Friday, July 27, 2012

Living on Food Stamps

This is not intended to be a political statement or anything other than an experiment.

Since I began my graduate program in Community Development in 2007 (since graduated) I have been captivated by the choices and situations of American’s poor.  More specifically the rural poor, a group which  is often overlooked in favor of the more noticeable urban poor.  I have read the statistics and the books but have (fortunately) never experienced that life.  This is not a romantic obsession but rather a desire to know how a population that I serve lives.  Why do they come to the conclusions about choices that they do and would I come to a similar conclusion?  I can not realistically give up my job and house to live as someone in poverty might but I can limit my consumer consumption.  The only “real” experiment I can do is live on the budget of a food stamp recipient.

Awhile back a New York chef Mario Batali lived a week on food that he could only purchase with food stamps.  He said he was starving throughout the experiment.  If a man who knows how to cook for a living is starving how would someone like me, who can barely cook a frozen pizza, feel if I was put in a similar situation?

Here’s the deal.  The food stamp program is to supplement the food budget and not intended to be the entire food budget.  Prior to deductions (20% across the board deductions plus $147 for a two-member household) a gross monthly income of $1,554 is allowed.  Because we don’t have children or other deductions/income (such as social security, FIP, etc) I will not complicate the issue with those items.  After deductions the gross income limit is $1,096.  The program takes 30% of that income and subtracts it from the maximum benefit amount of $367.  So for our household of two people we would get $38 in food stamps plus our income of $329.

This seems like a decent amount of money for two people to eat each month and we’ll see if it is or not.

I can not voluntarily reduce my income but I can keep track of every item of food and drink I purchase.  If I spend less than $367 there is no need to continue the experiment.  If I am over that amount I will use the next month to budget accordingly.  I’ll stay honest by posting our purchases on this website.

I don’t want foreshadow before I start but I think the $367 will be enough money for our two-member household if we don't go out to eat much.  hat is just over $12.00 per day.  I know we spend more than that now.  What do you think?  How would you change the experiment if it were up to you?\]

Edit - I just checked my bank account and last month we spent $1,028 and two month ago we spent $1,148 on food, both groceries and eating out.  This might be more tough than I had planned for.

Saturday, February 4, 2012

Emergency Savings

One thing we often forget about is emergency savings.  It is too easy to get caught up in spending everything we have because it feels good.  I don't know about you, but seeing numbers in my account go up feels pretty good, too.  Building an emergency fund is not something you can do overnight.  In this post I'll show you how my fund is progressing and where I have that money stashed.  Experts say to have at least six months of expenses in an emergency savings account.  Currently the average American is looking for work for nine months, so maybe the experts need to revise their estimates. Nine months is a long time to be without a steady paycheck!  

The first and most important thing to remember is that a real emergency and what we think are emergencies are probably not the same thing.  A real emergency is a situation where, without immediate remedy, would leave you in a far more precarious situation.  In my five years of working I've thankfully only had one; in December 2008 my furnace went out.  We had it fixed several times before installing a new heating and cooling system in March 2009.  The total cost of the new system was $4,200.  This was paid for in-full with savings I had accumulated.  If I had put it on a credit card with an average interest rate of 14.91% (mine is 9.75%), it would take me 22 years with a minimum payment of $84 to pay that off - that's $5,800 in interest alone!  Okay, so maybe we wouldn't just pay the minimum, but the point is still the same - debt is bad! Heat is good!

I've calculated my emergency needs to be approximately $1,650 per month.  This includes mortgage, cell phone (our only phones), utilities, car and life insurance, and (believe it or not) internet.  If times were really tight I would forgo internet but how can you job hunt without it?  I put $115 per paycheck (26 paychecks per year) into my emergency savings account.  I use Ally Bank without ATM cards or checks.  The only way to get that money out is to transfer it to my normal checking account at Wells Fargo.  I know the interest rate right now is pitiful but having this money in cold hard cash is the most comfortable for me.  Some people say this should be in a Money Market account or CD, but I have those for other purposes and other posts.  Anyway, it takes me roughly six months of saving $115/paycheck to accumulate one month of emergency savings.  

If we are supposed to have six months of funds I would need about $9,900.  A year of funds would require $19,800.  If I started from scratch it would take me over six years to get there (and my heating problem would have eaten away half of my total savings)! It's daunting to see what you need and work towards it but it can be done!  Slow and steady wins this race.  For me to get twelve months of emergency savings I would need to save continuously until December 2013.  That doesn't seem so bad, especially considering once you reach your goal you can put that money somewhere else or buy yourself a nice reward for your religious savings!

We are fortunate that we are healthy and are able to save.  I'm sure there are others out there much more aggressive than I am about this, and I applaud them for it.  Because we are healthy and able to save it HAS to be a priority.  It's much harder to save when one spouse is out of work or there is a baby in the house, so what better time than now?  So many people I know push it off until they feel more financially secure - but the reality is that the sooner you start saving the more financially secure you will be.  

Friday, December 9, 2011

Dollars add up

This post is about having a little fun while saving at the same time. It may sound archaic but it works for frivolous purchases.  When at a store make sure you pay in cash and put away any $1 bills you receive as change. Don't use them for the rest of the day.  If you buy coffee later and it's $1.79 take out a $5 and pay that way.  At the end of the day take all those ones out of your pocket and put them in a bottom drawer somewhere.  See how many you can collect in a week, month, or even year.  I just did this for three months and had $350 - that's about $115/month in savings I didn't even know I was doing. That's $350 extra for dining out, a small trip, or even splurging on Guinness instead of Miller Lite for the month.

The first time I did this was in high school, when my dad suggested I save all my change.  Well, high school came and went and sure enough I had over $1,000 in change.  So what did I do?  I  ran to Best Buy and bought a DVD player (they were new and exciting at the time) and a bunch of DVDs I still have yet to watch, but the point is this small saving can really add up over time.

Thursday, December 8, 2011

Laying the Foundation

One of the hardest things to do right after college is begin saving money.  It seems like there are a million other obligations that take priority.  Student loans, credit card bills, saving for a mortgage, car payments, or even just day-to-day living expenses.

When I graduated college and had yet to find my "career" I still made it a point to save money regardless of what else came up.  It was hard but I stuck through it. The most simple way to do this is to have deductions automatically taken out of your checking account on payday...  and that's the easy part!  The hard part is to not spend the money!  We all like seeing those numbers go up and up, and quite often we want to reward ourselves for saving by spending that money on a new smart phone or fancy night out.   What I did was put this automatic deduction into an Ally Bank savings account where I could not get the money without logging on and transferring it.  There are no ATM cards with this account.  My  money stays in there until I need it (and I've only tapped it once in five years).  I'd be lying  if I said I'd manually put it in savings otherwise.

As your income builds so too does our spending.  British economist John Keynes found that average people will spend 75% of their disposable income regardless of how much they earn.  If you get a raise at work there is no doubt you will find a way to spend it.  But if you put a part of that raise into your savings account you'll be happy to see your boring savings rise as your exciting spending does.  As you make more money and pay off those evil debts you can start to put that money into various places where it will begin to work for you.

This chart shows where my savings goes each month.  You'll notice I count extra payment towards my mortgage as savings.  You betcha!  That's a guaranteed 3.25% return on every dollar I put in.  That's more than three and a half times higher than what I earn in my online savings account.  As I mentioned before, the Trip Fund is counted as savings because when we travel it is paid for up-front and not on credit.  That's a great feeling!  I could be much more aggressive and put less money into straight cash but that's a topic for another day.  What do you think?

Wednesday, December 7, 2011

Silly (?) Mistakes

Someone recently asked me what the most foolish financial thing I have done was.  Besides going to the casino or buying lottery tickets (only for fun, of course), I would say it was not taking the right amount of time to research our first house purchase.  We were so excited to actually get our own home we didn't think about resale value, taxes, or the other "small" stuff.  The house was purchased in spring of 2008 before the mortgage meltdown happened, and while we are so fortunate to still be working and able to afford our home, we realized we will have to sell for a loss.

We are not underwater, but when an the appraiser for our refinance said it was worth $139,500 and our neighbors sell their house (same floor plan with an extra full bathroom) for $20,000 less than that it worries us a bit.  Not only that, the house across the street sold for $75,000 and the house 2 doors down was a foreclosure and sold for $56,000, our $139,500 house isn't looking too great.

But here is the salvation from those stressful numbers...We all get too caught up on resale value when we have no plans to sell the house; numbers on a page are meaningless unless someone makes you an offer.  Too often homeowners only make improvements only to increase the value and not the living quality of their home.  The past three years have taught us houses should not be just investments - they are first and foremost our shelter from the storm.  So my biggest mistake somewhat worked out in the end (well, the quarter-life crisis thus far).  Sure, it probably won't be worth what we paid and put into it but that's not the point - it is ours and ours alone.  That's a great feeling.  We are the lucky ones.

Tuesday, December 6, 2011


My wife and I decided to refinance our house last month.  We owed roughly $90,000 on our original $100,000 mortgage.  That looks small but in Iowa that's middle of the pack.  Anyway, we decided to go with a 20 year loan at 3.75 percent for 20 years.  We took out $105,000.  Although we took out more money than we did the first time this extra money allowed us to pay off our remaining car loans of $5,000 and $2,500.  It felt great to finally get rid of these.  Also, it allowed us to pay our credit card bill of $1,000 (but this is a story for another day).

Even though we took out more money our monthly debt payments actually shrank.  Instead of $1,000 for the mortgage (always pay extra) and $350 for the car loans we only have the $1,000 mortgage which should be gone in 17 years.  I'll be 45 then, and  according to the Federal Reserve 85% of 45 year-olds still have a mortgage.  That's pretty good company to be in.  Assuming we save that money, between 45-65 that will be an extra $240,000 for retirement.  If I could tell you how to make an extra $12,000 per year without working an extra hour would you do it?

We are taking the $350 from the old car loans and putting it into a Trip Fund.  We love to travel and traveling debt-free is even better.  As a "gift" to ourselves for a successful refinance we are taking a trip to see our friend in Phoenix.  There is a balance between being prudent and having fun and there is no rule (even though we hear it all the time) that the 20's are for having fun and saving happens when you're older.  Why can't you do both at the same time?

...But these numbers are meaningless if you don't have good credit.

Monday, December 5, 2011

Starting Out

I have always loved to talk about money.  How we earn it, what we buy, and whether money is the end-goal in our careers.  What surprises me is not how few of my peers actually know about their money, but is how many of them simply don't care.  They don't care where it comes from, how it is spent, or where it is in the interim between the two.  I believe talking about our finances should not be shunned but should rather out in the open. Too often the people who say money does not define them are the same ones who evaluate their (and others') self worth on income or net worth. 

When we hide things, tangible or intangible, we become scared or embarrassed by them. I am 28, and for my age group this is often the case with our money.  We are afraid to talk about it so we keep hidden, which in turn means we never really learn how to manage our money because we never open up about it.  This begins a vicious cycle.  

I am interested in everything from school loans, marriage, employment, and 401(k)s to budgeting and investing.  Ultimately, I hope this blog is a place where I can come clean on my past mistakes and where I have success. This is not a blog about how to get ahead in your career, network, or how to beat the S&P 500 - there are already plenty of those blogs out there.  My knowledge comes from trial and error, experimentation, and independent research alone.  I am not bound by a particular school of thought from any certain MBA program or from reading stock "indicators".  Let the high finance people read their charts.  This is for real people with real questions answered from real world experience.