A few weeks ago I was at the beginning of a 2 hour drive back from a friends lakehouse with my brother when, in the 105 degree Texas heat, the motor for the passenger window broke and the window would not roll up. I spent the rest of the drive progressing in emotional state from pissed off that my brother broke the car (which he wasn’t at fault) to being flat out grumpy because I was so hot, to laughing so hard I cried because of how ridiculous we felt.

Have you ever noticed that setbacks always seem to occur at the worst possible time, and more importantly that they always occur to you? Your computer crashes the night before a paper is due, you get sick before new health insurance kicks in, or you get in a wreck just after you drained your emergency fund to get your transmission fixed. It never fails, Murphy’s law (or what my family has come to know as “Luck of the Bowen”) always seems to show up at the most inopportune times making life much more hectic.

Now take a second and think about all the incidents like this you have had in your life; where it seemed like something that ordinarily would have just sucked, happened at the most awful time.

In looking back, was it really that bad? I would guess not. I know that when I think about the events in my life where everything seemed to go wrong, I realize that whether it was a true catastrophic event or something as silly as the car window not rolling up I am the person I am today because of how I got through them and what I learned from them.

Being a member of the Bowen clan, luck of the Bowen is always in effect and it always hits the pocketbook. As a result Mary and I have taken what we’ve learned from past experiences and started some “hedge” funds to hedge our bets against the expenses that always come out of nowhere.

We have our emergency fund for general emergencies, so far we have managed to save away 3 months expenses if both of us loose our jobs, and 6-8 months if one of us loses a job. We feel like we are in a good place with our emergency fund, and we continue to add to it every month, but we realized that there were other things for which we needed to be putting money away in preparation.

The car window breaking led to us starting a fund to replace the car. After all it is 11 years old with 150k+ miles on it. On top of that, my Labrador continually eating things she shouldn’t (Christmas Ornaments, Bottle of Tums, the Couch, a Chair…) and our Chihuahuas overly expensive teeth cleaning bills ($600) led us to hedging our bets for the dogs and creating a pets fund in which we put money every month for when one of the big pet expenses comes up. (Yes, pets can be VERY expensive, but in my opinion they are completely worth it).

We created these additional funds because we have learned from past experiences which forced us to use credit cards when we didn’t have the money available.

On top of all of these things we are currently evaluating life insurance policies outside of our work coverage, because life is just that unpredictable.

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As the Treasury Manager of the company, and the writer of this blog, I try my hardest not to get caught up in it, though I admit it’s hard. As a personal finance writer, I preach to be conservative with your money: save, invest prudently, and keep an emergency fund; and as a financial professional in charge of all of a companies cash I act the same way, because if there is one thing I know, it’s that the party always ends.

Adorning the walls of my office I have hung constant reminders of this: vintage advertisements for Chrysler and Chevrolet. Every time I look up and see the ad for “The New 1967 Chevrolet Pickup” or the “Silver Anniversary Edition Chrysler New Yorker,” I think about what their management would have said at that time had someone approached them to announce that their company would go bankrupt. As much as I’d like to think they’d sit down and ask “how? when?” I have a feeling that they would have laughed it off. After all it was the heyday of the automobile!

Think about approaching an internet startup in 2000 (really, any startup will do), with the same information. Money was being handed out left and right, it was a huge party!, but the vast majority of them got caught up in the party and never looked at the bottom line. For a prime example, watch the movie e-dreams which follows the rise and fall of kozmo.com.

What about telling Bear Stearns in 2005? Worldcom or Enron in 2000? Blockbuster in 1999? All of these companies were at the peaks of their “Party” stage in these times, only to go drastically downhill a few short years later.

With all this said, I’m not against the “party,” in fact I love the party stage it’s fun and very exciting, but like any party, you have to party like the party will end, or else you wake up in the bushes wondering where your clothes went.

In personal finance partying like the party will end means saving, planning for retirement, and keeping an emergency fund, all while still enjoying your money. In the business world, that means always keeping an eye on costs (I just saved the company $15k by changing vendors for deposit tickets), managing the funds prudently (and safely), always striving for efficiency, and growing the business at a manageable pace.

If you stick with this advice, the party will last longer, and you’ll be prepared if it abruptly ends.

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The following is a guest post by my wife, Mary.  My comments are in bold.

Health Insurance is a privilege, something that shouldn’t be taken for granted, but also something that is earned by many as a benefit of being employed by a company that shells out thousands of dollars per employee to subsidize the insurance and ensure that their employees are taken care of. Despite whatever plan an individual chooses the basic concept remains the same; pay co-pay up front to obtain services from your doctor of choice (either in-network or out-of-network).

I consider myself to be a healthy person who exercises, maintains a good weight, eats well balanced meals, and listens to my body. But along with these habits comes another money saving and sometimes even life-saving choice to have annual physicals with my primary care doctor. In physicals the doctor runs blood work, checks for cancer and overall health. Being in my twenties, my health is something I want to stay on top of in order to treat any possibly issues now before they could become a huge roadblock. Aside from that any early sign of cancer could save my life, let alone $$. Unfortunately, this is something that many Americans opt out of to cut costs but something relatively inexpensive considering the potential health complications that could spiral out of control if not caught sooner rather than later. Preventative Healthcare is not something that should be taken lightly, even if you think you are healthy.

At my most recent physical this past December I paid my $25 co-pay and left as usual. Surprisingly this past week I received a bill from my doctor’s office for 2 lab tests totaling to $160. I was about to call their office with my Flex spending card in hand when I thought that maybe I should speak to my insurance company about why they didn’t cover these 2 tests. They didn’t seem out of the ordinary to me and I was “in-network.”

After spending a total of 30 minutes between talking with my doctor’s billing office and then my insurance company, the insurance company finally admitted their “mistake” and I was able to save myself $160. I was furious that my insurance company was “cherry picking” my health bills. When challenged the operator from the insurance company actually agreed that if I had not called to dispute the charges I would end up flipping their bill because of a “mistake.” So although having health insurance is a privilege, just realize your health care provider might try to cut corners any way they can and it is up to you to clean up their mess.

Mary’s story exemplifies being “On The Ball,” one of The 7 Effective Habits of Highly Frugal People . By knowing what our insurance covers, she successfully challenged a charge and ended up saving us $160!

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The following information is adapted from research by Stephanie Komon at Kent State University, and is based on the book The Millionaire Next Door.  Stephanie’s research was derived for the ability of fundraisers to be able to spot wealthy people, but it is very relevant for us.  Her presentation can be seen at the end of the post.

You may be surprised to know that only 5% of millionaires make a taxable amount over $1 Million a year, 8% make a taxable amount between $500,000 and $999,999 a year, and the other 87% work hard and live well below their means.  In fact, the average taxable yearly income for a millionaire is about $250,000.  Taxable income is mentioned because millionaires are most likely to greatly reduce their tax bill by investing in municipal bonds, real estate, an unrealized gain in stocks, and various other forms of (legally) reducing their tax burden.

80% of millionaires are self made, meaning that they are first generation holders of wealth, and 66% are self-employed.  Of the self-employed, 75% are considered to be entrepreneurs, the other 25% are professionals (Doctors, Lawyers, Accountants…).

Most of the entrepreneurs are not in glamorous industries, in fact they are in the opposite…think construction contractors, pest exterminators, plumbers, farmers, and even owners of mobile home parks.

The most common degree these millionaires have is an undergraduate degree.  The second most common?… no degree.  In fact the least common degrees for millionaires are the Ph.D., J.D., and M.D.

97% of millionaires are home owners, and 50% of those have occupied the same home for more than 20 years.

What does the most common millionaire look like? He is 57 years-old, married to his first and only wife, and has three children.

What does the millionaire spouse look like?  The spouses are typically “meticulous budgeters and planners and are more conservative that the millionaires are.”  The spouses are also most likely to be housewives.  If they are employed they are most likely to be an elementary or high school teacher.

Most entrepreneurs live well below their means, and in fact, live so conservatively that if they make $200,000 in a year, they will most likely live off of $80,000 and invest the rest in an effort to accumulate more wealth.

By what means do they live frugally?  They just don’t live extravagantly.  Half won’t spend more than $400 on a suit, they also won’t spend more than $140 on a pair of shoes.  They most likely haven’t bought a car in the last couple of years (if they did it’s probably used), and they are most likely driving an inexpensive domestic car.

What does all of this mean for you?  It means that there is light at the end of the tunnel.  Living frugally is not easy, in fact it’s hard, but as you can see from these that statistically the way to wealth is becoming an entrepreneur and living frugally.  Most small businesses owners make less than $250,000 per year, but they live frugally enough that they live well and save a ton.

Hopefully this has served as a pat on the back for conservative living because it helps us see that there is long term gain from making your own meals, carpooling, owning a home, and consuming less.

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By no means do I consider myself to be smart, but the fact that I am a clean cut, in shape, nerdy looking guy, who can carry a conversation on just about any topic, has really helped me out in life. My image allows other people to come up with their own realities of who I am, and I have found that for the most part, people consider me to be a mature young guy with a good head on his shoulders, though if you read young and frugal you already knew that (I kid). And for the most part I work at my image because I want people to walk away feeling that way about me.

Whether we like it or not, image is important in our society, and our society sees the things we appear to possess as extensions of who we are. Our friend who drives the BMW must be rich, and the guy down the street who drives a ’95 Civic with 225k miles on it must be poor (eww!).

Notice how I used the phrase “appear to possess,” I say this because if I’m leasing or I have financed a 3 series is it really mine? If it’s paid off like the ’95 Civic then of course it is, otherwise…? I don’t know, can you claim half a BMW?

All of this perception is human nature. As kids, we know that rich people drive nice cars, live in nice houses, and watch huge HDTV’s. As we grow up, and learn about money and responsibility we learn that just because we appear to possess these items doesn’t mean we are rich.

Mary and I listened to NPR on the way home from work today and we heard an interview with Moby. Moby grew up very poor, and he and his mother were on welfare and food stamps until he was 18. He knows and understands the merits of frugality, and that perception isn’t everything. He said on the radio today that earning a great deal of money hasn’t changed him and that he still shops at the same grocery store and does his laundry at the same laundromat. He says he still even has a little 13 inch TV.

When talking about his spending habits and his TV, Moby said “will watching Family Guy on a 42 or 50 inch TV make it funnier?” This practically stopped me dead in my tracks. For months I’ve been salivating over flat panel TV’s that I can’t really rationalize purchasing, but I always end up salivating and coming back around to wanting one. Mary and I even went shopping with her mother for one yesterday. I have had my dream home theater in my head for months (with a mac mini at the helm), and this one prompt by Moby made me question my motivations. Yes, Family Guy is hilarious, but A TV won’t make it funnier because it’s bigger, nor would Davidson have beaten Kansas had I watched in HD.

Why do I feel compelled to make such a big purchase? I could definitely put $1500 to better use somewhere else like an IRA/401(k) or paying down our car loan even faster.

I really can’t come up with a good reason as to why I want a new TV. We have two 20″ TV’s and they both work perfectly. Plus, I don’t really watch TV anymore! Yet, for some reason I want one that is newer/better.

Maybe I feel that our new and incredibly nice house is an extension of us and the TV is an an extension of the house that makes it that much nicer. Maybe I want people to perceive that we have made it, when we drive in our nice and practical new car to our nice new house and watch Nightly Business Report our big new LCD. But at the end of the day image is only as deep as the debt you (can) get yourself into.

Here is the anomaly on all of this, I don’t want my friends looking at our house and our car and being jealous. Sure it makes everyone feel good when other people are jealous of them, but Mary and I are in a unique situation where we are starting out in our lives and careers together. We are a dual income family with no kids (ok we practically treat our dogs like kids…but I digress). It is easier for us to afford this lifestyle. I don’t want any of my friends jumping into our lifestyle too quickly and getting in over their heads, I want them to understand that yes, we have nice things, nicer than we deserve, but we also have car payments, mortgage payments, insurance payments, property tax payments, Homeowners Association Dues, and various other things factored in.

Hey, at least we have no credit card debt! 

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The book is filled with very good information on everything from budgeting, to living on your own and debt management, but I’d like to focus in on the section titled: Being a Smart Shopper.  (Keep in mind that as I go through and quote this that it was written in 1996 for teenage boys, but the lessons transcend age and date.)

 Suppose you have your eye on a really special skateboard.  How much does it cost? (Don’t forget to include the cost of protective gear if you don’t already own such items.)  You count your money and discover that you don’t have enough.  What do you do?  You Might:  

• Shop around.  Maybe another store or a catalog has the identical skateboard at a cheaper price.  A telephone can make comparison shopping easy.  Call at least three stores.
• Earn or save more money until you have enough to buy the skateboard.
• Wait for a sale.  A store clerk might tell you if the skateboard will go on sale soon.
• Look for discount coupons.  These can be found in newspapers, coupon books, or the mail.

What if you still don’t have enough money to buy the skateboard, or you decide you don’t want to spend that much money, even if it is on sale?  You have other choices.  Shoppers can’t always buy exactly what they want.  Sometimes they must compromise.  Thats part of being a good money manager – knowing when to say no to yourself. 

 Wow.  I’d say those last few sentences are something everyone needs to remember!  Mary and I are in this situation with our house right now.  We really want hardwood floors in our living room, but we know that we just don’t have the money for it.  We are forcing ourselves to say no, and it’s hard because we need want them.  It is very hard to say no to yourself, and it takes a great deal of self control, especially when (once you get older) it’s so easy to put a purchase on the credit card.  Luckily for Mary and I, we are able to hold each other accountable and it really helps.  

The Scouts are essentially saying, if you can’t afford something you have a few options: shop around, save more, wait for a sale, and look for coupons.  Very smart advice for anyone.  It also reminds us all to consider all of the costs we will encounter for this item, like having extra money for protective gear for the skateboard.

The passage goes on to recommend that you buy a less expensive skateboard with a different paint job, buy a used skateboard, check classified ads, and it even brings up building your own skateboard (which sounds fun and easy to me!)

The book then offers a checklist for smart shopping some of which are (my commentary in parentheses):

• Be wary of advertising…(Always!)
• Before buying a product, talk to…others who may already use [it]…  (Also seek reviews from consumer reports or on the internet)
• Try before you buy/demo
• Consider quality.  Price isn’t everything… Why buy something, even at a low price, if it falls apart quickly or doesn’t work properly.  (I am obsessed with quality products, if there is a difference in quality and price, I will buy the one that has better quality)
• Consider Service. (I’m usually willing to pay more for something if I know that the service behind it will be worth it.  For instance, I’ll pay a bit more for something at Costco in order to get their service and extended warranty)
• Don’t Impulse buy.
• If there’s a problem, take a product back right away (be sure to keep your receipt).  Don’t toss the item aside and feel sorry for yourself….Most stores…[will]…probably fix the item or give you a new one.  (I am terrible at actually returning items to stores.  It always seems like too much of a hassle.  But I’m going to make a point to return a broken glass bowl we got as a wedding present (in June) this week.  We have the receipt.  I hope they take it back!)

It’s not always easy to be a smart shopper.  Most people, myself included, aren’t good at the waiting part.  We impulse buy, it’s what advertisers and marketers try to train us to do, but we need to always remember to stop and ask ourselves if we need the item, or if we just want it.  We also need to ask more important questions… Can I afford this?  How long with this take me to pay off?  How long will it take me to save for this?  Those are the types of questions that should be going through everyone’s head when they see something they want to impulse buy.

Writing this has been very beneficial for me today, because Mary and I did our Tax return yesterday and when I saw the amount we will be getting back I got very excited.  I even caught myself drooling over Mac mini’s online today.  But I slowly moved my mouse up to the corner of the screen and closed the window, because even though a Mac mini is on my list of things I want and need (yes I do need a new computer), I want to achieve other Goals first.  Most of our Tax return will hopefully be going directly into savings to help us achieve higher goals.

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