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Is It Possible To Be Young And Frugal And Still Have A Vibrant Social Life?

Posted by Daniel in Advice, Finance, Frugality, House, Jobs, Life, Uncategorized

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Mathematically being young and frugal makes a great deal of sense; save as much as you can now, and let the compounding interest build up over the course of your life. 

In theory if I were to invest $50,000 in a decent mutual fund at the age of 23, assuming it earns at least 10% a year (slightly less than the historical average of the stock market), I would have $2,262,962.00 by the time I’m 65.  That sounds great, and the numbers don’t lie, however it’s not that easy.

Achieving this goal, while feasible, means that we need to continue living the way we are now (very frugally) and save for over two more years before we would be back in good financial shape to buy a house.  We could do it, but it wouldn’t be fun, and we are already committed to the house.  

The fact of the matter is that being young and frugal comes with many opportunity costs; the biggest being a social life.  Personally, it’s in my nature to not be able to rationalize going out to bars and paying big bucks for a drink I can make at home for a fraction of the price.  Plus I’m not a big fan of loud crowded spaces.  I do however love hanging out with friends and meeting new people…who doesn’t?

In college I hated going out to bars, I would much rather have hung out with a few of my roommates or thrown a party at our house than go out.  As a bonus we would host the parties, charge a cover to get in, drink for free all night, and have money left over to pocket or pay the resulting tickets.  It was a pretty good setup :) …until we lost about 80% of our deposit when we moved out.  

I know there are always alternatives to going out to bars, but for the most part, when you are hanging out with friends, meeting new people, or even networking you will most likely be doing so while spending money.  Whether it be at a bar, a movie, the golf course, or over dinner, you’ll be spending money.  It’s called social spending, and it’s a fact of being social.

To be honest, this aspect of being young and frugal is less than fun.  It especially sucks in the office because everyone I work with goes out for lunch at least 3 times a week.  The frugal train of thought on this is to take your lunch to work and it will save you a ton of money, so this is what I do, and it does save a great deal of money.  On the flip side, I’m certain that I am missing out on a great deal of good networking (and the male bonding) that comes with going out to eat with the guys.  Also, I’m wondering if my being social with my bosses at lunch could have an effect on an increase in my salary, thus offsetting going out to lunch.

Mary and I have kept room in our food budget for us to each go out to lunch with our co-workers once a week.  At the time we set the budget it was a reasonable expectation, and while it is a reasonable expectation, it’s getting to the point where I feel bad telling them I won’t be going to lunch today.  I love that I am always invited, but I know that there becomes a point where you are turned down so much that you don’t ask anymore. I’m hoping that I am not approaching this point.

Outside of work it’s hard for us to make new friends right now because of our extreme frugality and location (both will hopefully only be around for the 2-3 more months).  We live 45 minutes away from work, and we are more than 45 minutes away from “uptown” where any sort of nightlife in Dallas occurs.  On top of that all of our childhood friends from the area no longer live here!

So with all this, is it possible to live frugal and still have a vibrant social life?  I’m sure it probably is, but for Mary and I, and our extreme situation, it seems that we have struck out.  Our saving for our house and preparing to be house poor is strike one, our current location is strike two, and being married seems to be strike three because all of our peers are still single. 

I am more than open to suggestions on how get our social lives back on track while still living frugally, so if you have any please post them in the comments section. I’d love to hear what you have to say!

My Mandatory Class Proposal

Posted by Daniel in Advice, Credit, Debt, Entrepreneurship, Finance, Frugality, Jobs, Life, Planning

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In college I thought I had learned everything.  I learned finance in and out, I learned economics, marketing, advertising, managing, forecasting, social drinking, networking, and every other aspect of business that I could think of.  I was a badass. 

Nope.  As soon as I started work, I ate my piece of humble pie. 

Why is it that I spent four years in college, graduating with honors and a dual degree, to enter the workforce and immediately be slammed by something that I had never been taught? 

Literally, the first thing I encountered when starting my new job was benefits, and I have never been taught benefits.  What kind of medical coverage do I need?  Should I get the basic plan, or the premium plan? HMO? PPO? Extra life insurance?  Flexible Spending Account?  Use it or lose it? How much will all this cost me? It was a very overwhelming experience.  

Who do you turn to in a situation like this?  It seemed like the benefits lady who talked to me on my first day was in the same boat I was in.  She had no idea what she was doing!  Other people asked questions and she stated the coverage that she elected.  Great.  How is a 40 year old, single mother’s elected coverage supposed to relate to a guy directly out of college?  Thank God I had a week to submit my elected coverage, because that gave me time to research and talk to my Dad.  Now am I confident in my selections?…Absolutely not. 

Having had this experience, I propose a mandatory class for all college seniors, regardless of their major.  This class would be taught jointly between a few different departments and would touch on topics that everyone will face after college:

  1. Résumés and cover letters: writing and critiquing
  2. Interviews: How to sound like a better you
  3. Benefits: The pros and cons of certain coverage
  4. Insurance: Life, Car, Home
  5. Personal Finance: How to Budget, and Don’t let your ego use your wallet
  6. Retirement Planning: Yes, you’re 21, but you won’t be forever

I propose that this class be mandatory for all college seniors because regardless of major, everyone will face these issues after college, and not everyone will have someone close to them bail them out (Thanks Dad!). 

I realize that all of these topics vary by person, but having someone lay out some basic guidelines that you will be tested on is something that I think everyone can agree on.  For instance: If you start out saving/investing 10% in a 401k/IRA/Roth IRA when you are in your early 20′s, you will be set for 80% income replacement when you retire (USAA Magazine), and your housing expense should be a maximum of 30% of your take home pay (many financial professionals).  Basic guidelines like these can educate people and make them more aware of their situations. 

I had great professors in college, but unfortunately only two of them did any sort of rundown on personal finance, and both of them were hurried on the last day of class.  In a few of my classes we worked on our résumés, but everyone thinks their way is the best, and I ended up with a few different versions to appease a few different people.  Interview sessions were offered by Career Development Services.  The key word “offered.”  Few people took them up on it. And I know quite a few people who graduated college with a great deal of debt.  Why?  Because they could pay off all their cards when they got jobs. 

I think a mandatory class along these lines would have a great impact on the future leaders of our country.  And maybe, just maybe, it may help make frugality a virtue again.

Setting An Example

Posted by Daniel in Advice, Charity, Entrepreneurship, Finance, Frugality, Life, Uncategorized

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Everyone has a different meaning of wealth.  Some people would cite having friends and a loving family in their definition, and while most people do want this side of wealth, everyone would still love to have tons of money.  Some people publicly acknowledge it and others secretly dream about what they would do if money weren’t an issue.

Imagine this: you own a multi-billion dollar international corporation.  There really are no limits to what you can do. 

You don’t need to worry about retirement like the average person, you’ve set up a trust for college educations for your whole family, many generations down the line.  You’ve bought your beach house in California, your ski lodge in Aspen, your loft in New York City, your mansion in the Hamptons, all with matching cars of your choice, and the necessary Gulfstream to fly you to all of your residences.  Now what?  Jewelry?…eh, you’re over it.  More cars?…you can really only drive one at a time.

When does having tons of money become a burden?  When does it become a disease? You’ve done all the cool stuff that everyone dreams about, although I would really love to swim in a pile of gold like Scrooge McDuck in Duck Tails (a whoo-ooo!).

At this point you can really only do two things with your money.  1. Make more of it or 2. Be generous.  Most people (I hope) would turn to charitable causes.  I know I would probably start a foundation a la the Bill and Melinda Gates Foundation.  Yes, it’s shameless and self-promoting to name a foundation after yourself, but you’ve done well, I don’t think anyone would mind if you tooted your own horn a little bit, especially if you’ll be giving away billions of dollars.

Oh, by the way, have I mentioned that no one knows who you are?

But I have billions, I own an international company! How can no one know who I am?  I’m getting ready to start a foundation, how am I supposed to name a foundation after myself if no one knows who I am?

Because you’re smart.  You are Chuck Feeney.  You founded Duty Free Shoppers and you placed all bank accounts in your foreign wife’s name so you would avoid paying taxes.  As a result, no one knows who you are.

Fortunately for Mr. Feeney, his wife didn’t take him to the cleaners when they got divorced.  She only got $100 Million…and a few houses…and a plane.

What did he decide to do with the rest?  He gave it away, anonymously.  He founded Atlantic Philanthropies in Bermuda so he could avoid U.S. disclosure laws.  His foundation has donated to many schools and to many causes.  Upon the sale of his company, he had all of the proceeds ($8 Billion) put into Atlantic Philanthropies with orders that it all be spent by 2016.

He is now worth (personally) about a million dollars.  He takes public transportation, wears a watch with a rubber band, and lives a frugal working class lifestyle.  According to his friends he never really let the wealth get to him.

So, if he’s so anonymous, how do I know about Mr. Feeney?  Because he is allowing a friend to publish a book on him, and there is a great article on him in the Los Angeles Times.  Read it, it’s a great read.

I wanted to post this because I think many people think the goal of frugality is “live like no one now, and you can live like no one later.” While this is true to an extent you have to remember to stay grounded when you get wealthy. There is a point where money can’t buy you more happiness. Chuck Feeney has found this, Bill and Melinda Gates have found it out and Warren Buffet is the best example of this (more on him in a later post). Maybe being frugal is not just a phase in life but a way of looking at life.

What Credit Crunch?

Posted by Daniel in Advice, Credit, Debt, Finance, Frugality, Life, Uncategorized

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I got my first credit card when I was 19. It was a Citi American AAdvantage card. As I got older I slowly accumulated more credit cards, and by the time I graduated college I had 5, all with Citi, all with rates between 15 and 20%.

Shortly after graduation, I financed our cross-country move, and had over $10,000 in credit card debt. I was paying more than the minimum monthly payment on all of my cards. It finally got to a point where I was sick of having this debt hanging over my head, so I took what I consider to be a drastic measure. I cashed out of AAPL and paid off all my and all of Mary’s credit card debt.

Now that our only debt is a car (that we overpay on, and put a huge down payment on), we no longer have high interest debt hanging over our heads. We have diligently been using only two credit cards that we pay off every month and it is amazing!

With the “credit crunch” going on, I have heard stories of people’s interest rate on their credit cards going up, and people not qualifying for loans. I’ve heard that it’s much harder to get financing and even harder to get credit cards. But I have to say that I have felt the opposite of this. It’s not because I’m searching for loans (we locked in a mortgage before the mortgage crisis), or because I’m borrowing tons of money; it’s because credit card companies are sharks!

I completely understand why it is so hard for some people to stay out of debt once they get out. Not a month has gone by since we got out of credit card debt that I have not received at least two credit card incentives in the mail. (I understand that this is partially my fault for not closing the accounts, but by leaving them open it can help my credit score for when we close on the house.) The wording of the incentives I receive is along the lines of “use these low interest rate checks to pay bills, pay off debt, or just to deposit in your account!”

I know that these incentives are usual for credit card companies to send out, I got them when I was in debt, and I expected to continue receiving them. However, now that I don’t have the debt, the volume of these incentives has increased. When I was in debt I would receive one per month for one account in particular. Now that I’m out of debt with them I am receiving them for all of my accounts.

I have to admit, I’ve been tempted by these checks. “0% for 6 months! I can pay it all back by then,” I say to myself, but then I think about it, tear it up and feel much better.

I encourage all of you to do the same. If you have or have had problems with credit card debt, there are many ways to approach it, but remember, never use any of these incentives that are solicited to you. If you absolutely need it, you should call and get it on your own. The most effective way, however, is to cut up your credit cards, and close the accounts once they are paid off.

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