Nicole and Maggie discuss budgeting
The Money tag
#1 used to have a mortgage
Do you have any favorite money posts? Any money questions for Ask the Grumpies?
Prior to DH’s last unemployment spell, I was feeling uncomfortable about having so much income. I felt guilt because I was one of the “haves” (I probably still feel this, and it’s probably a good thing for me! So don’t talk me out of it with conservative talking points), but also I had this odd sense that I should be looking for things to spend money on. Money felt meaningless and valueless and there was no reason NOT to just order that $80 bottle of olive oil, or two even, no reason not to put money on the nicest AirBNB available for the trip we never ended up taking etc. The only thing keeping me from buying all the pens (and I did buy a lot) was the knowledge that they might dry up before getting used!
Then DH got unemployed for several months and we were living on just my income. We lived comfortably, but mainly because we didn’t have any big expenditures due to luck (being between appliance breakdowns) and the pandemic returning all our travel moneys and preventing us from spending on any new travel or fancy camps or expensive daytrips to the city or even eating out much. (I still bought pens.) It sort of felt like we were back to normal, but with more masks, hand sanitizer, and stationery.
Now we’re back to making more money than we’ve ever made and more than I ever dreamed of and somehow money has meaning and I’m not just buying all the things. But also I’m not freaking out when our water heaters end up costing almost twice as much as they were supposed to. It’s just money and we have money. But also, when it cost $1K+ for DH and the kids to see family from the closest city airport this summer, we decided it was worth the extra 30 min drive to the closest airport to save $500. Was that a good decision? I don’t know! I refuse to feel either guilty or superior about it. It seemed like a reasonable tradeoff at the time– 30 min plus a small amount of gas and car depreciation to save $500.
Several of the extremely wealthy and high income (white male) economists I know are also pretty frugal. They spend money when it’s worthwhile but they also take advantage of sales and bargain down in situations where you can bargain. I’m not sure it’s rational to do that when your consulting rate is $500/hr, but, they seem to think it is.
I’m not sure what caused the change in me. Maybe it was just time. But also I think having experienced via his last unemployment spell the knowledge that this high income really isn’t forever. DH’s current job is a start-up and it may end if it runs out of runway. Maybe it’s the knowledge that DC1 will be starting college soon and we’ll have to cash flow some of it if zie ends up at one of hir top choices. (If zie ends up at the state flagship I don’t know what will happen to all those savings– $228K as of this writing, down from a high of $275K(!)– but I’m sure we will figure something out.)
So what am I doing while we wait for another shoe to drop? Mostly I’ve been putting regular money into the stock market– a little bit more than my take-home pay each month most (but not all) months in order to get down our precautionary savings to what we actually need as precautionary savings should DH suddenly lose his job at the beginning of an unpaid summer (or, alternatively, I rage quit). We’re down to that number now, so there will be less funneling money into the markets next year. Having that money put away also helps the feeling of being artificially middle-class.
We’re still living well, and we’re still in a situation where rising grocery costs just means we shift to buying more luxury goods (that suddenly cost the same as non-luxury products that used to be much less expensive) and we’re still able to not sweat unexpected costs or even stupid money mistakes. But our money situation no longer feels quite so surreal or consumerist.
How are you feeling about your income vs. spending with rising prices and loosened pandemic restrictions?
Our 12 year water heaters lasted 15 years, so I shouldn’t complain. But they are expensive to replace!
So we bought two more 12 year water heaters from home depot ($1750) and called the plumbers in.
The plumbers opened up the boxes … and the water heaters were severely dinged and damaged, both the “jacket” and a bunch of the valve things. Not usable. (The boxes were super dinged up, and I watched one of the guys open the second water heater so definitely no shady business on the part of the plumber.)
So, since our garage water heater was literally dripping, we made the executive decision to let the plumbers sell us some not as good/more expensive water heaters ($3100, but also they didn’t charge for the installation itself, so that must have been built into the price) by the same company (Rheem) that they had in stock (6 year water heater plus 4 year additional warranty and replacement valves = 10 year warranty). Not necessarily the best decision, but that’s what happens when you are in an emergency situation and DH is making the decision from an airport on his way to a conference and if you weren’t living with DH to do all this stuff you would be renting. And at least these water heaters wouldn’t be dinged.
While they were out, we got our broken whole house filter (still under warranty) replaced and we got a pressure regulator added to the house so the whole house filter doesn’t break again AND so we stop going through toilet innards so rapidly. (Plus, in theory, one would not be able to injure oneself with the bidet, though I do not plan to test that.) That was ~$300 for parts and service. They also checked to see that our shower stall was no longer leaking after DH caulked it and they determined that the bathtub leak in the children’s bathroom was just them not completely turning the middle faucet that switches between shower and tap and they didn’t charge for either of those. So I feel less bad about the total bill since it seems like they loaded some of the labor onto the cost of the water heaters.
The moral is that things shouldn’t break when DH is at a conference. Or maybe if your major appliance comes in a super dinged box you should open the box before calling the plumbers. I don’t know.
A few years ago this kind of kerfuffle would have made me anxious and worried, but this time it just me tired (so tired, in fact, that instead of finishing making the dinner I was halfway through making, I went online and spent another $40 on pizza delivery). People say money can’t buy you happiness, but it sure can buy peace of mind.
DH and I have been booking hotels. One of the problems is that we’re visiting when most of Europe is on vacation, so hotels that are 99 Euros/night now are $200+ Euros (often more) when we’ll be there in a month. I wonder a bit if we might have saved money going over Spring Break or the very beginning of summer without any conferences to defray expenses, especially since flights are less expensive now too.
So we fly in, and take a train (tickets not yet purchased) and stay two nights in a “fairy-tale city” that my sister said we had to visit that is also near my second cousins. $514.42.
Then we train over to a city where I’m giving a talk and spend two nights there (partly defrayed by university). Our share: €250
Then we head to conference city for 4 nights (partly defrayed by conference). Our share: €170*4 = €680
Then we head to Paris for 3 nights: €1,053.56
Then a night at the airport hotel: $150.51
So, all told, something under $3,000 for housing, depending on exchange rates. Could we have done all of this cheaper? YES. There were sketchy looking places at a fraction of the price, particularly in Paris. But all of the places we picked have lots of good reviews (for Europe– which is similar to good reviews for NYC– many of these are tiny and old!) and are walkable and close to rail transportation.
We haven’t figured out ground transportation yet, but that’s next on the list, along with phones and tickets to popular attractions. Trains seem expensive compared to driving your own car and cheap compared to flying, but also extremely convenient. It looks like it will be something like 50 euro each, give or take, every time we change cities, though I might be underestimating there. We want to go to museums. We want to eat out all the meals (except full continental breakfasts are included with about 2/3 of the above hotels, so maybe not breakfast). (I love Continental breakfasts with their emphasis on things that aren’t sweet, especially when there’s local whole grain bread included.) I’m not sure how much we will want to go places not in walking distance of the hotels, possibly not that much.
I also added DH to my Capital One account so he has a card with no foreign transaction fees. So there’s a little savings there.
And DC2’s passport arrived with plenty of time to spare. Yay!
Any tips for Europe in the summer? (No, I’m purposefully not saying any of the cities except Paris, though if you want more info on that, we’re staying near the Louvre.)
First Gen American asks:
Once you’ve hit your magic 4% rule retirement number, should you reallocate to a more conservative asset allocation. Why or why not. And what do you think of the 4% rule.
Standard disclaimer: We are not financial professionals. Do your own research and/or consult a fee-only certified financial planner before making important life changing decisions.
I mean, do you have a bequest motive? Do you plan to make a LOT more money before you retire?
The 4% rule is ok in terms of preserving your capital until you die on average. But it’s bad in terms of volatility and uncertainty. You don’t know how your monetary needs are going to change over time, so it might be too risky. It may also end up with you not actually being able to take out enough for your needs during a recession, and if you end up taking out more then you’ve broken the rule entirely. I think the 4% rule is best if you have an additional emergency fund or have the ability to earn more money if necessary. I don’t think there is any actual safe rule that will both preserve your capital as needed and ensure that you have enough money for your spending in uncertain times. The 4% rule doesn’t get rid of the need for lots of money. So, I probably wouldn’t retire just because the 4% rule says I can, especially not while still youngish and during uncertain times.
If you’re planning on continuing to work, it doesn’t matter that you’ve hit the 4% rule retirement number. What matters is when you actually retire and stop bringing in new money. While new money is flowing in, you don’t need as much in terms of conservative assets because your income moderates short-term risk, allowing you to reap the benefits of risky assets that aren’t actually that risky over the long-term.
100% safe vs. 100% stocks
Suze Orman famously keeps almost all her money in safe assets. She recommends you play the stock market, but she doesn’t herself. Some wealthy people only keep a little spending money in liquid assets and the rest are all in stocks and other risky assets. When you have a LOT of money, both of these are completely logical because you can live off money that’s eroded by inflation but you will also still be fine if the market drops 40% or more.
The standard calculus changes when you have waaaay more money than you will ever need. You have to think about what it is you want to optimize.
If you don’t care what happens when you die, you’re probably fine no matter what you do. If you want to keep things for your heirs, then you will need to think about tax optimization and definitely keep a lot in stocks– your horizon is even longer and your heirs benefit from step-up basis upon your death.
First Gen American asks:
Why do you think the world has not cracked down on crypto yet?
We should ban it because it allows people to tax evade and launder money for illegal activities, and, of course, the environmental factors. The longer we don’t ban it the more difficult it will be to ban as pensions start including it in their portfolios.
(Answer from when this question was first asked): Because President Trump sucks. We need US leadership to get the world to do anything– see climate change (#Kyoto)
(Answer from this year): Since this question has been asked, China and 8 other countries have fully banned crypto. But I think the main reason the US hasn’t is because our political process is being held hostage by ultra-rich people who are making money from it.
In other words: Citizens United
First Gen American asks:
[What are] things your kids should know how to do before they go to college[?] Socially and practically. (Safe sex, how to make eye contact, manners, laundry, managing money, dishes, etc.)
We live in a school district with zero sex ed. DC1 got some age appropriate instruction in 5th grade when we were on leave, and DC2 has read both a boy’s and a girl’s version of puberty stuff. I believe zie asked DH some questions about them and he gave matter-of-fact answers. DC1 also has the teen vogue issue on sex, though I’m not sure if zie ever opened it. We’ve spent a lot of time discussing consent. We’ve also discussed sexual identity and sexual attraction (specifically, why DC1 may not be feeling attracted to anybody yet even though many other 15 year olds are dating). But we haven’t yet talked about birth control/STDs (DH says they did when DC1 started going through adolescence and we got those puberty books, but it was a talk aimed at a much lower age), or, what I think is more important, how to deal with sex as a teen/young adult (other than the consent thing, which we have emphasized goes both ways). We will definitely have those conversations before zie goes off to college (or after zie gets a significant other, whichever comes first).
We’ve been focusing on basic cooking skills, including some simple dishes without a recipe and how to follow a recipe. Both of our kids can now feed themselves and follow a recipe well enough to feed other people with minimal help.
Laundry is another important thing. One would think people could just read the instructions on the washer/dryer, but given my experiences at boarding school and college, no, people (including high school me) need instruction. I’d rather have my kids be doing the instruction than the other way around.
How to make a bed. How to be a good guest. How to load and unload a dishwasher.
How to drive and pump gas and use a credit card, maybe even a checkbook. And how not to get into consumer debt.
DC1’s school recently had a “learning how to adult” day, which is new. But they gave such terrible advice! The financial person (who works for a local bank) was 100% Dave Ramsey (name-checked him a lot) and said never to ever use credit cards. They showed them how to write checks and recommended they call up to negotiate the price on their land-line every time the introductory rate changes. (Which is great advice for all our rotating services, but who has a land line?) The college person said that everyone should apply to exactly three schools (aspirational, good chance, safety– not bad advice, but for kids in DC1’s bracket, aspirational and good chance blur a lot and they need to apply to more) and either go to the university in our town, or if they can’t get in, then to a specific one of our regional state schools (one that’s about 7 hours away, which is weird when there’s others that are closer).
Grumpy Nation, what do you think kids should learn about adulting before they leave the nest?