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Less money, less problems? Not really.

It’s odd how quickly a word can dominate our shared vocabulary. In 2000 it was “hanging chad.” In 2002 it was “post 9-11.” This year it’s “economy” and “recession” and “toxic assets.” They might just be words, but they reflect the changes that are happening in my life and your life and your neighbors next door, who aren’t going to live next door anymore, because they defaulted on their mortgage.

As much as people’s lives are changing, mine hasn’t changed that much. Sure, my job is as secure as a lockbox sealed with chewing gum, and I moved to a cheaper apartment to cut my living costs, but otherwise I’m living the same life I’ve always led. Financially speaking this means I save money, sock cash in my retirement accounts, and spend less than I earn. Evidently I was a radical ahead of my time for doing all these things.

I feel genuinely sorry for the suffering this recession has caused, for people who are stuck in houses that have lost value, for people who can’t make ends meet, and for the retirement plans that have been torpedoed because the stock market went KAPOW!! I know that many people have done all the right things, handled their money wisely, and have still been screwed over by life circumstances. That said, I’m happy that the recession is making some people handle their money in ways they should have been handling it all along. People are saving more, spending less, and watching their budgets like never before. It sometimes takes a disaster to make you do what you should have been doing, and I only say this is because in my early 20′s I learned the hard way how to manage my money too, which means I went SPLAT! into debt.

By the time I graduated college, I had about $5000 in credit card debt. I’d used all my student loans, but I could still use my plastic! I carried a balance for 3 months before I started playing a game where I would sign up for a new credit card that gave me 0% interest for 9 months. Nine months later, I’d sign up for another one and move the money again. I would not recommend this as a good way to handle money, since I have no idea what it did to my FICO score, but it did save me lots of money in interest. I was also fortunate that I’d never missed a payment, so I was approved for these cards.

Have you ever played the board game LIFE? Wasn’t that game a lot more fun before it resembled your actual life? Over the next year I was hit with “Pay $7000 for gallbladder surgery!” and then “You owe $1200 in dentist bills” and then “You transmission breaks! Pay $2000 for a rebuild.” I kept chipping away at my debt, but something always came along to bump it up again.

After two or three years of steady payments, I finally paid the credit cards off, leaving my only debt in student loans and a car loan. The number on those credit card statements had felt like the number of pounds weighing on my back. It was burdensome to be beholden to the credit card companies and to not have enough in savings to cover unexpected emergencies. That’s why I bought some books on personal finance and educated myself about IRAs, compound interest, stocks, bonds, mutual funds, money market accounts, and figured out which places I should put my money first and in what amounts. It was a lot of information, and could be very confusing, but I never, ever, ever wanted to be in debt like that again. So I took the time to learn it myself.

When I bought my car I carefully made a budget and determined how much money I could afford to pay each month on the loan and purchased a vehicle within that price range. When I moved to an apartment, I determined how much I could afford, or what other expenses I would have to cut if I decided to move to a more expensive location. It wasn’t fun, but it was necessary, so I did it.

These days, I use a simple budget program (called SimpleD Budget in case you were going to ask) to enter my receipts into every day. (Or sometimes every 3-4 days if I’m feeling lazy.) I can then look at the numbers and the graphs and get a sense of what I’m spending and if I need to pull back in one area until the end of the month. I’ve tried using more complicated programs like Quicken or Microsoft Money, but they have so many features that I feel overwhelmed. I just want to track my variable spending, not every single asset I have.

There are also free online programs that will help you budget and analyze your spending, like Mint.com or Quicken Online. I have heard great thing about these sites, but I am too paranoid to give a web site all my financial passwords. I’ve worked as a web developer at several companies, and I know how insecure some online products actually are, so no thanks.

If you are looking for more information on personal finances, Suze Orman’s books and shows are extremely helpful and are targeted at newbies and women. I read a book called Girls Just Want to Have Funds simply because I loved the title, which taught me a lot of basics. Sites like The Motley Fool have loads of information, and a good blog on how to manage money is Get Rich Slowly.

Even though the recession sucks, I hope it helps people learn how to manage their money better, just as my young and stupid years taught me to open a Roth IRA and start taking advantage of compound interest. Hopefully we’ll all keep our good “cents” even when this recession is over.

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33 Comments

Ashley • June 25, 2009 at 9:44 am

Great post! If I may add, Dave Ramsey is also a real smarty pants with money. My shiny new husband and I have over 50 grand in debt combined, and we’re using his total money makeover to get out of debt. It’s a great book with lots of great tools, I highly recommend it! He also has some cheap DVD’s on his website which are extremely helpful as well.

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dietgirl • June 25, 2009 at 10:08 am

Ahh smart stuff PQ. Yet another good example of your sane and thoughtful approach to life! I like the idea of the budget softward… anyone out there know of a good Mac app?

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Francina • June 25, 2009 at 10:08 am

Great Post! I’d have to add “bailout” to the list of words for 2009!

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MB • June 25, 2009 at 10:14 am

In my 20s I did what most people did and amassed a huge amount of credit card debt (over $20K). It didn’t matter that I couldn’t to go out to dinner every night or ski every weekend, I just charged it.

Once I woke up and realized I was paying up to $500 a month in INTEREST I knew I had to get it under control.

A friend tried to convince me to file for bankruptcy but I just couldn’t do it. I got myself into it, I had to get myself out of it.

I played the same payoff game by transferring my debt to 0% cards until I finally paid it all off. I vowed I would never have that kind of debt again unless it was a mortgage.

I’m happy to say I rarely carry a balance on my credit cards and have started putting that money I used to spend on interest into my savings and rainy day fund. There’s always a rainy day on the horizon (we haven’t seen the sun here in the northeast for about a month).

Hope your feeling better after the big move and are settling into the new place. What are your plans for that extra money you’ll be saving on rent?

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DanaDanger • June 25, 2009 at 10:18 am

I’ve been there: I didn’t have health insurance when I got cancer, so I had to pay for a freakin’ particle accelerator out of my own pocket. Thankfully that’s all paid off now, and I’ve become very, very wary of getting back into any debt whatsoever.

I used Mint.com for a while but found its budgeting tool to be lacking. It’s really good at looking at your past expenses, but not so great at planning for future expenses–whether that means next month or thirty years from now. I’ve been pretty satisfied with some Google Docs spreadsheets instead.

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BrightAngel • June 25, 2009 at 10:22 am

I learned this lesson in my early 20s, and now at age 64 it has served me well, as I have spent my life working hard, spending less than I earned…and spending FAR less than I had the ability to Charge…and now I seem to be financially secure, living in a comfortable home, driving a nice car, with NO ongoing monthly debts except utilities, insurance, taxes, food, gas etc. and with a comfortable amount of diversified savings.

It has been interesting to see the changes in the way society operates to get messages across.

When I was a small child in the first or second grade, Society worked to teach us to save. A local bank cooperated with my elementry school to get students to use one dollar to open a savings account. I remember how pleased I was to have my little passbook.

Now, I see that banks like Bank of America are charging a monthly fee (around $8) to keep a savings account with a small balance. . . unless a $25 monthly sum is automatically deposited.

In 1966 when I was around 21, married with an infant, my husband …who had a good job.. and I applied for a “generic” Visa or Mastercard. We were turned down because we didn’t have any past credit.

We furnished our apt from garage sales, but

were able to buy major appliances on credit (secured for debt repayment) in department stores like Pennys and Sears, AFTER a couple of years of establishing that we paid those monthly payments on time.. our achievment was that we EARNED the right to have Visa/Mastercard priviledges.

I see that Banks now love to issue credit cards to high-school and college students … who have neither jobs nor credit histories.

By the early 1970s, banks were begging us to take their Visa/Mastercards. About 10 years later, the federal controls on the limits of credit card interest charges expired, AND no longer was credit card interest tax-deductable….People then learned to buy their cars (and then take vacations etc) by getting 2nd mortgages on their homes and spending that resurce since this was the only way to deduct debt interest for taxes.

So by this method and others people were encouraged to continue using their credit cards AND to deplete any equity they were accumulating in their homes.

However, I chose to avoid that trap and continued toward my goal of paying OFF my mortgage so that in my old age I’d have zero house payments and could live on a reduced income.

In my 25 years of family law legal practice, I was privy to the personal debt and savings information of literally thousands of people. Other than retirement benefits ..(which were impossible or difficult for people to access to spend]… less than a handful of them actually had any “real” net assets. At least 95 % of those people….responsible, employed, middle-class, “home-owning” “new-car-driving” adults, actually had zip net assets (except for empoyee related retirement benefits). Nothing was “really” owned, as they owed as much money on each asset …or more… than the financial value of each asset.

“Learn to Save” has definitely changed to “Use up any possible Resource – Spend, Spend, Spend”.

I don’t know if Society can reverse the trend it created, or how long it might take. It is hard to change Established Values.

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Susan • June 25, 2009 at 10:22 am

I like Pear Budget. It’s great for newbie budgeters. It’s straight forward and you don’t link to your accounts (which I guess is a plus or minus, depending on the budget tools you want:)).

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D • June 25, 2009 at 10:26 am

I had a divorce in my mid twenties which required me to take half the debt after he spent all the asset (savings). It was tough, the only way I’ve been able to dig out is to get all of that debt into a friends name so I can repair my credit.

I’m finally almost out of the whole and got hit by a truck last april, paying medical bills that you don’t get reimbursed for until you are done all the medical as well as hi now I have a car payment that I never had before because said truck totaled my car. The insurance industry is really a bad system, awful, now I know why people go into debt over things like this. Now I’m just waiting for the insurance companies to settle so I can finally be right again.

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Sarag • June 25, 2009 at 10:49 am

The Simple Dollar is also a great blog for those just starting out in personal finance. I find Trent’s honest everyman approach and writing style more appealing than other blogs, even when they write about the exact same subject.

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Glam • June 25, 2009 at 11:01 am

I so needed this post. I’ve been dealing with the credit card monster for years now & am trying to get it under control.

It’s nice to see someone else’s approach and hearing how they handled it. Sensible as usual, PQ.

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RG • June 25, 2009 at 11:44 am

“Evidently I was a radical ahead of my time for doing all these things.” Yeah, the savings rate has wandered between 0 and negative for the last decade or so. It’s sad, and it makes me feel like a freak to diet and to be financially solvent. Most people I know handle one or the other at most. You’ve had YMYL on your side-bar for a year or so, did you ever write a post on it? I don’t quite live to its tenets but I came close to being able to live off my interest in a high-interest environment last year. That’s in a good, no health problems, no kids, year, but I felt pretty rock-star about it.

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JEM • June 25, 2009 at 11:49 am

I am also living quite the same, mostly because we planned for the worst and hoped for the best. Sometimes I feel guilty saying I have not really felt the recession. I try to keep it to myself these days.

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PastaQueen • June 25, 2009 at 11:53 am

@RG – No, I never did a post about “Your Money or Your Life.” I’m still making my way through the whole thing, but it’s been good so far!

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PJ • June 25, 2009 at 12:00 pm

I am a child of Depression-era parents, and wise money-managing was always the norm in our household: don’t buy it if you can’t afford it. (Being of Polish descent might also have something to do with it, heh. Practical, you know.) They sent four of us kids to college with no student loans.

A number of years ago I bought Personal Finance for Dummies, and it was really good. When various family members died and we received some inheritance, the first thing we did was set a good chunk aside for our two boys’ educations, so right there that was a load off our minds.

When my husband was under-employed and then unemployed for a while, we scraped by, with some help from my parents, but also with some credit card use. It wasn’t my proudest moment, but I actually charged our property taxes one time because I was too embarrassed to ask my parents for more.

After he was gainfully employed again, which involved a move, the first thing I did was start paying off the cards. It took 1 1/2 years, but since then I haven’t charged another thing, as I was totally out of the habit by then. (OK, I just lied, sometimes I’ll use my Kohl’s card.)

But the best thing we ever did was get a financial planner. Yes, of course they get paid, it’s usually a percentage of your portfolio value, but my god, having our assets spread out in accordance with our risk factors has helped us weather this current financial crisis better than many others have. While we have certainly lost value in terms of dollars (yikes!), who hasn’t?, we’re still on track with our retirement plans. My younger son is going to college in one year, and it will still be ok. I highly recommend getting a planner. My older son is almost 23 and next week will be eligible for getting into a 401k at his job, and you bet he’ll be getting into it. I remember thinking when I was his age and the age I am now seemed inconTHeiveable, but I’ll tell ya, time really does fly.

OK, I’m done now. Carry on. ;)

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Lainey • June 25, 2009 at 1:18 pm

This sort of thing is right up my alley. I paid all our disposable income until we got out of debt from our honeymoon, and now I’m trying to save so that our savings is back up where it was. It’s slow going, though, since I quit my job last fall and haven’t looked for another one yet. I really want to pay off our house.

If I want an example of “what not to do,” all I have to do is look at my parents. They are divorced, but they might as well be the same person, especially when it comes to money. My mom lost her house, and my dad called me a few days ago and said he’s probably going to lose his, too. They seem to blame me (my mom) and think it’s my responsibility to help them out (my dad), whether I can afford it or not, but I don’t agree.

I like reading things like “The Complete Tightwad Gazette,” “Hillbilly Housewife,” the Frugal Living forums at About.com, Dave Ramsey (although I could do without his religious and political ramblings), and Greg Moore (it’s hard to find him online because there’s a race car driver or something with the same name…I don’t know how I stumbled across him but now I get articles emailed to me). Basically anyone who advocates having no debt whatsoever.

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PolishPlankton • June 25, 2009 at 1:33 pm

It seems you acquired self discipline over food/exercise and finances at the same time. Coincidence?

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Lainey • June 25, 2009 at 1:48 pm

@Lainey – I mean “saved” all our disposable income. Oops.

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cloudy • June 25, 2009 at 2:32 pm

Spend less than I earn? WHAT?!?!?

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Dyan • June 25, 2009 at 2:39 pm

It’s not a recession…

It’s a reality check.

Pure and simple.

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Liz • June 25, 2009 at 2:48 pm

I have always been good with money and I did not learn it from my family. I just always enjoyed seeing my savings grow more than I did buying things. I would also like to add that a lot of money habits are cultural. My husband is French, as are a lot of my friends, and they have very different attitudes about money than most Americans. Credit card debt is virtually unheard of in France. Often, they do not even get mortgages to buy homes or if they do, they are very small and manageable. Cars are almost always purchased outright etc. Point being, we all need to live by the motto of only buying within your means and always try to save for the unknowns of the future.

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Merry • June 25, 2009 at 3:53 pm

@Dyan – Can’t it be both?

Sadly, my reality check bounced.

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victoria • June 25, 2009 at 4:38 pm

This post made me think about how afraid I am of money — the way I used to be afraid of the scale. I just don’t want to know how bad it really is.

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Quix • June 25, 2009 at 6:59 pm

The problem with people spending less on entertainment – is my fiance has been out of a job for a year since the video game industry is tightening their belts and there are very few people hiring, especially because he can’t relocate. Two years ago, it took him 1 week to land a job here. Now, he’s been looking for a year with no offers. :(

Off topic, perhaps, but my rant of the day. On topic, I was always good with money until my last year of college. Note to students – never EVER overspend because you’re going to get a job next year full time – you’ll end up like me as a temp making 9 bucks an hour in an expensive city and barely able to make rent, let alone pay down your cards!

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coolred38 • June 26, 2009 at 2:15 am

I guess Im one of the few people left that has never had a credit card…and Ive never had a desire to get one. Too many horror stories….I dont generally have much money either. Since divorcing my exidiotwithmoney husband over 2 years ago and suddenly finding myself in control of my own finances…of which I had no prior experience (controlling marriage blah blah blah)…its taken a lot of quick learning…the end result is that I pay my bills…but cant figure out how to have some left over to save. Ive not managed to save anything in this time period…and Im 40 years old.

It makes me incredibly nervous to know Im this old and I have no savings…but for the forseeable future…I dont know how to change that.

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Lydia • June 26, 2009 at 9:49 am

I have been irritated by the commercials I’ve been hearing from the casinos and gambling outlets in the Louisville/So. Indiana area. Maybe their businesses are in a little slump right now, too, since with less income, perhaps people are forgoing gambling as entertainment for the moment.

But these commercials — “come in and gamble for 30 minutes and get a free room/meal, etc.” They seem desperate for gambling customers, and I think that at this moment in time, most people probably DON’T need to be urged to go waste some of their money, which is probably in short supply these days, although they have the right to do with their own money if they want to.

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Kyle • June 27, 2009 at 3:39 pm

I guess most people I know have had some kind of bad CC debt at one time or another. I never had any when I was younger, as in, in college, still don’t, but my husband and I did charge basically our entire wedding. That was about 5k, which doesn’t seem like much, but in Chile where the average salary is 500 a month it’s a fortune. We paid it off in about a year though by continuing to live with my in-laws even after we were married.

Now I’m happy to report that we’ve saved up 40k for our trip around the world in two years. That’s due to me living in Chile and making a U.S. salary though and my husband being on the receiving end of a very nice severance package when he got fired. So yeah, some extenuating circumstances, but it gave me confidence in our ability to save money and be financially responsible. Once we paid off our wedding we’ve always earned more than we ever spent, even when we upgraded our lifestyle a little bit.

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mad folly • June 28, 2009 at 7:34 am

I agree with RG above. Your Money or Your Life was the book that made me focus on what I was spending and why. Thanks to the kick it gave me, I’m debt-free (wonderful phrase) and saving money. I think it should be required reading for every high school senior in the country.

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gfe--gluten free easily • June 28, 2009 at 10:17 pm

Great post! I’m a big fan of Get Rich Slowly, reading it daily. YMYL and Tightwad Gazette (I used to get it monthly when it was being published years ago) were also very influential. (I still read them from time to time for inspiration.) A friend recommended a stock purchase plan (utilities) and we did that for ourselves and our son, using just part of the value of the stocks to purchase a tuition plan for our son for college But, getting a financial planner made the largest difference in us getting all our finances in order–particularly our retirement. Like PJ said, we had some losses the last several months, but minimal compared to many.

Thanks so much for sharing your favorite resources, the budget tool, etc.

Shirley

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Amy • June 29, 2009 at 9:38 am

@JEM – Same here… this year and last have seen huge raises/bonuses and I guess I’ve mostly recovered all the losses in my retirement account. I even sold my house at only a very minor loss. I’m saving and investing a lot more now than ever before.

On the plus side, since my job is less secure, I have enough in savings that I no longer worry about feeding myself if I lose employment.

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Shirls • June 30, 2009 at 11:57 am

PQ, I love the idea and look of that SimpleD Budget program, however I work on a Mac, do you happen to know of anything compariable on a Mac platform?

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PastaQueen • June 30, 2009 at 2:51 pm

@Shirls – Sorry! Don’t know of any Mac programs.

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Ann O'Brien • July 1, 2009 at 5:44 am

less money, FEWER problems

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PastaQueen • July 1, 2009 at 8:49 am

@Ann O’Brien – Not a Notorious B.I.G. fan, are you?

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Jennette Fulda tells stories to the Internet about her life as a smartass, writer, weight-loss inspiration, chronic headache sufferer, and overall nice person (who is silently judging you). She does this at JenFul now, but you can still have fun perusing her past here.

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