Coffee heat rising

Financial Freedom: Building the bankroll, part 1

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In the quest for financial freedom—the search for a way off the day-job treadmill—it’s important to build the habit of living not just within your means but below your means.

When you live within your means, you spend no more than you earn. In living below your means, however, you spend less than you earn. This allows you to put money aside for future use; to wit, early retirement. The scheme is pretty simple:

• Live below your means;
• Save a specific amount each month;
• Also set aside whatever else you don’t spend;
• Stash your savings in investments and leave it there.

Saving is a strategy you can start at quite a young age, from the moment you begin to earn. My first full-time job paid a grandiose $300 a month. After paying the rent, I had $200 to live on. From that I budgeted $15 to buy myself some clothes or shoes and $20 to put into savings. Following the old adage, I always paid myself first. We didn’t have automatic electronic funds transfers in those days; I had to physically go into the bank to deposit my paycheck, and while I was there I had a share of it deposited to a savings account. If I hadn’t spent the previous month’s clothing budget, I transferred that or the amount remaining from it to savings, too. I still do the same today, only instead of $20 I put aside $200 plus anything else that doesn’t get spent.

It doesn’t sound like much, but over time it adds up. And when you’re young, your greatest financial asset is time. Twenty dollars a month invested at 8 percent starting in, say, 1967, when I began working, today would amount to $89,498.86. If you began investing $200 a month today and worked for twenty years, in 2030 you’d have $117,804. That’s a respectable amount, especially if you’re saving from after-tax income so that this is on top of your 401(k) or 403(b).

Yes. That’s what I’m talking about here: not only investing before-tax income in whatever savings plan your employer offers, but also setting aside something from take-home pay.

For most people, $200 a month is minimal. In fact, while I was still working I was setting aside about $370 a month, plus whatever was left over from my general operating expenses. Over 20 years at 8 percent, $370 a month would add up to $217,937.55—about as much as my 403(b) accrued in 15 years with matching contributions from my employer. In other words, the habit of saving and investing on your own can double your retirement savings…and at least some of it will be in instruments that you can access before age 59½, a crucial factor for those of us who do not intend to stay in the traces until we drop.

Even if your earnings are modest, it’s surprising how many ways you can find to unearth cash for savings and investment.

If you’ve recently succeeded in paying off debt, then you know that you can break loose a certain number of dollars from your income for purposes other than mere survival and indulgence. If that’s your case, instead of diddling away the newly freed-up income that you were having to use to service debt, put it into savings.

If you’re using the “snowball” approach to debt payoff, once you’re out from under the debt, put the snowballs into savings. If you’ve “snowflaked” debt away, keep on putting every little windfall aside, only put it into savings and investments.

Similarly, when you get a raise or move to a better-paying job, don’t change your standard of living. Put the increase into savings.

More proactively, start a side income stream and invest all the after-tax proceeds for the future. My freelance endeavors, for example, have earned around $8,000 to $10,000 a year. Eight grand amounts to about $666 a month; invested at 8 percent over our 20-year period, it would add up to $392,288.

Living below your means entails downsizing before you upsize. Instead of buying the biggest, most grandiose house you can afford, for example, buy a more modest but comfortable house. Or rent instead of buying and save the difference between the rent payment and mortgage payments for comparable digs. Refrain from buying the largest, fanciest vehicle your paycheck will support; get a car you can pay off quickly and use the amount you’d have to put into payments to build your Bumhood stash. Find better ways to entertain yourself than sitting in front of the boob tube, and then ditch the cable TV. Get rid of the land line. Learn to cook, and eat better for less by eating in instead of haunting restaurants.

If you never develop the habit of buying more than you need, you’ll never miss what you don’t have. Obviously you don’t have to live like an anchorite. But too many apparently middle-class Americans fail to distinguish between indulging their wants and providing for their needs. As a result, they’re really not in the financial middle class: they’re actually poor folks who are in way over their heads.

By April of 2009, the average household saving rate was only about 4 percent of disposable income. Let’s say you have $48,000 left after taxes from a $60,000 household  income: that would give you an annual savings rate of $1,920—significantly less than the rather modest $200/month we started with in this discussion. If your 4 percent includes your required contribution to an employer’s deferred saving plan, then you’re not even putting $160 a month ($1,920 ÷ 12) aside from take-home pay.

Meanwhile, economists at the Federal Reserve estimated (also in 2009) that despite the slight increase in U.S. households’ savings rate, most savings were going to pay off debt, which had accrued at a staggering rate during the recent boom, when consumption far exceeded income. To eliminate this household debt, the Fed observes,

Assuming an effective nominal interest rate on existing household debt of 7%, a future nominal growth rate of disposable income of 5%, and that 80% of future saving is used for debt repayment, the household saving rate would need to rise from around 4% currently to 10% by the end of 2018.

Clearly, if you start out with little or no debt and never accumulate debt, instead of pouring your savings into some already spectacularly wealthy banker’s pockets you can put your money to work for you. Living below your means is, then, the first stage of building your Bumhood bankroll.

The Financial Freedom Series

• An Overview
• Education
• Work
• Debt
• The Health Insurance Hurdle
• Own Your Roof
Building the Bankroll, Part 1
Building the Bankroll, Part 2

Purchases!

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Thanks to FrugalScholar‘s mention in a comment, several moons ago, of the online store Footprints, I found a source of shoes from the original maker of Dansko shoes, which back in the day were the original, authentic pain-frees.

Dansko used to make the classic nurse’s clog—truly an ugly clunker and laughingstock of the modish set, until styles changed and suddenly young women would bounce up to us gimpy old dinosaurs and ask where we got the great shoes. My feet won’t tolerate normal women’s shoes, and, not being much of a believer in the adage that beauty knows no pain (far as I’m concerned, if you have to hurt to be pretty, I’ll keep on being homely, thank you), I’ve worn Birkenstocks, Mephistos, Naots, and Danskos for years.

Mephistos are now priced well beyond the reach of sanity, so they’re out. About three years ago I induced a roaring case of Achilles tendinitis by traipsing around in a pair of Earth Shoes, whose negative heels are bad for your feet and legs, the manufacturer’s health-storesy ad campaigns to the contrary. Since then, I haven’t been able to wear Birkies or Birkenstock knock-offs, which pretty much lets out most styles in Mephisto and Naot. Dansko changed hands a few years ago, and in the new regime sizing changed so the shoes no longer fit well, and quality dropped so noticeably that some people think the manufacturing was outsourced to China.

Sooo…. That doesn’t leave an awful lot of choice. Like, none?

Thus it’s been a while since I’ve bought any shoes, and, needless to say, most of my clodhoppers are wearing out. I really, really need new shoes, and since the tendinitis recently flared up again, I need a decent-looking pair of pain-frees with a strap or open back that will not put pressure on the back of my ankle, which just now hurts quite a lot.

Fortunately, Sanita, the original makers of Dansko, has quietly continued to manufacture the same kind of shoes. These still fit, still are made to last a lifetime, and still look…well, good enough for nurses and dinosaurs. Some of the styles, actually, are pretty cute. These “Freya” sandals, for example, are not too hideous. They look quite very much like a pair of original Danskos I wore until they dissolved into shreds, come to think of it.

Also much needed were a pair of strappy sandals for this summer, preferably in brown. And lo, what should come up on the Footprints site but a model named “Havana.” I think these should be OK. They’re better than utterly ghastly, anyway.

The first time I visited the site, at FrugalScholar’s behest, I came across and coveted a great pair of CFMs that look like they’d go spectacularly with jeans, my favorite costume. “Christie” is not exactly a CFM because it does have an ankle strap, but…what can I say? Believe it or not, the raised heel is specifically what the doctor ordered for the inflamed tendons. More or less. How my august orthopedist at the Mayo would regard the wooden soles does not remain to be seen, because we are not gonna tell him about that, no way no how.

All of these goodies were either close-outs or seconds, marked way, way down. So, the bill for three pairs of shoes that have a good shot of not hurting my feet came to just $149.85—that’s only about fifty bucks a pair, a lot less than I’ve resigned myself to having to pay for pain-frees. Matter of fact, I’ve dropped $150 on a single pair of decent shoes that didn’t hurt. Many times. Shipping was only $12, less than the sales tax would have been had I managed to find any such things here in Arizona.

So I felt pretty good about that.

From Footprints.com it was on to Amazon.com, there to pick up a $10 bottle of AlphaHydrox, the AHA goop that’s no longer sold in local stores, far as I can tell. This is the stuff I used until three or four years ago, to good effect. About the time it disappeared from retail shelves was, coincidentally, about the time I fell into a deep enough blue funk to abandon taking care of my skin and quit wearing make-up. Being unable to find the stuff now that I’ve perked up, I bought the RoC wrinkle cream whose retinoids led to the late, great complexion fiasco.

The “enhanced lotion” contains a 10 percent dose of alpha hydroxyl acid (AHA), about as strong as you can get this side of the pharmacist’s prescription pick-up booth. The so-called “soufflé” is supposedly 12 percent AHA, but after the RoC adventure I decided that discretion was the better part.

AlphaHydrox also manufactures something it bills as a “targeted skin lightener,” much ballyhooed by Amazon reviewers for effectively fading age spots. This product contains hydroquinone, a chemical that interferes with melanin production; enough concern has arisen about its safety that it is banned in France, and the FDA at one point considered banning its over-the-counter sale in the U.S. It can irritate your skin, and so you probably wouldn’t want to use a product that combines AHAs with hydroquinone, as this one does.

At any rate, though the 10 percent AHA lotion itself cost only $9.99, in one respect I didn’t do as well as with the shoes: shipping was $2.75, a whopping 27 percent of the sale price! If I could find it in town, I wouldn’t think of ordering it online at that rate. But I can’t, so I did. If it works as well as it used to without causing another skin-scorching episode, I’ll probably find something at Amazon to trigger the free shipping and then order a boatload of the stuff.

And so it goes. Otherwise I have accomplished exactly nothing today. All the comparison shopping for the shoes occupied about as much time as a real-life drive-through-the-traffic, trudge-through-the-mall, wait-in-line-to-pay shopping trip would have consumed! Oh well. At least it didn’t use up any gas.

😉

School’s Out! (briefly…)

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Yay! It’s spring break! One of the little blandishments of teaching that I’d forgotten about, it having disappeared in a fog of 9-to-5 overwork quite some time ago.

Mountain Laurel in bloom

Remembering it, however, after Departmental Chair kindly gave me three sections to plan for this semester, I set things up so that no student papers would sit on my desk and demand to be read over this lovely 70-degree week. The last raft came in on Wednesday, and I finished reading them and posting grades around 10:30 Thursday night. So…we’re looking at a whole week with no work!

The weather’s incredible and a mountain of household, yard, and computer chores have backed up and demand to be done. So there’ll be plenty to keep me busy over the next seven days. The question, however, is how idleness will play out not now but over the summer, when the community college hires no adjuncts (the plummy summer jobs go to full-timers) and even if they did, Social Security prohibits me from earning any more than a few classes in the spring and fall will pay.

Even though we didn’t work much around the editorial office during the summer, we were employed and I did have to traipse out to the campus several times a week. A lot of that traipsing amounted to time-wasting, but it did at least occupy time, if fruitlessly. Before I took on the administrative job, I always used to teach during the summer. Full-time faculty members earn a percentage of their salary for each summer course, amounting to a nice slab of cash—far more than adjuncts are paid for the same work. It was enough to fund a vacation, if I wanted to travel somewhere, or (more to the point) to cover some new improvement or purchase for the house. That’s where the dollars came from, for example, to buy things like the gorgeous sidebar from Crate & Barrel and the leather sofa and chair in the living room.

Next year, when I can earn as much as anyone will pay me, I may ask for a section or two at the West campus, which pays almost a thousand dollars more than the junior colleges pay. Probably to no avail: the university is hemorrhaging students as it raises tuition and fees while cutting services. The community colleges’ summer enrollment, we were recently told, jumped 17 percent over last year’s, which itself showed a significant rise. Thus it’s unlikely the university will have any summer sections to farm out to adjunct faculty…particularly since the Board of Regents just announced that, as a sop to students and parents enraged by the latest 20 percent (!!) tuition hike, they’re cutting university employees’ salaries by 2.75 percent. To make up for it, everyone will be trying to teach a summer section, and of course there will be far fewer sections to go around.

Mwa ha ha! How glad am I that I’m not working there anymore? Let me count the gladnesses…

At any rate, back on topic after that digression: What to do this summer? I’ve never had an entire summer break with nothing to do—even as a student, I went to summer school. Adding to the problem is that summer weather here is as oppressive as an Upper Peninsula winter. Instead of getting snowbound, though, people get heat-bound: it’s so excruciatingly hot you just don’t want to stick your nose out of the refrigerated cube that is your house.

I’ve thought about shutting the place down and going somewhere else over the summer. In 118-degree heat, it costs so much to run the air-conditioning and water that the cost of decamping to Yarnell probably wouldn’t be that much more than staying here. The problem is, though, that when you have a pool and a bunch of trees and plants, you can’t just shut the place down and walk away. In the summertime, when monsoon winds fill the chlorinated puddle with debris from the devil-pod tree and from every palm tree for miles around, you have to be here to clean the damn thing every day. And anything in a pot that’s not watered first thing each morning is fried by noon.

Back in the day when I was married to the globe-trotting lawyer, never once did we leave town but what we came home to some baroque new mess, crisis, or catastrophe. Yea verily, even before we owned a house with a pool, going out of town simply dictated that some fiasco would happen when we were gone. Dead cats, fires, thieving house-sitters, house-sitter killing himself and three young women in a drunken car crash, painter painting the black cat white, father doing battle with house-sitter’s wannabe burglar boyfriend, dogs retrieved from the kennel sick, ohhhhh god. I got to the point where I just. did. not. want. to. leave. town.

So. My enthusiasm for batting around the countryside all summer is about nil. Some things are worse than being hot.

This leaves: what to do next summer?

One possibility is to try to wring a book out of Funny about Money. I think there’s more than enough copy to pull together something coherent. If I finish off the “Financial Freedom” series before the semester ends, that can be the core of the thing. Anything that’s vaguely related can serve as support material, and a few entertaining irrelevancies can be thrown in as frills and flounces.

The question remains, though, whether I can sell something that’s already been done. Too many PF bloggers have already taken their (somewhat hackneyed) advice to press. Who is gunna buy a FaM book and how much are they gunna pay up front? I suppose I could go back to William Morrow. But both my agent and my editor there are long gone. No one at that house knows me anymore. And my inclination to seek out another literary agent is about as lively as my inclination to pack up and leave town for the summer.

The ancient book published through Columbia is still selling, though weakly…I might be able to persuade someone there to buy a FaM spin-off. It’s not very academic, though. On the other hand, in these times university presses need to stock their lists with at least a few items that will sell. The recession could work in my favor there.

Another possibility is to try to write a detective novel and peddle it to my favorite client, Poisoned Pen Press. These things are such a hoot! And I know I can write the stuff. I’ve done two novels, neither of which I’ve tried to publish. Though they are unpublishable, they did provide plenty of practice building characters, plots, and scenes. One of them, IMHO, is pretty damned good—certainly better written than some of the stuff I’m seeing.

PPP’s advances are very low: from what I understand, only about $1,000. The way you make money off the things is to get out there and peddle them yourself. Obviously, if I’m teaching classes every day I’m not going to have time to junket around the country signing books and schmoozing with bookstore buyers.

Still, in a Bumhood setting, where we see that we really don’t need extravagant amounts of cash to live quite comfortably, a thousand bucks of money happening is, well—not unacceptable.

Speaking of PPP, just now I’m reading a wonderful thing by a writer named Judy Clemens, The Grim Reaper’s Dance. It’s due out in August. This is an amazing piece of writing! In the first place, Clemens is a fluent and graceful stylist—the astonishing characterization and plotline aside, her prose is a joy to read. And then we have the fantastic magical-realist story…what a tour de force! The conceit that takes this mystery novel way above the level of genre writing is the protagonist’s companion: Death.

Yes. That would be him: the Grim Reaper himself. Our heroine Casey is shadowed by the very Personification, who, materialized in the form of an amusingly creepy eccentric, follows her around and generally watches out for her. Along the way, he collects this and that soul. Visible only to Casey, who herself is pretty postmodern, Death may or may not be a hallucination. That very ambiguity makes the story strangely credible and highly entertaining. It’s a great piece of summer reading—highly recommended!

A third possibility is to volunteer to commit some good works. Trouble is, most everything around here closes during the summer, and so there won’t be much to do. Nor, really, am I fond of working for nothing. I’ve never been much of a joiner, alas.

And finally, there’s the possibility of actually learning something. La Maya is always engaged in one painting class or another; she says her teachers are open to taking on rank amateurs. These cost rather more than I can afford, however.

One of my students teaches piano. Once she’s out of my class, no conflict would be entailed in hiring her to teach me to plunk away. That would be useful for choir: I do need to how to read music a great deal better than I can now.

Or I could take yoga or dancing classes at the community colleges. Tuition is amazingly low for several weeks of entertainment. Who knows? Maybe I could take piano at the college.

Speaking of doing something, it is, I’m afraid, time to get up from the computer and go kill some of the exuberant weeds that are trying to take over the front yard. Onward!

Moments of (Belated) Fame

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I’ve been horribly remiss in failing to thank the hosts of the two carnivals where Funny appeared most recently! Got no excuse: just lazy, I’m afraid.

SimplyForties hosted a spectacular Carnival of Money Stories featuring wonderful photos and quotes from some of the women I most admire. This edition is pretty rich pickings, with many really excellent posts. I got a hoot out of Money Beagle’s stories of learning from the eight-month-old (at the rate I’m going, the kid’s probably in graduate school by now…). PT Money has a cool post on discovering online tutorials for various DIY tasks, wherein we learn that grrls can change faucets and fix toilets! And at Gather Little by Little, Mike contemplates the joys of making money online. Simply Forties kindly included Funny’s squib on big-picture thinking among this august company.

Across the Pond, Miss Thrifty hosted the 219th Festival of Frugality. Her theme also revolves around history: an extremely interesting reflection on rationing during and shortly after WW II in Britain. Fortunately, the posts aren’t rationed. Christian Personal Finance has some apposite tips on computer maintenance and repair. And speaking of maintenance and repair of the central appliances in our lives, check out what FIRE Finance learned about operating refrigerators. Peak Personal Finance recommends a strategy that I’ve heard before and think is a really good idea for people contemplating a plunge into real estate. Funny’s w00t about SDXB’s thrift store coup appears in this carnival.

In other news, Adam e-mails to report that Mrs. Accountability will be taking over as administrator of the Carnival of Money Stories. We certainly wouldn’t want her to get bored, so be sure to send your best money adventures to Blog Carnival’s handy submission site! Congratulations to Mrs. A and best wishes for a great run.

Image:

Daryl Samuel, Statue of Rip van Winkle in Irvington, N.Y., by Richard Masloski
GNU Free Documentation License, Wikipedia Commons