Living paycheck to paycheck on $150,000

[infotango]

Put simply:

money=flight time, and flight time=happiness
Therefore: money=happiness

 

[flyingcheesehead]

I believe we should add a high school course on money, debt and budgeting.

Amen.

I did see a thing on the news recently about a high school that did a day where they were given a certain income (play money) and had to go and find a place to live, car, etc. Local businesses participated (car dealers, etc) and the kids had to make some tough choices... If I buy this cool car I really want, I have to live in this total dump of an apartment!

Should be a requirement.

 

[woodstock]

now this all runs counter to Dorothy Parker's advice, which was:

"Take care of the luxuries and the necessities will take care of themselves".

 

[Dwight B. Van Zanen]

BTDT

Suggestions, not in order of importance:

1. Pay off the credit card every month. The interest is beyond unreasonable.
2. Pay off your home as quickly as possible. You have a lot more options if you are not paying a mortgage or rent every month. You also have a lot more security once you know your home is paid off. And don't just buy up to get the biggest and best you can('t) afford either. And don't refinance the house to fund other toys and vacations. Essentially that will cause the toys and vacations to be financed over 15 or 20 years and double the cost.
3. For RE investing (other than your home), use other people's money as much as you can. If you have 5% in a property that then appreciates 20%, your investment went up 400%. Of course it could depreciate, so do not agree to guarantee payment with income - only with the asset value. In a down-turn you can just walk away, and you only lose your 5%. Which is why you don't want to do this with your home. You have to live somewhere, and it is best if it is not on the street.
4. Always save. Pay yourself first (savings), and live on what is left.
5. Never agree to buy non-RE items on time payments, if you can pay cash. The interest rate on the loan is nearly always much more than the interest rate you would earn by leaving your savings invested. If you have to take money out of savings to buy it, you may think a little more about whether you really need it. Signing up for years of "low monthly payments" may seem easier, but it is not cheaper.
6. Use it up and wear it out. Don't replace stuff just because it is a little old. Good old stuff is often better than the new stuff anyway.
7. Evaluate your purchases based on total lifetime cost. If you buy a plane, consider the cost of the hangar, insurance, annuals, etc. Will it appreciate or depreciate? And just how often will you use it? If it is going to sit idle most of the time, perhaps a few partners makes more sense to share all the costs, if you can still use it as much as you think you will want to; and the plane may actually get enough use that way. I see a lot of planes in hangars that have not flown in months (or years) and are now a cash drain on someone who is getting no benefit from their investment.
8. For stock market investing, most people do not have enough to invest to be able to diversify adequately for safety. Invest what you can afford to lose, and put it in a mutual fund that is well managed, with low fees. Their are thousands to choose from and with a little research you can find one that will be diversified in a way that you would (or should) diversify if you had millions to invest. The brokerage fee is one fee for partial shares in many companies, and the management fee will be much less than the fees for the buying and selling you would need to do (if you were on your own) to keep up with market changes - your fund manager will do all that.
9. Marry the right person the first time. Divorce can really destroy a great financial plan, and a bad marriage can be even worse. If you have the same dreams and aspirations you can help each other achieve them. With different dreams and aspirations, you are in competition for who gets what, every time you have a decision to make.
10. Be satisfied with less. Whatever you have, it is more than a lot of other people so enjoy it rather than be bitter and dissatisfied. If you are driving a 10 year old car, be happy it is paid off and cheaper for insurance than the new ones.
11. Finally, what do you do with the money? Is it all for you, or are you able to help others? Give some of it away to good causes. You will find you can get along fine with less. And you will feel better about what else you may do with it.

 

[Greg Bockelman]

1. Pay off the credit card every month. The interest is beyond unreasonable.

Better yet, just cut the damned thing up and NEVER use a credit card. If you cannot pay cash for it you cannot afford it. It is well and good that you say you will pay it off every month, but I can tell you from experience that it is hard to do.

A big hearty AMEN to the rest of the post.

 

[gismo]

Better yet, just cut the damned thing up and NEVER use a credit card. If you cannot pay cash for it you cannot afford it. It is well and good that you say you will pay it off every month, but I can tell you from experience that it is hard to do.

Credit cards are pretty handy to rent cars with, buy self serve avgas etc. I think it would be very hard for me to get along without one. But I do pay it off every month, the notion of paying 18% is enough incentive plus I make it a point to never spend more than I have cash to pay for.

One option with some cards is to set up an automatic bank withdrawl that pays the balance each month.

 

[Dwight B. Van Zanen]

Thanks. I know a lot of people have trouble with credit card debt, so no card may be best for them. We use a card for convenience only, and to defer payments to next month when the payment on the card will be due. Sometimes putting a big expense on the card provides time to get a reimbursement before the bill comes, like a purchase for the plane partnership as an example. The bottom line is, never let 'em charge you for using their money. And then, some cards pay rewards based on how much you use it - so they pay ME to use their money. And what I buy does not cost any more with a credit card or cash, so the reward money works like a cash discount an everything.

 

[EdFred]

Better yet, just cut the damned thing up and NEVER use a credit card. If you cannot pay cash for it you cannot afford it. It is well and good that you say you will pay it off every month, but I can tell you from experience that it is hard to do.

A big hearty AMEN to the rest of the post.

How do I pay for fuel at 6 am or midnight? How do I rent a car? Hotel? Too many places require credit cards to not have them.

 

[gprellwitz]

Better yet, just cut the damned thing up and NEVER use a credit card. If you cannot pay cash for it you cannot afford it. It is well and good that you say you will pay it off every month, but I can tell you from experience that it is hard to do.

A big hearty AMEN to the rest of the post.

Greg,
I have to agree with the others who disagreed (mildly) with you on this. I find a better motto is never carry a balance on a credit card! I agree, it is hard to do, as I've vacilatied between having a balance and not having one. (Full disclosure: I have one right now.)

There are too many things you're locked out of if you don't have one available. Now, you may request that the limit be lowered to $xxxx, and that's a good way to ensure that you don't run up a terrible debt. Or (or maybe and, set it up so it's paid off each month from your checking.

However, do not use a debit card, thinking that it will keep you from getting into debt! IIRC, the laws are different for debit cards than for credit cards if, for example, the card is stolen. You may not have a $50 maximum liability if your debit card (or its number) is stolen; it may wipe out your account!

 

[flyingcheesehead]

One option with some cards is to set up an automatic bank withdrawl that pays the balance each month.

You know, that's one thing I really hate about the AOPA card. It won't let you choose to automatically pay the minimum due, or the full amount due. It makes you type in a specific dollar amount. WORTHLESS.

 

[bstratt]

I agree with the above comments on credit cards.

Bottom line - all financial planning involves will power. If you don't have the will power not to give in to instant gratification you won't have the will power to not carry a card balance, enforce savings plans without then spending it, etc.

Unfortunately todays' generation is all about instant gratification.

 

[jason]

How do I pay for fuel at 6 am or midnight? How do I rent a car? Hotel? Too many places require credit cards to not have them.

I use a debit card for all of those things and it works just fine.

 

[ScottM]

I use a debit card for all of those things and it works just fine.

Try that overseas you may not be so lucky. I have seen rental care places refuse debate card.

BTW I carry two cards. One personal, one for my company. We pay mostly with our personal card for personal stuff but then pay off the card each month. Only debt I carry is my mortgage and that will be gone in a couple of years.

 

[EdFred]

I use a debit card for all of those things and it works just fine.

Why pay for it now, when I can defer payment for 25-50 days. Sure I have the money to pay for it now, but if someone is offerening a free grace period, why wouldn't I take it? I just bought new furniture for my redone living room. They offered me 18 months same as cash, why would I refuse it?

 

[mikea]

You know, that's one thing I really hate about the AOPA card. It won't let you choose to automatically pay the minimum due, or the full amount due. It makes you type in a specific dollar amount. WORTHLESS.

Just do the auto-pay with bill pay on your bank's end. That's how I blundered into my "titanium" rating.

 

[wsuffa]

How do I pay for fuel at 6 am or midnight? How do I rent a car? Hotel? Too many places require credit cards to not have them.

And part of the reason for that is so the credit card companies can track all your spending. On affinity cards, the affinity holders can often negotiate access to some or all of the spend data. (AOPA, for example, got access to what FBOs you were using, and how much, in aggregate, was spent on aviation.

Don't even think there is any form of privacy.

 

[jason]

Why pay for it now, when I can defer payment for 25-50 days. Sure I have the money to pay for it now, but if someone is offerening a free grace period, why wouldn't I take it? I just bought new furniture for my redone living room. They offered me 18 months same as cash, why would I refuse it?

Well, first of all, I'm not going to pretend that I'm going to change your mind in the next couple of paragraphs. You're convinced that you're doing it correctly, and for your situation you just may be. So I'll tell you why I don't do it.

The reason that my wife and I don't take 18 months same as cash deals is because (as Dave Ramsey is keen to say) 80% of money management is behavioral. That's the same reason that we don't use credit cards...the same reason that we drive paid for cars...etc. Too many people spend too much of their time trying to play games with money. My wife and I have found that the power of focus in our financial lives is amazing. Little payments here and there just eat away at our income. It is too easy to buy something now and make 10 easy payments. Then after those 10 payments...well...that was easy, wasn't it? Why not go with the 20 easy payments on this other thing we've had our eye on? People justify these things with math. "We can afford it". They don't understand the impact that all of these little mosquito payments have on their ability to save. The one thing that you're not taking into account when you ask why you shouldn't take advantage of a "same as cash" offer is risk. What happens to that "same as cash" debt if you become disabled and you have to use that payment money to keep the lights on? It rolls into a note with a sky high interest rate. Now you're struggling to pay your bills WHILE you're trying to figure out how to pay for this furniture. I know that everybody thinks it won't happen to them, but the fact is that it happens so often that this is the exact reason that these companies are able to offer these types of deals.

As for me and my house, we'll just pay cash...know that it's paid for...and put all of those "easy payments" into mutual funds. I've found that one common theme throughout my life is that the easiest way isn't usually the best way.

 

[EdFred]

Don't talk to me like I am an idiot. Must be nice to have a job that allows you to pay cash for your first house.

Lifetime totals:

Rent paid: $0
Leases paid: $0
Credit card interest paid: $0.50 (I had forgotten I had charged $3 in fuel for my motorcycle one month because I had zero cash on me - $0.50 was the minimum finance charge.)
Total finance charges on all vehicles (6 new vehicles) paid: <$5000
Total finance charges on my airplane: $0.00
Total finance charges on all "same as cash" items: $0.00

They say the rule is if you can't live for at least 6 months on your liquid assets, don't buy it. I have over 2 years maybe 3 years worth at my disposal. I don't make payments on anything except my house - which I have about 60% equity in. What convincing do I need exactly?

 

[mikea]

Why pay for it now, when I can defer payment for 25-50 days. Sure I have the money to pay for it now, but if someone is offerening a free grace period, why wouldn't I take it? I just bought new furniture for my redone living room. They offered me 18 months same as cash, why would I refuse it?

You'll notice that they don't defer the accruing interest, at some outrageous rate like 29%-35%, if you don't pay the whole principal balance in 18 months. They count on you not being to able to make the nut in 18 months.

I've blown enough rebates in my life to know that I'm really good about putting things out of mind. I'd be very afraid I'd blow that due date.

 

[jason]

Don't talk to me like I am an idiot. Must be nice to have a job that allows you to pay cash for your first house.

Lifetime totals:

Rent paid: $0
Leases paid: $0
Credit card interest paid: $0.50 (I had forgotten I had charged $3 in fuel for my motorcycle one month because I had zero cash on me - $0.50 was the minimum finance charge.)
Total finance charges on all vehicles (6 new vehicles) paid: <$5000
Total finance charges on my airplane: $0.00
Total finance charges on all "same as cash" items: $0.00

They say the rule is if you can't live for at least 6 months on your liquid assets, don't buy it. I have over 2 years maybe 3 years worth at my disposal. I don't make payments on anything except my house - which I have about 60% equity in. What convincing do I need exactly?

Good lord, Ed. I never said anything specifically about you. You asked why you shouldn't take advantage of 18 months same as cash. Instead of telling you why you shouldn't, I told you why we don't.

Your stats are very impressive. You've obviously done well for yourself. I wish that I would have learned my lessons earlier in life.

As for the "my house" comment, I meant my family. I have a mortgage on my house that I'm working very hard to pay off early.

 

[EdFred]

You'll notice that they don't defer the accruing interest, at some outrageous rate like 29%-35%, if you don't pay the whole principal balance in 18 months. They count on you not being to able to make the nut in 18 months.

I've blown enough rebates in my life to know that I'm really good about putting things out of mind. I'd be very afraid I'd blow that due date.

Yeah, I know that part, and the interest is also in arrears. So it's not 29-35% on the balance, but 29-35% on the balance over the past 18 months. I never take the full 18 months, and will pay it off in 7-8 months. And quick and dirty math showed that my 3400 purchase would accrue about 5400 in INTEREST alone over 18 months. There's a kick to the nads.

 

[flyingcheesehead]

Just do the auto-pay with bill pay on your bank's end. That's how I blundered into my "titanium" rating.

Well, I'd still have the same problem... My bank doesn't know how much I owe on the card either. So, I either don't pay the full balance, or I pay too much and they get to hang on to MY money. Phooey.

 

[flyingcheesehead]

As for the "my house" comment, I meant my family. I have a mortgage on my house that I'm working very hard to pay off early.

I've heard it's actually quite all right to pay off the longest morgages slowly. Yes, you pay more interest, but over time inflation actually "lowers" your payment. (Same dollar amount, but worth less.) I remember my HS social studies teacher saying that he only was paying something like $57/month on his house.

 

[Bill]

They count on you not being to able to make the nut in 18 months.

Like Ed, we take advantage of others money when offered. I mark the date and send the "nut" in a month before the due month. That way i can call a week or so later and make sure the nut was received.

 

[mikea]

Like Ed, we take advantage of others money when offered. I mark the date and send the "nut" in a month before the due month. That way i can call a week or so later and make sure the nut was received.

Cool. I was thinking that you might also count on these scoundrels to "dispute" whether you got the money in on time. They add the $3000 interest charge, then 2 months later, "Upon investigation we will credit you $2000..."

 

[gismo]

You know, that's one thing I really hate about the AOPA card. It won't let you choose to automatically pay the minimum due, or the full amount due. It makes you type in a specific dollar amount. WORTHLESS.

I agree, but they (BoA) claim that this will be fixed in January.

 

[gismo]

Try that overseas you may not be so lucky. I have seen rental care places refuse debate card.

BTW I carry two cards. One personal, one for my company. We pay mostly with our personal card for personal stuff but then pay off the card each month. Only debt I carry is my mortgage and that will be gone in a couple of years.

I've also had major car rental companys refuse to use a debit card for a rental. It's actually the deposit that they won't post to a debit card, not the actual rental. So far the debit card has worked at the SS avgas pumps though.

 

[gismo]

Why pay for it now, when I can defer payment for 25-50 days. Sure I have the money to pay for it now, but if someone is offerening a free grace period, why wouldn't I take it? I just bought new furniture for my redone living room. They offered me 18 months same as cash, why would I refuse it?

Well, for one thing, most "18 mos same as cash" are actually a loan with prepaid interest and this costs the seller (and ultimately the buyer) something. You might have been able to negotiate a lower price sans the "free" credit.

 

[Greg Bockelman]

Greg,

However, do not use a debit card, thinking that it will keep you from getting into debt! IIRC, the laws are different for debit cards than for credit cards if, for example, the card is stolen. You may not have a $50 maximum liability if your debit card (or its number) is stolen; it may wipe out your account!

My answer to the credit card thing IS to use the debit card. With the exception of car rentals it isnt that big a deal. And as far as your statement above, I have heard from and read in what I consider reliable sources that debit cards have all the same protections as credit cards. So until I get a difinitive source to the contrary, that arguement does not hold water with me.

 

[Skip Miller]

So until I get a definitive source to the contrary, that arguement does not hold water with me.

Greg, I don't have a definitive reference for you, but I believe you are right.

In the early days of debit cards, the liability to the user was significantly different. Due to consumer protest, the banks had to change the agreements to protect the user in the case of fraud. Every one in the banking business that I have asked recently confirms your viewpoint.

-Skip

 

[Bill]

My answer to the credit card thing IS to use the debit card.

I don't ever carry debit cards or checks. I prefer to not carry instruments that link directly to my cash. But then, I'm paranoid (according to my wife, anyway)

 

[Greg Bockelman]

I don't ever carry debit cards or checks. I prefer to not carry instruments that link directly to my cash. But then, I'm paranoid (according to my wife, anyway)

To each his own.

But I will wager there are far more people who get into trouble with their credit cards than there are people who get into touble with their debit cards.

 

[gismo]

I don't ever carry debit cards or checks. I prefer to not carry instruments that link directly to my cash. But then, I'm paranoid (according to my wife, anyway)

I think the difference is that the protections on credit cards are mandated by law while the same protections are offered by most banks on their debit cards, AFaIK said protection is at their discretion.

 

[ScottM]

What you are looking for is here
http://www.pirg.org/consumer/banks/debit/debitcards1.htm
Debit cards carry higher risk for lose and liability than credit cards.

Even the Federal Reserve recognizes the difference in liability rules. The following is excerpted from the Fed's website-- the Fed calls debit cards EFT or (Electronic Fund Transfer) cards:

What about Loss or Theft? It’s important to be aware of the potential risk in using an EFT card, which differs from the risk on a credit card.
On lost or stolen credit cards, your loss is limited to $50 per card (see Lost or Stolen Credit Cards). On an EFT card, your liability for an unauthorized withdrawal can vary: Your loss is limited to $50 if you notify the financial institution within two business days after learning of loss or theft of your card or code.

But you could lose as much as $500 if you do not tell the card issuer within two business days after learning of loss or theft.
If you do not report an unauthorized transfer that appears on your statement within 60 days after the statement is mailed to you, you risk unlimited loss on transfers made after the 60-day period. That means you could lose all the money in your account plus your maximum overdraft line of credit, if any. (end of Fed excerpt.)​

​

 

[Dwight B. Van Zanen]

I have never understood the attraction of debit cards at all. It works like a check, except the money comes out of your account faster. You still need to keep a register to avoid an overdraft situation, so it does not save you much record keeping. Seems to me it would lead to more problems because it is used in situations where you are not thinking about your check register, since it is not a check.

With a credit card you don't need to keep track of the individual transactions. You pay for it with one payment a month later. You use THEIR money for free. They even PAY YOU to use their money for a month by the 1 -2% rewards programs many have. You can set it up to be paid automatic out of your checking account. They will let you know the amount well in advance so if you need to move some money to cover it you can.

The only advantage of the debit card is psychological, since you know the expense has to be paid for NOW you may be more likely to defer things that are not needed.

We thought about debit cards for our daughters who have trouble with keeping an accurate checking register, and have had some charges that at times were 10 times the amount of the check that "bounced". We thought we could set it up so that a transaction would simply not clear if the account did not have funds. No help. The debit cards that have the VISA or Master Card Logo will process and produce the same kind of bank charges as a bounced check.

Which reminds me. Another Suggestion:

12. Keep an accurate checking account register! Every transaction, balanced every month, check on-line for errors and omissions at least weekly. Bank charges are a minor expense, but a total waste since a little attention can eliminate them. My daughters are grown and gone now. I hope they learned from their mistakes.

 

[woodstock]

I use my debit card for nearly everything but I won't use it at restaurants. Gas stations, grocery store, etc - no problem.

 

[tdager]

Wow....some good advice here, and some seriously well off people.

Pay for everything in cash or you cannot afford it? Yeah...right.

Even with my minimum bills and good pay it would take me 5 years to save 50-60K for a plane. All the while spending money on rentals.

Why would one NOT take that rental money (i.e. money that is going to someone elses pocket) and put it towards a payment on a plane?

I too am down to very little debt and love it, but I also use other peoples money (18 month SAC) and float a couple of hundred every so often on a CC for some small items. However I make sure they are all paid in a timely fashion.

Unsecured or excessive debt = bad.
Some debt and proper money management (including using other peoples money) = good

 

[Bill]

I use my debit card for nearly everything but I won't use it at restaurants. Gas stations, grocery store, etc - no problem.

I normally carry two cards, one that I use personally to run thru the machines (gas stations, grocery store, etc.) that never leaves my sight, and another that I use when the card (or number) must go out of my sight. (Restaurants, phone orders, internet orders, etc.).

That way, one is always relatively clean, and I can quickly cancel the other should fraud symptoms appear. (Yep, definately paranoid)

 

[Bill]

But I will wager there are far more people who get into trouble with their credit cards than there are people who get into touble with their debit cards.

It's all about self control. Only buy what you know you can afford, and pay the CC bill off every month. Those with no self control will get into trouble no matter how they handle their finances.

 

[bstratt]

Using cash or credit is also very much part of your time of life - unless via an inheritance, very few people have cash to pay for their first house - similarly very few people coming out of college have the cash to buy a car, unless Mom & Dad give it to them.

Debt should only be used for capital expenditures, i.e. asset purchases, which are necessary and/or will build value, a house being a perfect example. If you live in a rural area and need a car to get to work you may need to borrow - if you live in downtown Chicago/New York and subway to work then its a luxury, give it up and rent on the weekends you need one.

Debt should NEVER be used for consumables. It bugs me when I see people charging their Starbuck's coffee, or a pizza slice (I kid you not!).

As far as paying off debt - pay off the highest, non tax deductible, debt you have, i.e. pay off credit card debt before your house mortgage. If you are planning a major purchase in the near future (cottage/summer house, airplane) you may want to accumulate savings rather than pay down your mortgage. If current rates go lower then refinance but avoid the temptation to draw out equity for that home theater!