason we have more money than most of our peers in the same income group is because we don't spend as much. Spending less than your income naturally means you save more, and saving more naturally means you build up more wealth. This isn't a surprise result; it's exactly what you'd expect. Except that, if you were relying on the standard definitions of the middle-class and the wealthy, you wouldn't.
The real problem here is that each formula is looking at just one of these numbers—income, spending, or net worth—by itself. But in reality, these three numbers are linked—and not in a positive way. Yes, it's often the case that the more you earn, the faster your net worth grows. But the more you spend of what you earn, the slower your net worth grows. And a real understanding of wealth needs to account for this.
So I think the most important number to consider isn't income (how much you make), or expenses (how much you spend), or even net worth (how much you have already). Instead, it's a frugal person's favorite line in the budget: how much you save. By looking at this one number, you can tell instantly, at a glance, by how much you're getting ahead—or falling behind—each year. That's the number that people should really be comparing if they want to see how they're doing relative to their peers.
Now technically, this number doesn't measure how wealthy you are right now; instead, it measures how much wealthier you're growing. But here's the thing: I think for most people, that's what's they really care most about. As this article from the Christian Science Monitor points out, a classic definition of the middle class centers on "upward mobility coupled with a measure of financial stability": not just where you are, but where you're going. Simply put, people are more likely to feel well off when their financial position is getting better—regardless of where it is right now.
I'm not the first person to suggest this. Financial reporter Bob Sullivan, in "The Restless Project," argued that many Americans who look well-off on paper feel financially insecure because "they are working harder, and perhaps making more money than they'd ever dreamed, but yet falling behind anyway." And conversely, financial writer Donna Freedman declared back in 2007 that she was not just surviving but "thriving" on $12,000 a year, because she was building up her savings and even had enough to give to charity.
I don't have enough actual data to come up with a full-fledged formula for gauging your social class based on your savings rate. I can feel pretty confident in saying that anyone who's saving more than half of what they make every year—no matter how little that is—is doing well, and anyone who's saving nothing is not. There's a lot of middle ground in there, and I'm not sure at what point along that spectrum the average person would feel financially comfortable. But I do know this: it has to be somewhere in that range. Anyone who is saving nothing—no matter how much they make—is not going to feel financially secure, nor should they.
I'm not saying that savings is the only number that matters, and income and net worth are irrelevant. But it is definitely a number that matters—and as far as I can tell, it's the one number no one is looking at.
Saturday, February 13, 2016
Money Crashers: What Does It Mean to Be Rich?
For some time now, I've been puzzling over the whole idea of wealth as the American Dream. Back when Mitt Romney was running for president, I took issue with the idea expressed in the Washington Post that everyone, deep down, wants the kind of lifestyle that he has—"We want the pony. We want the Jet Ski. We want the big house on the beach"—and countered that my idea of wealth, otherwise known as financial independence, was easier to achieve by spending less rather than more.
So I started asking myself: what does wealth really mean? Is it just having a certain amount in the bank? Is it living a lavish, Romney-esque lifestyle? Is it having enough to quit your job and live on for the rest of your life—or enough to provide for your family for life, as well?
In my latest Money Crashers article, I explore all these different definitions of wealth in detail. I don't reach any conclusions about which is the "right" way to define wealth, but I do explain why it's important to figure out which definition is the right one for you, personally—because you need to know what your "dream of wealth" looks like before you can figure out how to achieve it.
Here's the scoop: What Does It Mean to Be Rich? – Defining Wealth by Income, Net Worth & Lifestyle
So I started asking myself: what does wealth really mean? Is it just having a certain amount in the bank? Is it living a lavish, Romney-esque lifestyle? Is it having enough to quit your job and live on for the rest of your life—or enough to provide for your family for life, as well?
In my latest Money Crashers article, I explore all these different definitions of wealth in detail. I don't reach any conclusions about which is the "right" way to define wealth, but I do explain why it's important to figure out which definition is the right one for you, personally—because you need to know what your "dream of wealth" looks like before you can figure out how to achieve it.
Here's the scoop: What Does It Mean to Be Rich? – Defining Wealth by Income, Net Worth & Lifestyle
Wednesday, January 27, 2016
Money Crashers: Difference Between Needs & Wants
About three years back, I posted some musings on the line between necessities and luxuries. I noted that what was a necessity for one person might be a luxury for another; for instance, high-speed Internet, free-range meats were necessities for me, while air conditioning and a smartphone were luxuries.
This post gave me the idea of writing about the same subject on Money Crashers, where I could explore it in a little more depth and from a less personal viewpoint. Here are a few of the facts I discovered during my research.
Difference Between Needs & Wants (Luxuries) and How to Draw the Line
This post gave me the idea of writing about the same subject on Money Crashers, where I could explore it in a little more depth and from a less personal viewpoint. Here are a few of the facts I discovered during my research.
- Gallup tracks Americans' access to 13 "basic necessities," including clean water, access to fresh fruits and vegetables, a safe neighborhood, and affordable health care. Currently, nearly 1 in 5 Americans is living without at least one item on the list.
- Every few years, Pew asks Americans which of several different technologies they consider necessities, and which they view as luxuries. The numbers have changed noticeably over time; most notably, many items that moved from the luxury to the necessity column in 2006 dropped back to luxury status during the latest recession.
- Economists define "luxury goods" as products that people are much more likely to buy when their income rises. One classic example is a flat-screen TV, which only 5% of respondents rated as a necessity in the last Pew poll.
- A 2014 paper in the Journal of Consumer Psychology found that performing tasks that gave people a feeling of accomplishment made them feel more interested in buying luxury brands. Appealing to their feelings of snobbery didn't trigger a similar interest. Yet when people saw others wearing luxury brands, they tended to view the wearer not as an accomplished person, but as a snob - suggesting that people who give in to the impulse to buy luxury goods are actually sending a message exactly opposite to what they're feeling.
Difference Between Needs & Wants (Luxuries) and How to Draw the Line
Sunday, June 14, 2015
Money Crashers: Can Money Buy Happiness?
My latest post for Money Crashers is one that I'm rather proud of. It's on the fascinating (at least to me) topic of happiness economics, which I've so far covered only briefly on this blog. I wrote a post three years ago in response to a Washington Post article on the subject, in which I summed up some of the major discoveries made by happiness economists, such as:
Here's the full article: "Can Money Buy Happiness? - Understanding the Economics of Happiness"
Also, let me reassure everyone that I will post a real blog entry soon. I've been posting these links to my Money Crashers pieces to fill in the blog during the week, because my work for Money Crashers is keeping me busy Monday through Friday and I usually only have time to update my own blog on the weekends...but I promise not to neglect it entirely.
- Higher income only improves day-to-day happiness up to a limit of about $75,000. Beyond that point, day-to-day happiness doesn't increase, but "life satisfaction" does.
- Buying more stuff doesn't tend to make us happier, because we quickly get used to what we have.
- Spending on experiences does make us happier, because it ties in with our social needs.
Here's the full article: "Can Money Buy Happiness? - Understanding the Economics of Happiness"
Also, let me reassure everyone that I will post a real blog entry soon. I've been posting these links to my Money Crashers pieces to fill in the blog during the week, because my work for Money Crashers is keeping me busy Monday through Friday and I usually only have time to update my own blog on the weekends...but I promise not to neglect it entirely.
Friday, May 15, 2015
Ecofrugal Living podcast #20: Who wants to not spend like a millionaire?
Here's the latest Ecofrugal Living podcast, based on the blog entry for August 6, 2012.
This work is licensed under a Creative Commons Attribution 4.0 International License.
This work is licensed under a Creative Commons Attribution 4.0 International License.
Tuesday, September 2, 2014
Getting by on $100K a year
Last weekend, I came across a startling article in Money Talks News about the amount of money a family needs to maintain a "normal" lifestyle. (It's part of a series called "The Restless Project," which seeks to address the question of why so many middle-class Americans feel restless—that is, uneasy—about their financial situation.) The author, Bob Sullivan, crunched some numbers and concluded that to live "a normal, decent life" these days takes around $100,000 a year, minimum. That's the amount a family needs to spend, not the amount they need to earn; it doesn't include taxes (which can vary quite a bit depending on where and how you live) or retirement contributions.
Now, admittedly, $100K per year to maintain a middle-class lifestyle isn't nearly as large a sum as the $250K budget that I analyzed in this post last year. At that time, I seriously questioned the claims made on MSN Money that in many parts of the country, a family of four would actually find it hard to make ends meet on this income. Sullivan's figures, at first blush, look a bit more reasonable than the ones used in the MSN money article. His hypothetical family, he says, has two children under 10 (one school-age, one younger) and lives "near one of America’s largest cities — Washington, D.C., or Seattle, or Chicago." They're both employed, they rent a three-bedroom apartment (which makes it easier to calculate their living expenses without all the tax details surrounding a mortgage), and their only debt is a student loan (or two) with a $500 monthly payment. Here's what he estimates this family needs to spend each month just to "feel like it’s at least paying all the bills":
So in short, yes, it really is hard for families today to make ends meet. But there's no need to make it out to be harder than it actually is.
Now, admittedly, $100K per year to maintain a middle-class lifestyle isn't nearly as large a sum as the $250K budget that I analyzed in this post last year. At that time, I seriously questioned the claims made on MSN Money that in many parts of the country, a family of four would actually find it hard to make ends meet on this income. Sullivan's figures, at first blush, look a bit more reasonable than the ones used in the MSN money article. His hypothetical family, he says, has two children under 10 (one school-age, one younger) and lives "near one of America’s largest cities — Washington, D.C., or Seattle, or Chicago." They're both employed, they rent a three-bedroom apartment (which makes it easier to calculate their living expenses without all the tax details surrounding a mortgage), and their only debt is a student loan (or two) with a $500 monthly payment. Here's what he estimates this family needs to spend each month just to "feel like it’s at least paying all the bills":
Rent: $2,200I can't reasonably compare this family's monthly budget to ours, since our situation is so different from theirs. We own a house rather than renting an apartment, we don't live in a major city, and we have no kids to support. However, I can point out several points that struck me about this budget at first glance:
Healthcare contribution: $600
Cell phone: $200
Utilities (including TV): $300
School tuition, supplies (for older child): $1,500
Day care (for younger child): $1,500
Food: $500
Car loan and insurance, or mass transit: $500
Student loan: $500
Clothing and other goods: $500
TOTAL: $8,300 per month, or $99,600 per year
- First of all, Sullivan is assuming that this two-income family needs to pay, not only to keep their younger child in day care, but also to send their older one to a private school. He notes that the family could save $3,000 a month by arranging "for the older child to attend free public school and the younger child to stay home with a parent," but this would halve their income. However, the two expenses aren't really equivalent. A child under 6 needs to be supervised during the day, either by a parent or in day care, but a child over 6 doesn't need to be in a private school. One of the things that Sullivan says makes budgeting so hard for families is that they're "forced to pay too much money for decent housing near decent schools," yet his sample family seems to be paying a premium for housing and paying for private school tuition on top of that. Sending the older kid to public school, which should be a reasonable choice if the family lives in a good school district, would cut their annual expenses by $18,000.
- As many commenters on the post pointed out, the $500 a month budgeted for utilities plus a cell phone probably includes some fat that could be cut. For instance, they probably don't need to pay for both cell phones and a landline. They could save $50 a month or so by cutting the landline (or replacing it with a cheap VOIP service, such as Ooma), or, alternately, they could keep the landline and supplement it with cheap prepaid cell phones. Here's one area where our household budget does apply: we pay about $96 a month for basic cable, Internet, and a landline phone, plus $4 a month for a prepaid cell phone for emergency use only. If that's too basic, how about a pair of smartphones from Republic Wireless for $10 a month? That brings the total for phone, cable, and Internet service to just $106 per month, a little more than half what this family's currently paying for its cell phones alone. Add in another $121 a month for gas and electricity (the national average according to the White Fence Index), and you've cut this expense from $500 a month to $227, for an annual savings of $3,276.
- The health care cost is perhaps a little high as well. According to this NBC News article, an average family's share of its health care costs comes to $4,565 per year, or about $380 a month. That doesn't include copays or deductibles, which are typically at least $1,000, so add in $120 a month for that and you're up to $500 a month total, shaving another $1,200 a year off the budget. (Of course, this number depends a lot on where in the country you live. Many people who commented on the post said that for their area, Sullivan's $600 estimate was actually way too low. But since we're talking about a hypothetical average family, I'm just going with the national average.)
- His estimated cost for food, by contrast, appears to be on the low side. According to the USDA's latest figures, even on the "Thrifty" food plan, a family with two children aged 3 and 8 can expect to pay $603.40 per month for food. So fixing that estimate adds another $1,241 a year to the budget.
So in short, yes, it really is hard for families today to make ends meet. But there's no need to make it out to be harder than it actually is.
Friday, June 6, 2014
Do I need to be on Facebook?
For as long as I've known about the existence of Facebook, I've steadfastly resisted joining it. At first, it was because I simply couldn't see the point of it. The main use of Facebook seemed to be for keeping in touch with friends, but it seemed to me that if I really wanted to be in touch with people, I could easily do so via e-mail, telephones, and what's now known as "face time," but back in my day used to be called "getting together." And if I didn't really want to be in touch with them, then what was the point? (True, there are lots of people these days who never seem to communicate by any means other than Facebook—but it seems to me that if they can't be bothered to contact me personally, or respond when I contact them, they're not really friends.)
That was just my initial reason for staying off Facebook, but as I've learned more about the company, I've felt less and less inclined to be a part of it. First there was all that news about privacy breaches and the use and possible abuse of users' personal data (though Facebook seems to have made some improvements in that area recently). Then there were all the stories I kept hearing about how much of your time Facebook eats up. The blogger on Live Like a Mensch estimated in this post that for her, it came to 2.5 hours every day. That's half as much as the time she spent each day on her job: writing and "legitimate Internet research," which she defined as "not Facebook." I already know how easily a simple Internet search can turn into an hourlong exploration of Internet wonders (case in point: I spent about half an hour just now trying to track down the blog post I just cited), so I figured I was better off staying off Facebook and putting those 2.5 hours a day to more productive use.
There have been times, however, when not having a Facebook account has proved to be a serious inconvenience. Retailers, for example, frequently offer coupons and special deals through their Facebook sites, requiring a "like" to unlock the deal. If you're not on Facebook, you can't get the coupon, period. I often get around this by borrowing the account of "Ordinary Human Smith," which my husband set up as a joke. The idea is that it belongs to an alien gathering information on us humans by posing, not very successfully, as a perfectly ordinary human, who enjoys all kinds of things that ordinary humans like. So it sort of makes sense that Ordinary Human Smith is perfectly willing to like any company that asks for a like in exchange for a coupon; if ordinary humans like it, Ordinary Human Smith likes it too.
More recently, I've also been running into the problem that many blogs and journals will no longer allow you to post comments on articles unless you sign in through Facebook. I occasionally borrow Ordinary Human Smith's account for this purpose too, but that means that I've left a lot of comments scattered across the Web under Ordinary Human Smith's name that really don't fit in at all with Ordinary Human Smith's persona. Besides, I'd really rather be leaving those comments under my own name, so that I could increase my visibility on the Internet and maybe help direct some traffic toward this blog.
Moreover, the freelance-related blogs newsletters I read, like Freelancers Union and The Freelancer, are always posting articles about the importance of social media for "building your brand" and connecting with potential clients. Some of them practically make it sound like these days, social media is the only way to attract business. I already have a LinkedIn account, but Facebook and Twitter are the sites that these blogs tend to talk up the most, presumably because they're the ones most people are using. So if I'm not using them too, apparently, there's this vast audience that I'm not reaching.
Then, today, I bumped into what may have been the last straw. I came across a blog called The Alternative Consumer, which seems to have a lot of overlap with this one (recent posts cover such topics as cordless electric lawn mowers and apps to help you recycle), and I noticed a link at the bottom that said the blog was #1 on this list of environmental blogs. So I started checking out some of the others on the list, and I found that there were several blogs right in the top ten list that don't even get as much traffic as this one. A site called Pays to Live Green, for instance, was listed at #5, and it's only had 845 page views in the last month, compared to 1,417 for Ecofrugal Living. In fact, Pays to Live Green hasn't even been updated since December 2010. Surely, I thought, if a site like that can make the Top 10, mine could do it. So I clicked on the link for "submit a blog," and I found that in order to submit your blog, you have to join the site as a member—which you can only do through, you guessed it, Facebook.
So now I'm truly torn. I find it easy enough to waste time on the Internet already, and I certainly don't need the massive time sink that Facebook is reputed to be. But is my resistance to Facebook actually hurting my career? Do I need to be spending those 2.5 hours a day on Facebook in order to attract readers, find clients, and "grow my business"? And perhaps most important, is there any way I can get the benefits of being Facebook-connected without having it eat my entire life?
What do you think, readers? Is it worth holding out, or should I just give in and be a rhinoceros?
That was just my initial reason for staying off Facebook, but as I've learned more about the company, I've felt less and less inclined to be a part of it. First there was all that news about privacy breaches and the use and possible abuse of users' personal data (though Facebook seems to have made some improvements in that area recently). Then there were all the stories I kept hearing about how much of your time Facebook eats up. The blogger on Live Like a Mensch estimated in this post that for her, it came to 2.5 hours every day. That's half as much as the time she spent each day on her job: writing and "legitimate Internet research," which she defined as "not Facebook." I already know how easily a simple Internet search can turn into an hourlong exploration of Internet wonders (case in point: I spent about half an hour just now trying to track down the blog post I just cited), so I figured I was better off staying off Facebook and putting those 2.5 hours a day to more productive use.
There have been times, however, when not having a Facebook account has proved to be a serious inconvenience. Retailers, for example, frequently offer coupons and special deals through their Facebook sites, requiring a "like" to unlock the deal. If you're not on Facebook, you can't get the coupon, period. I often get around this by borrowing the account of "Ordinary Human Smith," which my husband set up as a joke. The idea is that it belongs to an alien gathering information on us humans by posing, not very successfully, as a perfectly ordinary human, who enjoys all kinds of things that ordinary humans like. So it sort of makes sense that Ordinary Human Smith is perfectly willing to like any company that asks for a like in exchange for a coupon; if ordinary humans like it, Ordinary Human Smith likes it too.
More recently, I've also been running into the problem that many blogs and journals will no longer allow you to post comments on articles unless you sign in through Facebook. I occasionally borrow Ordinary Human Smith's account for this purpose too, but that means that I've left a lot of comments scattered across the Web under Ordinary Human Smith's name that really don't fit in at all with Ordinary Human Smith's persona. Besides, I'd really rather be leaving those comments under my own name, so that I could increase my visibility on the Internet and maybe help direct some traffic toward this blog.
Moreover, the freelance-related blogs newsletters I read, like Freelancers Union and The Freelancer, are always posting articles about the importance of social media for "building your brand" and connecting with potential clients. Some of them practically make it sound like these days, social media is the only way to attract business. I already have a LinkedIn account, but Facebook and Twitter are the sites that these blogs tend to talk up the most, presumably because they're the ones most people are using. So if I'm not using them too, apparently, there's this vast audience that I'm not reaching.
Then, today, I bumped into what may have been the last straw. I came across a blog called The Alternative Consumer, which seems to have a lot of overlap with this one (recent posts cover such topics as cordless electric lawn mowers and apps to help you recycle), and I noticed a link at the bottom that said the blog was #1 on this list of environmental blogs. So I started checking out some of the others on the list, and I found that there were several blogs right in the top ten list that don't even get as much traffic as this one. A site called Pays to Live Green, for instance, was listed at #5, and it's only had 845 page views in the last month, compared to 1,417 for Ecofrugal Living. In fact, Pays to Live Green hasn't even been updated since December 2010. Surely, I thought, if a site like that can make the Top 10, mine could do it. So I clicked on the link for "submit a blog," and I found that in order to submit your blog, you have to join the site as a member—which you can only do through, you guessed it, Facebook.
So now I'm truly torn. I find it easy enough to waste time on the Internet already, and I certainly don't need the massive time sink that Facebook is reputed to be. But is my resistance to Facebook actually hurting my career? Do I need to be spending those 2.5 hours a day on Facebook in order to attract readers, find clients, and "grow my business"? And perhaps most important, is there any way I can get the benefits of being Facebook-connected without having it eat my entire life?
What do you think, readers? Is it worth holding out, or should I just give in and be a rhinoceros?
Wednesday, February 19, 2014
Acts of Tax
As long as Brian and I have been a Married Couple Filing Jointly, doing our taxes has always been my job. The very first year we were married, which was also the first year I started working as a freelancer, we hired an accountant to help us over the complications of our new tax situation—but when we saw the $300 bill, we realized doing that every year wasn't going to be an option for us. So for the past eight years, I've done our taxes the cheap way: at home, on paper. I'd manually transfer all the numbers from all the forms we received to the 1040 and add everything up on my little pocket calculator, and then Brian would double-check my math before I popped the returns into their envelopes and took them down to the post office to send by Certified Mail to make sure they arrived safely. It was a bit of a hassle, sure, but it only took me a few hours to get everything done, so I figured I wouldn't have much to gain by shelling out $50 for a copy of TurboTax.
The process became a bit easier in 2010 when the IRS introduced its Free File Fillable Forms, which let me input everything directly on the screen and did the math for me—in some cases even picking up the total from one form, such as our Schedule A, and automatically inserting it in the appropriate place on the 1040. Using the Fillable Forms also allowed us to e-file our federal return, which saved us the cost of a certified letter and let us get our refund a bit faster (without actually forcing us to pay up any sooner if it turned out that we were the ones who owed money). Unfortunately, we couldn't do the same with our New Jersey tax return, as the free NJ Webfile service isn't available to folks who have business income (such as my freelance earnings) to report. So from 2010 through 2013, we continued to go old-school with our state taxes, filling out the forms by hand and sending them by certified snail-mail.
From time to time, I'd get offers from MyPoints for online tax filing services, some of which even offered to let me file my federal return for free (and tack on a state one for a modest fee). However, every time I gave one a try, I ran into a snag: it couldn't understand Brian's W-2. Apparently Rutgers fills out its W-2 forms in a way that's nonstandard (otherwise known as "wrong"), and when I attempted to copy the information from the form Rutgers gave us to the one on the screen, it didn't work. So I just assumed that these services weren't an option for us and consoled myself with the thought that sooner or later New Jersey would have to get with the program and introduce an e-filing option that worked for everyone. (Why continue paying people to process all those paper forms if they didn't have to?)
This year, however, when a MyPoints offer for the free edition of TaxAct popped up in my in-box again, I thought I'd give it just one more try. As usual, I ran into the snag with the W-2, but by examining TaxAct's instructions carefully, I was able to figure out where on the form the misplaced numbers actually were supposed to go and insert them there. After that, everything was pretty straightforward. The software walked me through the return with a series of questions about my tax situation, and its calculators automatically took care of all the time-consuming parts, like figuring out whether or not we needed to pay the much-loathed Alternative Minimum Tax. Whenever I got stuck (for example, because I needed a form that I hadn't received yet), I could just log out and come back in a few days, picking up right where I left off. The only annoying part was the repeated messages that kept popping up throughout the process promising me all kinds of benefits if I'd just pay an extra $13 to upgrade to the Deluxe Edition. But I just kept clicking "No thanks," and I got to the end of the federal return in much less time than I'd expected.
My original plan at this point was to just e-file the federal return, print out a copy for myself, and then fill out my New Jersey return in the usual way. However, TaxAct wouldn't let me file the federal tax return without first going through the questions for the state return. "Aha," I thought, "this must be how they make money offering their federal edition for free—they force people to complete the state return as well, so that most of them will just go ahead and file it." But I figured there was no point letting the time I'd already put in on the federal return go to waste, so I went ahead and answered the questions for the state return and was surprised to find that it took only a few minutes to get through them. The prospect of just paying the $15 to have the whole process done with began to look tempting. After all, I reasoned, when you factor in the $4 or so I normally spend on certified mail, plus the time required to fill out the return, review it, print it, seal it up, and take it to the post office, my hourly pay for redoing the whole return myself would probably be less than minimum wage. So after consulting with Brian, I concluded that maybe shelling out the $15 was a reasonable idea after all.
It turned out, however, that TaxAct had one more trick up its sleeve. We instructed the program to have our refunds directly deposited into our bank account, which is what we usually do if we happen to be getting any. In order to do this, we had to provide some information and then electronically sign a whole bunch of different forms agreeing to let TaxAct have access to our account—and way down at the bottom of the last form, where it would be easy to overlook if you had stopped paying attention at that point and just wanted to get it done already, was a note to the effect that there would be a $19 "handling fee" for TaxAct to process the deposit. And since we had two refunds coming to us (federal and state), naturally there would be two $19 handling fees. Ah, so that's how they're making money on this "free" service—by charging you to give you your money!
Fortunately, we spotted this little hidden charge before paying it, so we simply walked the program back several steps and told it to send us a check instead. We still had to pay the $15 for the state return, but given the amount of time the software saved us (or rather me) on filling out forms, we figured that was a reasonable amount to pay.
So my final verdict on TaxAct is that it actually is, on the whole, a better way to do taxes than filling everything out by hand. Yes, it costs $15 to do both returns, but $15 to have both returns done and out of the way in a couple of hours is pretty reasonable. I suspect, unless something better pops up, that this is going to become my new standard method of filling out my tax return each year, because it really was easier and quicker (at least once I got past the initial snag with the W-2 form). But I'll definitely make sure to read through every word of everything TaxAct asks me to sign to make sure they haven't slipped any new hidden fees into the agreement—and if they add one that I can't get around, it's back to the old paper forms for me.
The process became a bit easier in 2010 when the IRS introduced its Free File Fillable Forms, which let me input everything directly on the screen and did the math for me—in some cases even picking up the total from one form, such as our Schedule A, and automatically inserting it in the appropriate place on the 1040. Using the Fillable Forms also allowed us to e-file our federal return, which saved us the cost of a certified letter and let us get our refund a bit faster (without actually forcing us to pay up any sooner if it turned out that we were the ones who owed money). Unfortunately, we couldn't do the same with our New Jersey tax return, as the free NJ Webfile service isn't available to folks who have business income (such as my freelance earnings) to report. So from 2010 through 2013, we continued to go old-school with our state taxes, filling out the forms by hand and sending them by certified snail-mail.
From time to time, I'd get offers from MyPoints for online tax filing services, some of which even offered to let me file my federal return for free (and tack on a state one for a modest fee). However, every time I gave one a try, I ran into a snag: it couldn't understand Brian's W-2. Apparently Rutgers fills out its W-2 forms in a way that's nonstandard (otherwise known as "wrong"), and when I attempted to copy the information from the form Rutgers gave us to the one on the screen, it didn't work. So I just assumed that these services weren't an option for us and consoled myself with the thought that sooner or later New Jersey would have to get with the program and introduce an e-filing option that worked for everyone. (Why continue paying people to process all those paper forms if they didn't have to?)
This year, however, when a MyPoints offer for the free edition of TaxAct popped up in my in-box again, I thought I'd give it just one more try. As usual, I ran into the snag with the W-2, but by examining TaxAct's instructions carefully, I was able to figure out where on the form the misplaced numbers actually were supposed to go and insert them there. After that, everything was pretty straightforward. The software walked me through the return with a series of questions about my tax situation, and its calculators automatically took care of all the time-consuming parts, like figuring out whether or not we needed to pay the much-loathed Alternative Minimum Tax. Whenever I got stuck (for example, because I needed a form that I hadn't received yet), I could just log out and come back in a few days, picking up right where I left off. The only annoying part was the repeated messages that kept popping up throughout the process promising me all kinds of benefits if I'd just pay an extra $13 to upgrade to the Deluxe Edition. But I just kept clicking "No thanks," and I got to the end of the federal return in much less time than I'd expected.
My original plan at this point was to just e-file the federal return, print out a copy for myself, and then fill out my New Jersey return in the usual way. However, TaxAct wouldn't let me file the federal tax return without first going through the questions for the state return. "Aha," I thought, "this must be how they make money offering their federal edition for free—they force people to complete the state return as well, so that most of them will just go ahead and file it." But I figured there was no point letting the time I'd already put in on the federal return go to waste, so I went ahead and answered the questions for the state return and was surprised to find that it took only a few minutes to get through them. The prospect of just paying the $15 to have the whole process done with began to look tempting. After all, I reasoned, when you factor in the $4 or so I normally spend on certified mail, plus the time required to fill out the return, review it, print it, seal it up, and take it to the post office, my hourly pay for redoing the whole return myself would probably be less than minimum wage. So after consulting with Brian, I concluded that maybe shelling out the $15 was a reasonable idea after all.
It turned out, however, that TaxAct had one more trick up its sleeve. We instructed the program to have our refunds directly deposited into our bank account, which is what we usually do if we happen to be getting any. In order to do this, we had to provide some information and then electronically sign a whole bunch of different forms agreeing to let TaxAct have access to our account—and way down at the bottom of the last form, where it would be easy to overlook if you had stopped paying attention at that point and just wanted to get it done already, was a note to the effect that there would be a $19 "handling fee" for TaxAct to process the deposit. And since we had two refunds coming to us (federal and state), naturally there would be two $19 handling fees. Ah, so that's how they're making money on this "free" service—by charging you to give you your money!
Fortunately, we spotted this little hidden charge before paying it, so we simply walked the program back several steps and told it to send us a check instead. We still had to pay the $15 for the state return, but given the amount of time the software saved us (or rather me) on filling out forms, we figured that was a reasonable amount to pay.
So my final verdict on TaxAct is that it actually is, on the whole, a better way to do taxes than filling everything out by hand. Yes, it costs $15 to do both returns, but $15 to have both returns done and out of the way in a couple of hours is pretty reasonable. I suspect, unless something better pops up, that this is going to become my new standard method of filling out my tax return each year, because it really was easier and quicker (at least once I got past the initial snag with the W-2 form). But I'll definitely make sure to read through every word of everything TaxAct asks me to sign to make sure they haven't slipped any new hidden fees into the agreement—and if they add one that I can't get around, it's back to the old paper forms for me.
Thursday, December 5, 2013
If I Had $5000—Every Week
Back when I was a kid, the ultimate sum of money to imagine and fantasize about was one milllllion dollars. A cool million, the general assumption went, was more money than anyone could possibly need. With that kind of bucks, you'd never need to work another day in your life, you could buy everything you'd ever wanted, and you'd never have to worry about money ever again. Even when I was in college, the Barenaked Ladies were still singing about all the things they'd do if they had a million dollars, as if that were the ultimate in fantastic wealth. (All the items from this song appear in the "thousands" section of this massive and fascinating chart called "Money," from the webcomic XKCD.)
Times have certainly changed since then. Many online retirement calculators today will tell you that for a couple with a joint income of $75,000, a million in today's dollars isn't even enough to retire on. I happen to think these figures are bogus, since the amount you need in retirement should be based on how much you spend, not how much you make, but it still goes to show that one million dollars is no longer a sum that most people would consider fabulous wealth. You hardly ever hear anyone pronounce the word with all those extra l's anymore.
So how much money really is immense wealth—more than anyone could ever need? Well, the banner ad I just saw for the Publishers' Clearinghouse Sweepstakes suggests that the new figure is not a lump sum, but rather an income of "$5,000 a week for life." At first blush, $5,000 a week sounds like a much easier number to wrap your brain around than $1 million. After all, $5,000 is a number that most of us have at least seen; it might be a month's salary, or the amount in a checking account, or the amount left to pay on a student loan. It's a number we can relate to. But $5,000 a week? How on earth could you ever spend that kind of money? If we won that sweepstakes, we'd burn through our entire month's expenses in the first week with room to spare, and then the checks would just keep coming. I mean, with that kind of money, you could pay for a Caribbean vacation every week. You could buy a new Mercedes every fifteen weeks. You could put four kids through Harvard at the same time and still have $20,000 left over.
I know, however, that there are people who do make $5,000 a week—or $260,000 a year—and manage to spend it all, and I assume they're not actually doing any of these things. So I did a quick search and found an article on MSN money about how people live on $250,000 a year. And apparently, it's not nearly as easy to do as I would have thought. Some people, in fact, are actually struggling to get by on this income. The article discusses how a hypothetical family, the Joneses, would fare on $250,000 of combined income in eight different cities, and it found that in seven of the eight, the couple would actually be unable to make ends meet. The author insists that while this "may seem surprising," it's actually perfectly reasonable: between taxes, "maximizing contributions to two 401k's," and "squirreling away $8,000 a year for their kids' college educations," the family can't even afford such little luxuries as "monthly sessions at the hair colorist, or membership at a gym." Even their grocery expenditures fall into the "moderate-cost" monthly food plan, as calculated by the USDA, rather than the pricey "liberal" plan.
Unfortunately, this article doesn't actually break down the Joneses' budget, so it's hard to tell exactly where all the money is going. So I dug a little deeper and eventually found the original article from the Fiscal Times, which provides more details. It notes, for example, that only in some of the eight cities on the list would this couple actually be in the red after paying their taxes and "essential expenses for housing, groceries, child care, clothing, transportation—and their dog." But it goes on to claim that the couple would probably have to spend an additional $20,000 or so on "common additional expenses for a working couple with two children —music lessons, day camp costs...after-school sports, entertainment, cleaning services, gifts, and an annual week-long vacation." It notes somewhat defensively that while their estimates of $5,000 a year for house cleaning, $4,000 for after-school activities, and $1,200 a year for dry cleaning "may seem lavish," it's "impossible" for a family with two working parents to "maintain the home, care for the kids and dress for their professional jobs" on less.
All this completely baffled me, because I know plenty of two-earner couples who manage to do all of those things on incomes less than half the size of the Joneses'—in some cases, less than one-third or even one-fifth the size. Clearly, it is in fact possible. So what is it the Joneses are doing wrong? My first thought was that maybe their biggest problem was the places where they were choosing to live (or rather, where the researchers were choosing to locate them). After all, most cities are expensive to live in, but that's why people move to the suburbs—and there are always some suburbs that are pricier than others. For instance, a family home in Alexandria, VA, is going to cost considerably more than a similar home in a town outside the Beltway, like Franconia or Springfield. But surely a family that's actually getting deeper into debt every year would consider the longer commute a reasonable tradeoff, wouldn't you think?
So I selected the priciest town on the list—Huntington, NY—and started looking at real estate prices there to see how they'd compare to those in neighboring towns. But when I did a search on Zillow to find suitable homes for a family of four, with three or four bedrooms and two baths, I discovered that there were several houses this size priced between $400,000 and $600,000—expensive compared to many other parts of the country, but for Long Island, really not bad at all. I selected one house that looked nice for a family of four and found that the mortgage payments on it were around $21,000 and the property taxes were around $8,000. Yet the Fiscal Times article showed that the Joneses were spending $36,000 a year on mortgage payments in Huntington, and $15,000 a year in property taxes. So on housing alone, the authors have overestimated the Joneses' expenses by $22,000.
That wasn't quite enough to account for their budget shortfall of $27,000, but it made me wonder how many of the other numbers on the list were off-base as well. For instance, they've allowed a certain amount in the tax section for gas taxes, sales taxes, and phone service taxes—but aren't those costs already included in the family's budget under gas, food and clothing, etc? Have they deducted the taxes from their estimates for these expenses, or are they double-counting them? And then there's the figures for health insurance: why are they the same across the board? Shouldn't they differ from state to state? After all, the papers have had a lot to say lately about how Obamacare will most likely lower insurance premiums in some states and raise them in others; that can't be true if they're the same everywhere, can it? And looking further down, I see that the authors have also used the same numbers across the board for child care costs, after-school activities, utilities, food, clothing, travel, and entertainment. If those numbers don't vary from state to state, then it means the authors didn't base them on any kind of real-world data from the eight towns in question. So where did they come up with them? Well, funny thing, they don't say. Or rather, they have a list of sources at the bottom of the chart, but they don't say which number came from which source or provide any links to the sources cited—so there's really no way to check their facts.
So basically, I think these figures are highly suspect. However, even if they're completely made up, they do at least serve to provide an idea of what a $250,000-a-year budget would look like. So I guess the answer to my question is, if you need to come up with a way to spend $5,000 a week, just move to one of the eight cities on this list (and then have two kids, if you don't have them already).
Of course, none of this really answers the question of what we would do with $5,000 a week, since we don't have two kids and don't have any interest in moving to a pricier city (or even upgrading to a fancier house in the same town). But we do happen to have nine nieces and nephews, all of whom will most likely need to go to college in anywhere from eight to seventeen years. So most likely, the best use of our $5,000 a week would be:
Times have certainly changed since then. Many online retirement calculators today will tell you that for a couple with a joint income of $75,000, a million in today's dollars isn't even enough to retire on. I happen to think these figures are bogus, since the amount you need in retirement should be based on how much you spend, not how much you make, but it still goes to show that one million dollars is no longer a sum that most people would consider fabulous wealth. You hardly ever hear anyone pronounce the word with all those extra l's anymore.
So how much money really is immense wealth—more than anyone could ever need? Well, the banner ad I just saw for the Publishers' Clearinghouse Sweepstakes suggests that the new figure is not a lump sum, but rather an income of "$5,000 a week for life." At first blush, $5,000 a week sounds like a much easier number to wrap your brain around than $1 million. After all, $5,000 is a number that most of us have at least seen; it might be a month's salary, or the amount in a checking account, or the amount left to pay on a student loan. It's a number we can relate to. But $5,000 a week? How on earth could you ever spend that kind of money? If we won that sweepstakes, we'd burn through our entire month's expenses in the first week with room to spare, and then the checks would just keep coming. I mean, with that kind of money, you could pay for a Caribbean vacation every week. You could buy a new Mercedes every fifteen weeks. You could put four kids through Harvard at the same time and still have $20,000 left over.
I know, however, that there are people who do make $5,000 a week—or $260,000 a year—and manage to spend it all, and I assume they're not actually doing any of these things. So I did a quick search and found an article on MSN money about how people live on $250,000 a year. And apparently, it's not nearly as easy to do as I would have thought. Some people, in fact, are actually struggling to get by on this income. The article discusses how a hypothetical family, the Joneses, would fare on $250,000 of combined income in eight different cities, and it found that in seven of the eight, the couple would actually be unable to make ends meet. The author insists that while this "may seem surprising," it's actually perfectly reasonable: between taxes, "maximizing contributions to two 401k's," and "squirreling away $8,000 a year for their kids' college educations," the family can't even afford such little luxuries as "monthly sessions at the hair colorist, or membership at a gym." Even their grocery expenditures fall into the "moderate-cost" monthly food plan, as calculated by the USDA, rather than the pricey "liberal" plan.
Unfortunately, this article doesn't actually break down the Joneses' budget, so it's hard to tell exactly where all the money is going. So I dug a little deeper and eventually found the original article from the Fiscal Times, which provides more details. It notes, for example, that only in some of the eight cities on the list would this couple actually be in the red after paying their taxes and "essential expenses for housing, groceries, child care, clothing, transportation—and their dog." But it goes on to claim that the couple would probably have to spend an additional $20,000 or so on "common additional expenses for a working couple with two children —music lessons, day camp costs...after-school sports, entertainment, cleaning services, gifts, and an annual week-long vacation." It notes somewhat defensively that while their estimates of $5,000 a year for house cleaning, $4,000 for after-school activities, and $1,200 a year for dry cleaning "may seem lavish," it's "impossible" for a family with two working parents to "maintain the home, care for the kids and dress for their professional jobs" on less.
All this completely baffled me, because I know plenty of two-earner couples who manage to do all of those things on incomes less than half the size of the Joneses'—in some cases, less than one-third or even one-fifth the size. Clearly, it is in fact possible. So what is it the Joneses are doing wrong? My first thought was that maybe their biggest problem was the places where they were choosing to live (or rather, where the researchers were choosing to locate them). After all, most cities are expensive to live in, but that's why people move to the suburbs—and there are always some suburbs that are pricier than others. For instance, a family home in Alexandria, VA, is going to cost considerably more than a similar home in a town outside the Beltway, like Franconia or Springfield. But surely a family that's actually getting deeper into debt every year would consider the longer commute a reasonable tradeoff, wouldn't you think?
So I selected the priciest town on the list—Huntington, NY—and started looking at real estate prices there to see how they'd compare to those in neighboring towns. But when I did a search on Zillow to find suitable homes for a family of four, with three or four bedrooms and two baths, I discovered that there were several houses this size priced between $400,000 and $600,000—expensive compared to many other parts of the country, but for Long Island, really not bad at all. I selected one house that looked nice for a family of four and found that the mortgage payments on it were around $21,000 and the property taxes were around $8,000. Yet the Fiscal Times article showed that the Joneses were spending $36,000 a year on mortgage payments in Huntington, and $15,000 a year in property taxes. So on housing alone, the authors have overestimated the Joneses' expenses by $22,000.
That wasn't quite enough to account for their budget shortfall of $27,000, but it made me wonder how many of the other numbers on the list were off-base as well. For instance, they've allowed a certain amount in the tax section for gas taxes, sales taxes, and phone service taxes—but aren't those costs already included in the family's budget under gas, food and clothing, etc? Have they deducted the taxes from their estimates for these expenses, or are they double-counting them? And then there's the figures for health insurance: why are they the same across the board? Shouldn't they differ from state to state? After all, the papers have had a lot to say lately about how Obamacare will most likely lower insurance premiums in some states and raise them in others; that can't be true if they're the same everywhere, can it? And looking further down, I see that the authors have also used the same numbers across the board for child care costs, after-school activities, utilities, food, clothing, travel, and entertainment. If those numbers don't vary from state to state, then it means the authors didn't base them on any kind of real-world data from the eight towns in question. So where did they come up with them? Well, funny thing, they don't say. Or rather, they have a list of sources at the bottom of the chart, but they don't say which number came from which source or provide any links to the sources cited—so there's really no way to check their facts.
So basically, I think these figures are highly suspect. However, even if they're completely made up, they do at least serve to provide an idea of what a $250,000-a-year budget would look like. So I guess the answer to my question is, if you need to come up with a way to spend $5,000 a week, just move to one of the eight cities on this list (and then have two kids, if you don't have them already).
Of course, none of this really answers the question of what we would do with $5,000 a week, since we don't have two kids and don't have any interest in moving to a pricier city (or even upgrading to a fancier house in the same town). But we do happen to have nine nieces and nephews, all of whom will most likely need to go to college in anywhere from eight to seventeen years. So most likely, the best use of our $5,000 a week would be:
- First deduct the taxes, which come to around $60,000, depending on how much we deduct for heath care and charitable contributions and so on;
- Give a tenth of the remainder, or $20,000, to charity, since that's a nice round figure;
- Take out around $50,000 to pay for our living expenses (that's enough for all our current expenses, plus a generous sum each month to pay for private health insurance);
- Split the remaining $130,000 nine ways, which gives us $14,444 to set aside in a college fund for each of the kids. Or maybe pro-rate it somehow to set aside more for the older kids, who will need it sooner. After all, that $14,444 times eight years is only $115,552, and even at today's rates, that would only pay for two years of Harvard at most.
Friday, October 4, 2013
Moving the goalpost
It's been about a year now since I first noted that our goal of paying off our mortgage—up until then, the main target of all our efforts at saving—was coming into view out on the horizon, and started wondering what we should do with our money after that. Unlike many couples our age, we don't have any kids to put (or at least assist) through college, and while we do need to save for retirement, I was thinking of that as a goal that was still a couple of decades away at least. After all, I reasoned, we both like our jobs, so there's no reason to retire early...and even if we wanted to, we'd need at least one full-time job between us for the health benefits.
However, since then, I've learned three important things that have helped change my mind on this point:
However, since then, I've learned three important things that have helped change my mind on this point:
- While Brian is pretty happy with his job, he doesn't really love it so much that he'd definitely want to keep doing it even if we no longer needed the money. In fact, he would really like to have the option of retiring early, whether he decides to do it or not.
- Under Obamacare, our estimated cost for private health insurance will drop to about $7,750 per year. This, according to the Kaiser Family Foundation's Subsidy Calculator, is what the two of us would pay for a "Silver plan," which means one that would cover about 85 percent of our health expenses and would guarantee that our out-of-pocket expenses in a given year could not exceed $4,500. It's also nearly $4,000 less than the best price I could previously find at ehealthinsurance.com, an online shopping mall for health insurance. (I considered only those policies that actually had an out-of-pocket maximum, which was a surprisingly small percentage of them, considering that the whole point of insurance is to protect you against catastrophic costs.)
- If Brian were to lose (or give up) his job, we would also qualify for a health insurance subsidy. Based on my average annual income since I first became a freelancer, we could get about 80 percent of our insurance tab picked up by the government. This makes surviving on one income—or even no income—a much more realistic possibility.
So, now that we have finally succeeded in making our final mortgage payment, I'm officially setting my sights on a new goal: Financial Independence.
The term "financial independence," or FI, gets bandied about a lot in personal finance blogs and articles, and people use it in several different ways. The "Declaration of Financial Independence" on the Dollar Stretcher website lists a wide variety of criteria for FI, from "being comfortable with the things you have" to "having sufficient retirement savings." Trent Hamm of The Simple Dollar, in a 2008 post, gets a little more specific, outlining three different levels of financial independence. Level one is "freedom from financial reliance on loved ones" (i.e., earning enough to pay your own way); level two is "freedom from financial reliance on creditors" (being out of debt); and level three is "freedom from financial reliance on income" (having enough to retire whenever you choose). This third level is also the definition used by Amy Dacyczyn (all hail the Frugal Zealot!) in an article called "The Unemployment Opportunity," which appears in her third Tightwad Gazette book. This top level of financial independence—also known as being independently wealthy or having "walk away from it all money"—is what we're looking to as our new financial goal.
One point Dacyczyn notes in her article is that a key to achieving this level of FI is to reduce your living expenses as much as possible. The less you need to live on, the less you need to have saved up to provide you with enough interest to pay all the bills. In fact, when I started doing some very rough back-of-the-envelope calculations to estimate how many years it might take us to reach FI, I made an interesting discovery: when aiming for FI, cutting $5,000 from your annual expenses is much more beneficial than adding that same $5,000 to your income. One reason is that the extra $5,000 in earnings will be taxed (and since it's tacked on to your current income, all that extra money will go into your highest tax bracket). When you cut expenses by $5,000, by contrast, that whole amount goes into your savings. But even more importantly, reducing expenses helps you in two different ways: it both increases the amount you can save each year (speeding up the rate at which you can move toward your FI savings goal) and decreases the amount you need to live on (making the goal number itself smaller).
To illustrate, let's take an aspiring saver whom we'll call (what else) Rich. Rich currently earns $55K per year after taxes, of which he spends $30K and saves $25K. Assuming that his investments can bring in roughly 4 percent interest per year—a reasonably safe bet, based on the historical average for the federal funds rate—Rich would need $750K in the bank to bring in enough for him to live on ($750K times 4 percent equals $30K, the amount he spends now). Rich already has $250K socked away, so he needs an extra $500K to become financially independent. If he continues to save $25K per year, it will take him 20 years to reach this goal ($500K divided by $25K equals 20).
Now, suppose Rich gets a raise that increases his income to $60K a year (again, after taxes). Since FI is his goal, he pumps all this extra cash into savings, increasing his annual savings to $30K a year. With these increased savings, he'll need only 16.67 years to reach FI ($500K divided by $30K equals 16.67). So, he'll get there 3 years and 4 months sooner than he would without the raise, which is good news.
But, suppose that instead of earning an extra $5K, Rich had instead found a way to save an extra $5K each year by cutting his expenses. He's still saving $30K a year, but now his savings goal is lower: since he only needs $25K a year to live on, he only needs $625K to bring in that amount in interest. With the $250K he already has, he only needs to save an additional $375K. And if he's now saving $30K per year, he will reach that goal in just 12.5 years ($375K divided by $30K equals 12.5). This means that he's just shortened his time to FI by 7.5 years—more than twice as much as he was able to shorten it by earning an extra $5K.
So (to get back to a real-life example), I'm looking on the mortgage we've just freed ourselves from as our opportunity to be like Rich. It's reduced our annual expenses (since our only housing payment now is our property taxes), thus making FI a more reachable goal for us, while simultaneously boosting the amount that we can put away toward it each year. Now all I have to do is figure out the best way to invest that extra money so that we can move toward our new goal as steadily as possible.
The term "financial independence," or FI, gets bandied about a lot in personal finance blogs and articles, and people use it in several different ways. The "Declaration of Financial Independence" on the Dollar Stretcher website lists a wide variety of criteria for FI, from "being comfortable with the things you have" to "having sufficient retirement savings." Trent Hamm of The Simple Dollar, in a 2008 post, gets a little more specific, outlining three different levels of financial independence. Level one is "freedom from financial reliance on loved ones" (i.e., earning enough to pay your own way); level two is "freedom from financial reliance on creditors" (being out of debt); and level three is "freedom from financial reliance on income" (having enough to retire whenever you choose). This third level is also the definition used by Amy Dacyczyn (all hail the Frugal Zealot!) in an article called "The Unemployment Opportunity," which appears in her third Tightwad Gazette book. This top level of financial independence—also known as being independently wealthy or having "walk away from it all money"—is what we're looking to as our new financial goal.
One point Dacyczyn notes in her article is that a key to achieving this level of FI is to reduce your living expenses as much as possible. The less you need to live on, the less you need to have saved up to provide you with enough interest to pay all the bills. In fact, when I started doing some very rough back-of-the-envelope calculations to estimate how many years it might take us to reach FI, I made an interesting discovery: when aiming for FI, cutting $5,000 from your annual expenses is much more beneficial than adding that same $5,000 to your income. One reason is that the extra $5,000 in earnings will be taxed (and since it's tacked on to your current income, all that extra money will go into your highest tax bracket). When you cut expenses by $5,000, by contrast, that whole amount goes into your savings. But even more importantly, reducing expenses helps you in two different ways: it both increases the amount you can save each year (speeding up the rate at which you can move toward your FI savings goal) and decreases the amount you need to live on (making the goal number itself smaller).
To illustrate, let's take an aspiring saver whom we'll call (what else) Rich. Rich currently earns $55K per year after taxes, of which he spends $30K and saves $25K. Assuming that his investments can bring in roughly 4 percent interest per year—a reasonably safe bet, based on the historical average for the federal funds rate—Rich would need $750K in the bank to bring in enough for him to live on ($750K times 4 percent equals $30K, the amount he spends now). Rich already has $250K socked away, so he needs an extra $500K to become financially independent. If he continues to save $25K per year, it will take him 20 years to reach this goal ($500K divided by $25K equals 20).
Now, suppose Rich gets a raise that increases his income to $60K a year (again, after taxes). Since FI is his goal, he pumps all this extra cash into savings, increasing his annual savings to $30K a year. With these increased savings, he'll need only 16.67 years to reach FI ($500K divided by $30K equals 16.67). So, he'll get there 3 years and 4 months sooner than he would without the raise, which is good news.
But, suppose that instead of earning an extra $5K, Rich had instead found a way to save an extra $5K each year by cutting his expenses. He's still saving $30K a year, but now his savings goal is lower: since he only needs $25K a year to live on, he only needs $625K to bring in that amount in interest. With the $250K he already has, he only needs to save an additional $375K. And if he's now saving $30K per year, he will reach that goal in just 12.5 years ($375K divided by $30K equals 12.5). This means that he's just shortened his time to FI by 7.5 years—more than twice as much as he was able to shorten it by earning an extra $5K.
So (to get back to a real-life example), I'm looking on the mortgage we've just freed ourselves from as our opportunity to be like Rich. It's reduced our annual expenses (since our only housing payment now is our property taxes), thus making FI a more reachable goal for us, while simultaneously boosting the amount that we can put away toward it each year. Now all I have to do is figure out the best way to invest that extra money so that we can move toward our new goal as steadily as possible.
Wednesday, May 29, 2013
Necessities versus luxuries
About a week ago, the Live Like a Mensch blog ran a post arguing that the secret to living below your means is to lower your standards. The basic argument was that it's much easier to meet all your needs if you simply redefine certain necessities as luxuries. One example she gave from her own life was the 20-year-old Volvo that her husband drives despite the merciless teasing of friends and coworkers. For them, having a safe and reliable car is a necessity; having a car that looks good, or one that was built in this century, would be a luxury. She then invited her readers to name some things that they'd determined to be wants rather than needs, regardless of what others may think.
Interestingly, a similar question had been posed that same week in my Tip Hero newsletter: "What 'Necessity' Do You Think Is a Waste of Money?" Readers' responses included new clothes, coffeehouse brews, makeup, bottled water, paper towels, and high-end cell phones. It particularly interested me to see how the definition of a necessity differed from person to person. Some, for instance, declared a cell phone to be a luxury rather than a necessity, while others said that a landline phone was a luxury because they can use their cell (or VOIP) for everything. One reader declared central air conditioning a luxury, while readers who lived in South Carolina and Texas insisted that air conditioning was a necessity for them.
All this got me thinking, as I often have before, about where the line between luxuries and necessities lies in my own life. I suspect that many of the things I consider luxuries would be necessities for many of my peers, yet some of the things that are necessities for me might be luxuries for others. For example:
None of this is meant as an argument that the only things worth spending money on are necessities. On the contrary, for me the main point of frugality is that it frees up money to spend on things that are important to you, and that category is bound to include some luxuries along with the necessities. As Rose Schneiderman observed back in 1911, "The worker must have bread, but she must also have roses." We all need to feed our souls, as well as our bodies. The meaning of frugality is not, and never should be, to do without roses; it's to provide both bread and roses in as inexpensive and sustainable a way as possible. Homemade Golden Egg Bread, for instance, at about 85 cents a loaf, and roses cut from our very own backyard rosebush for free.
Interestingly, a similar question had been posed that same week in my Tip Hero newsletter: "What 'Necessity' Do You Think Is a Waste of Money?" Readers' responses included new clothes, coffeehouse brews, makeup, bottled water, paper towels, and high-end cell phones. It particularly interested me to see how the definition of a necessity differed from person to person. Some, for instance, declared a cell phone to be a luxury rather than a necessity, while others said that a landline phone was a luxury because they can use their cell (or VOIP) for everything. One reader declared central air conditioning a luxury, while readers who lived in South Carolina and Texas insisted that air conditioning was a necessity for them.
All this got me thinking, as I often have before, about where the line between luxuries and necessities lies in my own life. I suspect that many of the things I consider luxuries would be necessities for many of my peers, yet some of the things that are necessities for me might be luxuries for others. For example:
- High-speed Internet is a necessity; I've tried working from home without it, and it literally wasn't feasible. Cable TV, by contrast, is a luxury—especially since we already have high-speed Internet, which gives us access to nearly as rich a field of entertainment choices.
- A landline phone is a necessity; a cell phone is a luxury. This, again, is because of my job. It's essential to me to have a reliable connection in my home, which is also my workplace, but it's not important—or even desirable—to be reachable everywhere I go. For someone with a different job, one that required them to be on the road a lot, the cell phone might be a necessity and the landline a luxury.
- Central heating in my home is a necessity; air conditioning is a luxury. (An air conditioner in my car, by contrast, I consider a necessity—not so much for cooling as for defogging the windows. Around here, heat is unpleasant but not usually dangerous, while windows you can't see through can be deadly.)
- Hot and cold running water is a necessity. Separate sinks in the bathroom are a luxury.
- A dishwasher is a luxury. A microwave oven is a necessity.
- Having all the meats we purchase be free-range/humanely raised is a necessity, though it isn't a necessity to eat very much of them. Convenience foods of all kinds are luxuries. (Well, maybe not breakfast cereal.)
None of this is meant as an argument that the only things worth spending money on are necessities. On the contrary, for me the main point of frugality is that it frees up money to spend on things that are important to you, and that category is bound to include some luxuries along with the necessities. As Rose Schneiderman observed back in 1911, "The worker must have bread, but she must also have roses." We all need to feed our souls, as well as our bodies. The meaning of frugality is not, and never should be, to do without roses; it's to provide both bread and roses in as inexpensive and sustainable a way as possible. Homemade Golden Egg Bread, for instance, at about 85 cents a loaf, and roses cut from our very own backyard rosebush for free.
Sunday, November 18, 2012
Blessings large and small
It's once again that time of year when we reflect, in between bites of turkey and cranberries, on all the things we have to be thankful for. This year, I obviously have one really big cause for gratitude in the fact that Brian and I got off so lightly from "Superstorm" Sandy. More than 100 Americans died as a result of this storm; hundreds of homes were destroyed; here in our own town, many residents were without power for a week in the middle of a cold snap. Here, we were without power for less than 48 hours; our only losses were a pint of milk (which might actually have been still drinkable, but we didn't risk it) and a crotchety old inkjet printer that was on its last legs anyway. No question, we got off cheap.
Yet it occurred to me, as I was taking a shower the other day, that there are a powerful lot of much smaller blessings that it's easy to overlook because we're so used to them. I can take a hot shower every single day if I want to, and dry off with the biggest, fluffiest towel IKEA has to offer. That's a luxury that even the richest of the rich couldn't have imagined just a few hundred years ago, and that would be beyond the dreams of millions of the world's people even today. Yet most days, I don't even pause to think about how lucky I am to be able to enjoy it.
So this year, my Thanksgiving list is going to focus on the little things—the small blessings it's all too easy to take for granted. By focusing my attention on them for this one day, maybe I can help myself be more aware of them on every other day. So....
I'm thankful that simply by flipping a switch, we can have more than enough light to read, cook, play, and (if necessary) work long past sundown.
I'm thankful that, no matter how much I complain about being cold in my office even with four layers of clothing on, I do actually have the option of turning up the heat if I really need to.
I'm thankful that we not only have plenty of food to eat, but plenty of delicious food to eat every day of the week. (Recent meals include pasta a la Caprese, made with the last of our tomato crop, and homemade chicken pot pie, made with humanely raised chicken.)
I'm thankful that Brian's job provides us with good health insurance at an affordable cost.
I'm thankful that we have the biggest library in history—which is also the world's biggest shopping mall, movie theater, road atlas, news source, and a veritable gold mine of bizarre facts and other diversions—at our fingertips.
I'm thankful that we have enough money to feel no guilt about discarding a pint of so-called chocolate-peppermint coffee creamer, a "seasonal item" that I was initially thrilled to find for a buck fifty at the Aldi, only to discover upon tasting it that I could discern no trace of either chocolate or peppermint in the flavor and the mouthfeel was a bit like melted Crisco. (And I'm positively gleeful that I was able to replace it, today, with a pint of Bailey's coffee creamer—normally $2.59 at the Stop & Shop, on sale this week for $1.50, a mere 50 cents with my dollar-off coupon, and 45 cents after deducting a nickel for our reusable shopping bag.)
I'm thankful that, with Thanksgiving still four days away, we already have most of our holiday shopping done, and thus will have no need to go anywhere near a mall on Black Friday.
I'm thankful that it's still warm enough out this weekend to hang one more (possibly last) load of laundry on the line—and that when it's no longer warm enough, or when it just isn't convenient, I can simply toss it all in the dryer instead.
And I'm thankful that, with so many things to be thankful for, there are probably hundreds more that I just can't think of right now.
Happy Thanksgiving!
Yet it occurred to me, as I was taking a shower the other day, that there are a powerful lot of much smaller blessings that it's easy to overlook because we're so used to them. I can take a hot shower every single day if I want to, and dry off with the biggest, fluffiest towel IKEA has to offer. That's a luxury that even the richest of the rich couldn't have imagined just a few hundred years ago, and that would be beyond the dreams of millions of the world's people even today. Yet most days, I don't even pause to think about how lucky I am to be able to enjoy it.
So this year, my Thanksgiving list is going to focus on the little things—the small blessings it's all too easy to take for granted. By focusing my attention on them for this one day, maybe I can help myself be more aware of them on every other day. So....
I'm thankful that simply by flipping a switch, we can have more than enough light to read, cook, play, and (if necessary) work long past sundown.
I'm thankful that, no matter how much I complain about being cold in my office even with four layers of clothing on, I do actually have the option of turning up the heat if I really need to.
I'm thankful that we not only have plenty of food to eat, but plenty of delicious food to eat every day of the week. (Recent meals include pasta a la Caprese, made with the last of our tomato crop, and homemade chicken pot pie, made with humanely raised chicken.)
I'm thankful that Brian's job provides us with good health insurance at an affordable cost.
I'm thankful that we have the biggest library in history—which is also the world's biggest shopping mall, movie theater, road atlas, news source, and a veritable gold mine of bizarre facts and other diversions—at our fingertips.
I'm thankful that we have enough money to feel no guilt about discarding a pint of so-called chocolate-peppermint coffee creamer, a "seasonal item" that I was initially thrilled to find for a buck fifty at the Aldi, only to discover upon tasting it that I could discern no trace of either chocolate or peppermint in the flavor and the mouthfeel was a bit like melted Crisco. (And I'm positively gleeful that I was able to replace it, today, with a pint of Bailey's coffee creamer—normally $2.59 at the Stop & Shop, on sale this week for $1.50, a mere 50 cents with my dollar-off coupon, and 45 cents after deducting a nickel for our reusable shopping bag.)
I'm thankful that, with Thanksgiving still four days away, we already have most of our holiday shopping done, and thus will have no need to go anywhere near a mall on Black Friday.
I'm thankful that it's still warm enough out this weekend to hang one more (possibly last) load of laundry on the line—and that when it's no longer warm enough, or when it just isn't convenient, I can simply toss it all in the dryer instead.
And I'm thankful that, with so many things to be thankful for, there are probably hundreds more that I just can't think of right now.
Happy Thanksgiving!
Monday, August 6, 2012
Who wants to not spend like a millionaire?
Here's what the Washington Post had to say yesterday on "the delicate politics of wealth and class":
But for me, those two initial paragraphs just stuck in my throat. Because the simple truth is, I don't want the pony, nor the Jet Ski, nor the big house, big car and elevator in the garage. The idea of "casually throwing around $10,000 bets" and "owning a couple of Caddies" doesn't appeal to me in the least. So either the article is wrong about what Americans want—or else it's me, rather than Mitt, who is completely out of touch with the mainstream culture. An American anomaly. A freak.
Mind you, I'm not trying to suggest that I object in the least to having a nice, healthy balance at the bank. After all, what are all my frugal efforts for, if not to improve my financial condition? I don't even object to the idea of having a big enough amount to my name (say, a round million) to be considered "rich." What bothers me is the assumption that not only I should want to be rich, but the reason I should want to be rich is so that I can own lots of fancy toys (the pony, the Jet Ski, the Caddies, and so on). Indeed, the article seems to be working from the assumption that this is what "being rich" means.
Now, I can think of lots of good reasons for wanting to be rich, but a Jet Ski doesn't appear anywhere on the list. For me, the chief benefit of wealth would be never needing to worry about money. It would mean knowing that we can survive any financial crisis—a job loss, a natural disaster, a major health problem—without losing our home or having to tighten our belts to the breaking point. It would allow us to enjoy our jobs more by turning them into a choice—something we do because we want to, not because we need them to pay the bills. And it would give us the freedom to spend freely on the things that matter to us most, such as making our home beautiful and sustainable, supporting local businesses and organic farms, and donating to charities. Oh, sure, we'd probably buy more treats for ourselves, too—dinners out, concert and theater tickets, maybe even buying new clothes before our old ones have worn out—but I just can't imagine either of us developing a sudden hankering for a pony simply because we could afford one.
In fact, I would say that having this kind of wealth—more commonly known as financial security—generally means not spending a lot on fancy toys. If you want to be able to live entirely off your investments, without having to rely on a salary, there are two ways to do it: build up your nest egg to the point that the income it brings in is sufficient to support a lavish lifestyle, or pare down your expenditures to the point that you can live off the interest from a much smaller sum. And at today's pitiful interest rates, the latter approach is a lot easier. (This is the route to financial independence touted by Joe Dominguez and Vicki Robin in their hugely successful self-help book, Your Money or Your Life.) So for me, the whole point of being rich is having enough to support a modest lifestyle without additional income, not having enough to put an elevator in my air-conditioned garage.
Does this mean I'm out of touch with America? Well, maybe, but I'm not entirely convinced. The statistics cited in the article show that Americans have no problem with the idea of wealth as such and, indeed, aspire to become rich themselves—but nowhere do they show that the average American's idea of what it means to be rich is a huge house, several huge cars, and an Olympic-caliber racehorse. In fact, the very Gallup poll cited in the article finds that most Americans, while saying they would like to become rich one day, do not actually believe that the rich are happier. The Gallup folks suggest several possible reasons for this discrepancy: "Americans who are not rich may simply not want to concede that they are missing out on something that would make them happier, or they may perceive that being rich carries with it new problems or that happiness is related to much more than wealth." However, here's another possible interpretation that might make sense of the findings: "Sure, I'd like to be rich, but I don't think most of the rich people we have now are actually making themselves happier with their money. As far as I can see, they just spend it all on great big houses and Jet Skis. I bet I could do a lot better with it myself."
We want the pony. We want the Jet Ski. We want the big house on the beach, the big account at the bank (Swiss or otherwise), the big car in the garage (especially if that garage comes equipped with a super-cool elevator that lifts the car from one floor to the next.)
Face it, we want what Mitt Romney has — we want to be rich. Americans don’t just want to be rich — when we’re young and looking ahead at our lives, many of us really believe we will become rich. It’s in our national DNA. An American Dreamscape of private jets and bubbly...Wouldn’t you like to be able to casually throw around $10,000 bets, own a couple of Caddies, haul in a few hundred grand to give a few speeches? And would it matter to you whether you made your dough building widgets or buying and selling shares in a widget-manufacturing company, hitting a baseball or collecting an inheritance?The rest of the article explores the question of why Mitt Romney is taking so much flak for being a clueless rich guy who doesn't understand the problems of the common man, considering that what the common man really wants is to be just like Mitt. It's an interesting point—if you accept the initial premise, which is that what all Americans want, deep down, is immense wealth. And the article does back up this claim to a certain extent, producing poll numbers to prove that over 60 percent of Americans think it's good for the country to have "a class of rich people" and more than half of all young adults believe they will one day be rich (in the face of overwhelming evidence to the contrary).
But for me, those two initial paragraphs just stuck in my throat. Because the simple truth is, I don't want the pony, nor the Jet Ski, nor the big house, big car and elevator in the garage. The idea of "casually throwing around $10,000 bets" and "owning a couple of Caddies" doesn't appeal to me in the least. So either the article is wrong about what Americans want—or else it's me, rather than Mitt, who is completely out of touch with the mainstream culture. An American anomaly. A freak.
Mind you, I'm not trying to suggest that I object in the least to having a nice, healthy balance at the bank. After all, what are all my frugal efforts for, if not to improve my financial condition? I don't even object to the idea of having a big enough amount to my name (say, a round million) to be considered "rich." What bothers me is the assumption that not only I should want to be rich, but the reason I should want to be rich is so that I can own lots of fancy toys (the pony, the Jet Ski, the Caddies, and so on). Indeed, the article seems to be working from the assumption that this is what "being rich" means.
Now, I can think of lots of good reasons for wanting to be rich, but a Jet Ski doesn't appear anywhere on the list. For me, the chief benefit of wealth would be never needing to worry about money. It would mean knowing that we can survive any financial crisis—a job loss, a natural disaster, a major health problem—without losing our home or having to tighten our belts to the breaking point. It would allow us to enjoy our jobs more by turning them into a choice—something we do because we want to, not because we need them to pay the bills. And it would give us the freedom to spend freely on the things that matter to us most, such as making our home beautiful and sustainable, supporting local businesses and organic farms, and donating to charities. Oh, sure, we'd probably buy more treats for ourselves, too—dinners out, concert and theater tickets, maybe even buying new clothes before our old ones have worn out—but I just can't imagine either of us developing a sudden hankering for a pony simply because we could afford one.
In fact, I would say that having this kind of wealth—more commonly known as financial security—generally means not spending a lot on fancy toys. If you want to be able to live entirely off your investments, without having to rely on a salary, there are two ways to do it: build up your nest egg to the point that the income it brings in is sufficient to support a lavish lifestyle, or pare down your expenditures to the point that you can live off the interest from a much smaller sum. And at today's pitiful interest rates, the latter approach is a lot easier. (This is the route to financial independence touted by Joe Dominguez and Vicki Robin in their hugely successful self-help book, Your Money or Your Life.) So for me, the whole point of being rich is having enough to support a modest lifestyle without additional income, not having enough to put an elevator in my air-conditioned garage.
Does this mean I'm out of touch with America? Well, maybe, but I'm not entirely convinced. The statistics cited in the article show that Americans have no problem with the idea of wealth as such and, indeed, aspire to become rich themselves—but nowhere do they show that the average American's idea of what it means to be rich is a huge house, several huge cars, and an Olympic-caliber racehorse. In fact, the very Gallup poll cited in the article finds that most Americans, while saying they would like to become rich one day, do not actually believe that the rich are happier. The Gallup folks suggest several possible reasons for this discrepancy: "Americans who are not rich may simply not want to concede that they are missing out on something that would make them happier, or they may perceive that being rich carries with it new problems or that happiness is related to much more than wealth." However, here's another possible interpretation that might make sense of the findings: "Sure, I'd like to be rich, but I don't think most of the rich people we have now are actually making themselves happier with their money. As far as I can see, they just spend it all on great big houses and Jet Skis. I bet I could do a lot better with it myself."
Monday, February 20, 2012
Thought for today
My favorite cryptograms site just presented me with this interesting quotation from Eric Butterworth (a New Age theologian and minister in the Unity Church, not to be confused with the more mainstream Unitarian Universalist Church):
I'm certainly not as extreme in my own frugal practices as Diogenes. I own a lot more than one suit of clothes—but I am in the process of cleaning out my closet, because I've concluded that I'll be happier with, say, 20 garments that fit and look good than with 40, half of which are uncomfortable or unflattering. I own a house—but I deliberately chose a small house with few amenities, rather than going deeper into debt to own a big, luxurious palace with half the rooms reserved for "special occasions." I haven't attempted to eliminate all my desires—in fact, in a way, I think I'm happier having something to wish for and work for. But I have found that it's a lot easier to get rich by being happy with a small house and a pared-down wardrobe than it is to get rich by earning millions of dollars to satisfy an ever-growing appetite for luxury.
Prosperity is a way of living and thinking, and not just money or things. Poverty is a way of living and thinking, and not just a lack of money or things.This is hardly a new idea; in fact, various forms of it have been attributed to many writers and thinkers through the ages. The philosopher Diogenes, for instance, claimed that the key to happiness lay in desiring little, so that you could always have everything you wanted with little effort. According to one story, Diogenes owned nothing but the clothes on his back and a wooden cup, and when he saw another man drinking water out of his hands, he threw away the cup. By his interpretation, this act didn't make him a poorer man; instead, the discovery that it was possible to drink without a cup made him richer, since it gave him the ability to be content with even less. Similar ideas show up in the writings of Lao Tzu, Thoreau, and lots of others, Eastern and Western, ancient and modern.
I'm certainly not as extreme in my own frugal practices as Diogenes. I own a lot more than one suit of clothes—but I am in the process of cleaning out my closet, because I've concluded that I'll be happier with, say, 20 garments that fit and look good than with 40, half of which are uncomfortable or unflattering. I own a house—but I deliberately chose a small house with few amenities, rather than going deeper into debt to own a big, luxurious palace with half the rooms reserved for "special occasions." I haven't attempted to eliminate all my desires—in fact, in a way, I think I'm happier having something to wish for and work for. But I have found that it's a lot easier to get rich by being happy with a small house and a pared-down wardrobe than it is to get rich by earning millions of dollars to satisfy an ever-growing appetite for luxury.
Monday, January 9, 2012
Can money buy happiness? Sometimes.
This weekend's Washington Post had an interesting article on "happiness economics," a hot new field in which researchers try to apply modern methods of analysis to the age-old question, "Can money buy happiness?" The best answer they've come up with so far, apparently, is "Yes, up to a point." But it's the ifs and buts surrounding that answer that make it so intriguing. The article cites several specific discoveries the happiness economists have made:
(Postscript: talking of the downstairs bathroom, the final piece that was missing—a threshold for the door—finally fell into place last weekend. Well, it didn't so much fall as Brian put it there, with the help of his new power saw and some cement screws. But the point is that we now have one entire room in our house that is actually, totally done—after being "almost done" for more than nine months. Yay! Only eight more "almost done" rooms to go...)
- Increased income does correlate to an increase in "day to day happiness," up to around $75,000 per year. Beyond that, there's no link between more money and more happiness.
- However, "life satisfaction" does go up with increased income, no matter how much you were making to start with, because getting a raise makes people feel more successful. This is a pretty startling conclusion when you think about it: beyond the $75,000 cutoff, more money doesn't actually make people happier, but it makes them think they must be happier. Thus, people may continue to pursue ever-increasing incomes, even beyond the point when working longer hours to earn more money actually starts to impair their quality of life.
- While people may increase their "life satisfaction" as a result of making more money, they won't increase it by spending more money on material goods. Humans' amazing ability to adapt to new situations means that we quickly adjust to any change in our standard of living, for better or worse. This is good, because it means that when we suffer a financial setback, we get used to it pretty quickly and our reduced circumstances don't seem so bad. But it also means that when we buy a new toy, the pleasure we get out of it is pretty short-lived. Then we adjust to the new situation and start taking it for granted. Or, as my favorite financial guru, Andrew Tobias, puts it, "A luxury once sampled becomes a necessity." (Well, if it's a luxury you actually like, at least. No matter how many times I sample fine wines, they all just taste to me like grape juice that's gone off.)
- However, people can get long-lasting pleasure by spending their money, not on stuff, but on experiences. That's because, first of all, they can get pleasure out of recalling and discussing them with friends in a way that they don't tend to discuss, say, a new TV set; and second, it's harder to make direct comparisons between your experiences and someone else's. If you've bought a new large-screen TV and your neighbor goes out and gets one that's even bigger, you may no longer feel as happy with yours—but if you went backpacking in Utah while your neighbor went surfing in Malibu, who's to say whose experience was "better"? It's easier to enjoy looking at each other's vacation photos without seeing it as a competition, so your satisfaction is enhanced by sharing, rather than diminished.
(Postscript: talking of the downstairs bathroom, the final piece that was missing—a threshold for the door—finally fell into place last weekend. Well, it didn't so much fall as Brian put it there, with the help of his new power saw and some cement screws. But the point is that we now have one entire room in our house that is actually, totally done—after being "almost done" for more than nine months. Yay! Only eight more "almost done" rooms to go...)
Tuesday, December 6, 2011
Ecofrugal spirits in the material world
Just a quick post today to link to this cute little video produced by the Center for a New American Dream: "The High Price of Materialism." It's about the ways in which materialistic values and a lifestyle that centers around money are harmful to individuals and to society as a whole. One of the points it makes is that the more emphasis a society places on materialistic values, the less it places on "pro-social" values. That is, the more people care about money, the less they care about other people and about the environment. By the same token, when people focus more on "intrinsic values" such as "personal, social, and ecological well-being," they become less interested in materialism. This struck me as a very concise illustration of why the "eco" and "frugal" halves of frugality are natural allies: less spending means less waste and less damage to the environment.
It also, apparently, means a higher quality of life. In the video, psychologist Tim Kasser explains that the more people value money and material goods, the less happy they tend to be with their lives. By contrast, building a life that "expresses your intrinsic values"—more time with loved ones, meaningful work (even if it comes with a lower salary), and involvement in causes you care about—boosts quality of life in ways that more income, more expenses, and more material goodies can't. In fact, the research cited in the video indicates that not only is "eco" a natural companion for "frugal," but also that the word "frugal" itself, in its truest sense, refers not to deprivation, but to enrichment. In the modern world, frugality really does live up to the ancient origins of its Latin root, frux, meaning fruit: a frugal life is also a fruitful life, filled with joy and abundance that mere "stuff" can't provide.
It also, apparently, means a higher quality of life. In the video, psychologist Tim Kasser explains that the more people value money and material goods, the less happy they tend to be with their lives. By contrast, building a life that "expresses your intrinsic values"—more time with loved ones, meaningful work (even if it comes with a lower salary), and involvement in causes you care about—boosts quality of life in ways that more income, more expenses, and more material goodies can't. In fact, the research cited in the video indicates that not only is "eco" a natural companion for "frugal," but also that the word "frugal" itself, in its truest sense, refers not to deprivation, but to enrichment. In the modern world, frugality really does live up to the ancient origins of its Latin root, frux, meaning fruit: a frugal life is also a fruitful life, filled with joy and abundance that mere "stuff" can't provide.
Saturday, March 27, 2010
Luxury
Every so often, usually while taking a shower, I'll be struck by the thought of just how luxurious my lifestyle is. That may sound odd coming from someone who lives without so many of the amenities that lots of her peers think of as necessities of life (air conditioning, cable TV, convenience foods, and so on). And indeed, I'm well aware that I'm not nearly so extravagant in my habits as most Americans of my age and income level. Yet compared with most of the people who have ever lived, I live in positive luxury. Consider, for example: I take a hot shower almost every morning. Now, cast your mind back to the Little House series by Laura Ingalls Wilder, if you've ever read it. That family had to haul every bit of its water from a stream or a well, and to heat it one kettleful at a time on the stove before pouring it into the bathtub. Considering what an undertaking that was, they naturally couldn't think of doing it every day. The whole family bathed once a week, on Saturday night (so they'd be clean for Sunday), and they all took turns in a single tub of water. Now granted, the Ingalls family wasn't rich, even for their own time, but 150 years ago, even those who were rich enough to have servants draw a bath for them couldn't expect them to stand there pouring hot water over their bodies continually. Yet I not only spend five minutes each day under a stream of hot water but take this blessing almost entirely for granted and get grumpy if the water supply fails for any reason.
Perhaps this kind of thing is the reason for the saying, "A luxury once tasted becomes a necessity" (which I've seen attributed variously to Oscar Wilde, George Bernard Shaw, Alex Berenson, and "the Greeks"). I first encountered this line in Andrew Tobias's modestly titled The Only Investment Guide You'll Ever Need (an excellent volume that I may get around to reviewing in a future post), and at the time, I didn't quite see the point of it. I've certainly sampled luxuries in my life—from champagne to silk underwear—that I felt I could go on living quite happily without. Yet I often forget how many of my own personal "necessities," like hot showers and electric lights and high-speed Internet, are really luxuries. I don't always appreciate what a treat it is to be able to sit up reading long after the sun has gone down, or to enjoy a cup of hot cocoa every morning even though the nearest cacao plantations are over a thousand miles away, or to type in a phrase like "when was the shower invented" or "where is cacao grown" into Google and find an answer in seconds.
Maybe the saying really ought to be, "A luxury once accustomed becomes a necessity." I can easily live without luxuries I've tried once and been indifferent to; I can even live easily without luxuries I've tried once and enjoyed purely as a change of pace. But a luxury that's become part of my daily life is truly hard to give up.
So while I have no intention of foregoing my daily shower, I guess I should at least try to make a point of appreciating it.
Perhaps this kind of thing is the reason for the saying, "A luxury once tasted becomes a necessity" (which I've seen attributed variously to Oscar Wilde, George Bernard Shaw, Alex Berenson, and "the Greeks"). I first encountered this line in Andrew Tobias's modestly titled The Only Investment Guide You'll Ever Need (an excellent volume that I may get around to reviewing in a future post), and at the time, I didn't quite see the point of it. I've certainly sampled luxuries in my life—from champagne to silk underwear—that I felt I could go on living quite happily without. Yet I often forget how many of my own personal "necessities," like hot showers and electric lights and high-speed Internet, are really luxuries. I don't always appreciate what a treat it is to be able to sit up reading long after the sun has gone down, or to enjoy a cup of hot cocoa every morning even though the nearest cacao plantations are over a thousand miles away, or to type in a phrase like "when was the shower invented" or "where is cacao grown" into Google and find an answer in seconds.
Maybe the saying really ought to be, "A luxury once accustomed becomes a necessity." I can easily live without luxuries I've tried once and been indifferent to; I can even live easily without luxuries I've tried once and enjoyed purely as a change of pace. But a luxury that's become part of my daily life is truly hard to give up.
So while I have no intention of foregoing my daily shower, I guess I should at least try to make a point of appreciating it.
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