Perspective on financial struggles
January 28, 2009 11:53 AM   Subscribe

I am trying to gain some perspective on why, at the age of 48, I still cannot seem to make any progress financially or manage our money well.

I am trying to gain some perspective on why, at the age of 48, I still cannot seem to make any progress financially or manage our money well. After years and years of trying to "get it together", I know I need some fundamental change in my whole sense of money. I'm a pretty right-brain person, but feel I should be able to do this.

Some data:
~ My wife and I make a combined decent (I think) wage ($80K+)
~ have only $10K in debt, aside from our house ($1300/mo)
~ We have home equity ($175K)
~ middling retirement savings ($150K),
~ next to nothing saved for my 10 year old daughter's college (!!),
~ and little accessible regular savings.

So, something put aside, but we are always living paycheck-to-paycheck. Always a little behind in bills. Always a little overdrafted on our account. We don't spend extravagantly, hardly ever buy much at all. I have tried budgeting, tracking, cash only methods... but never gain ground.

Some questions I have would be:

1. Is this typical? Or are we among a small percentage of working professionals?
2. People I know, who have similar incomes, seem to have far more ready cash, are able to take vacations etc, and don't drive the ancient vehicles we do... why?
3. Am I lvin' in the past, and $80K just ain't what it used to be?
4. Can anyone recommend books or resources that can help me change my approach, my outlook, my sense of money? Not so much systems of financial management, but something fundamental...

posted by anonymous to Work & Money (31 answers total) 22 users marked this as a favorite
1) I didn't look up the exact numbers, but I think you are actually better situated than a lot of people. Low debt and middling retirement is better than most folks. But you are right not to be content with that.
2) It's hard to say without looking at their bank statements, but a lot of that could be done by taking on more debt than you have. They may just be really financially undisciplined. If you read a book like The Millionaire Next Door, you'll see that your average wealthy person drives used cars and lives in a middle-class neighborhood. Many people with a flashier lifestyle aren't accumulating wealth--they are accumulating debt.
3) It depends on where you live. $80k isn't what it used to be, of course, but it is enough to have security. (That's our household income, too.)
4) I really like the Dave Ramsey stuff, which is recommended here a lot. Total Money Makeover is good stuff, and deals with fundamental approaches to thinking about money. Less well known but maybe more up your alley is Deaton's Money: An Owner's Manual, which really will change your outlook in a big way.
posted by Pater Aletheias at 12:05 PM on January 28, 2009

To answer your specific questions:

1. You're not atypical at all. Many people at many income levels struggle manage their finances.

2. These folks could be remarkably astute, but they also may take on considerably more non-mortgage debt than you're aware of.

3. $80,000 is a rock-solid gross income in many, if not most, parts of the country. If you're not living in a large, hight-cost-of-living city (and your mortgage suggests that you are probably not), you should be able to manage on that income.

4. Consider some or all of the following:

a. The Millionaire Next Door, a book that introduced me to the concept of tracking every expenditure, cash or non-cash, that you make. It helped me find some holes in my budget of which I was previously unaware.

b. Mefite JD Roth's blog, Get Rich Slowly, which covers budgeting (or "spending plans," as he prefers to think of budgets), the tracking of spending, and a wide variety of other financial topics in an inspirational and informative fashion (the forums are also very helpful); and

c. Richard Jenkins' 60% Solution, which I've always found to be interesting and useful, particularly if the entire concept of budgeting gives you the willies.

Finally, two personal thoughts:

1. Eliminating the $10,000 in non-mortgage debt should be an early and important goal, but getting a handle on your expenditures is the first step; and

2. I think you've actually been wise to prioritize your retirement savings (which may seem modest to you but which exceed those of many of your peers, even at your income level). You can borrow for college or have your daughter look into jobs, scholarships and other means of paying for an education. Last time I checked, borrowing for your retirement is pretty tricky.

Best of luck.
posted by cheapskatebay at 12:08 PM on January 28, 2009 [1 favorite]

I am a grad student and make just under 30k/year. I have a house, and no debt (other than student loans that are in deferment). I really like Suze Orman's books, and I watch her show regularly. A lot of people don't like her approach ("she's a bitch"), but I think that she has great ideas and have found her information really useful. You might want to check her books out (at the library, it's free!)

I am a complete hardass with my finances, though, with spending X on groceries, I don't drive much (walk or bike), and I don't eat out much. I automatically put Y amount in savings each month (I only get paid once a month), and Z in my IRA. I am really aware of the little things (which add up quickly), and either plan ahead and save for them or don't get them. I only use my credit card if I know I can pay it off at the end of the month (for vet bills, necessities, etc). After I pay my bills, everything except for $100 is transferred into savings, and there it stays, no ifs, ands, or buts.

It could be a lot of things. Are you truthful with and do you stick to your budget? Do you track really carefully? Maybe try writing it out again, and be brutally honest with yourselves about where money goes. Every little cup of Starbucks, pack of gum, etc.

I agree with cheapskatebay, it depends on where you live and such, and definitely get rid of the debt, first and foremost.

Hope this was a little helpful, anyway. Good luck!
posted by bolognius maximus at 12:11 PM on January 28, 2009

Your situation with living from paycheck-to-paycheck is something a LOT of people are dealing with right now, even though they might keep up a front and pretend otherwise to friends and coworkers. My parents are a few years older than you and don't have any savings.
In my experience, the people who can afford the vacations and shiny new cars are either taking out loans and not talking about it, or they've got money in the stock market (inheritances and so on) that they're yet again not talking about.

It's a wonderful thing that you want to put your daughter through school, and if you've got any kinds of means to do so, help her out. Your kid will remember that sort of thing later on.

Times are changing- the American Dream is turning out to be a fake, and the economy's tanking- but no, it's not your fault.
posted by dunkadunc at 12:13 PM on January 28, 2009

Everybody I know who has read Your Money or Your Life has sworn by it. I think it might help you to reframe your relationship with your money, far beyond simple (but useful) suggestions of goals like setting aside $XXX for retirement. A new edition came out at the end of 2008 that might provide more helpful, up-to-date information than the older editions.
posted by arco at 12:17 PM on January 28, 2009 [2 favorites]

My wife and I make around that much money in public sector jobs, and we're a few decades younger than you. Mind you, we live in coastal California, so income and housing increases accordingly.

My thoughts on question 2: how much do you spend on small-ticket items, and how often do you eat out? I think those are major culprits at decreasing savings, because it's just a few dollars here and there. If that's not enough, start keeping track of all expenditures. Using accounting software that allows sorting of expenditures will make it easy to see how much goes where.

An automatic deduction system (shifting money from checking to savings) is a really easy way to limit the easily available money, and at the same time set aside funds for things you want to do (like send your daughter to college). Banks have programs like that available, and are often things you can set up and monitor online. Some banks allow you to have multiple withdrawals set up, so one can be for home improvements, another for family vacations, and the third for education.
posted by filthy light thief at 12:18 PM on January 28, 2009

i agree with what i was said above and offer this blog up as he is brutally honest about not only hot to save money, but make more money.
posted by wocka wocka wocka at 12:20 PM on January 28, 2009

Best advice I ever had was to stop using cards to pay for things. Now I withdraw a fixed lump sum in cash once or twice a week. If it runs out, I have to wait until the next scheduled withdrawal. It's surprising how much harder psychologically it is to part with real cash than to just sign a slip or enter a PIN.
posted by le morte de bea arthur at 12:22 PM on January 28, 2009 [3 favorites]

Let's just use some rough estimates. 80K a year after all taxes (feds, state, local) will be about 40K. $1300 a month is 15K per year, and I'm presuming that 1300 figure includes property taxes and homeowner's insurance.

That leaves 25K per year in walking-around money. That's about $2K per month for three people for cars/transportation, utilities (cable, phone, internet), food and everything else.

Depending on where you live and what kinds of things you own (e.g. you don't mention cars), this could get iffy. You're not in terrible shape, but I could see very easily how it all seemingly gets swallowed up, especially by all the little not-so-obvious things that turn up in everyone's lives (hello, $80 per month health club fee).

You either need to raise the income or lower the expenses.
posted by Cool Papa Bell at 12:22 PM on January 28, 2009 [2 favorites]

You sound pretty "together" to me, but I can understand the "but where does it all go?" flailing and the paycheck-to-paycheck state.

You may want to try an exercise just to give yourself a bit more information -- I've done this a few times when I find myself wondering "where the hell is my money going?"

Pick a length of time -- at least two weeks, but a month is best -- and during that time write down EACH AND EVERY THING you spend money on. EACH AND EVERY LAST PENNY. Everything -- change for gum, bank fees, mortage payments, tipping the Starbucks guy, overdue books at the library, EVERYTHING. You're not making a value judgement on any of this yet, you're just making notes.

Then at the end of the month, sit down and categorize each expense, and add up the categories. This will probably yield some big surprises ("....Holy Christ, I spend $200 a month on BOOKS?")

What you do after you do that...well, that's up to you. You may see some places where you can obviously cut back easily and instantly ("Okay, let's cut back on the books, because SERIOUSLY"), or you may see some places where you can make smaller and more conscious changes ("....Hmmm, we spend $400 a month on groceries -- but we buy the big brand-name things, I wonder what would happen if we switched to cheaper brands? Let's try that and see..."). But the fact that you will now HAVE this information will in and of itself be a big help -- at least now you'll know going forward that "oh, right, THIS is where my money's going" and even if it can't be helped, you'll have that information at the back of your head and ready to help you pounce if you see a way to change that later.
posted by EmpressCallipygos at 12:22 PM on January 28, 2009

A few relevant blogs to check out:
Get Rich Slowly
The Simple Dollar (Big into being thrifty)
I Will Teach You To Be Rich (Ramit just ran a month-long money saving series)

There is no magic bullet for this kind of thing.
-Be serious about tracking, where is the money going?
-Where can you be more spendthrift?
-Can you freelance at all to get other sources of income going?
-Can you cut off some subscriptions? (cable, magazines . . .)
-Can you lower your costs for certain items? (negotiate out of bank fees, negotiate insurance costs, negotiate credit card rates)
-Can you trade skills with others? (you fix their computer if they fix your car)
-Is your wife as committed to your financial future as you are? (is there room for improvement in her decisions?)
-Can you drive your current car a little longer instead of buying a new one? (which, when you do buy it, it shouldn't be new)

With just these questions alone you probably have tons of room for improvement.
posted by milqman at 12:29 PM on January 28, 2009 [1 favorite]

Always a little behind in bills. Always a little overdrafted on our account. We don't spend extravagantly, hardly ever buy much at all.
It sounds like you don't know where the money is going - by definition if you are always a little behind, it must be going somewhere.

I'm curious about what happened when you tried budgeting/tracking your money before. You mention twice that you feel like you need a whole new attitude towards money. Maybe, being logic and right-brained, your emotional side is sabatoging you and you don't realize it.

My suggestion is journal about money, especially your feelings about money, the thoughts that come up when you try to budget, when you think about splurging a little, when you think about savings. Also as you are writing, think about how your relationship with money is similar to or different from the people around you growing up.

Do the journal as a free-flow of thoughts - just write down whatever comes into your head. You are not writing for an audience, it doesn't matter if the spelling or grammar are bad (if you do it in your word processor, turn off spell check). For some people, setting a timer for anywhere from 5-15 minutes per session is helpful and just keep writing until the bell rings - even if you repeat yourself or write about being stuck. In other words, nothing wrong with writing: "I don't know what else to say. I don't like thinking about money so much. I feel stuck. Why can't I think of anything else - money is always on my mind" because eventually it will connect up again and you can go from there.

I don't where it will take you but I'm pretty sure that if you set aside time and just start writing (or typing) you will turn up some surprises. Once you find those surprises, it will give you new clues for your right-brain to use to figure out what needs to change.
posted by metahawk at 12:31 PM on January 28, 2009

I think financial planning feels really complicated nowadays, there are so many options and experts telling you what to do that its easier to not think about it. But really, the best advice is to not spend more than you have, and to save a bit for later. I've got much better at managing money over the years and the key has been learning how to budget effectively, and how to stick to said budget. You haven't mentioned this so maybe you need to just get a clear view of your situation (which seems fairly average).

Do you know what your outgoings are (as opposed to what you think they are) and the amount you spend on a daily basis? Try keeping a cash diary for a month - you need to be really honest with yourself here, no fudging the numbers! There's a budget planning tool here which might help.

Once you've worked out your actual spending/saving patterns you can see where there's room to move. All the resources mentioned above will help you with this. Alvin Hall (author of Your Money or Your Life) has a series of podcasts on MSN which may offer some reassurance.
posted by freya_lamb at 12:43 PM on January 28, 2009

Seconding personal finance blogs.

Also the book Rich Dad, Poor Dad is widely considered a classic.
posted by salvia at 12:45 PM on January 28, 2009

... in the "how to manage your money" genre, I mean.
posted by salvia at 12:45 PM on January 28, 2009

I have tried budgeting, tracking, cash only methods... but never gain ground.

Without knowing more details of how this failed, I don't know what this means. If you're tracking your expenses, well, where does the money go every month?
posted by desuetude at 12:51 PM on January 28, 2009

80K a year after all taxes (feds, state, local) will be about 40K.

Huh? You pay 50% of your income in taxes?
posted by goethean at 12:51 PM on January 28, 2009

We don't spend extravagantly, hardly ever buy much at all.

So, where is your money going? It's got to be going somewhere. Once you know that, you can start plugging the leaks.

I found The Richest Man In Babylon to be helpful. Simple, no nonsense and most importantly no jargon. You can adapt it's simple advice to any situation very easily. And it works.

The main premise of the book is spend less than you earn. When you do that, you'll start saving money and get yourself out of debt.
posted by Solomon at 12:52 PM on January 28, 2009

. I'm a pretty right-brain person, but feel I should be able to do this.
How about your wife?
In my marriage, I've discovered that, even though on paper I'd be a better candidate, my wife is far better at remembering to track expenses, update the budget spreadsheet, actually pay the bills, etc, than I will ever be.
If you haven't already, maybe it's time to give the responsibility to her. Responsibility in the "keep track of things sense" naturally, not the "make sure we don't spend all of our money sense" That, of course, belongs to both of you.
posted by madajb at 1:19 PM on January 28, 2009

Forgive me if I'm just repeating what's been said above. I think the first step is figuring out just where all that money goes. I did see someone recommend tracking every penny for a period of a few weeks, but I don't think that's ideal. Personally, for the last year+ I've been tracking everything I spend money on, but rounded up to the next dollar, and I treat the change as free money. At first it is difficult to track everything, and I would just lose track of several hundred dollars in a month. (You should audit your tracking by comparing it to the difference in net worth one month to the next).

So anyway, once you have some records of your spending, you can put everything in 5-12 categories, and perhaps decide to make some changes. I found I was not happy with the amounts I was spending in my "dining" and "general recreation" categories, so I cut back on both of those, and can set goals, and know what is typical in a month versus what is a lot. You may decide you need drastic changes to meet your financial goals, or maybe not. Seems like $80k is "enough" money, but that is highly dependent on where you live.

You should figure this out, and then set aggressive goals for how much to "save" each month. At first, you're just paying off your debt, but that is the most crucial part, because the interest you pay on that will be way higher than the interest or market returns you earn on future savings.
posted by where u at dawg at 1:21 PM on January 28, 2009 [1 favorite]

In a nutshell: there are lots of things that get easier to deal with as we get older, things that we're terrible at when we're young but ultimately we learn to handle. Walking. Talking. Dancing. Being generally social. Reading. And so on.

Financial management is not one of those things. It doesn't get easy, and it doesn't get fun, for most people. You get older, you think you'll start managing your money right someday, and it never happens. To do it at 19, you have to force yourself, and you have to force yourself at 49.
posted by davejay at 1:26 PM on January 28, 2009 [2 favorites]

Just coming on board to Nth the Get Rich Slowly, The Simple Dollar, and I Will Teach You to Be Rich blogs. I also recommend Dave Ramsey's Total Money Makeover if you can handle how he pounds home the Christianity. His website has a very active TMMO forum and the people there have really excellent advice.

It definitely sounds like you don't know where your money is going, and that would be the best place to start. (This is a summary of Dave Ramsey's plan).

*Track expenses, to the penny. One of the easiest ways to do this is to use cash only, as much as possible. Start doing it for a limited time, say one pay cycle or one month, to get an idea of where money is leaking. Then you can start budgetting and cutting out extra expenses.

*Set up an emergency fund, then start paying down debt in a seriously hardcore manner. Get rid of car payments if you can.

*Save up a really good emergency fund, THEN set up your retirement savings at 15% of your gross income.

*THEN worry about your daughter's college fund. Student loans are not the worst form of debt in the world--and what's more important, loans exist for people to go to school. Loans do NOT exist to help you through retirement when you didn't save anything for it so your daughter wouldn't have to take out loans. Savvy?

The bloggers mentioned above turned their financial boat around with more debt and worse habits than you're mentioning here, so your case is not hopeless. Good luck!
posted by peanut_mcgillicuty at 1:31 PM on January 28, 2009 [1 favorite]

goethean said: Huh? You pay 50% of your income in taxes?

I think he was doing an aggregate of all of the other taxes *above* the 28% or so federal income tax. For instance, many states have income tax. Some states, like Texas, have insanely high sales tax rates, (8.25% in my neck of the woods), but no income tax. Then there's property tax, capital gains tax, investment and interest taxes, auto tax, luxury tax, sin tax, and so on, and so on...frankly, I wouldn't be at all surprised to see that many middle class, property "owning" folks are dumping about 50% of their *stated* income straight into county, state, and federal tax coffers.

Also consider the insane interest paid on a long term house loan, even if the mortgage rate was low. On a 30 year note, your total payout for the house will be about 225% of the original loan amount. So, if you count interest in the "disappearing money" pile with taxes, I bet most people are closer to actually only keeping 40% of their stated income.
posted by dejah420 at 1:32 PM on January 28, 2009

Compared to $80K income, at $13K a month you're paying a lot (relatively) on your mortgage. Add in income taxes, housing insurance, utility bills, home improvement costs, and furnishing your home, well, $80K is going to get stretched. And this doesn't include the fact that you probably own more than one car.

My advice would be to increase your income somehow, even if it is only by about $10K a year (after taxes).
posted by KokuRyu at 1:41 PM on January 28, 2009

I think he was doing an aggregate of all of the other taxes *above* the 28% or so federal income tax.

Yes, that's exactly it. Just a rough estimate.

I find it funny when people don't count sales tax (~9 percent in Seattle) into their total tax burden, or fail to take advantage of it when they can (e.g. no sales taxes in Oregon state, so when it makes sense to do so, I drive down there to make big, unlicensed, untracked purchases, like appliances, computers, etc).

I mean, you are buying things with that money, right? ;-)
posted by Cool Papa Bell at 1:44 PM on January 28, 2009

Seconding what metahawk said:
If you're always behind and always lost, it means you're not keeping track.

This is a curse these days. You do everything electronically and have no idea how much money you actually spend because it doesn't FEEL like spending. Swipe the card - done. If you go to the grocery store and pay with your debit card, I have a feeling you could not tell me what the cost was 30 minutes later.

Try this with actual cash though. You'll remember.

That's my point here: cash cash cash. I'm not alone here either. Stop spending electronically. I know it is convenient, but that is exactly the problem.

It's all about attention. You need to pay attention to how much you spend.

Personally, I keep a small notepad in my back pocket, and write down every transaction I make. I pull out a specific amount of spending money every time I get paid, and keep it at home - I bring with me exactly what I will need in a given day. Don't have $12 to buy the taco supreme burrito for lunch? Too bad, get the soup. Want to buy a new $60 blender? Make sure you have the cash.

I see all these people saying "oh it's not that simple", but it is. Just pay attention. This problem is caused by convenience overshadowing what you do. You don't HAVE to pay attention because your bank keeps track of your purchases! Bugger that.
posted by phrakture at 1:57 PM on January 28, 2009 [2 favorites]

Pick a length of time -- at least two weeks, but a month is best -- and during that time write down EACH AND EVERY THING you spend money on. EACH AND EVERY LAST PENNY.

I know this is common advice, and I know it works for some people. But for me, the idea of having to track every single Reese's peanut butter cup seemed both so daunting AND so teeth-grindingly tedious that I never bothered to try... and therefore, figured I could never draw up a budget, so that I was stuck constantly floudering with my finances.

What finally helped me was to get the big numbers in balance -- not the small ones. Basically, I follow the advice in All Your Worth, which comes down to this: 50% for essentials (shelter, food, transportation, insurance, etc.), 20% for savings (long- and short-term), and 30% for non-essentials. Having persistent financial problems means your categories are out of balance (for example, you're paying 65% for essentials because you're driving a car you can't really afford or eating out every night instead of cooking at home, so you make up for the shortfall by not contributing to your savings, which means you don't have a cushion when the next emergency comes along).

The key to the 30% for non-essentials is this: provided you've got the other two categories covered first, and know what your specific dollar limit is per month, you can spend that money any way you like. You can spend it on daily double-lattes and weekly manicures, if you like, or you can spend it on cable TV and tattoos. The only thing you have to track is that once you hit your dollar limit for the month, you're done.
posted by scody at 2:13 PM on January 28, 2009 [2 favorites]

2. People I know, who have similar incomes, seem to have far more ready cash, are able to take vacations etc, and don't drive the ancient vehicles we do... why?

A surprisingly large number of people are far less thrifty with their money than you are. If you didn't save for your retirement, or build equity in your house, and were happy to aquire consumer debt, you'd be looking like that from the outside too.

Putting that aside, one angle to look at is your level of regular outgoings (utilities, fuel, groceries). Maybe some of those fixed expenses that you regard as inevitable or usual are actually on the high side. If you could save $10 on power, and $10 on gas, and $10 on groceries, and $10 on phone bills, and scape up $10 of change every month, you'd have $600 in savings at the end of the year.
posted by i_am_joe's_spleen at 2:26 PM on January 28, 2009

Track expenses, to the penny. One of the easiest ways to do this is to use cash only, as much as possible.

I find that the opposite is easier. Using a credit card for everything means that I can download a list of my expenses each month and import it into software like GnuCash, Money, or Quicken. From there, I can file transactions into categories and can see nice charts of exactly where my money is going. It's really much simpler than it sounds.
posted by chrisamiller at 2:32 PM on January 28, 2009

Seconding chrisamiller above.

Disclaimer: I'm a part-time high school student, part-time college student, and part-time retail associate.

I've had a job since I turned 16 (working on three years now, yeah I'm young), and for the longest time it seemed like I never could save money. I'd spend whatever I made. If I made $xxx, I'd spend $xxx-25. Then, I started exclusively using my debit card and to track my expenses.

Wow. Since I started doing that (almost a year ago now), I've saved so much more money. See, the thing is, when I pay cash, I don't feel it. Because my "total money" doesn't seem to be going down. My checking account can have $1200 in it. If I spend $40 in cash, it still has $1200, and I forget about the $40. However, if pay debit, Mint tracks and categorizes all my expenses, and tells me how much I spend on what and where each month.

I had a few "wtf" moments myself when I started seeing where my money was going. I subscribed to a few magazines (I was paying ridiculous amounts per month for newsstand copies), cut back on my weekday lunch expenses (I now go to a local mom-and-pop pizza place for lunch nearly every day because they sell a large slice of pizza and a large drink for $2.00), and started rethinking other costs, knowing that they'd push the little slider on Mint further to the right.
posted by Precision at 7:11 PM on January 28, 2009

First, unless you're living in NYC, Boston, California, or Chicago...80k is a nice chunk of change. I'm assuming you have been earning at this level for some amount of time.

If it's not the cash inflows, it's gotta be the cash outflows. I had some trouble with this too, and the funny thing is, it's not the recognizable, fixed expenses that we all have that eats a hole in my wallet. It's those petty little nickel and dime know, the $1.50 bottle of soda at the gas station, lunches out, vending machines.

I'd google "budget calculator" and you'll get a nice list of results that can help you assess where your money is going. There is even one site that will compare your spending percentages to the national averages, trouble is I forget which one. But it came up under that search. If half the nation is spending half of what you are on some particular item, it could be a signal to take a closer look.

However, personally, after much soul searching I've come to the conclusion there's a price to pay for living the lifestyle one wants. Personally, I feel that it's fine to have less "spending cash" for vacations, cars, etc. and to be able to enjoy a few rounds of golf at a pricey course, go to Starbucks, eat lunch out, and buy convenience items such as that aforementioned $1.50 soda. I don't want to make myself angry or stressed by forcing myself to cut back in these areas; it's just not worth it. Disclaimer? I'm in my 20's, have no kids, and have a long time to save up for retirement, so those items are definitely a priority for you and an afterthought for me.
posted by fromred2green at 2:08 PM on January 31, 2009

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