Your Money or Your Life, Step 2: Being in the Present

[This is part 2 of a 9ish part series on the book Your Money or Your Life. See my original post about the book.]

This step is called “Being in the Present” because it helps you visualize how money currently comes into, and goes out of, your life. How much are you trading your life energy (time) for? In other words, how much do you really make per hour?

Did your morning commute look like this?

If you’re salaried, it’s a quick calculation (salary / hours worked each year). Or is it? Did you remember to factor in the time spent commuting? You wouldn’t be commuting if you weren’t working. Same goes for the cost of business lunches, dress clothes, and anything you only buy because you work.

Your real hourly wage is probably somewhat lower than you think, if you factor in everything you do and spend that’s related to work. Here’s how to figure it out:

  1. Deduct from your gross weekly income the costs of commuting and job clothes; the extra cost of at-work meals; amounts spent for decompressing and vacating from work; job-related and job-stress-related illness; and all other expenses associated with maintaining you on the job.
  2. Add to your workweek the hours spent in preparing yourself for work; commuting, decompressing, vacating, job-related shopping, and all the other hours that are linked to maintaining your job.
  3. Divide the new, reduced weekly dollar figure by the new, increased weekly hour figure; this is your real hourly wage.

Here’s an example:

Let’s say I make $25 an hour, or $1000 a week. But I spend some of that money on bus fare, dining out at work, and stress-related doctor bills. The $1000 a week is reduced to $850. I work 40 hours a week, but it takes me a total of 2 hours to get to and from work each week, and I spend time decompressing and surfing the web when I get home because my brain is tired. So my 40 hour work week is really 62 hours of work-related activity. Thus I spend 62 hours a week to earn $850, or a real hourly wage of $13.71. Ouch. Personally, I found my real wage to be less than half of my gross hourly wage.

At a wage of $13.71, every dollar takes about 4 minutes, 20 seconds to earn. So spending a dollar represents 4:20 of life energy gone. Conversely, I trade every minute of work for 23 cents. Makes you think twice about shelling out big bucks for some random purchase, doesn’t it?

You should try this. Be honest with yourself when you deduct from your wage and add to your work time. It’s potentially depressing but certainly eye opening. This number will become a vital ingredient in transforming your relationship with money. (I’ll get to this in subsequent steps)

Homework

Yes, you have homework now, in addition to the above. Even worse, this is a homework assignment that you might want to do for the rest of your life!

The last part of Step 2 is to keep track of every dollar that comes into or goes out of your life. You can go high tech with a site like mint.com or low tech with a notepad. Doesn’t matter, as long as you’re thorough, accurate, and consistant. I use mint.com. Every week I take a look at the last week’s transactions and categorize them into basic groups: car, kids, food, entertainment, etc.

The effort is worth it. Keeping close tabs on revenue and expenses is a fundamental practice for any business, and you are a business. In fact, you’re in the business of trading the most precious resource in existence: your time. The least you can do is keep track, in detail, of what you’re trading it for.

It never hurts to ask

I love asking for things because it never hurts to ask. As long as you’re polite, reasonable, and ethical, there’s no reason not to ask for what you want.

Lowering prices: I recently called my auto insurance company (Pemco) and asked them to lower my premium. They said no but it didn’t hurt. On the other hand, I asked my credit card company to remove my yearly fee and they said yes. The 5 minute call saved me $70.

Improving your credit score: Since having higher credit limits helps your credit score, it never hurts to call your credit card companies every year and ask them to raise your credit limits.¹ Say “I’ve been a loyal customer for X years and always paid off my balance in full. I’m planning on making some purchases in the near future. Can I have my credit limit raised to…?” Also ask if they’ll bypass the credit check, since that temporarily hurts your score.

Other requests: I emailed my Congressman to see if he’d fly a flag over the Capitol in honor of my Grandpa (a World War II veteran) and Venessa’s Grandma. It took a while to get a reply, but his staffer obliged and also offered to send me the flag for a reasonable price. Whenever I buy something on craigslist I ask if the seller is willing to deliver it to me, or at least meet me somewhere convenient. Failing that, I ask for a small reduction on the price.

On being asked: When it comes to the kids, I try to start answers with “No” as infrequently as possible. But when they make an especially outrageous demand, I’ll say, “No, but it didn’t hurt to ask.” I wonder if my folks said the same thing to me?²

I have a feeling that most children are reprimanded when they ask unreasonable questions, so by the time they’re adults they’re literally afraid to ask. It’s a shame, because that same part of the brain is also what drives curiosity. We should praise our children for asking all sorts of questions, everything from “Why is this the way it is?” to “Can I have …?”  It’s the latter type of question, when combined with a good work ethic, that leads to new inventions and discoveries:

Q: Can I have an iPod?

A: Yes. How do you plan to save up for it?

or

Q: Can I have an iPod that also plays 3D movies?

A: Yes but you’ll have to invent it first!

¹ Do not do this if you abuse credit cards. This is for people who pay in full each month and generally have their financial house in order.
² I definitely remember my parents doing this: if they bought something at the store and then saw it went on sale soon after, they’d bring the item back, along with their receipt and ask for the difference in cash. It must have worked or they wouldn’t have done it all the time.

Now the internet knows how much I spend on socks

I got this cute drawing on a receipt for socks I ordered online, and I decided to share it on reddit, the social news website. Not sure what I was thinking.

The first comment, from MikeOnFire, was actually a good question that got me thinking:

$44 for three pairs of socks? Wow, either I’m missing out or I’m pretty good with my money

To which I responded

Whether or not you’re missing out depends on how much you currently spend on your socks, how often you need to replace them, how much you like shopping for socks, the value you place on fashion/style, etc. Spending more or less for a particular item doesn’t necessarily make you good or bad with your money. It’s all about how much value you personally get out of the amount you spend.

In other words, nobody can impose their money values on another person. Beyond spending less than you make, being “good with money” can mean different things to different people. I don’t spend much on clothing over the course of the year and I’m not a fan of clothes shopping. So when I buy an article of clothing, I choose something that will hopefully provide good value, and last a while.

The most important things when it comes to money are having a healthy attitude, and sticking to your goals/values.  Actually those might be the most important things in life in general. Funny how that works.

Bank Transfer Day: politics aside, it just makes sense

November 5th is Bank Transfer Day, when everyone who keeps their money in big, for-profit banks is supposed to close their accounts and move them to a not-for-profit credit union (CU). This is different than the run on banks that preceded the Great Depression, since nobody is recommending you put your cash under a mattress. Instead, you’re moving it from one type financial institution to another.

I’m not a huge fan of the Guy Fawkes stuff (the guy was sort of a terrorist), but this event simply makes financial sense, politics aside. Since executives at Credit Unions aren’t making big bucks like their colleagues in the for-profit banks, they’re able to offer lower rates on loans, higher rates on savings accounts, and other perks, such as reimbursing you for other banks’ ATM fees. In short, their business model isn’t built around squeezing every last penny out of you, because credit unions don’t answer to Wall Street.

My biggest gripe with CU’s used to be lack of ATMs, but if you bank with a CU that belongs to the co-op network, you have almost 30,000 ATMs to choose from.

I recommend a slow approach to changing banks. It takes a month, but if you forget about any auto-pay stuff being deducted from your old account, it won’t bounce.

Here’s how to make the switch:

  1. Find a credit union near you and open an account there. Deposit a good part of your money at the CU, but not all. The amounts are up to you.
  2. Cancel all automatic withdrawals & deposits from your old bank and move them to the new bank. (This is the most time-consuming step)
  3. Wait a month, and check your old bank account to see if any auto-pay deductions occurred.
  4. Transfer the rest of your money out of your old account and close it.
Anyone planning to (or recently did) a bank transfer? I was lucky enough to start out at a credit union, though I did have the experience of switching from one credit union to another (FirstTech to BECU). It was mostly painless.

The “Switch Witch” visits on Halloween Night

Halloween should be fun, so even though collecting 5 pounds of mass-market, chemical-laden, tooth-decay materials isn’t the greatest idea for a child, it would take a certain kind of mean parent to say NO to all that.

Luckily, there’s a way to let your child go trick-or-treating, and let them enjoy the fruit of their labor* without the feeling that you’re betraying your values just to not rock the boat:

The Switch Witch!

The Switch Witch is the Tooth Faerie’s mischievous sister. She goes to random houses on Halloween night, after children are asleep. She steals all their candy (except what they already ate that night) and switches it for cash! How much? Enough that your kids won’t be upset that their candy is gone. It’s going to depend on their age and how much experience they have with estimating the value of goods.

What you—I mean The Switch Witch—does with the candy after that is up to you…

* Knocking on a stranger’s door can be very difficult for a child, so to them, they’re working hard.

Your Money Or Your Life, Step 1.5

[This is part 1.5 of a 9ish part series on the book Your Money or Your Life. See my original post about the book. Step 1 was too long for one blog post, so here’s the second part.]

In the first part of Step 1, I dug through records and receipts to figure out the total amount of money I’ve ever made. In my case, I found it was almost a million dollars! Of course it’s not possible to keep it all.  Which is where the next exercise comes in:

What do you have to show for it?

In this exercise, you’ll figure out your current net worth.  We do this because it’s a fundamental practice for any business—and you are a business. Also, it’s good to know your net worth, since you might be closer to Financial Independence than you think!

Your net worth is all your assets (money and belongings) minus all your debts. Finding the worth of your belongings might take a while but it’s good to be thorough.

The cash component of your net worth is the value of all your bank accounts and investments, plus the cash you have on hand. If someone owes you money, you can count that here too. If you use personal finance software like Quicken or Mint, this should be quick.

The “stuff” component isn’t so easy to figure out. You’ll need to take stock of all your belongings and discover or estimate their value. You’ll begin to see the burdon of owning material possessions that don’t bring you fulfillment. On the bright side, perhaps you own an antique or other item that has a lot of value!

I went through each room of the house and added the value of every item in the room. Then I looked outside, and also factored in the value of our car and scooter.

Next is debts, to banks or people. Count your mortgage here too. Add them up, and subtract your debts from your assets. That’s your net worth.

This took me a full afternoon, but it was well worth the time. I admit I wasn’t totally thorough. For instance, I estimated the value of all the items in the kitchen together, instead of going spoon by spoon.

After I added everything up, I found it to be around $150,000. At first I was proud of the fact that I have some savings. But then I looked back to the first exercise, and realized that for every dollar I’ve ever received, I managed to keep less than 20 cents of it!

The book calls this making peace with the past, and that’s the attitude you should have while doing this and the previous exercises. You can fold up the paper you used into a paper airplane and toss it into the recycle bin, because you’re about to have a total rebirth, when it comes to how you view your personal finances.

Stay tuned for Step 2!

Finally, a solar power option for renters*

* in Seattle, anyway

One of the few drawbacks of renting is that we’re limited in the modifications we can make to the house. Even though I know it makes long-term financial sense and it’s in line with my values, converting the house to solar power is out of the question!

I almost fell off the couch with excitement when I got this in the mail:

[Seattle] City Light is offering customers the opportunity to participate in Community Solar at Jefferson Park. When you enroll in the program, a portion of the electricity generated by the project will be credited annually to your power bill. Your name will become a permanent part of the ground-breaking Community Solar installation. And you’ll be pioneering a bright, new energy future for Seattle…

Each solar unit is estimated to produce 50 kWh of electricity per year through June 2020 when the program ends. The one-time, up-front cost is $600 per solar unit.

If you read the fine print you’ll find that the solar panels don’t fully pay for themselves in electricity bill credits. Even so, it’s an opportunity to make a local investment in sustainable energy and send a message to the rest of the country that our community is ready for renewable power.

If you live in Seattle, spread the word and consider signing up! My goal is to ensure that all 500 solar units are purchased.

How can I make my life simpler?

There’s no right or wrong answer to this question, but I love this list of suggestions:

  • Ask for help
  • Carry less stuff in your pockets
  • Clean out your house, purge your belongings of anything you haven’t used in five years
  • Eliminate clutter on you desk
  • Eliminate time wasting activities
  • Eliminate two things for every new thing you acquire
  • Hire some help, housekeeper, gardener, etc.
  • Know your limitations
  • Learn to identify and toss junk mail before it even gets to your desk
  • Learn to say no
  • Let go of perfectionism
  • Let go of the past
  • Live frugally, want less
  • Limit time you spend on any given activity (TV, media, Internet)
  • Move closer to work
  • Sever unhealthy relationships
  • Simplify your financial life and consolidate debt
  • Simplify your online life
  • Tell the truth
  • Turn off your cell phone [and anything else with a screen]
To expand on the “simplify your financial life” tip, I’d suggest taking a look at everything you spend in a month (you’re tracking your expenses, right? A topic for another post). Find things to eliminate: cable and netflix bills, ATM fees, the daily cup of coffee.  Be steadfast but realistic.

I’m tweeting at @fdryintheforest

Some content doesn’t deserve an entire post of its own. For example:

Use a small spatula to get the last serving of jam, etc, out of jars. Use a large one to get the last serving out of pots/pans.

Good thing there’s twitter, home of all the best half-baked ideas. I started a twit for Foundry in the Forest, it can be found here:

@fdryintheforest

I’ll tweet when a new post goes up, but also add some simple tips and tricks that you won’t find here on the blog.

How we got paid $200 to fly to San Francisco

This week, Venessa and I are taking a short trip to San Francisco. We don’t travel often, especially not by air. It’s bad for the environment, I don’t like what the government has done to our freedoms, and there are so many places in the Pacific Northwest that I haven’t explored yet, it seems like a shame to go somewhere else.

Largest caggage at the local fair

But every once in a while we get a travel bug that can’t be satiated by our environs. This one was prompted by some junk mail I got a few months ago. It was one of those frequent flyer credit cards offering a 50,000 point signup bonus. Equivalent to two free flights, they said.

A side note on credit cards: I have 2 rewards cards (REI and Amazon) and a Schwab cash-back card that just got bought out by Bank of America so I’m going to cancel it. Trent from The Simple Dollar has two good rules governing rewards cards:

1. It doesn’t matter what rewards card you have if you’re carrying a balance. If you won’t be able to pay your balance in full every month, cut up that card.
2. The best rewards program is the one that most closely matches what you buy and where you buy it.

Since I don’t buy airplane tickets very often, why’d I sign up for this card? Here’s the story:

I looked at the airline’s website and saw how many “points” out of my signup bonus a trip for 2 to San Francisco would cost. Then I looked at the same trip in dollars. It was $600, more than twice as much as the cheapest flight to San Francisco from Seattle, offered by Virgin America.

So here’s what I did. I signed up for the card anyway, and got the 50,000 points. Then I went over to the “other ways to redeem your points” section of the website, and spent all the points on $500 worth of Amazon.com gift cards. (I can’t believe they let you do this.) Amazon is a big enough website that their gift cards are extremely liquid, and we use it frequently enough that the cards about have the same value as cash for us anyway.

We booked the Virgin America flight for $300, and pocketed the $200 difference to use as spending money on the trip. After the gift cards came, I called the credit card company and canceled the credit card. I’m sure my credit score took a hit for this, but I don’t plan on borrowing money any time soon (if ever), so it’s not a problem. I even got the yearly card fee refunded since I had the card for such a short time. Never hurts to ask.

I might take a break from posting here since I’m not taking a laptop on the trip. See ya!