Keeping Up With the Joneses - Part I

So, for the past few years, probably five or so, more and more of my friends and peers, and even people who report up to me at work (so, I'd consider them non-peers) have been buying homes at purchase price points ranging from $700,000 to a million.

I find this phenomenon strange, but also incredibly alluring.

Let's start with an analysis of these folks.   I will start with the ones who started this trend, and I do believe there is a somewhat contagious trend among friends that equates to keeping up with the Joneses.  The ones who started the trend, in my humble opinion, likely made smarter choices.

1.  It started with my friend Mary, all names changed to protect the innocent, and her husband George.  Back in 2011, they actually got a great deal and paid mid $500s for a home that is now likely worth close to $800,000.  They bought a 5000 square foot McMansion in a better school district, they have a small child, with 5 bedrooms, 4 baths in a new development.  Their family consists of 3 people and they do not plan to have any more children so this is a house bigger than they need.  Their real estate taxes are more than $8000.  They took out a $400,000 mortgage.  Five years later they are putting in a pool.  The house they sold they had owned since 2002 and they made about $50,000 profit when they sold it.  They were buying in a buyers market due to the 2008 real estate crash which means they were also selling in a buyers market.

Mary is in the same profession as I am, I assume she makes similar money to me.  Her husband is in law enforcement.  While he makes less money, he has a great pension that will be coming to him (and soon) such that their retirement savings is less crucial.  I have one other friend who will have a federal pension, but she cannot collect said pension until closer to traditional retirement age.  George will be able to start collecting his pension in less than 10 years and his pension is for life.  As a result, they don't have to save as much for retirement.

2.  Jennifer and Alan were next.  They are a dual income, professional, couple.  Both are in the same profession I am in.  They have three kids.

In 2012 they bought a 4 bedroom, 3.5 bath, 5000 square foot home.  It also has a 2000 square foot out building (with air conditioning) and a pool.  They bought the home for $775,000 (the prior owner had bought it for $800,000 so, again, it was likely a good buy) and it is likely worth close to a million now.  Taxes are $14,000 a year.  They took on a $620,000 mortgage.  Later they took on a $35,000 home equity loan.

They held onto their prior house for a couple of years, while the Florida real estate market improved (likely a smart move), and they later sold it in 2015 for a $265,000 profit.  I don't believe they took that profit and reduced or refinanced the mortgage on their current home, rather before they sold their prior home they put it into a trust and I assume the profits also went into that trust.    

They have engaged in a variety of real estate and trust maneuvers in the last few years.  This is probably because Alan also bought an office building and they are creating protection for their other assets.

Does it sound like I'm stalking my friends' personal business??  Well I guess I am.  All of this information, at least in Florida, is public record and readily accessible on line.  I also am learning from what they are doing, and that is both positive and negative (more on that later).

I Keep Trying to Get Back on Track.......

I've been spinning my wheels now for more than a year.

With the time pressures of a more than full time job, baby, husband, landlording, life, etc. my ability to manage our finances has been backsliding.

I'm not paying bills on time, rent is not being collected (that is Mr. Sam's duty), our savings rate has gone down.  I haven't even started to create our 2016 spending plan (our form of a budget), although I've put down on paper what I'd like to accomplish for savings.  Mr. Sam has not created our 2016 savings Excel chart.

I know the reason for all of this:  full time job, baby, husband, life, etc.  I've yet to figure out a solution.

I used to spend 20-30 minutes 2-3 times a week working on finances or reading about finances (money blogs help me stay on track) when I arrived at the office.  But, I used to arrive at the office @ 7:30 am.  Now, on average, I'm arriving at @ 8:45 am.

The solution is to get up earlier so I can get to work earlier.  Today, I arrived at @ 8.20 and spent an hour or so on finances and made good progress.

Trying Out Swap.com

I am normally the type of person who simply donates rather than resells items.  For me, my time and effort is generally worth way more than any small profit to be made in reselling items at a garage sale or consignment, etc.

But, when it came time to re-purpose my maternity clothes I gave second thought to donation as my first option.  Specifically, because I work in a professional setting I had ended up investing a fair amount in some very good maternity clothes.  In particular, I had invested in several Seraphine maternity dresses (Kate Middleton is a fan) since I work in a field where I need to look good and present a polished, professional appearance.  And, I had at least three or four dresses that I had only worn two or three times.

I did a fair amount of research regarding on-line maternity (and baby) consignment stores.  First, I sure wish I had known about these sites when I was buying maternity clothes as I would have tried out some of these sites for my own needs.  I had thought about consignment stores when I first started my maternity clothes shopping, indeed I had even tried to find one.  But, I was thinking and looking for physical stores and not virtual.  Dang!  Second, a lot of these sites have very mixed reviews and reputations.

After doing my due diligence, I decided to go with swap.com for a couple of reasons.  Importantly, they seemed to have the best reputation based on my research (please note - I've not received anything in exchange for this review).  Also of importance, to me, they do almost all the work. They take the photos, write the description and they mail out the packages to folks who buy.  As I mentioned before, I don't have the time to be shipping out packages to customers since with work and a baby I can barely complete one chore a week.

So, this is how it works.  (1)  Sign up as a seller.  (2)  Order a UPS shipping slip.  (3) Pack up neat, clean and in good condition items and send them off to Swap.com.  You can also bundle items together so they sell as a set.  Swap.com then does the rest, taking photos, writing description, mailing to buyers, sending you the money (via PayPal).

As a test, I sent in a box of mostly maternity clothes (a few newborn baby items) consisting of mainly casual, lower cost items (not my fancy maternity work apparel).  And, I would say that it generally worked as promised.

Communication was good.  When Swap.com received my package they emailed me.  When my items were ready to price (about two weeks later) they emailed me.  While I am still learning the site, I found pricing to be relatively easy.  An error in a description and classification for an item was promptly corrected after notification.

And, so far, I have actually sold some items and money has been sent to my PayPal account.  I think the fees are generally reasonable since Swap.com does most of the work and they store the items for months with no charge (there are storage charges after a set time passes).  There is a charge for the in-bound UPS shipping and a $1.50 plus 25% sales commission for each sold item (or set).

With fees and competition, pricing is an art.  I set my prices by looking at what similar items were priced at.  So, I priced maternity t-shirts at $7 and sold several.  Not much of a profit at $3.75 but better than nothing.

I must say it was painful to price a skirt that I wore once at $12 when it cost me $70.  And my super expensive maternity jeans that cost $150 are currently priced at $15 (but they were worn many times).  With my next box, the professional maternity items, I will need to price so I can recoup drycleaning costs (since I had it all recently cleaned in preparation for consignment) and make a decent profit so that will be tricky.

I was somewhat befuddled by what was rejected and they don't really tell you why.  I had sent in a barely worn maternity maxi dress that was in the rejected pile.  You can choose to have rejected items shipped back to you, but there is a charge (of course).  I'm not sure what happens to the items if you donate them (which is what I probably will choose to do).  No idea whether they actually get donated or if the site simply sells them.  Inexplicable rejections was a very common complaint in my research regarding other sites.

I haven't yet bought anything from Swap.com, but I do plan to try it out for baby clothes.  I already know that with my baby there are outfits, especially the fancy ones, that get worn once (and some not at all).  One trick I've learned about recently is to leave tags on baby clothes until they are worn.  That way, if baby never wears them you can list them as "new with tags".  If you remove the tags, even if baby never wears that outfit, you can only list them as "good condition".  

Updated Net Worth and Housekeeping

I'm continuing to work on getting our finances back under control. I spent some time this morning working on updating our net worth numbers.  Our net worth is now above the $1.5 million number.

Net Worth IQ web site continues to be flaky, but when its up I prefer to keep my data there.  I've added entries for November 2014 - February 2015 but they are not accurate.  I will be working to add the correct data over the next couple of weeks.

Additional good news, our primary mortgage is now below $220,000.  I will be super excited when its below $200,000 although prepaying the mortgage is unlikely to be something we will be working on any time soon.

In baby news, I opened a savings account at Wells Fargo for Baby Sam for monies received as gifts.  We have been researching college savings plans and at this point we have settled on a 529 plan rather than Florida Prepaid.  More about that research later.

Finally, I am almost done with our 2015 Spending Plan which will influence and direct our 2015 Plan.  More about that later too.

2014 Savings Goals - June Update

(1) Max out 401k(s) -        $8,088    23%  (goal is $35,000)
(2) Max out IRA(s) -         $8,838    80% (goal is $11,000)
(3) Add to e/r fund -          $4,400    44% (goal is $10,000)
(4) Roof project -              $5,000    100%  (goal is $5,000)
(5) Vehicle replacement -  $5,000     100%  (goal is $5,000)
(6) House projects -          $0            0% (goal is $3,000)

Total:  $31,326  45%  (Goal is $69,000)

We are having the year of unplanned expenses, and as a result our progress chart has been altered.  First, because Mr. Sam needs new/nused truck (and that goal just won't wait anymore) we have cleaned out the house savings account and Mr. Sam's 401k savings account.

Mr. Sam is not currently eligible for his work 401k so we were putting aside cash so when he is eligible (September) he could increase/max out his 401k deductions per paycheck (up to his employer's limit, most employers do not permit a 100% contribution) and we would have cash available to make up for that budgetary shortfall.  But, the truck won't wait so since this money was not invested and available we are putting into the truck fund.  Hopefully, by the time September rolls around we will be able to manage our budget such that he can still increase his contributions to try and put away as much money as he can.

Second, similarly, our house project fund has also been cleaned out for the truck fund.  Our truck fund is $10,000, not the $5,000 listed in our chart.

At present, we are about $3000 behind on our savings goals.

Royal Screw Up

So, I have a pretty good system set up for our personal finances.  I have a system for paying bills and for our savings that works off of our spending plant.  But, every once in a while things go surprisingly wrong.

At the end of last month, February, I was getting ready to do some work travel and I made the decision to pay our home mortgage March payment in February.  What was I thinking, well it seemed like I had lots of cash laying around our joint checking account, I knew I was traveling and I figured let me just take care of that big bill now instead of later.

Big mistake!  Several auto transfers and other obligations drafted after I made this payment and I, of course, came up short.  And further, of course, I had to try and fix this mistake while traveling.  Ugh, ugh, ugh.

Two weeks later, I am still undoing the damage that was incurred.

$300 Rule & $100 Rule

As I have previously posted, I have a long standing goal to have plantation shutters installed in two bedrooms in our home.  But, since plantation shutters are very expensive I decided that I would update my plan and just get some new, nice shades for these two bedrooms.

I have done quite a bit of research, measured the windows, priced out my options and then I settled on a plan which will run about $800.

But, in our home there is another step I had to take and that was to discuss the project, the expense, the source of the funds (we have this money sitting in our house project account) with Mr. Sam.  We have a rule that anything over $300 has to be discussed and agreed to between us.  Most of the time we reach agreement pretty quickly, but not so this time around.  I've talked to Mr. Sam about this project several times, gave him the pricing, told him about my research, but he thinks it is silly to spend this kind of money on custom shades.   If we can't reach agreement then we don't go forward that is our rule.  We imposed this rule back in 2007, because we were trying to throw every extra dollar at our debt.  But, we have kept the rule because we believe that we should be in agreement that expenditures above $300 are necessary or a mutual want (vacation) or one of us convinces the other.

We did finally agree or he finally gave in, but we did reach agreement.

The other rule we have is the $100 rule.  When we are spending more than a couple of hundred dollars we have to wait a day for each $100 of the purchase.  So in this instance, if we are spending $800 on custom blinds we have to wait 8 days before we actually make the purchase.  This waiting period prevents expensive impulse purchases.

I haven't yet ordered the blinds because of the waiting period rule, but will do so next week.

Another Budget Proposal

In my humble opinion, if you have a budget, a spending plan or some other written system for managing your personal finances you are way ahead of most people.  Having a plan and working that plan, whether it is an envelope system, an Excel spreadsheet, an allowance system, etc. will help you kill debt, save more and have better control over your money.

We work off a spending plan/allowance system, but even though we have a plan that works for us I still am interested in reading proposed plans by the experts.

Mitchell Weiss via NBCnews.com suggests the 25% plan (25% for taxes, 25% for housing, 25% for debt and 25% for living expenses).  I think his advice of planning your budget before locking in expenses is a good one.  If you are going to limit housing expenses to 25% of your before tax income, then you need to know that number before you buy a house or rent an apartment.  And limiting big expenses is a great way to free up income to kill debt or save money.

But, the rest of the advice fell flat for me.  First, I was surprised that he would include payroll taxes in the budget plan.  It is true you need to pay attention to taxes, but I think most budget plans and advice just utilize after tax income which to me seems easier.  I guess if you are an independent contractor or you run your own business this advice makes more sense since you will be responsible for taxes.

25% of pretax income for housing seems reasonable, most guidance provides for limiting housing expenses to no more than a third of after tax income.

I thought the debt advice was lame.  Sure, limit your debt obligations to 25% of your gross monthly income, but that ignores a whole variety of issues.  Maybe your budget should be set up to put more towards debt if you are trying to kill debt, etc.  And since this advice seems geared towards recent graduates it ignores the topic of student loans all together.

Finally, the last 25% of the formula is for living expenses.  But, living expenses is supposed to also include savings for an emergency fund.  Nothing in the post mentions retirement savings, so I would assume that long term savings is also supposed to come out of the last 25%.  I prefer a budget plan that prioritizes savings rather than lumping it together with living expenses.