Rates have been in the basement for a few years, historically speaking.  Fixed 30-year mortgage rates now are less than a third of what they were in the early 1980s.  From our home ownership experience over the past ten years, the rates have just gotten better each time, from our first 30-year mortgage in 2001, to our refinance in 2005 (1% less to a 15-year mortgage, maybe only a slight gain there since 15-year mortgages are cheaper than 30-year mortgages), to our 30-year mortgage on our new house in 2010 (which was at the same rate as our 15-year refinance in 2005 — a decent gain).  Rates now are even cheaper.

And on top of the low mortgage rates …

As a double bonus (for buyers anyway!) home prices have fallen in many areas over the past four years or so.  We bought our current house at a time when the $6,500 long-time homeowner tax credit was in force.  The expiration of that credit removed some of the support for home sale prices, and we’ve seen home prices in our neighborhood edge down a little bit.  I think that prices still have room to go down.

So, why am I talking about this stuff?  Overall, the conditions for buying a home, if you can, are quite good, and might get even better.  But if you’re in the market, how long do you wait?  I’m not advocating buying a house or not buying a house.  The suitability of buying a house depends on lots of things: career, family situation, location of relatives, location to work, debt load, health, etc.  It’s not only a matter of affording the monthly payment plus all of the taxes, insurance, maintenance, and utilities.

But let’s say that you and your family is indeed ready to buy a house, and can maintain one.  The timing in the story that is your life is ripe to buy a house.  Let’s further say that a beautiful home — the perfect home? — comes on the market.  The asking price is good, maybe even great.  Nothing glaring is there to make you run away screaming.  The pre-qualification letter from the bank comes back with a giant thumbs-up and a smiley-face stamped on it.  Basically, you’ve done your homework, and the house feels right.  It feels like it’s meant for you, and you haven’t even bought the thing yet.

My one piece of advice is not to let the potential of a falling market by itself stop you from getting it now.

Sound silly?  Why am I not suggesting that you try for a bigger bargain?  A few reasons:

1. Odds are that you will be able to get it cheaper, or one very similar to it, within the next couple of years at least.  The housing market is like any market.  It’s difficult to time, and it’s just about impossible to hit at the absolute bottom.  If you come to grips with that, that alleviates a lot of buyer’s remorse.
2. That particular house may not come on the market again for a long time.  This almost happened to the house that we’re in now.  I got my pre-qualification letter, and the next day someone else put a contract on the house.  My wife was upset.  She really liked the house.  I called the listing agent and asked her to please let us know if something fell through on the contract.  Something did fall through, and we were ready the second time around.  But it just as easily could have not fallen through, and we’d be looking again, half-wishing that we had acted sooner.
3. Really good prices don’t last forever.  If the housed truly is priced to sell, it will sell.  If that price (or something a tad lower) is affordable to you — and presumably it is affordable, because you’ve done your homework — then put an offer in.  You’re ready to buy, so buy before someone else does.

If you’re in the market for a home, and want to take advantage of the low rates and low prices, and find a great one that’s affordable (by your standards, not the bank’s), then pull the darn trigger!  The extra enjoyment you’ll get out of owning your house now will be worth it, even if you might have saved $50/month on your mortgage by waiting a couple of years.

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Me?  I’m holding the fort down back home, going to work, doing things as I do them pretty much most of the time.  I miss them and will be really glad when they make it home safely, but pictures, a few videos, and lots of stories are enough for me.  I had no real desire to go out there, and that seems to be just fine with everyone.

Bucksome Boomer had a post on couples living apart in retirement.  Some of the couples do it quite a bit, and it seems to work for them.  If one likes to travel, and the other doesn’t, so what?  “Have fun, honey!”

Admitting this kind of thing, and even embracing it, can save a lot of stress and even a bit of money.  This trip out to Wyoming cost less for the people that actually wanted to go (I don’t really travel well).  One less plane ticked needed to be purchased.  Fewer meals out.  Renting a smaller car.  Plus, we didn’t need to get someone to take care of our house while we were all gone.  I could do some of the chores that my wife usually does (though probably not as well ) and I could watch the dogs, which would cost us $50 per day at the kennel if we couldn’t find someone to do it for less.

As far as stress level, I think it’s less for everyone, including the people on the trip. My wife knows I’m looking after things, going to work, etc.  From my end, I didn’t need to compress my work schedule (at the time, I had a deadline approaching and taking a week off would have almost ruined the vacation for me).  And — I admit it — I do like my own bed.

Forcing an everyone-goes vacation for the family isn’t always necessary, and it can be counterproductive.  It’s not the cheapest way to relax.  It may not even be the best way.

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Email-is-forever lessons aside, this suggestion from Ms. Bourne was interesting:

No-one gets married in a castle unless they own it. It is brash, celebrity style behaviour.  I understand your parents are unable to contribute very much towards the cost of your wedding . . . If this is the case, it would be most ladylike and gracious to lower your sights and have a modest wedding as befits both your incomes.

A couple of things I’ll say up front before I shoot off my mouth and live to regret it:

• I’m a guy. Even though two people are getting married and even though they both have to say “I will” at the appropriate time, let’s face it:  It’s about the bride, and getting things right is usually more important to the bride than to the groom.  The wedding day might have been a decade or more in the making emotionally for the bride.  Probably not so for the groom.  This may be a stereotype but I don’t think it’s terribly far off.
• I had very few opinions about how the wedding or the reception should play out. Probably more so that even an average guy I was very hands-off in planning my wedding.  My wife and her mom did almost all of the heavy lifting for planning the wedding and reception.  At the time, I honestly couldn’t have cared less what type of flowers were decorating the sanctuary, or whether the wedding invitations were written in 9-point or 10-point.  (I just knew that I wanted to exit that day married.)
• Money wasn’t an issue at the time. Neither side was strapped for cash, so we didn’t feel like we were

So, having said all of that, and even if every other statement in that email was completely out of line (hint: yes) … should they have considered skipping the castle and having a more modest wedding?

Weddings don’t have to cost anywhere near five (or six?!) figures

My mother told me about a couple that had gotten married in her church.  They were of very modest means, and had a very limited budget for their wedding.  All of the traditional ingredients of the wedding were there:  decorations, wedding dress, reception, etc.  These things were all done on a budget, and my mother (and perhaps others) saw this, but it mattered very little.  It was clear that the whole day was planned thoughtfully and with as much attention to detail that would have been put into a wedding that cost twenty times as much.

The emphasis was on the marriage, the celebration, and the people, rather than the bells and whistles. Ultimately, that’s what the main point is, right?  Isn’t everything else just a giant, heavily-marketed, often insanely-overpriced consumer good?  At least some thought should be given to reining in the cost.  Even more thought should go into not borrowing for it.

The mother-in-law is stressful enough.   Don’t add money issues to the mix if you don’t have to!

(Feel free to send this post to five of your closest friends. )

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As we were discussing the costs of said smartphones, our Y membership came up. We weren’t using it nearly as much after our move, and with gas in the mid- to high-$3 range, it was costing us $3 to $4 per trip just to get there. If we were to use it as much as we probably should be using it, the gas alone is as much as our monthly membership fee.  So, we decided to cancel our Y membership to make a little more room in our spending to handle the smartphone charges.

But it’s so hard to say goodbye!

This was just last night that we decided this.  When she went out that way today, and gave me a call to say that she was going to cancel it, I hesitated.  But we just decided to do this, I was thinking to myself.  Why am I holding on?  We don’t use it.  Why is it so hard to cancel?  Our Y isn’t like some health clubs that require a multi-year contract.  It’s month to month!  No cancellation fee, nothing.  It’s still unsettling to stop the membership.  Why?

There are at least a few reasons:

• Guilt. Unused gym memberships are great for self-induced guilt trips.  The guilt trips are especially intense when standing on the scale.   “I need to go to the gym” and “I’ve really got to use this membership” gnaw at the back of my brain.  Canceling the membership seems like the easy way out of what apparently were nothing more than good intentions.
• Loss of choice. The activities at the Y are no longer as accessible to us if we’re no longer members.  We’ll need to choose from fewer options.  Even though we weren’t taking advantage of our options when we had the membership, now that it’s gone, we suddenly miss it a little bit.  Odd, isn’t it?
• Loss of membership. Membership is cool.  It’s the difference between being an insider and an outsider.  Moving from being an outsider to being an insider on something exciting is a good feeling.  Moving the other way isn’t.

I seemed to get over this brief uneasy feeling fairly quickly after chatting with my wife, but it caught me off guard how quickly I was second-guessing what should be a wise financial move.

What do you think?  Are there other reasons why it’s hard to say goodbye to monthly memberships?

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Whether those financial windfalls are spent or saved wisely, though, is an entirely different matter.  Fortunately, it’s not that difficult to put these windfalls to effective use.  Here are two simple but broad principles that will help you to take full advantage of your windfalls if, and when, they come.

1. If you know that you’re receiving a windfall, make sure that you have the windfall in hand before you spend it.

Not all windfalls are planned, but some, like bonuses and tax refunds, may announce themselves beforehand.  If you’re owed a refund by the IRS and/or your state revenue department, then you’ll know how much you’ll be getting back if you did your taxes correctly.  (We’re in line to get a five-digit refund this year, thanks to a homebuyers’ credit.)

Short of taking out an expensive refund anticipation loan — please don’t do that! — the refund can’t be spent until the check clears the bank, or until the ACH deposit hits your bank account.  I heard a story about someone who took the homebuyers’ credit last year, and bought some things that they needed in full anticipation that their tax refund would come in on time.  Well, the refund didn’t come in on time, and they were in a bit of financial trouble until it did, quite a bit later.  (I think there was a hiccup in the documentation.)

Things can happen that delay a windfall’s arrival, so try to avoid going into the hole.  Credit card interest and late fees will take some of the fun out of the windfall.

2. Plan for what you’d do with the windfall, regardless of whether you know it’s coming, or not.

Getting back to the homebuyers’ tax credit, we are expecting that to arrive within a few weeks, and we already know how we’ll use a big chunk of the return of our interest-free loan to Uncle Sam, otherwise known as our tax refund.  Just by going through the process of deciding how we’ll use the money, we’re more likely to spend and save it as we’ve planned.  An extra $10,000 in the bank account is downright hypnotizing without a plan in place.

This is a wise exercise to go through, even if there are no windfalls on the horizon.  Do you play the lottery?  If you do, then please decide now how you’ll spend your winnings, how you’ll give it away, and how you’ll protect the rest of it from all of the long-lost “friends” that crawl out of the woodwork with all sorts of sad financial problems when they hear of your good fortune.

Tyrone Curry, a high school coach in Washington state, did just that.  Ten years ago, he decided that if he ever won some money, he’d help the high school to put a track in.  Five years ago, he won over $3 million in the lottery.   A few weeks ago, he presented the school with a check for $40,000 to put in a new track.

Mr. Curry beat the odds twice:  first by winning the lottery, and second by having something to show for his winnings five years later.

So, in short:

1. Make sure the check has cleared.
2. Make sure to check that you’re clear on how to use it!

Happy windfalling!

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1. JD and his wife, Kris, have kept their finances separate throughout their marriage.
2. JD despises doing laundry and would do it only if there were nothing clean left to wear.  He would hate every minute of doing the laundry, sometimes would unintentionally leave the clothes in the washer to mildew, etc.
3. Eventually Kris got fed up, and proposes The Laundry Agreement:  Kris will do JD’s laundry in exchange for JD making sure that Kris’ car is always gassed up, on his nickel.

JD agreed.  Fifteen years later, the agreement stands, and it works like a charm.  This agreement, as well as keeping their finances separate, works very well for them, as it all but eliminates arguments about money.  That’s fantastic!  There’s not a single thing wrong with JD and Kris doing things that way.

I just know that it’s completely impractical for my wife and I to go down this road.  The main reason is that I bring in almost all of the income for our household.

Separating finances leads to subtle issues with one breadwinner

JD and Kris both have jobs that bring in income.  He’s a very successful blogger and author, and she’s a scientist.  (Allegedly a good one to boot — JD says repeatedly that she’s always right.  Or maybe that’s another key to eliminating arguments.  But I digress … )  They both contribute money directly into the household.  With both partners chipping in income, it’s reasonable either to keep separate finances or combine them.

My household is different.  I bring in the money (mostly) with my day job, with a relatively modest contribution from my blogging activities.  My wife, on almost all accounts, works harder than I do.  She spends each weekday exclusively with our daughter (both as her mother and as her teacher in our one-student homeschool) and keeps the household running smoothly.  Our household is perhaps more stereotypically traditional: the husband goes to work while the wife raises the kids.

Just about everything is joint in our household.  When we’re going out to lunch or dinner (which we’re trying to do a little less these days) we joke: “Hey honey, can you pay this time?”  (It’s the same credit card account regardless of which one of us pays.)

I don’t really see it working any other way for us.  Since I bring in almost all of the money, doing separate finances would be awkward.  What would it really accomplish to separate mine and my wife’s “money” under these circumstances?

• I would be setting up a power structure with the money.
• I would have to decide how much was “hers.”
• She’d have to ask me for more if she needed it.
• It really would look, and feel, like I’m giving my wife an allowance.

Now, if my wife were careless with money and I were careful, then I’d be wise to control the money for our financial well-being.  But this isn’t the case.  My wife is not careless with money.  Yet with separate finances, I’d have to control her money as if she were careless with it, by the simple fact that there’s almost no other money coming in but mine.

To be blunt, it would be insulting to my wife for me to do this.

In our case, we need to work as a team to make sure that we’re using the paychecks that I bring into the household wisely.  That’s the fairest and also the most respectful way for us to handle our finances.  Because it’s a common pot of money, we have arguments about it, but resolving these arguments strengthens both the finances and the marriage.

Ultimately, though, joint finances or separate finances merely sets up a framework for reaching financial goals:

• “I bring in the money for both of us.  Let’s draft up some financial goals, create a budget, and decide how much to allocate to each spending category to meet those goals.”
• “We both bring in money.  Let’s draft up some financial goals, create a budget, and decide who pays how much into each spending category in order to reach those goals.”

They’re not that different, are they?  Which, in the end, means that JD and Kris can do things their way, and my wife and I can do things our way.  The ends justify the means, so to speak.

There is, however, a small side bonus for doing things my way.  I’m not caught under the specter of rising gas prices gun like JD is.  Before too long, he’ll either be hiring out his laundry service or doing it himself with much wailing and gnashing of teeth, because he will have to pay Kris $500/month to do it under his current Laundry Agreement.

(Just teasing. )

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As I pile through a year’s worth of financial statements in time for taxes, in order to make tax time easier and to get some financial organization in place, these trends will reveal themselves naturally.  Entering the transactions, and then refining the categories of these transactions by reconciling the transactions to what was actually purchased via the receipts, will give my financial software the data it needs to chew on to create the spending reports.

Fortunately, I got early confirmation of something I had suspected.  My Chase Sapphire card has a year-in-review statement feature that not only shows all of the transactions for the past year, but takes a first cut at categorizing them: Travel and Entertainment, Restaurant, Automotive, Merchandise, Services, and Miscellaneous.  Apparently we’re boring homebodies, as our Travel and Entertainment charges were only a third of a page out of 29 pages of transactions.

However, the Restaurant section was almost six full pages, and ran nearly $4,000 for the year. And this doesn’t include the charges that were classified as Automotive but were actually us buying subs and other fast food at our nearby Sheetz gas station.

This wasn’t a surprise to us.  We know that we ate out a lot this past year.  What did surprise me was the sheer volume of the transactions.  They took quite a while to enter!  I was also a little surprised how a lot of little charges add up.  (I know: The Latte Factor®, right?)  A majority of the charges were under $10, and many of those were under $5.

That’s the bad(ish) news.  The good news is that we’re already taking steps to knocking this amount down, and that we can measure whether we’ve made progress on knocking the amount down. Without the baseline, any feeling that we’ve made progress is just that: a feeling.

(The Latte Factor is a registered trademark of FinishRich, Inc., and was made famous by David Bach, author of The Automatic Millionaire and several other popular personal finance books.)

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What I got from the article was that there are benefits and drawbacks to just about any kind of way you want to deal with allowances:

• Giving a regular allowance not tied to chores. The benefit of this method is the regularity, according to Dan Henderson, founder of the financial education toy line Zillionz which includes items like a talking cash register and a savings goal ATM.  The drawback is that kids may become slackers since they’re not associating money with work.  This point comes from Lewis Mandell, finance professor at the University of Washington, after studying 50 years’ worth of allowance research.
• Giving allowances tied to chores. This isn’t cut-and-dried either.  Alisa T. Weinstein, author of Earn It, Learn It: Teach Your Child the Value of Money, Work, and Time Well Spent, says that tying allowances to chores isn’t always the best thing because it makes the association that working for money isn’t fun.  (My comment to this is, “Welcome to the real world, kid!  Sometimes you have to do things that aren’t fun!”)  On the other hand, it avoids the reservation that Mandell has with children not associating money with work.
• Giving nothing at all. This surprised me a bit:  Mandell concludes that not giving an allowance at all, but instead having the child ask for money when they want something, tends to increase financial literacy.  I’d take it a step further and have children hustle for their money a bit, negotiate, and be entrepreneurial.  I can also see it being taken too far; if money is given whenever it’s demanded, that can lead to problems as well.

Overall, we’re probably not harming our child too much with what we’re doing.  We do give a regular allowance, we do have her separate out her allowance (10% tithe, 30% savings, 60% spending), and we do give her opportunities for extra money.  She is starting to get choosy with how she spends her money, which is a good sign.  We also talk to her off and on about what we as parents have to pay for.  This is a recommendation of Prof. Mandell as well.

What are your thoughts?

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RC attributes the lower prices of late 2008, early 2009 to the recession — which I do, too.  But we’re entering uncharted territory, and possibly driving and thriving on borrowed time.  We’ve far outpaced geology’s production in our consumption for many decades, and the past few years we’ve never consumed it more quickly.  The worldwide peak of oil production is at hand, if it hasn’t already passed.  After that, a permanent decline, meaning a permanently decreasing supply of freshly extracted oil per day.

So, is the recent increase in price due to increasing demand (as in we’re getting out of the recession) or due to decreasing supply (as in we’re starting the down slope of the production curve)?  Right now it’s a bit hard to tell: 2009 production was lower than 2008, and the recovery, if you can call it that, is a tad shaky at best.

But it’s hard (though not impossible) to argue that the trend for the price of oil is up as it gets harder to find, and shorter in supply.  Whether $5 gas comes in 2012, or this year, or 2015, or even later, it will arrive and we will need to adjust to the added cost somehow.  I doubt many people (except for the Lorax, maybe) are looking forward to paying more for gas, since it’s nothing but a tax on the way many of us live: commuting, traveling, and then traveling and commuting.   Actually, that’s just the tip of the iceberg: there are lots and lots of products that are derived from oil, and they’ll all get more expensive.  Even Congress couldn’t be this comprehensive with a tax. (Though I’d be foolish to tempt them, wouldn’t I? )

Bottom line, high gas prices are coming.  If you’re not in a position to pretend that you’re paying $15 for gas now, why not pretend that you’re paying $5 for gas now? If you put 20 gallons of gas in your truck and pay $60 for the gas ($3 per gallon), pretend like you paid $100 for that fill-up and sock away the $40.  Then adjust things around that new constraint.  There!  You’ve made the transition to $5 gas.  Now what about $6 gas?  Do the same thing.  And so on.

This is the proactive way to deal with rising gas prices.  Far better to adjust early than scramble in reaction.

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1. Pull out the total of your weekly (biweekly, monthly) budget in cash.
2. Separate the cash into envelopes by category according to how you’re budgeting that money.
3. Spend down the envelopes as you buy things.
4. Re-budget by transferring money from one envelope to another (no free lunches!)
5. Re-fund the envelopes at the beginning of the next budget period, re-evaluating as necessary.

This cash-only system is straightforward.  It doesn’t use credit cards, and therefore greatly reduces the temptation to overspend.  It doesn’t even use debit cards, which can trigger a lot of fees if you get too close to the bone and start incurring overdraft or non-sufficient funds fees.  Of course, you can always go to the ATM to get more cash, but that takes effort — possibly enough effort to get you to think twice about doing it.  That’s the main advantage of the cash-only system: it restrains you.

The main disadvantage, of course, is that you don’t have the convenience of electronic payments in a pure cash system.  Buying online is a transaction that can’t be fulfilled directly from an cash envelope system.  It’s hard to stuff a $20 bill into your modem and send it to Amazon.

This question over at the Personal Finance and Money Stack Exchange site was asked by Alex B:

Using a cash budget, say we save $100 for household items.

Typically, we would withdraw $100 from the ATM, put it in an envelope, and then later, go to home depot or walmart or wherever and buy an item for $20.

Now I want to buy one item from Amazon.com (or anywhere online).

What is the best way to handle this? Do I go re-deposit the cash? Do I leave money in my bank account in case I need to buy something online?

I’m looking for strategies to track that $100 and be able to buy items online.

It’s a good question.  Shopping online often gives much better deals than going to a brick-and-mortar.  Specifically, though, a cash-only system makes these kinds of purchases a pain, almost by design.

My suggestion around this is to create another envelope called “Online” and pay that envelope from the other envelopes as online purchases are made. It works like this.  All envelopes except the Online envelope are funded normally.  The Online envelope starts the budget period with nothing:

As online purchases are made, the money for the purchase is taken from the appropriate budget envelope and put into the Online envelope.  As an example, let’s say that we went to eBay and bought a 4-CD set for $12.  We buy the CDs with the checking account that is used to fund the envelopes.  This is classified as “Fun Stuff” so we’d take $12 out of the Fun Stuff envelope and put it into the Online envelope:

We have tracking!  The proper envelope was “debited” and we know by how much.  The way to balance things out in this example is either (a) withdraw $12 less from the bank account the next time around and use that withdrawal plus the money in the Online envelope to fund the other envelopes normally, or (b) take the money in the Online envelope back to the bank, and re-deposit it.

One thing you may have noticed already is that there’s a danger in overspending the checking account.  That’s the price that’s paid for allowing online transactions into what should be a cash-only system.  The $12 transaction is on its way out of the linked checking account, immediately.  It won’t wait for the next time the envelopes are funded.

So, do you wait until the next funding cycle, or re-deposit the money?  That depends on how much cushion is in the checking account.  If there isn’t much cushion, you should take the cash back to the bank so that you don’t overdraw the account.  (If there’s no cushion, you probably shouldn’t be doing online purchases at all with this system.)  If you have plenty of cushion, you can wait until the next funding cycle to zero out the Online envelope.

So there you have it: a how-to on hacking a cash-only system to include the field of deals that is the Internet.

(Thanks to Budgeting in the Fun Stuff for including this post in the Totally Money Blog Carnival.)

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