"your neighbor is an iceberg"

Hey all! We have a bonus special feature today! Ryan, from over at Arrest your Debt, is a super awesome blogger and one of the most supportive and engaging people I know on Twitter (seriously, check him out on Twitter, you won’t be disappointed!).

Ryan wanted to share a guest post about the illusion of wealth and keeping up with the Joneses for all of our wonderful Partners. And he’s absolutely right, most of our neighbors are icebergs! They look great from the surface, but the part you don’t see is extremely dangerous. Read on to find out exactly how your neighbor is an iceberg!

Your Neighbor is an Iceberg

I saw this image the other day and could not help but think about the facade we put on for others. Earlier in my marriage, my wife and I were starting to take control of our finances and spend intentionally. I was recently promoted but things were tight.

We had a couple of kids and my wife was a stay at home mom. We lived off of my sole income which made things tighter for us than our DINK friends (Double Income, No Kids).  As we socialized with other work friends, it was impossible to ignore the lives they were living.  I knew we shouldn’t judge people, but it’s difficult to avoid comparing ourselves to others.  A close friend of ours was in the same stage of life with similar circumstances.  The husband provided the income and the wife stayed at home to raise the kids. The only difference was he was a level below me and I was making more money than him. However, you would never know that by looking at us. I was, and still am, driving an older vehicle, yet he had a nice new truck and was constantly going on vacation.

What Were We Doing Wrong?

It really hit home when my wife and I would look at our budget each month and constantly ask ourselves what we were doing wrong. We did not have many extras; no cable TV, no car payments, no fancy extras. The only thing we did splurge on was a $150 a month gym membership which was certainly less than our friends truck payment. As we sat there looking at the numbers, there was no way we could afford what they had. “What are we doing wrong” was the resounding theme in our house.

To make things worse, our friends had satellite TV, a new house which was larger than ours, and they were constantly posting on Facebook about Disneyland and their other expensive vacations. Early on, my wife and I began to become somewhat resentful at the fact that we were unable to afford what they had.  We didn’t resent them, we resented our situation and couldn’t figure out what we were doing wrong.  Little did we know at the time, we were not wrong – we were more right than we knew.

Related: Partners in Fire gets into massive credit card debt!

Heading For Disaster

As time passed, it was evident that they were not affording their life style. They were an iceberg. On the surface, everything looked great and in order. But under the surface, there was a deep dark side to their finances that was quickly catching up to them – something we couldn’t see from the outside looking in. They were making payments on credit cards and starting to drown. Their mask was quickly being removed which caused them to hit rock bottom with creditors on their heels. They had no savings, no emergency fund, and no retirement savings. After losing much of what they owned, they are now just starting to pick themselves up.

They were living the life that many of my friends subscribed to.  They believe that life is worth living in the moment. Why would they spend their young years saving when they should be enjoying their health and wealth? Unfortunately for my friends, it didn’t work out the way they anticipated.  Life has a way of knocking us down at the most inconvenient times.  As Warren Buffet said, “Only when the tide goes out do you discover who’s been swimming naked.”  Don’t be naked my friends!!!

The Joneses Are An Iceberg

I grew up hearing that you shouldn’t try and keep up with the Joneses. That’s easier said than done, especially when the Joneses are not some figurative person, but your actual close friends. It is difficult to avoid comparing yourself to others when they are living the life you think you want. The truth is, the majority of those lives are in deep financial distress which is hidden beneath the surface.

The other day my wife and I were driving down the road when a younger guy in a sports car sped past us.  My wife looked at me and said, “Awe, he must be broke!”  I don’t think I have ever been more in love with her than at that point!  She gets it – whether that guy was truly broke or not we will never know.  For one, it made us feel better about our 12 year old vehicle we were driving, and second, the odds are he really was broke trying to portray a wealthy image.

If you find yourself trying to keep up with the Joneses, be careful. Remember what happened to the Titanic? If you try and keep up with this image, it will take you out at the knees and sink you. Don’t let the icebergs sink you!

As you continue this financially responsible life style, keep this in mind. When you become disgruntled by comparing yourself to others – realize, they are more than likely an iceberg.

Are you an Iceberg?

If you are an iceberg, I encourage you to check out my other posts, Simple Steps To Start Your Debt Free Life! , Budget Isn’t A Bad Word, and Debt is Financial Slavery!

Do you know any icebergs or are you one? I reassure you, you are not alone! Comment below, I’d love to hear your story about where you have been and where you are going. I would like to give a huge “THANK YOU” to @partnersinfire for allowing me to guest post on her blog.  Stay safe my friends -you work too hard to be this broke!

-Ryan

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"money goals"

Money Goals

We’ve all got goals, right? Well I’m no different, I have tons of money goals! Some are reasonable, and some are admittedly pretty far out there. But hey, life is for living right? And it takes money to do most of the things we want to do right? So, I need to set some pretty crazy money goals to get where I want to be.

All My Bank Accounts

I wrote an article in the long ago about the many bank accounts that I own. What I didn’t mention was my money goals for each account, and how I arrived at that number. Well now it’s time to dive into that!

Short term Emergencies

My target for my short-term emergencies account is 6K. I know this is a weird number, 5k seems like it’s more rounded, doesn’t it? I agree, but I chose 6k as my goal because I always want to have at least 5K in the account. I’m sure that doesn’t make any sense to you, but in my head if most emergencies cost between $500 and $1000, and my fully funded account has $6000, I’ll never go under $5000! I know, I’m an oddball, but it works for me.

The good news is that I was able to fully fund my short-term emergency account as of September! One down, way too many to go!

Long Term Emergency

My long-term emergency account is supposed to get me through a period of unemployment. My goal is to have one full year of essential living expenses saved up to get me through something like that. To figure out how much money I would need, I added up all of my monthly expenses and multiplied it by 12.

money goals 1

My yearly life costs almost 35K! The biggest expense is of course housing, followed by food & gas and then utilities. I’m sure I’d be able to cut back on some of those things if I was unemployed, but my estimates are based on what I’m paying now. I have to way of knowing what I’d spend on gas and utilities if I wasn’t at work full time.

Currently, I’m not even close to being fully funded in my long -term emergencies account. I have about four months of living expenses saved up (yay, 1/3 of the way there!).

With my short-term emergency account fully funded, I started putting most of the money that was going there each paycheck into this account instead. That will definitely help me reach my goal faster! I like to call this the savings snowball method.

Fire Goals

One of my most extraordinary money goals is my FIRE goals account. My goal for this account is a whopping $150K. That’s insane, even by my standards! I know it’s not advisable to have so much money sitting in a savings account doing a whole lot of nothing, but trust me, there’s a method to this madness!

First, I’m not even close to my goal, so that’s kind of a moot point. Second, the money isn’t doing nothing. I have a savings account that pays a decent interest rate, considering interest rates on savings nationwide still aren’t very high. It’s better than nothing though.

I’m sure you are all dying of suspense, why do I want to have 150K in cash for my FIRE goals? 

Travel

If you read my post on my FIRE goals, you know that I want to travel. A big portion of that is traveling through the US, work camping my way through the national parks. Any guess on what big ticket item is needed for an adventure like that? That’s right, an RV! I don’t want anything big or fancy, but a decent (used) RV is going to set me back about 50K, if not more. Yes, I have found some for between 20 and 30k, but they are rough looking, and with inflation going the way it is, I’d rather overestimate than underestimate.

I also want to travel to China for Tai Chi, and India for yoga. These trips won’t be cheap either. I’m going to try to do them consecutively so as to only pay for one trans Pacific flight, but these two activities will still cost me about 15K total.

School

Another big expense is going back school. I want to study anthropology and go to archaeology field school. Obviously, I’m going to be as frugal as I can about this, but education isn’t cheap. I’ve done some math, and this is probably going to cost me about 30K.

Living Expenses

I also need to have at least one year of living expenses saved up before I embark upon these crazy adventures. I know, I know, I’m going to have that in my long-term emergency account, why do I need it again?? The answer is that if I’m being super conservative. If I’m going to quit my job for all this crazy nonsense, I want some cash reserves on hand in case something goes wrong.

Investing

I also want to be sure to have some extra cash on hand for when the market crashes again. Having 10K available to throw into an index fund when the market crashes will put me in an awesome position during the following bull run.

Rounded Up

I’m sure if you were following along, you’d notice that after these three things, I’m still 20K shy of my 150K goal. I rounded up to 150 because like I said before, I want to be super conservative with my cash holdings, just in case something goes wrong. It’s better to be safe and ready for an emergency than to be sorry.

 

Travel Before FIRE

My money goal for my travel account is 5K. Unfortunately, I haven’t been able to achieve that because I take too many trips. But really, that’s what this account is for. I’m putting money aside to help pay for all my crazy trips.

Next Big Purchase

I don’t have a goal for this account because I don’t know what that next big purchase is going to be. It could be as cheap as a water heater, but it could be as expensive as a wedding. I make sure that I add a bit of cash to it every paycheck so that I’m prepared for anything that I need to buy.

Debt

Outside of my savings account, my other big money goal is to pay off my debt. I somehow managed to charge $6400 on my credit card in the last year, and now I have to pay that off.

I know, a lot of PF people will advise that I use my substantial savings to pay off the credit card. But I don’t want to do that. I know I’m paying more in interest on the card than I’m making with my bank accounts, but it feels good to have money in the bank, and I don’t want to lose that.

My credit card payment is my top priority. My goal is to get it paid off in the next six months, and I’m going to budget and scrimp and save to get there rather than take away from my future goals.

Keeping Track

Like I said in my first post about my bank accounts, I’m old school and I like tracking all my craziness by hand. If you are looking for an awesome modern tool to track yours, check out Personal Capital!

What are your money goals?

What are you saving for? We’d love to hear about your top money goals in the comments!

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"money fail"

I don’t know what happened. Last year around this time, I had my credit card completely paid off. Zero balance – go me! But now, just one year later, I’ve managed to rack up a little over 6K in credit card debt. How did this happen? How am I failing so badly at maintaining zero balance on my credit card?

Racking up the Credit Card Debt

A lot has happened this past year, and some of it was expensive. Some of the credit card debt was due to repairs and unforeseen circumstances, while most of it was just me failing to say no to wants (yes, personal finance bloggers have weaknesses too!)

Unforeseen circumstances

House repairs

A good portion of my credit card debt came from issues with the house. We had a blockage in an air conditioning tube that led to a huge leak in the ceiling, a few plumbing issues, and a landscaping disaster. These unforeseen expenses cost about $1500.

Car Issues

I also had a few car issues this year that cost me. I needed new tires and had a problem with my electrical system. These repairs in total cost about $700.

I know, I know, this is exactly what an emergency fund is for! I should take the money I have in my short- term emergency fund and pay for these unforeseen events. This is where I fail at personal finance. I know the math adds up. I know it’s better to pay off the debt. But I just can’t bring myself to do it. I like having money in my emergency fund. I like knowing it’s there if I need it. I want the fund to be fully funded before I start taking from it. I know that’s a whole basket full of insane, but psychologically that’s where I’m at.

Related: Destroying my Credit 

Travel

Although I’d love to blame the majority of my credit card debt on unforeseen circumstances and minor emergencies, that just isn’t the case. The majority of this debt came from travel and adventure. I paid $500 for my PADI certification this year, $500 each on trips to Vancouver and Los Angeles, over $1000 on two trips to Orlando (once for Universal, and again for Disney), and a little over $3000 on my trip to Germany. I just can’t seem to say no to experiencing new things. And, although I have a separate account set aside for my traveling expenses, there wasn’t nearly enough in there to cover this year’s adventures.

To be fair (or as an excuse), I only went to Germany because my friend was getting married. I definitely would have put off having an international trip this year if it wasn’t for this once in a lifetime event. I know I shouldn’t be spending money I don’t have on traveling, but my mantra has always been that you only live once, and you have to enjoy the time you have. You have to make exceptions for the important things in life, because if you don’t, what are you living for? Obviously going into debt for this isn’t ideal, but it happens. Saying no to stuff like this isn’t easy.

I feel more comfortable about having the debt knowing that I could pay it off tomorrow if I really wanted to, but like I said above, I feel better having debt and money in savings (I know how wrong that is!!!).

 

Money Goal – Pay it Off!

So now my number one money goal is to pay off my 6k in credit card debt. I’m hoping that I’ll be able to do it in about 6 months without resorting to using my savings accounts. I’m also going to hide my card so I can’t use it. I’ll keep you all updated on how I’m doing!

What is your biggest money fail? We all have money weaknesses, what’s yours? Let’s help each other get through it.

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"What to do when the market crashes"

A market Crash is coming

We all know that a crash is coming. The International Monetary Fund (IMF) just came out with a warning that the world economy could be on the verge of another recession, housing is becoming unaffordable in many cities, and wages have been stagnant. We also know that everything is cyclical, and the market can’t go up forever. So what should we do when it all hits the fan again?  What should you do when the market crashes?

When the Market Crashes

When the market crashes, there is going to be a lot of turmoil. Investments will definitely lose value, and people may lose their jobs. Companies may shut their doors for good, and the economy may move back into a recession. With all this uncertainty surrounding jobs, the economy, and the market, what should you do?

Job Loss

I get that losing your job really sucks, especially when you depend on the income. Therefore, if you lose your job when the market crashes your first priority is finding income. Hopefully, you have a decent emergency fund that will get you through for the first few months at least (If you don’t, now is the time to start saving!).

Even if you don’t have an emergency fund, there are lots of things you can do to start getting some income in: you could take a part time job, start a side hustle, sell some stuff, or even switch industries.

You could also apply for unemployment insurance to get you through the rough patch. I know that everyone hates the idea of applying for unemployment, but seriously folks, you pay into this system and that’s what it’s here for. There is no shame in getting a little help to see yourself through.

 The point is, a job loss is not the end of the world. You will get through it and you will find better opportunities. Who knows, maybe it will give you the chance to build that side hustle into a full-time gig!

What not to Do

When you lose your job, it’s super tempting to cash out of any employee sponsored retirement plan you might have held with them. Bonus money when you need it the most, right?

Wrong!

Don’t do it! I get that you might need money, but taking it out of your retirement should be the very last of all the last resorts. You’ll hurt yourself in the long run when it comes to retirement income, and you will lose out on any investment gains that result from this investment cycle.

What to do instead

 Instead, try some of the options that I mentioned above to get some money coming in, and roll over your employee sponsored plan to an individual plan (IRA). You’ll get to keep your hard-earned investments growing and you won’t have to pay any early withdrawal fees or taxes. You also won’t be stealing from your future self.

Investments

When the market crashes, your investments are going to lose value. That’s the nature of the economy. And it’s going to be rough!  You’re going to watch your investments loose 20%, 30%, maybe even 50% of their values! It’s definitely going to be hard to watch that.

What Not to Do

 Emotions are running high, and you may think that the most prudent thing to do is to pull out of the market to hold onto whatever money you have left.

Wrong!

Please check out the difference between realized and unrealized losses before you make any rash decisions on pulling out of your investments. As long as you are diversified, staying in the market is your best chance at recouping your losses and making huge gains. According to a CBS article in 2011, investors who stayed the course with their investments throughout the crash were the biggest winners.

Don’t let your emotions prevent you from winning big during the next downturn.


 

What to do instead

Instead of pulling out of the market, you should be investing more!  I know, it seems counterproductive, but if you don’t want to listen to me, listen to the number one investor of our time, Warren Buffet:

“Be greedy when everyone else is fearful, and be fearful when everyone else is greedy”

A market downturn is the best time to be greedy. It’s basically a huge sale on stocks. The one thing I would advise is to be careful with individual stocks. You don’t want to put all of your eggs into the next Circuit City’s basket. In my opinion, its best to buy index funds, because they are automatically diversified and you have the best bet of recouping any losses with them.

If you have your heart set on individual stocks, do your research. Buy strong dividend paying companies that you know aren’t going to go under. During the last recession, I bought 200 shares of BOA when the stock plummeted to ten bucks a share. It’s now trading at thirty dollars a share, and my reinvested dividends have purchases 15 more shares. I plan to hold the stock through the next bear market (and possibly buy more!) because although their business practices are sometimes shady, they do have strong fundamentals.

But I am also aware that banks took a huge hit during the last downturn, and many of them went out of business. I know that owning individual BOA stock is a much larger risk than owning index funds. Fortunately, the majority of my eggs are in Vanguards total market fund.

If you are retired/near retirement

A lot of this advice applies mostly to people with at least ten years until retirement. If you are closer, your options may be a bit different. Hopefully, if retirement is on the horizon, you have a good portion of your nest egg in safer investments, such as bonds CDS and even cash. If not, the prudent advice is still to maintain your investments. A good option would be to work for a few extra years during the downturn and keep investing.

If you can’t work (or really don’t want to, I get it!) try to rely on Social Security and or other sources of income before tapping into your investments. If you can stay invested during the worst times, your portfolio will bounce back with huge gains.

Prepare Now

Thankfully, the market hasn’t crashed yet, so you don’t really have to worry about these things. But I’m writing this because we all know that it’s coming, so we need to be prepared. We need to be thinking about what we are going to do when the market crashes, if we lose our jobs, if our investments tank. We need to be preparing now for the next market crash so it doesn’t destroy our financial security.

Have you been preparing for a crash? What will you do if you lose your job or if you lose half of your portfolio?  Lets talk about it!

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"prepare for a market crash"

Last week, we wrote about the impending stock market crash; so this week we thought it would be a great idea to tell you how to prepare for it! Because like I said, it’s definitely coming. We just don’t know when.

Being prepared for a stock marked crash is definitely not a one size fits all type of thing.  The steps you should take to prepare yourself vary wildly depending on your individual situation. Because of that, we are only going to give general instructions for three basic scenarios. Obviously, everyone’s individual situation is different, so there are people who don’t fit into any of these categories. If that’s you, check out the category that’s the best fit, and drop a comment if you still need some advice. The general categories are:

 

 Lots of time to invest with a secure job

Lots of time to invest with a not-so secure job

 Not so much time to invest/retired

 

How to Prepare for a market Crash

Lots of time to Invest with a secure Job

You are in a great position to handle a market crash. If you know your job is secure even in the harshest of economies, you have a lot less to worry about if the stock market crashes. You also have a lot of time to recoup any investment losses

My best advice for you folks is to ensure that any individual stock holdings you have are solid enough to survive a downturn. If they aren’t, you may want to consider reallocating some into index funds (I recommend investing in index funds over stocks in general though!). You should also be putting some cash reserves aside so that you are ready for the big fire sale on stocks!

To be clear, you still want to make sure that your financial house is in order. You should be establishing an emergency fund and investing in a retirement account. But these are things that you should be doing whether a crash is coming or not.

Related: Realized vs. Unrealized Gains & Losses

Lots of time to invest with a not-so secure job

Unfortunately, a market crash and recession could lead to job losses in a variety of industries. If you work at an industry that is at risk for job losses and lay-offs, you need to be preparing now for a stock market crash.

There are a few things you can start doing to make sure you are ok if your industry suffers in the next recession. First, you can make yourself indispensable at work. Continue increasing your skills so that if downsizing comes, you will be spared. Update your resume to ensure that if you do lose your job,  you will be able to find a new one quickly.

Next, you need to shore up your emergency fund. If you are at high risk for a layoff, you should try to fund your emergency fund with six months of living expenses. Not only will this get your through a job loss, but it will also help keep you afloat if the first job you find pays less (which happens a lot in recessions!).

Related: Beginner’s Guide to Investing 

A third thing you can do is create additional income streams. A side hustle is a great way to turn a hobby into extra income. That extra income will be super handy if you lose your main job. The point is the time to make these preparations is now, before the market crashes and before your job is at risk.

As far as investments go, if you have a lot of time to invest, you shouldn’t worry much about your losses. You should continue contributing to your retirement accounts as you normally would, and only adjust your holdings if you are invested in individual stocks that are at risk during a downturn. If you stay invested, you will most likely recoup any losses.

Not so much time

Your preparations are going to look a lot different if you don’t have a lot of time to recoup any investment losses. If you are at or near retirement, you may want to look at transitioning some riskier holdings like stocks into safer investments, such as bonds. This is especially important for money that you may need in the next five to ten years, because it may take that long for the market to recover from a crash.

The downside to reallocating is that if you do it too soon, you could miss out on some gains. The market is still experiencing record highs, and we don’t know where the peak will be. This isn’t an easy decision.  It’s impossible to time the market, impossible to pull your money into the safety of bonds and CDS right before the market crashes.  If I were just a few years from retirement, I’d definitely start safeguarding about fifty percent of my nest egg against a crash. I’d want to make sure that I had enough safety money to survive until the market recovers. I’d keep the rest invested though (in index funds!), to reap the benefits of the current economy and to reap the benefits of buying on sale during a downturn.

Not One Size Fits All

Obviously, it is impossible to give specific financial advice to everyone in a blog post. That’s not my goal here. My goal is to give you general guidelines so that you can prepare for the pending crash. We don’t know when it’s coming (currently, economists are predicting a recession around 2020) but that doesn’t really matter. We know that it’s out there, waiting, and it’s best to start preparing for it.

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A market crash is definitely coming. It’s lurking in the dark corners of this seemingly robust economy, biding its time before swooping in for the kill. Warren Buffet famously said “be fearful when others are greedy, and be greedy when others are fearful” and if others aren’t greedy at the moment I don’t know what greed is. The crash is coming.

the Market Crash of Yore

The market could crash this fall. After all, the most famous stock market crashes in history happened in the fall. Black Thursday, which started the Great Depression, was on October 29. Black Monday, which started the 1987 recession, was on October 19. Lehmen Brothers collapsed on September 15. Apparently, Autumn isn’t the market’s best season.

But it might not crash until Spring. The Dot-Com bubble burst on March 10 and there were “flash crashes” in May of both 1962 and 2010.  There was also a huge three-year panic that started in May of 1901. Maybe spring isn’t so good for the market either.

The market crash may not be about the season though. World events can easily trigger a recession, as they have numerous times in the past. In July of 1990, the Iraqi invasion of Kuwait let to nine-month recession. The September 11 attacks on the World Trade Center also led to a huge decrease in stock prices. Daily speculation about what the president or fed will do also leads to sell-offs (and sometimes gains!).

Its almost as though a recession can happen at any time during the year, for a variety of reasons.

 

Indicators

Economists generally use indicators to try to predict what the market is going to do, or when the next market crash will be. They use the big three stock indexes (the Dow, the S&P, and the Nasdaq) to predict the health of the market itself, but predicting an economic crash isn’t just about the stock market, it’s about the economy as whole. Some common economic indicators are the employment rate, the inflation rate, and the consumer confidence level. However, there are so many different indicators that at any given point, at least one can point to a looming crash. An economist or a journalist can easily find data to support the theory that a market crash is coming.

I know what you are thinking. Why would a journalist or an economist want to find data to support bad news? Unfortunately, that’s easy: sweet sweet page views. When you see an article with a catchy title warning of a pending crash, you click on it, right? I mean, you clicked on this one, didn’t you?

A market crash would be a horribly disruptive event, and we all want to be prepared for it. We all want to be able to predict it so we can protect our assets. Unfortunately, real life doesn’t work that way.

By now I hope you have realized the point of this post. Is a crash coming? Of course. Nothing goes up forever. Is it coming tomorrow? Probably not. Is it coming this year? Who knows. No one can predict when the next crash is coming. It could be this year or it could also be five years from now.

what should we do?

What should you do to protect yourself from the next big market crash? The answer largely depends on your age and risk tolerance. If you are near retirement, you should be moving some of your assets into low risk funds – bonds, CDs, and maybe even cash. But if you are young the best way to protect yourself is through diversification. You should still be investing, because you don’t want to miss out on any of the gains of these good days. Diversify your investments. Buy index funds instead of individual stocks. The crash will come, but it’s impossible to time. If you stick with your investment strategy, you will be fine.

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Ok, so I missed one very important reason for being childfree in my last post, and that’s the insane cost of having children. It’s alright though, I did it on purpose! The exorbitant cost of having children deserves it’s own post.

Kids are expensive!

I mean like, really, really super expensive!  According to the latest data, the cost of raising a kid is approximately $233,610. And that doesn’t even include college! That breaks down to a little less than $14000 per year. That’s a lot of money, especially when you have other financial obligations.

Childcare

The bulk of this outrageous cost of having kids is childcare. This cost can vary wildly by state and by metropolitan area, but the variation tends to follow variations in minimum wage and income, so families everywhere are feeling the crunch. Childcare costs around $500 per month in Alabama, and almost $1000 in California, on average. In a lot of places, childcare is more expensive than rent!

No wonder so many families opt to have one parent stay home with the children while the other works. A second income would barely cover the cost of childcare in many cases. Some families are lucky in that they have a grandparent other family member that can help with the childcare while both parents work, but I always knew I would never be able to depend on my family for that. If I had a kid, I’d have to figure out how to balance working with caring for her. This is something that my boyfriend and I will need to discuss when the time comes.

Hospital Bills

Birthing children is expensive too, and apparently hospitals even charge you to hold your own baby! All jokes aside though, the physical act of having a baby can cost anywhere from $6000 to $70,000!!  That doesn’t even include caring for the infant after birth! I have decent insurance through my work, so this shouldn’t be too much of a burden for me, but not everyone is as fortunate as I am. And they wonder why so many people are turning to mid wives and home births.

But hospital expenses don’t end with the birth. Kids get sick. A lot. They run into stuff and bang their heads open. The eat things they shouldn’t be eating. They fall down. And most parents would rather be safe than sorry, so they bite the bullet and take their kids to the hospital when these things happen. Hello hospital bills. 

"cost of having children"

Stuff and Things

Kids need stuff too. Lots of stuff. First, they are going to need the basics: food, clothing, diapers etc. But they are also going to need furniture and cribs and bottles and bibs and toys and educational stuff and probably a million other things that I haven’t even thought of. And they grow so quickly!  I haven’t bought myself new clothes in years, but I’d have to buy a baby new clothes every few months!  That can really add up.

Then they need to go to school, so you have to buy them all their school supplies. And you don’t want your kid to be an outcast, so you have to buy them decent clothing by the time they are school-aged. They will probably also join a few after school clubs and activities, so they will need all the appropriate equipment and gear for that.  I’m hoping my kids join the chess club; a chess board is way cheaper than sports equipment or musical instruments.

Travel/Vacations

As you all know, I love to travel, especially to exotic locations. Airfare for one is bad enough, could you imagine having to pay for three seats on an international flight?  My travel budget wouldn’t be able to handle it! I know a lot of people don’t take this into consideration when thinking about the cost of having children, but honestly it was one of my reasons for remaining child free. But I decided to really look into the feasibility of traveling with children and read a bunch of blogs from family travel bloggers who are doing just that. If they can find a way I’m sure I can too!

Related: The Exorbitant Cost of Having Adventures

College

I know I don’t technically have to help my kids out with college expenses; student loans and grants exist for a reason. But do I really want to saddle my kid with outrageous debt when they are just starting out in life?  College is crazy expensive, and the cost seems to increase exponentially year after year. By the time my non-existent kids go to college it may be upwards of 100K on average!  I’d definitely encourage my children to explore non-4-year-university options, but if they are hard working with an aptitude for academics, I’d want them to be able to study wherever they chose. Therefore, I’d feel obligated to start a college savings plan for them when they are born, to ensure that they have those options. It’s going to be expensive though.

The exorbitant cost of having children

I know I didn’t cover everything. Random expenses crop up everywhere. Kids need a lot of stuff, and some kids need special attention – tutoring, therapy, private schools, medication, whatever the case may be. But there is no doubt in my mind that having children is insanely expensive. The advantage I have is knowing that and having a stable job to pay for some of it prior to having them. And hopefully, it will be 100% worth the cost.

What did I miss about the cost of having children?  I’d love to hear about your experiences!

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Making the Decision to Cut the Cable Cord

Making the decision to cut the cable cord was a long time coming. We hardly ever watch anything on cable (ok, we had Direct TV satellite, but it’s basically the same thing). The only two shows we religiously watched on cable were Supernatural and The Walking Dead. We’d sometimes throw on reruns of the Big Bang Theory or Family Guy, but that was really just background noise. Is it worth one hundred dollars a month to watch two shows and occasionally have some background noise? I don’t think it is.

I want to Quit the Gym

Of course, like any good company, Direct TV wouldn’t let me off the hook so easily. They tried to offer me discounts or offer me a package change. At one point they even tried to take off the additional movie package that I was paying for (even though I had already called two months ago to get it taken off; somehow it was still on there). They used high pressure sales tactics to try to convince me to stay and to bundle my phone with them for even more savings! But I declined all these offers. I wanted to quit cable (or satellite, same thing) and I did! 

(Bonus points if you get the “I want to quit the gym” reference!)

CANCELLATION Fee

Of course, nothing is ever free. Apparently, I had entered into a two-year agreement with Direct TV, so I couldn’t just cancel. I had to pay a $150 cancellation fee. I did the math, and as it turns out, $150 is much cheaper than $100 per month for 12 months (which most likely would have increased after the first 12 months to who knows how much!) So, although I’m not a fan of paying stupid cancellation fees, I sucked this one up and paid.

Related: Bad Investments for Beginners

What will we do now?

I’ve had some type of cable for my entire life. I’ve never envisioned life without it. That’s why, although I rarely use it, I struggled with the decision to cut the cord for good. My biggest worry is finding a way to watch Supernatural when it returns in the fall. It’s on a network, so I should be able to get one of those converter kits and I should be able to watch it for free (like before we had cable when I was a kid!). But if I have to wait a year for the season to get to Netflix, I can do that. It will suck, but I can manage.

My other reason for keeping Direct TV was NFL season ticket. I love my Chicago Bears, and I live in Falcons Country. That means the networks will rarely be showing Bears games. But the Bears have been pretty terrible lately, and I can always go to Buffalo Wild Wings or Chili’s to watch any important games (which will probably be cheaper than paying for Direct TV all year anyway!)

Other Options

We already have Netflix, Hulu, HBO on the Go, and Amazon Prime. We can watch pretty much everything we want on these four platforms. And, these four platforms combined are cheaper each month than our direct tv was!

                                                              

It’s Done

The cable (satellite) cord is cut. I’m done paying $100 for a service I don’t ever use. I’m going to put that extra $1200 per year in my savings/investment accounts and watch it grow rather than squander it!  Talk about an easy way to increase your savings!

Have you cut the cable cord yet? What was your experience with it?  And if not, what’s holding you back? 

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"Destroying my credit"

I’ve been nostalgic lately, thinking about my past, my upbringing, and some of the wonderful financial decisions I made when I was a teenager. I’ve written about my middle class upbringing and about my stellar education on taxes. But there was one more area of my financial life that I really messed up in when I was young, and it took me a very long time to dig my way out.

Destroying My Credit

My parents never really taught us about the dangers of credit card debt. When I turned 18 and started getting offers for free money, I took them. I don’t know why it was so easy to get credit as an eighteen-year old with no credit history, but man, it was.

I had three regular credit cards and three store cards before I turned 19. Why wouldn’t I get an Express credit card? I even signed up for an Abercrombie card despite never ever shopping in an Abercrombie in my life!  Free money is free money, right?

Not All Impulsive

Yes, I was a stupid teenager buying all the things with fake money. But I did actually make one legitimate purchase that I couldn’t afford!  My dog, Shadow (I miss him!) had a problem with his nose. It always looked like the skin was peeling off. Since he seemed healthy outside of that, my parents didn’t take him to the vet. Well, I wasn’t going to let my lack of money prevent me from taking care of my pup, so I took him myself and charged it. I think it cost around 500 bucks if I remember correctly (this was a long long time ago). Either way, I didn’t have the money to pay. That was future Melanie’s problem.

Related: Managing Your Money All-In-One For Dummies – Get it on Amazon! 

But Mostly Bad Purchases

The rest of my purchases were stupid. The hottest trends in clothing, stupid toys, long distance phone calls, things I can’t remember. I had a lot of fun destroying my credit!  Unfortunately, I was thousands of dollars in debt by the time I turned 20. And I had no money to pay it. I did manage to make the minimum payments for the first few years, but that barely covered interest, and before long all the cards were maxed out. Even the minimum payments became overwhelming for a poor college student. Most of the debt went to collections, and I effectively destroyed my credit.

Digging Out

I finished college and realized that if I ever wanted to have a decent job and a decent life, I needed to fix my credit issues. I was able to settle with a few of the collections agency for less than owed, and I payed off other balances in full. It took a lot of saving, budgeting, and negotiating to dig my way out, but I made it.

Having numerous charged off credit accounts had lots of negative repercussions for many years though. It takes about seen years for those things to fall off your credit report, and life was hard for those years. It was hard to rent a nice place with such a poor credit history. I had to pay higher interest rates on any loans I tried to take out.  I couldn’t even consider buying a home.

 

Helping Future Melanie

I’m glad that I finally dug my way out and that all those negative statements are off of my report.  I currently have a healthy credit report, and a much healthier relationship with future Melanie. Instead of thinking “well that’s future Melanie’s problem”, I think “How can I help future Melanie?” and life has been much better.

Have you had problems with credit in the past? I’d love to hear your stories!

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my mom taught me about finance

Last week, I came across an amazing post by Lean Fire ATL called “A Man is NOT a Retirement Plan”. This post really resonated with me for a lot of reasons, but the number one reason is my mom.

Mom’ s retirement plan

I love my mom. She’s sweet, she’s caring, and she taught me to be kind to animals and those less fortunate then us. She didn’t have any real goals outside of motherhood, but she was a great mother.

My mom did what a lot of young women in the late seventies/early eighties did. She got married and stayed home to take care of the children. Unfortunately for her, being a mother doesn’t pay anything, and her story is one of the main reasons why I decided to strive for financial independence.

Mom’s story

My parents got married and had their first child at relatively young ages. My dad was 19 and my mom was 22 when they had my sister.  They had my brother and I shortly after, so they had three young children before they turned thirty.

They did alright for themselves despite having kids so young and not having college degrees. My mom was a stay at home mom while my dad sold insurance, and when they started their own flyer delivery service my mom chipped in with that. Things weren’t perfect, but we were a family, and that’s all my mom ever wanted.

Related: From Lower Middle Class to Financially Literate

Divorce

Then one day, seemingly out of nowhere, it all fell apart. My father had an affair. He moved out of the house when my mom found out. He stopped paying the mortgage and focused on running the business (which was in his name). My mom wasn’t able to keep up with the mortgage. She was a stay at home mom the majority of her life, and she had no marketable skills. She got a job cleaning out kennels at a pet store, but that paid barely enough to keep the lights on.

 

My mom was able to stay in the family home for quite a while the bank went through the foreclosure process. She tried to find a way to stay close to us kids in Illinois, but it was too expensive (Before anyone tries to chastise my mom for not staying with her kids, my sister was 20, my brother was 18 and just started college, and I was about to be a senior in high school by the time she moved. She knew I was going away to college after senior year). Her parents lived in Northern Wisconsin and offered to help her buy a home if she moved up there. With no other options, she packed up and moved up North closer to her parents.

Moving on

After about 20 years of being miserable and lonely in Northern Wisconsin, my mom decided she had enough. My sister helped her move to California. She currently lives in the Mojave Desert and works part time. She likes that it doesn’t snow, and my sister is able to visit her about once per month and help her with things around the house. She’s planning on moving to the East Coast with my sister next year.

What my mom taught me about Finance

My mom didn’t directly teach me anything about finance, but her story served a valuable lesson. I learned that the only person I could ever depend on is myself. My mom thought her marriage would last forever. She depended on my dad to handle the finances. She didn’t realize that he sucked with money, or that he had a more fleeting view of marriage than she did.

I know it’s a cynical view to take, but I learned that even if I get married, I have to look out for myself first. Maybe that’s one of the reasons why I haven’t gotten married yet. I have a hard time trusting a guy to do small things to take care of me, like cooking me dinner (which probably stems from this, now that I think about it). I can’t even imagine putting my financial security and my entire future into someone else’s hands. My mom got screwed because she trusted the wrong person with these things. I learned from her example to do not the same.

What valuable money lessons did your parents teach you?

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