Go Big or Go Small?

Another interesting article from The New York Times discussing the pros and cons of making little budget adjustment (i.e. the latte factor) or deeper cuts to one's finances like selling the house or car.

I have written about this topic before and I can go both ways on this issue. First, it is easier to make smaller budget adjustments, things like reducing eating out (bring your lunch each day), scaling back on one's cable, Internet, or cell phone package, etc. Second, those small savings are nothing to sneeze at. If you can capture $5-$10 a day in savings, you could end up with $300 a month to direct to either paying down debt or savings as long as you are diligent and consistent.

Obviously, if your mortgage or car payment is killing your budget that is a much larger problem than the $10 a day you spend on lunch out of the office. But it is difficult and painful to walk away from a home, sell a car at a loss, etc. You have issues like credit rating, contracts, legal implications to deal with. I agree with the premise of the article that it is better to avoid getting yourself into a too expensive mortgage or car in the first place.

We really went the third route, we paid off $55,000 in debt in just over a year by making big adjustments to our day to day spending. We got on a very strict spending plan and directed all money not going to overhead (expenses with a bill, i.e. mortgage, taxes, utilities, etc.) to debt.

Response to Comments - Part 2

So what did Ron Lieber want to talk to you about? Please make sure you link the article if he writes about you!

I did speak with New York Times financial columnist last week. He is working on a piece for the N.Y. Times weekly magazine to be published in mid-May.

He was interested in speaking with me because I am one of the most "active" users of NetWorthIQ.com. Which means that I have data for every month going back to 2003. I actually have been tracking my net worth going back to just after college so I have more data than I could input on NetWorthIQ.com. He was interested in why I (our net worth is tracked as a couple but it really is me and not my husband who does all the tracking) keep close track of our net worth, what other tools I use (Quicken, Excel spread sheet, this blog, GRS, etc.) and whether it is healthy, not health, helpful, etc.

Mr. Lieber seemed especially interested in whether I was using all my tracking tools so that I could compare myself to others, whether it was a competition.

For me the tracking, especially the net worth tracking, is a tool to help me compare me to me (or us to us). I recognize that the net worth numbers are somewhat illusory (you can't really know what your house, real estate investments, or stock investments are worth until you sell them) and I don't get too worked up about them. My net worth tracking is more big picture and my goal is to keep that chart going up (Ron pointed out that our chart doesn't track the market chart or the other NetWorthIQ.com user charts). Using Quicken and the other tools helps us to stay on track from month to month.

I'll keep you updated if any of my quotes make the article and will link it whether I'm quoted or not.

Response to Comments

I would love to know the details of your audit. Do you do your own taxes? Did you have professional representation at the audit? Did your accountant handle the audit? Just wondering...

I plan to write a full recap of the audit process, what we learned, what we will do different when we finally close out this chapter. However since the audit has not yet been closed I'm holding off.

But I can answer the three questions raised in the above comment:
(1) No we do not prepare our own taxes.
(2) Yes we had our accountant represent us at the audit.
(3) We prepared for the audit with direction from our accountant and signed a power of attorney so he represented us at the audit. We also attended.

As I've posted before, we were audited for two reasons. The first reason I was able to resolve with the IRS by just sending them some additional paperwork. The second reason required an in-person examination and resulted in payment of back taxes. The second issue was caused by our accountant in that he made a mistake thinking that we were eligible for an exemption when we were not.

Backwards

What is the opposite of forward progress, backwards regression.

(1) Max out 401ks - $33,000
(2) Max out IRAs - $10,000
(3) Prepay mortgage - $1200
(4) Add to baby fund - $3500
(5) Add to emergency fund - $7000
(6) House/Furniture fund - $3000
Total - $57,700

(1) - $7100 (22%) (goal is $33,000)
(2) - $3200 (32%) (goal is $10,000)
(3) - $300 (25%) (goal is $1200)
(4) - $750 (21%)($7135 in our baby fund, goal is $10,000)
(5) - $-1800 (-26%)($24,412 in our emergency fund, goal is $32,000)
(6) - $3000 (100%) (Completed)

Total - $12,550 (22%)

We have written the check to the IRS and the check to the CPA, hence we moved $6,000 out of our emergency fund. We'll have to work hard to replenish our emergency fund and regain ground on our 2010 savings goals.

What Do You Do?

What do you do when someone on the street asks you for money? 99.9% of the time, I say no thank you and keep walking. I don't believe its helpful to hand out cash to the homeless our down and out, I'd rather give those funds to charities who help the homeless. Note - I use to work in social services.

This morning, it was dark and very early (before 6:00 a.m.), and I stopped at Dunkin Donuts for some coffee.* I was still half asleep when a middle aged man in a work uniform asked me if I could spare 75 cents so he could catch the bus. My initial reaction was to be startled since it was dark, I was sleepy and I was thinking about my work day and all that I needed to accomplish. My second reaction was to say no thank you which is what I normally do, but I ended up giving him a dollar (most of the time I carry no cash so the fact I had a dollar was a surprise) and told/asked him to "be kind to the next person." He followed me into DD and asked the clerk for change and when I left he was sitting at the bus stop.

Did I make the right choice? I really have no idea. I've never seen this person before so this is not a regular scam at my DD (if it is a scam) and he really did present as a blue collar worker trying to get to his job.

What would you do?


*Buying coffee on a daily basis is a dumb financial move but when it is super early (before 6:00a.m.) and I'm heading to work I treat myself.

Fidelity Research Tool

My local Fidelity representative called me recently regarding the status of an old 401K. He calls once in a while to inquire as to whether I want to roll it over to an IRA (I don't at this time) and instead of just hanging up after that inquiry, he asked how else he could help us. I responded, "help us make more money."

So we chatted about what we were doing and he pointed us to some interesting research tools that I was not aware of. If you have an account with Fidelity, there are expert strategies that are regularly updated (find them under research and then under stocks). So if you are a bargain hunter, like I am, there is a "Bottom Fishing" expert strategy which lists the best rated stock bargains along with the back up research. The is a "Running with the Bulls," "Bears in the Woods" and several other less colorfully named strategies. Anyways, it looks like a great research resource and I expect we will be trying out some of the research strategies in our IRAs (where we do our individual stock investing).