I’ve never been a huge spender, and I’ve never gotten a rush that many people get from spending.  Actually some friends have told me that they get a “high” when they buy things.  They feel better and it’s addicting. It’s so easy to swipe their credit cards and not realize it’s their hard earned money being spent.  It doesn’t seem real.  There is a disconnect.

It sounds crazy to someone who hasn’t battled debt and credit cards and spending; but when put into perspective of dieting and food, it suddenly clicked.  I battle my weight constantly. I am constantly on a diet.  I might not count calories, but I have to do a lot of things to try to manage my weight.  I know I have to work out, I cannot eat out all the time, and if I do eat out, I need to eat less for a few days afterwards.  I also know that I can’t have dessert every night and I have to portion control even my homemade meals!

But the hardest part for me, was realizing my eating triggers.  I eat when I’m stressed, sad, or bored.  I find myself reaching for food, it brings me comfort.  It’s a lot like someone addicting to spending.  When they are bored, going to the mall or shopping online for the latest toy brings them short term happiness.

I think the only way to curb these impulses is to realize what triggers your spending or eating.  And sadly consciously avoiding these behaviors is the only way to stop spending.  For example, justifying that you “need” things because it’s so efficient will stop someone from buying unnecessary items.  Or carefully following a budget and allowing yourself pleasure in “planned” spends. 

For me, I’m always starving at 4 pm in the afternoon. To beat that I constantly have to be carrying “healthy, preplanned/prepackaged” snacks or else I’ll grab whatever is available and stuff my face.  For the rest of my life I have to “monitor” my eating habits. 

I’m sure that many people are learning they have to monitor their spending habits to curb them.  Do you know your spending or eating triggers?  What do you do to curb them?

But more important than just how large and EF, I guess the other question is, how liquid should you EF be?  Should it all be cash?  CDs?  Money Markets?  The answer, depends on your risk tolerance.

Personally I think 3  months of cash is enough.  I don’t think it’s necessarily enough for my EF, but it’s enough cash on hand.  Why?  Because I figure the rest of my EF can be invested in the market.  Why?

I’m tolerant of risk. I’m okay with it going down.  I’m okay with knowing if I lost my job, had medical bills, etc, it doesn’t matter what the market is doing, I’d be liquidating my money anyway.  I also think during those three months we’d be making cuts and adjustments and figuring out a new bare bones budget.  And possibly getting any job to help increase our income.

Truth is that any taxable accounts would be fair game if we were unemployed.  Our EF would be all of it, however long it lasted.  We would likely be slowing cashing out money and if we got a job again then start rebuilding the account.

So to me, our EF will likely always be 3 months of cash in a money market, 1 month in the bank savings account as slush fund for unexpected monthly expenses, working 1 month ahead in the bills (just easier budget wise), and the rest invested in a stocks or mutual funds.  Also realizing that our money market would have more cash because that’s where we stash our short term annual savings like home repairs, vacations, property taxes, insurance, etc.  And with a job loss, I doubt we’d be going on vacation or doing luxury home repairs (only absolute necessity work!).  So our cash fund would likely be more than 3 months.

Perhaps this is too risky for many people.  They would prefer to have 1 year of cash or 6 months.  It really depends on risk tolerance.   There is no right answer, like investing in general. Some people do 100% stocks, others do a more conservative approach. I think my DH and I have a higher risk tolerance profile than others, and we are the same way with our investing strategies.  Thus the low cash Emergency Fund, not to say we want a 3 month EF.  Rather I know we should always have at least 6 months in a taxable account.

How much cash do you have?

But my personal thoughts on car loans?  It’s better to live without a car loan because that’s one less monthly payment on your head.  But they can have a use and purpose in someone’s budget.  They aren’t necessarily evil, like CC, it’s how you use the car loan that can be financially wise or financially ruinous.

How so?  Well my DH got a car loan for his car of $5k over 3 years @ 0.9% I believe.  It was $150/month, which seemed like a lot at the time.  It was to a new college graduate.  It was his first and only car.  Well the car has now been in his possession nearly 10 years.  Yep he bought it new, and probably could have saved more by buying used.  But he moved countries and established credit by buying a car.  He also had no help in finding a used car and had test driven the focus where he lived before he moved.

10 years later would he do it the same way?  Probably not, but now he has a lot more options, time, and experience.  He was 22 almost 23 and had never even owned or maintained a car before and was dealing with moving to a new country alone.

So the car loan had a purpose.  He was able to get a reliable car under warranty. It has served him well and I believe he’s maximized the return on the car loans.  He didn’t go out and get a luxury vehicle, but a basic, fuel efficient, compact car.  His loan was not outrageous, and he put down the rest of the money.

I believe that it might have been $5k for his new car or $5k for a used car.  Either investment would have been a wise car loan.  The purpose?  To get to and from work/school and make more money/invest in himself.

I’m not saying that everyone should run out and get a car loan or you should never pay cash for a car.  I think that each circumstance is different.  If you wreck your car and need a replacement but don’t have the cash to get a car, a loan might be in order.  Now you could get a used car for $5-10k or maybe a new compact for $10-15k.  The choice between new and used is a different argument.

For this argument the idea is that sometimes due to circumstances you might need a car loan.  Of course ideally no one would ever borrow to buy a car.  But we all know that will never happen.

So my experience is that while it’s easier to live without a car loan, sometimes it can be necessary and serve and important purpose in someone’s life.  But maybe I’m wrong and all debt is bad.

A friend suggested that perhaps it’s the new parental mindset.  There are “helicopter” parents who “hoover” and oversee every decision a child makes and never lets them grow up.  Is this the adult version?  That parents help their kids every step of the way financially?

They pay for college, wedding, honeymoon, first car, first apartment, then first down payment, and finally college for their grandchildren? Or letting their children live with them rent free for years, thus allowing them to completely spend their disposable income far beyond what they should have been if they had to pay rent?  This can come  at the expense of their own retirements, but usually not since they have pensions and savings?

The problem?  Many of these boomers didn’t start our living their nifty lifestyle of McMansions, luxury cars, traveling, private school, etc.  They started out in a starter home, driving a beater, and saving up.  They also had built in retirement safety nets with pensions and very few every dealt with layoffs the way we do now.  Before you started with a company, stayed there 30 years, and were guaranteed health insurance and a retirement package. That was the standard and not the exception.

But did all this helping really help, or hinder our generation?  Is this what contributed to the housing bust?  I must have a SFH now!  I must have a car now!  There is no waiting, and worse, many, many parents keep encouraging buying and buying and buying.

I can say this because my cousin bought a condo and is underwater in it. Then since he had to move and to sell he would take a huge loss, he is renting it out for less than the mortgage.  But then at the new location, because of a steep decline in prices, he bought another condo for much less in hopes of turning a profit in a few years!  All while doing off of this, ENCOURAGED by his parents and other family (including my mom) who thought it a fantastic idea to keep buying property.

Never asking, can you handle two mortgages if you lose the renter?  Never suggesting selling and taking the loss in one lump sum instead of monthly?  I mean can you really “make” up the monthly loss in the sale?

So have parents not only financed but encouraged this mentality of buy, buy, buy, and use credit?  FWIW, my mom actually encouraged us to buy more house than we needed.  She also said we should be able to afford “luxury” cars like everyone else, why aren’t we buying them?

She means well but her grasp of finances are poor.  I don’t think she truly understands how to build wealth since she married someone 20 years old with established wealth.  No saving necessary.

I think it’s easy to say ignore your friends, media, etc who are fools.  But when it’s your parents and family who have your “best” interest at heart, and truly believe some foolish financial moves, it’s a lot harder to take a stand and say no.

I wonder if we’ll be able to stop this entitlement cycle?

So what did I learn?  That life is what you make of it.  It can be half full or a half empty glass.  When I first graduated from college, I went through a job a year.  Yep, every year in my industry I was laid off and downsized.  I learned really fast that there is no loyalty, job security, and lifestyle. 

My DH was laid off less than 6 weeks on the job at a company we moved cross country for.  We knew the risks and still gambled.  Luckily we had money in the bank, all due to the lessons I learned in 2000, 2001, 2002.  Money in the bank, don’t buy what you can’t afford, never charge more than you have, and live well below your means.

Nothing has really changed for my DH and I between college and now, nearly 10 years later.  We didn’t scale up our lifestyle, we are driving the same cars now as 10 years ago.  We have some of the same clothes.  We do have a bigger place to live and a baby (on the way), but we still have our hand me down cookware and dishes.  Our lifestyle certainly doesn’t reflect the changes in our income.  We still buy a lot o f used stuff and simply.

But the recession taught me that belt-tightening, cutting coupons, looking for deals, bargains on used goods should be used at any income level.  Just because you make 2-3x what you did before, you should still try and save money.  Every penny has a purpose and meaning.

It means just as much to save $20 on eating out if you make $20k, if you make $200k.  It’s still $20.  Do you really need it, want it, or can use it?

The recession also taught me to embrace my inner scrooge.  The frugalite that I have always been, was long hidden away.  I was embarrassed and my DH as well with our coupon clipping, deal seaking lifestyle. 

But then 2008 and 2009 happened and suddenly people were asking us for tips.  Our friends became curious about how we managed so much on what seemed a limited income.  Suddenly our behaviors didn’t seem weird or cheapskatish.  Rather it seemed wise and prudent.  Suddenly our behavior was the “norm.”  Telling people we couldn’t go out to a $100 birthday dinner seemed smart, not cheap.  Telling people that we prefer to cook at home, seemed reasonable instead of scroogie.

I don’t know how long people will really embrace frugality and savings. I don’t know how long I have to be part of the norm, instead of apart from it.  But I’ll take it.  I don’t mind for now, and when extravagence takes hold again, I’ll still enjoy the same lifestyle. Perhaps slightly upgraded with cable tv, cell phones, and wireless internet.  But I’ll know that if necessary I could always cut my expenses to the bone and survive the next recession.

Honestly?  She’s right.  It is a great time of year to buy favors, I wouldn’t say loyalty, but definitely favors.  And yet my DH and I both don’t do it.  It’s not money I want to spend period. It sounds great that you are buying favors, and you don’t have to do much, maybe $20 gift cards to starbucks for everyone.

But I know doing nice gestures all year is also a good way to rack up favors.  What sort of favors?  I’ll help out a collegue who I know has kids and say “I’ll be in anyway this weekend or holiday at work and I’ll take care of your work..”  Thus they don’t have to drive in on a holiday or weekend.  I also graciously acknowledge work and help from the office secretary to the boss when he goes out of his way.  Other people don’t bother. 

So yep, I don’t give away monetary or tangible gifts. I make cookies and fudge and bring it in because I crave it and make tons.  It’s not to buy favors but because I like to do it.  Am I buying favors?  No.  I enjoy doing it.

But I just unfortunately am not going to spend a few hundred bucks and buy goodwill at Christmas, I don’t have the time or energy or money.  And perhaps when I make a lot more and can afford it, I will.   I reserve the right to change my mind. But honestly since I couldn’t care less about a $10 candle, I don’t see the point of gifting other people with more junk they don’t need.

Do you play the gifting game?  Do you use Christmas as a time to buy goodwill?  Does it work?  I’m curious how Dog feels after this holiday and not being at a fancy company, but isntead giving out $10 candles instead of $150 gift cards.  Do people really care if it’s a small gift versus a large extravagent gift?

So where is the problem?  I thought four out of the five families did it for the right reasons.  But then there was one person who made me raise an eyebrow.  Which one?  John Wilder.  He stopped paying on his CC 3 years ago and switched to cash because he was tired of dealing with credit cards and being their “Slave”.  I would say this sounds like Dave Ramsey preachings.  Problem?

Well the guy STOPPED paying on his credit cards.  He didn’t pay off his $12k of CC debt and then go cash only.  Nope, he ran up the credit card to the limit and then walked away.  He was like an underwater homeowner buying everything great beforehand and then strategically walking away. 

I guess what bothers me is that he’s proud that he still owes the money and doesn’t care.  That his credit score is in the toilet, but in 4 more years the credit card company will write off the debt and he’ll walk away scott free “beating” them at their own game.  This inflated self-importance pisses me off.

This is why I don’t believe debt is due to credit cards.  HELL NO.  It’s obviously because of jerks like John Wilder who believe they are entitled to EVERYTHING and ANYTHING they want.  That the laws of paying back what you charge doesn’t apply to them.  That because he felt the CC companies were being unfair he walked away and ignored them. 

How can you justify that debt is created by CC?  It appears that being on a cash only budget doesn’t mean you are better than someone who uses CC.  It still comes down to an individual’s morals and values.

More interestingly, he suggests that if the 15 milllion homeowners underwater do this, it will force the banks to renegotiate the mortgages ASAP.  It will make them bend and compromise, after all they allowed people to buy without down payments, no income checks, and inflated appraisals.  Thus they were guilty of allowing these people to get mortgages in the first place.

In fact, if you play your cards right, you can strategically default.  What that means?  Buy everything you might need in the next few years now before defaulting and then default.  Get a new car, new home, appliances, etc and then get off scott free.  If you play your cards right you’ll have a 660 credit cards within two years if you pay everything else responsibly.

On the other hand, here is a post about a family underwater who won’t walk away.  They understand the situation, but aren’t ready to let the house go.  They have time for the market to recover, which is how I feel and many people I know who bought feel.

I wonder what the repercussions of this article will be?  Will people start to strategically default because of it?  Will this article encourage people to think outside of the box and walk away?  I wonder if people haven’t considered it, but felt ashamed?   And now with it written in black and white that it’s okay morally since it’ll change how banks do business, they’ll justify it in their minds?  That seeing a reasonbly laid out argument that they didn’t have to think of, supported by an academic paper will be enough?

I still think it’s immoral and I wish that every state allowed banks to go after people’s assets in lieu of walking away.  Why should someone with $100k or more in retirement accounts be allowed to walkaway from an underwater house scott free?  Or $100k in cash savings becase they lived rent free for 1 year while foreclosure was happening and saved their mortgage payments? 

If this strategy is to make banks renegotiation, why not renegotitate with me too?  I pay my mortgage on time, can easily afford it, etc.  I put down 20% and it’s less than 28% of my gross income.  And I can afford it, but I “lost” possibly $25k on our townhouse.  Thus shouldn’t I get the same deal since I’m responsible?

I just hate the fact that personal responsibility is gone.

I apparently didn’t have any, but more likely my mom had to cash in my bonds to survive after her divorce.  Not that I blame her, glad she did, but we were in poor shape with mounting medical bills and one income.

But I think I’ll be in the fortunate circumstance to not need the money gifted to my kids.  And thus raises the question, what should we do with it?  Should we automatically invest it in a 529 or Coverdell and earmark it for college?  Or should we just put it into a savings/investment fund and allow our child to choose what she wants to do with it after college?  What is the better purpose for the money and decision?

My cousins were fortunate in their parents paid for the college, so the saved money was theirs to choose to do with as they wished.  But if their parents hadn’t been able to afford college, I assume it would have gone towards that.

But what if they hadn’t wanted to go to college and instead trade school or the military?  Thus is it a bad idea to put gifted money into a college fund?  Thus requiring them to go to college?  It’s different if it’s money I save for my child.  If they don’t go to college, the money is MINE.

But this is “gifted” money, to be used in the best interest of the child.  Obviously if we needed it in dire circumstances it could even be used for living.  But otherwise, what should I do with it?

I’m leaning towards just investing it and not tying it up in a college fund.  But then when I’ve given money to nieces and nephews, I had earmarked the check “college”.  So I wondered what happened?

Plus, when children get gifts, should they be allowed to spend some portion of it and not be forced to save it all?

Perhaps when children are so small they don’t know better, but say by age 5, 6, and on?  Should they be taught to save some, spend some, and give?

Amen.

Truth is that you can’t take your money with you.  I don’t believe you should go into debt for anything. I also don’t believe that it’s an either or thing.  That you have to scrooge away every penny.  Nor is it about saving to spend more time with your family.  Perhaps that’s buying what you want.

Instead of saving to spend time in early retirement, why not cut back now and spend more time with your family as they grow up?  Some people work part-time instead of full time longer because they want that pleasure.  Or others take lesser paying jobs for that reason too!

My take is you should enjoy your money and saveit.  There is a balance between spending and saving.  Honestly we spent $500 on a calaphon cookware set from our wedding registry.  We had a cheap set inherited from my roommates which was not good quality.  The calaphon set is AMAZING.  It’s still in perfect, mint condition!  I love cooking with it and have to say I cook more because of it.  It brings me amazing pleasure to know that things are cooked evenly and it’s easy to clean. 

Sure that $500 could have been put into my Roth IRA or savings accout and invested.  But would it have brought me as much pleasure as my cookware?  I am guessing no.  I am also going to say that it’s possible I saved more money buy purchasing something I really wanted instead of something cheaper and then buying what I really wanted later.   Also I think this set will last a really long ime, which makes is $/use very cheap!

Another argument would be whether it’s worth purchasing an experience like a vacation or trip somewhere for the experience?  Or taking a cooking class or pottery making instead of saving that money? I think that the money spent is invested, in yourself.  Keeping you mentally sane and happy.

That’s not to say you should go overboard and spend what you don’t have. No way.  But I think that saving every penny will make it only about the money instead of what the purpose of the money is for.