Money Mind Freak

I am one of those people who deliberately sets their alarm clock wrong. Even though I know it's set ten minutes fast, I get a jolt every morning when I look at it and I think Oh crap, it's after 8! I'm going to be late! Shiner makes fun of me for this. He doesn't understand how I could really be tricking myself, since after all I'm the one who deliberately set the clock wrong. And it doesn't make sense. But even so, that trick successfully taps into the reptilian part of my brain that runs on instinct, and instinct is ultimately what prods me out of bed in the morning.

It occurred to me that I do the same thing when it comes to finances. I do lots of things every day in how I manage my money that aren't anything more than mind games, but those games keep me setting one foot in front of the other. A few examples:

I pay myself first. This one is an oldie but a goodie. I direct deposit a portion of every paycheck into an HSBC account in which I track separate sub-accounts for emergency savings, wedding savings, and vacation savings. My contributions to my Roth 401(k) work the same way. You can't spend what you can't see.

I keep my debt at a nice, round number. Every month I make at least three payments to my home equity loan: I make my regular minimum payment, obviously. And I make a second principal-only payment of $500. Then, after both of those payments have cleared, I make an extra principal payment of whatever amount will get me down to a multiple of $25. For example, at the end of December I made my regular minimum payment and my regular principal-only payment, ending with a balance of $21,662.80. Then, applying the snowflake-meets-OCD principle, I sent another $12.80 off toward that debt. Ta-da! $21,650 is so much more aesthetically pleasing than $21,662,80. And the ratchet tightens down just a little bit more.

I operate my checking account on a zero-balance principle. Sometimes I think of this as paying myself first and last. This has two parts. First, I control the amount of money I put into my checking account. Rather than setting my savings goals and letting myself spend everything else, I set my spending targets and try to save everything else. Both of those approaches are forms of budgeting, but withe different frames. I don't live on a miserly amount, but I do create something like an artificial sense of scarcity, which keeps me from feeling like I can spend it because I've got it. Second, at the end of each month, just before my next paycheck hits, I sweep what's left in my checking account into savings or debt repayment. This keeps me always putting "extra" money toward one goal or another. And, because I don't let myself "roll over" what's left from the end of my January paycheck into February, and the roll over February's paycheck into March, my monthly spending ceiling stays constant from month to month rather than creeping upwards.

I buy myself lunch. To save money, I pack my lunch most days. But I realized that unless I was careful about it, I didn't really end up spending less money in the aggregate, because I would just spend that $5 on something else rather than putting it in savings or toward debt. So I started marking on my day planner when I brought my lunch or had it comped. At the end of each week or two, I transferred the money I saved--the number of days I didn't buy a lunch times $5 saved per meal--to pay down my home equity loan. Those savings dont get "lost" anymore.

So what head games do you play with money to keep yourself on the straight and narrow?

Are We Sure January Isn't The Cruelest Month?

First, the assets side. My retirement accounts lost nearly 7% in January. I knew it would be ugly, and all month long I deliberately avoided looking at my account balances. That didn't stop it from feeling like a sucker punch. Oof.

It's a sad, sad story on the debts side of the equation, too. I had to do some very expensive work on the house at the end of December, so I've got about $8,000 hanging out on a 0% APR card. I do have the money to pay off that balance. I could deflate my emergency fund to pay it off, but five more months of $8k at 3.5% or whatever HSBC is paying out now seems a far sight better than $8k at 0%. Plus, I think I would have a really hard time seeing the balance of my emergency fund crash like that if I were to yank the money out now. Yes, it's a mind trick, just like all the other mind tricks we play on ourselves to keep from becoming complacent as we make progress. But psychology is a huge part of this process, and I need to respect that.

All told, my net worth dropped by 16.36% in January. Again, oof. I know I'm fine, that Shiner and I are doing what we need to be doing. We have a plan, and we're following it. We aren't doing anything stupid, and we're doing a number of things that are pretty smart. But this is just ugly.

Carnival Love: Carnival of Twenty-Something Finances #14

I did something stupid this week. I inadvertently submitted the same post to two different carnivals. Pasted in the wrong damn link. So it is with a combination of happiness and chagrin that I tell you that Marc at The Locomono Website has posted this week's Carnival of Twenty-Something Finances included my post on personal finance and pro-choice politics as an editor's pick. Huzzah! I'm very flattered, especially because there's some good stuff there. Check it out!

And you are here visiting from this week's Carnival of Personal Finance #137, consider checking out Passing As Young, which is the post I meant to submit to that roundup. /shame.

Quick Hits Tuesday #4

Female trekking guides in Nepal are filling a niche in the male-dominated field of mountaineering. The three Chetri sisters, who run a restaurant in the foothills of the Annapurnas, encountered many female customers returning from long treks who complained of being harassed by their male guides. "So many women came back with bad experiences, they would be alone on the mountain with these men and they were very vulnerable. We knew what we needed to do," one sister said. The Chetris began training local women in mountaineering, trek safety, and women's empowerment, and now operate the Three Sisters trekking agency, with over 60 guides, all female, on staff or on call. In doing so they have had to tackle cultural taboos against women wearing pants and wives earning more than their husbands, and local beliefs that women are bad luck on the mountain. These in addition the perennial chestnuts that women lack the physical strength or mental toughness to do hard things like, you know, climb mountains. Three Sisters guides earn about $10 per day, more than twice what they could earn working in agriculture, one of the only fields traditionally open to women. Put that on my list of things to do the next time I am in Nepal. Someday!

You're only getting that Valentine's Day-themed singing teddy bear so you don't get pissed off, not because it was thoughtfully selected for you. Researchers have found that framing last-minute purchases in the negative (If you don't buy her something expensive, there's no way you're getting laid) rather than in the positive (She will love this pink-and-red tchotchke) can lead purchasers to pay a premium in a bid to avoid disaster. Purchasers buying well in advance responded better to positive ads, but didn't pay as much of a premium for the product or service. Shiner, if you are reading this, I would rather receive nothing than any form of singing bear.

Free Money Finance posts a question from a reader who wonders what she should do now that she's learned her fiance has a mountain of debt. A lot of discussion in the comments, some of which is completely stupid and/or judgmental and some of which is very thoughtful and, I hope, helpful. My favorite non-idiotic comment is from Independent George who prefaces his advice with: "I mean no disrespect, but, honestly, this entire situation sounds like a Jane Austen novel..." which manages with one literary reference to convey the seriousness of the situation while sympathetically acknowledging the heart-driven nature of decisions like this. Less favorite is the anon who drops that s/he went to Harvard Law and then proceeds to give crappy legal advice. Represent.

Alternet has a piece on Women Who Go Gray and Stay Sexy. Not strictly about finance (uh, they save on hair dye?) but a nice sort-of counterpoint to the article I posted about earlier this week on Passing As Young. I remember both of my grandmothers having beautiful hair, one soft gray and the a natural bright white. I should be so lucky!

Geezeo has an interview with Him and Her from Make Love, Not Debt about couple finances and how blogging together has helped them have hard conversations about money.

Carnival Love: Carnival of Personal Finance #137

The passion edition of the carnival is up over at The Dividend Guy, who includes my Blog for Choice post on personal finance and pro-choice politics. I'm a little surprised to have made the cut given the conservative tenor of many pf blogs. Filed under "A Passion for Careers" but oh well. I suppose he had a theme to maintain, and not many other entries for the "Passion for Uterine and Financial Autonomy." I'll file that under Pleased Just The Same.

Other posts I enjoyed from the carnival:

Penny Nickel at Money and Values blogs about research showing companies with happy employees have stocks that fare better. Not surprising, and it reminds me of the research out a few months back now finding a correllation between strong stock performance and high levels of customer satisfaction.

BPT at Money Changes Things taught her son to think about whether name-brand is better than generic by making him pay the difference. My parents bought me socks, underwear, and basic sneakers, and gave me a clothing allowance to spend as I liked on everything else. Thank God my high school years coincided with the popular rise of indie music, because I shopped at thrift stores, spent most of my clothing allowance on shows and CDs, and still looked fracking awesome. Lesson learned.

Bob McD asks a question I've been thinking, too: What would happen if we saved our stimulus package checks? He thinks it's unlikely and I agree, though I do think the checks won't do what they're intended to do. I expect people will be far more likely to put than money into a rent payment or a gas tank or a grocery store till--things they'd be spending on anyway, just at a deficit--than they are to go out and spend it on something frivolous in addition to their normal purchases. If people use it to buy things they would have bought on credit anyway, it won't help in the slighest. Aren't the people making these decisions supposed to be some sort of collective Genius Bar of money?

Smart Couples Finish Rich Chapter 4: Latte Schmatte

Sundays are State of the Union days in our house, when sweetie and I sit down to talk about how we're doing relationship-wise. Sometimes they're quick check-ins, sometimes we get into a little more depth, depending on what we've got going on. In this year leading up to our wedding, we've decided to make finances a central part of our State of the Union talks. Over the next couple of months, sweetie and I will be reading Smart Couples Finish Rich by David Bach and discussing the latest chapter at SOTU.

David Bach seems to think we all spend wantonly on caffeine, takeout, and booze. OK, maybe not booze, but if he knew us he might include that on his list of frivolous expenses.

To be fair, his premise is sound: if you piss away money on things that don't matter, you'll never get ahead. And you can figure out where you're pissing away money by tracking your spending. We are instructed in Chapter 4 to track our spending for seven days. The idea is that you can identify your little purchases--your "latte factor"--and cut them out, tucking that money into investments instead.

So I have a confession to make. Shiner and I did not track our spending for a week. Neither of us uses cash, so it was pretty easy to reconstruct our expenses by pulling up our credit card and debit card statements online. Not a latte on one of them.

To be sure, there were purchases that were not strictly necessary. Like beer-making gear for Shiner's ongoing love affair with his basement brewery. Or a few deeply discounted fancy work shirts for me, since I'm trying to end my fashion-backwards ways in the office. But that's it. Nothing that I would cut out after reading about the supposed power of the latte factor. Nothing I looked back on and thought, "why did we spend money on that? I know exactly why we spent money on what we did, and what's more, I'm glad we did.

Here's the thing, and why this whole latter factor business gets such a bad rap from so many folks: you're not going to turn your life around by foregoing all frivolous purchases, investing all your savings, and making a return of one bazillion percent over 50 years. You will die of boredom or gouge your eyes out of deprivation before that.

Instead of guilting people about mortgaging their futures by buying a cup of coffee, it would be far more persuasive to look to your priorities and make a choice based on them. I can make my own coffee at work with very little effort. It tastes better than what I could buy in a coffee shop, and it's far less expensive, so why prioritize coffee shop coffee over saving for a rainy day, or a vacation, or a retirement account? We pack lunches because we make good food at home and usually have leftovers, so there's no good reason to buy lunches at work except laziness and habit.

But spending in accordance with what you value doesn't always mean being frugal. We value our time together, so I have no problem paying for us to eat out once or twice a week: that's one or two meals where we can eat a leisurely meal together, have a "date"-type experience, where Shiner can have some meat (I don't eat it or cook it so we rarely have it in the house), where we can get out of the house (very important in the Midwest winter when the urge to hibernate is strong!), where we can have food we're not very good at preparing ourselves, where neither of us has to worry about doing dishes. Even though I could theoretically invest that money and end up with however many thousands of dollars in 20 years, I'm not going to do it. That is not the purpose of money in my life. The purpose of money in my life is to make me--and us--happy. Sometimes that will mean not spending money now in order to make our future better. Sometimes that will mean spending now in order to enjoy today. A sane approach to money doesn't mean always choosing "the future." It means always choosing consciously and in line with your values.

This should not be a hard concept for a man who has just spent the last two chapters trying to get you to suss out your values as they relate to money. Chapter 4 maybe serves a tough love function for people who currently spend without thinking. But the "scared straight" approach doesn't necessarily get people to a place where they are both saving and spending in accordance with their priorities.

When Shiner first got really serious about dealing with his credit card debt, I bought him a used copy of Pay It Down!: From Debt to Wealth on $10 a Day by Jean Chatzky. He reports that her approach was a much saner way to find "extra" money for debt reduction or investment, because it identifies places to squeeze that will have minimal impact on your lifestyle before asking you to make changes that feel more like ongoing sacrifices and that you are more likely to come to resent. And her book doesn't rely on guilt the way that Bach's seems to--if you want a latte, have a latte. There's nothing wrong with that, so long as you're being consistent with your values.

WISER on Retirement

Women's Institute For A Secure Retirement (WISER), a nonprofit organization under the Heinz umbrella, recently published the monograph What Women Need To Know About Retirement.

Women And Retirement: The Backstory
Retirement income has in the past been described as a "three-legged stool" with "legs" made up of Social Security, employer-sponsored retirement programs like private pensions or 401(k)'s or 403(b)'s, and individual savings. This model is becoming increasingly irrelevant to all Americans, but is particularly inadequate when it comes to women. With the risks faced by Social Security and the fact that employer-sponsored retirement programs are frequently not available in lower-paying or sporadic work, the only "leg" available to many is their own private savings.

But in addition to these challenges, women face particular difficulties financing their retirement on personal savings alone. The persistent wage gap means that women earn 77 cents for every dollar earned by a man. Due in large part to caregiving responsibilities that men are not asked to fulfill, women spend less time in the full-time work force and miss out on promotions and work experience in the meantime. They are more likely to work part-time than men are, and the average woman's total working life lasts 27 years, compared with 40 years for the average man. Yet on average women live longer than men, so their lesser earnings and savings must last them longer. Consequently, women's income in retirement is less than men's, and the rate of retired women living in poverty exceeds 20% for white women, and is over 40% for Black and Latina women.

So it's an uphill battle with daunting odds. Where to start?

A number of the chapters focus on government programs that are likely to change significantly over the next thirty to forty years. For those who are still a ways away from retirement, I wouldn't recommend doing much more than skimming chapters 4 (on Social Security) and 5 (on Medicaid and Medigap and long-term care insurance), since many aspects of those programs will almost certainly be quite different than they are now. It's worth it to understand how Social Security benefits are calculated, since that calculation tends to screw women pretty dramatically, and we might want to therefore plan around it. But Social Security is not a stable enough program to be a source of income I am counting on in retirement. If it's still around and I'm still eligible, it will be gravy. And while I expect Medicaid will last in one form or another until I am all wrinkles in my purple dress and red hat, I suspect it will only barely resemble the mishmash of programs we have now.

Chapter 3 is basically Investing 101, covering a lot of ground, but not in enough depth to be very useful to anyone who hopes to take action. Better coverage of investment how-tos can be found elsewhere.

There are, though, a few chapters worth highlighting out of this 78-page collection, covering ground such as how to budget in the present to protect your future, a brief summary of different vehicles that can provide income in retirement, and a short treatment of what to do if things go terribly wrong.

Chapter 2: Budgeting Now for Future Security is written by Elizabeth Warren and Amelia Warren Tyagi, authors of The Two-Income Trap: Why Middle Class Parents Are Going Broke and All Your Worth: The Ultimate Lifetime Money Plan. The chapter basically condenses the plan they describe in All Your Worth into seven pages. (The Simple Dollar provides a more in-depth review of the book here).

First, get a handle on your must-have expenses (mortgage, health care, utilities, daycare, basic food, minimum debt payments) so that they take up less than 50% of your monthly income. If you can't do that, cut your costs. And if you still can't make it down to 50%, get as close as you can, because 65% of your income spent before you have it is better than 70% is better than 75%. Second, pay off your debts by not taking on any new debt and by paying off all your existing debts, one by one. Warren and Warren Tyagi say to exclude mortgages, student loans, and car loans in this steps. Debt repayment and savings, addressed in section 3, should take 20% of your monthly income. Third, save three months' pay for an emergency, and fourth, pay off your home by chipping away at that debt.

The authors don't address retirement savings until step 5. They say only after your consumer debts are paid off and your emergency money is stashed should you invest for retirement by putting 10% of your monthly income in a workplace plan or an IRA (note: they don't specify a Roth IRA, which seems like a big oversight).

Chapter 6: Retirement Income covers different vehicles that can provides income in retirement--Social Security and Medicare, pensions, 401(k)'s and 403(b)'s, IRAs and Roth IRAs, regular investments--and looks at how they can work together to provide for you in retirement. It briefly covers how to make wise choices with the vehicles available to you, such as delaying retirement to maximize the benefits available under a pension or Social Security. There are several examples of couples using different combinations of vehicles for their retirements, and the chart on page 54 and 55 describes the advantages, disadvantages, and tax treatment of each vehicle as wells as penalties for late or early withdrawal.

Chapter 7: Planning for the Worst is premised on the idea that "good planning can help to prevent a personal tragedy from becoming a financial disaster." It provides a list of steps women can take before disaster strikes (that's now, my friends) to protect themselves financially:

Keep copies of important financial documents and records, and keep them organized. This includes account numbers, brokerage information, wills and prenups, house deed and mortgage documents, and safe deposit box info.

Have both joint and separate checking accounts. If all the accounts are in your spouse's name, it can be hard to do things like make sure the mortgage is still getting paid, because it can be a hassle to get access to that account and continue the payments yourself. Having your own, solely owned account is wise, though, so that you have access to your own funds if, say, the will is contested and your spouse's assets are frozen.

Establish and maintain good credit in your own name. If all your credit is in your spouse's name, you will be in dire straights in the event of widowhood or divorce. Should you need to refinance your mortgage or take out student loans for job training or open your own credit card, you'll have to find a cosigner or go without altogether. Monitor your credit reports to make sure they are accurate.

Buy the insurance you need, including home insurance, health insurance, disability insurance, life insurance, and car insurance. By the way, stay-at-home parents should investigate whether life insurance makes sense for them. Just because they're not drawing a wage doesn't mean their families don't need it. If the SAHP dies, would the family need to start paying for daycare? A housekeeper? Could they afford those expenses on the wage earner's salary? If not, get life insurance.

Get a will! I mean it. Especially if you have kids.

The chapter also has a list of financial considerations for women facing divorce or widowhood, unemployment, or medical emergencies.

What's Missing?
I feel like I'm going to say this a lot over the pages of this blog: This is good advice for anyone, but it's especially vital for women. Because we earn less money over less time and have to make it last for longer, a financial mistake made by a woman could jeopardize her future more dramatically than that same mistake could affect a man. And by "jeopardize her future" I mean "push her under water."

What's missing from this report is any analysis how to fix this disparity. Why do women earn less? Why do we carry the bulk of the non-paid caregiving duties? Surely not because we are better people or because we have no use for the money we forego. Neither of those describes me, at any rate. By asking how we fix it, I don't just mean at a political or social level, though those are certainly important aspects, since a lot of this difference in financial security is a result of cultural forces.

I mean that it is worth making explicit that when women take time out of the full-time paid work force to raise their children or to care for aging parents or in-laws, they are going to take a financial hit for it in ways that aren't intuitively obvious. The women making these choices and their partners need to fully understand the long-term ramifications of these choices. Not only do these women not draw a paycheck during periods of leave, but they don't get raises or promotions during that time. They don't get employer matches in their retirement accounts. Part-time workers may not be eligible to contribute to a 401(k), either, or may not be eligible for a match. They may not be re-hired or re-integrated to full-time at the same level of responsibility or seniority if and when they try to come back full time. They will deflate any Social Security benefits they might be eligible for having several years of no or low pay factored into their benefit calculations. These impacts are very real. Are they worth it?

If staying at home with the kids is what a woman ultimately decides to do, there are ways to mediate the long-term financial hit: spousal IRAs, or spousal deposits into taxable investment accounts solely in the stay-at-home parent's name. Families need to talk about the full range of impacts before making these choices, and decide how they are going to share these burdens. That's right, I said share.

This is not about Mommy Wars. This is about wanting every woman to safeguard her own future by making considered choices now. These financial impacts deserve thoughtful discussion ahead of time, both in terms of deciding whether taking the hit is worth it and in terms of taking action to mitigate it. If we're not seeing these important conversations modeled in the financial literature, how can we expect it to be on a woman's radar for consideration? The WISER monograph provides good basic info and good advice, but it doesn't go deep enough into those considerations that most uniquely affect women.