Compact Challenge #1

I decided earlier this week to do the Compact for Lent, and not buy any new items between now and Easter. I've been working a lot, so not many opportunities to fall off the wagon. Today, though, I realized that my good friend's baby shower is tomorrow morning and I didn't have a present for her. I know she's been hoping I'd make her a baby quilt, and I even bought fabric for one just before Christmas, but I haven't had time to cut the blocks. But you can't show up to a shower without a present! Presents are kind of the point. Having sworn off retail for Lent, and less than a day to work with, I had pretty limited options. I very nearly threw in the towel a walked to my neighborhood bookstore to buy a couple of picture books.

I guess my craft stash had to pay off some day. I cannibalized some felted wool sweaters I'd set aside for a different project and made some soft toys, just a couple of blocks and a soft patchwork ring. They turned out really cute. I'll still finish the quilt, hopefully before the baby arrives, but I'm awfully proud of myself that I managed to stay on the Compact.

Books And Their Covers

There are a lot of very smart people out there who have no idea what to do when it comes to their finances, and you can't tell who they are by looking at them. Subject Number 1, who we will call Katie, is a life-of-the-party woman in her mid-twenties. She has been out of school just a couple of years, is in the very early stages of her high-paying career, and is living it up: fantastic vacations, cute outfits, fancy (rented) apartment, generously treats her boyfriend and friends to fun nights out. Subject Number 2, who we will call George, is Katie's supervisor, and makes at least twice what she does. He is in his mid-fifties, well established in his career and recognized by colleagues and strangers alike as an expert in his field. He and his college sweetheart wife waited to have children, and are now parents to two very accomplished teenage daughters. George is the primary breadwinner for them all. I work with Katie and George and like and respect them both very much.

Between the two of them, who do you think is more financially healthy? You might think: Well, not the party girl, right? But you'd be wrong.

I don't know all the moving parts for either of them. I know more about Katie's financial life, since we're friends and she has asked my money-nerd advice a few times. But recently at a work event, in a conversation that started out about Katie's househunting process and moved farther afield to other financial matters, I learned a few interesting and surprising details about George's financial house.

Here's a blueprint of the conversation: Katie, who is househunting, was rhapsodizing about some of the dream houses she's seen listed online with asking prices of $500,000 or even much more--way out of her price range. George commented that the hardest part of buying your first place is that you can't afford the house you really want. Now, my house actually was the house I really wanted, at least when I bought it going on three years ago as a single woman with no kids, but I take his point. He said when he and his wife bought their starter home, they took out a fifteen year mortgage and paid it down aggressively so they had a lot of equity built up when they went shopping a few years later for the house they planned to live in until they are old and gray. Smart, right? George explained that he was no good at saving money, so they considered it a forced savings plan that would allow them to buy the house they really wanted. I can appreciate that.

But as an example of how bad they are at saving money, and why they'd needed that forced savings plan, George said they'd financed a big European vacation by taking out a new credit card. "We're pre-apprived? Great! Honey, someone just sent us free money!" Everyone laughed, like tell me about it! I've been there! I laughed, too, because how else are you supposed to respond when your boss tells you he's done something pretty dumb? I can't judge him too harshly. Everyone makes dumb choices sometimes, but at least they realize they're dumb choices. Except that sometimes they don't. Maybe because no one else is willing to tell them they are making bad choices.

Katie said knowingly that she'd done the exact same thing, opened a new credit card to pay for a trip she took after she sat for the bar exam and before she started her job with us. She said it was worth it, but that it had kind of freaked her out to see a balance carried over month to month. Now, I happen to know that that this was a 0% APR card that she knew she'd be able to pay off in full during the introductory period once she started working. Katie fronted the money for a month-long vacation on credit because that would probably be her last chance to take such a long vacation until she retires, and she paid it off before she owed any interest payments on the card. Some credit-haters might think her choice was unwise on principle, but I know she did it thoughtfully, and I think it was quite smart of her to play a game she knew she would win and get a month long vacation out of it in the process. I was willing to give George the benefit of the doubt (remember, I like and respect him!) and believe that he had done something similar.

Sadly, no. He laughed and told Katie that once she got used to it she'd find carrying a balance very freeing. Even so, he said, it could be rough getting to the end of the pay period and seeing yourself scrape the bottom of your checking account. Katie nodded sympathetically, but said even though things felt tight, it was nice to know they weren't really, since every month she was saving toward a down payment and retirement. George looked at her like he didn't know what she was talking about. Retirement? he said. That's so far away!

Hrm. Not perhaps what the casual observer might have been expecting.

Lent?

I grew up observing Lent in the most half-assed of ways. I was the seven year old who declared she was giving up smoking or the drink. I haven't given anything up for Lent in years. I have been thinking today it might be kind of nice to do that again.

So I've decided to do the Compact for Lent. For those of you not familiar with the concept, Compacters pledge to not buy anything new for one year. Food and other necessary nouns are OK, as are experiences. But non-consumable nouns are out unless they are obtained used.

I am not in this for a year. I am in this from Ash Wednesday until Easter. I would love to be in it for a year, but I suspect I might not be up to it, especially since Shiner will not be Compacting along with me.

And I am declaring the following exceptions:

- I reserve the right to buy a new bathing suit, pair of shorts, and rash guard for the upcoming beachy trip, which falls smack in the middle of Lent. With work insanity and the caucus it was simply not possible to get those items before Lent started. I may not need to use this get out of jail free card, but I have not idea whether I fit my existing bathing suit, or whether it's in decent shape anymore. I will not be buying a used bathing suit because, well, ew. I probably also don't have shorts that fit (I am not a shorts wearer in my climate) and I know I don't have a rash guard but I don't want to start sizzling when we're snorkling. Work is taking me out at the knees, so I don't have time to go to two different stores for this stuff, much less hunt for those items used. New it will be. Plus, I've had an REI gift certificate for going on a year now, which is what I'll use for this stuff.

- I buy jewelry when I travel, some substance or technique indigenous to where I'm traveling. Not very Lent-y of me, but hey.

So let the Compacting begin. Er, this morning.

Quick Hits Tuesday #5

Dog Ate My Finances has a short but touching post about funding a 529 for the child she hopes to adopt someday. A lot of people don't realize you can contribute to a 529 for a child who is not yet born yet. They don't even have to be conceived. You can open a 529 in your own name and change the name of the beneficiary once the kid is born. If I were a birth mom looking to place my child with a caring home, a gesture like that would count for a lot.

The wage gap is not just alive in the tech sector, it's growing. Via Feminsting, where the comments, though anecdotal, are very interesting.

A little on the sharp increase in the cost of birth control pills. It's just crazy to me that anyone would believe it a good idea to deliberately limit female college students' access to affordable birth control. Welcome to college! Now drop out and have some babies, you trollop.

Interesting stuff on the links between bankruptcy and divorce. One needn't lead to the other, but they frequently do.

Meg at The World Of Wealth on the perceptions of women in leadership. Shocker, women bosses who "act like men" [insert essentializing stereotypes of both men and women here] aren't very popular with women or with men.

Smart Couples Finish Rich Chapter 5: Retirement

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.

We are running late on SOTU this week. I have been crazy busy at work, Shiner has had training for his new job, and tonight we were Super Tuesdaying and watching the returns. But tonight before we headed off to vote we had a really excellent conversation about the retirement chapter.

Our retirement savings are vastly disparate. I have had a Roth IRA since they were invented, when my dad opened one for me, urged me to contribute, and matched most of my contributions until I was making enough that I could max it out on my own. I opened a 401(k) as soon as I was eligible at my current job, and have been maxing those contributions out ever since. I was an early adopter of the Roth 401(k). This year I opened a traditional IRA with after-tax money in anticipation of converting it to a Roth IRA in 2010. I'm the girl my coworkers come to when they have questions about retirement accounts, the poster girl for retirement planning. As you may imagine, this makes me a lot of fun at parties.

Shiner is a different story. He's nearly 30, with very little saved. He had a small amount a few years ago in a 401(k) but he cashed it out before we met so he could go back to school and finish his degree. He doesn't have a Roth IRA or a traditional IRA. His current employer, a nonprofit, has a mandatory contribution of 4% or 5% to a 403(b) (they're in the process of ratcheting up the minimum amount over the next month or so). There is a 100% match at that minimum level, but no more. Shiner contributes at that minimum level.

His new part-time job does offer a 401(k) he'll become eligible for in a couple of paychecks, with some level of match. He plans to contribute 3% of that paycheck to the 401(k).

So while he's putting some portion of his income toward retirement savings, most of it is focused on debt repayment. He's going to be focusing on debt repayment at least until we get married. We'll probably be paying some of it off after we get married. What can I say? Debt is a dead weight. He's making great progress, but it's just really hard.

But there's good news. Once his credit card debt is paid off, and hopefully that will happen within our first six months of married life, we should be well able to hit Bach's goal of saving 20% of our combined income for retirement. We ran some numbers, and we should be able to start maxing out my 401(k) and his 403(b) once that debt is gone. If we do enough of it on a pre-tax basis, we may get our AGI low enough to each contribute to our Roth IRAs. At the very least, he will be able to contribute to a Roth IRA, and he's the one who needs the most catching up. We might not be able to max out our 401(k)'s in 2009, depending on how much credit card debt has lingered around, but we'll be able to do it in 2010. Man, that feels good to say.

One other thing we talked about is that so far as it is possible, we both want to contribute the same amounts to our retirement accounts. This will mean that to max out his 403(b) contribution, he'll have to withhold upwards of 30% of his salary versus my less than 15%. We've already established that we want a yours-mine-ours account system but I think this means we're going to have to favor the "ours" portion over the "yours" and "mine."

Of all the chapters so far, this is has been the biggest help to me. It's not that the information was so new or so fantastically presented, but now that we've established that we both value long-term stability and flexibility, we know we've got to prioritize retirement savings. This chapter gave us an opportunity to talk about how to do that in a much more structured way than I imagine we would have done on our own. There will be some more tweaking as we go along. Should he contribute 3% or 6% to the 401(k) at his part-time job? After we get married should we rush the debt repayment, or draw it out (it'll all be on low- or no-interest cards) so we can start maxing out our retirement accounts as soon as possible? But that's just nit picking, and we're not there yet. Right now, Shiner's plan is debt repayment, and my plan is supporting him in that. But it's a big relief to me that we are able to see a long-term plan shaping up.