You Don’t Have to Be Rich

Jean Chatzky wrote a book that, in internet terms, came out forever ago (2003).  She talks about studies (her own included) that question the notion that money buys happiness.  Well, that is not completely accurate; money does buy happiness, but once you make between $50,000 and $75,000 per year, money buys you no more happiness.

There are two things I would like to take away from this book.

1) Make a list of things that are free or cheap that you love to do.

Chatzky writes that having a plan of things to do when you want to some kind of entertainment or family time that are cheap or free will help when one is tempted to take the family to an expensive dinner or amusement  park (my own paraphrase).  I find this idea fairly compelling.  When I was working on this project last year, having a plan was everything.  If I didn’t plan dinner, pizza it is!  If I didn’t plan Saturday family time, the mall it is!  Well, or $75 at Target later.  Fact: plan your life and things get easier.

2) You can give yourself a $25,000 raise in happiness.

Remember when I said that once you get between $50,000 and $75,000, you get no (or minimally) happier?  The fact is that those who make $75,000 are happier than those who make $50,000 except in one instance: those who make $50,000 and diligently watch their cash flow.  So if you make $50,000 and diligently watch your cash flow, it is like you gave yourself a $25,00 per year raise!

Tl;dr: Plan your life and control your finances and you can be just as happy as people with MUCH more money.

It is interesting how bringing a failure (or perceived failure) to light can make one feel more motivated about it.

I reconnected with an elementary-school friend today and through my twitter feed, he saw this project, a project that is most definitely unfinished.

I had planned to ‘tithe’ my life for 365 days and made it to just around 100.  I have a lot of excuses, but none that really explain it.

My friend said he had tried to do many of the things I talked about in the blog, just not so prescribed or dogmatic or some other word I can’t remember.  Maybe I can use this embarrassment to thrust me into being better at following through on my commitments.

Photo

Our agenda looked like this:

• Financial goals for the year
• Expected maintenance
• Major purchases
• Future planning
• Career development
• Our daughter

Each of these had sub-topics, but one could get the gist from the above.

We simply want to sit down, figure out what money we will spend above our current budget categories, and plan for that.  At one point, we were going to buy a new bed this year.  When we talked about it at this meeting, we realized we were actually sleeping quite well now that we work out daily and, therefore, we probably don’t need a new bed.  That saved $600 – $1000 off our annual budget.

Then we discussed the $600 or so of expected maintenance our car will need this year and the potential $2000+ in repairs that could happen unexpectedly.  These are things we need to expect otherwise out budget could be thrown completely out of whack.

If you don’t meet with your spouse with regularity about financial matters, I highly recommend it.  How else can you tell if you are on the same page?

Some category updates from the past few weeks:

Fitness: I am on day 61 of P90X and I have gone from doing 1 pullup to around 10.  I have gone from doing 30 terrible pushups to doing 35 nose-to-the-floor pushups.

Food: I have worked really hard to make more food from scratch.  I have made pintos and lentil stew and more all from basic ingredients.  I am trying to cut out food waste from our house.

Finances: Since Jan 1, 2010, out net worth has increased at least six fold.  I have paid off one of my student loans and increased our investment portfolio.

“People know you for what you’ve done, not for what you plan to do.”

While plans are nothing until they are executed, plans are extremely important.  For the last week I have been working on the Hambrick Family Master Plan July 1, 2010 – June 30, 2011.  That is a fancy way of saying that I created a spending/savings plan for the family’s next fiscal year.

How to create a family master plan:

1. Create your own worksheet.

While working as a teacher, I noticed that my special education students were about 90% as able as most of my students, but when given a numbered plan instead of a paragraph starting “On a separate sheet of paper, write…”, they were almost 100% as able.

Worksheets exist because they make things easier.  Create your own.

Mine has categories like, “Financial Goals,” “Car Maintenance,” “Major Purchases,” “Major Future Plans,” “Career,” and “Kids.”

From there I ask myself questions like, “What are my financial goals for the year?” and “What maintenance will the car need?” and “What expenses will my daughter have this year?” and “What are we going to buy this year that costs more than $300?”

This takes a lot of the unexpected emergencies out of life.  On top of that, we plan to buy a mattress this year.  Do you think we will get a better or worse deal because we have it planned?  Do you think we will be looking for sales and know the prices of mattresses before we buy.  I can assure you we will.

2. Set regular family financial meetings.

These meeting times should go in the master plan itself.  That means that you have agreed to discuss your progress with your spouse a set number of times throughout the year.

3. Keep a folder with your data.

I have a nice leather-bound notebook that I keep all our 2009-2010 financials in.  By having this info, you can plan next year’s budget much easier.  Also, it means that you are not tethered to the computer while you have your financial meetings.  It will feel much more organic.

In summary, having a family or financial master plan can help you plan not only your short-term financial future, it can also help you plan for expenses, think hard about the future, and maybe even make your marriage better by making sure you and your spouse are on the same page in regard to your financials.

Today it was the chapter on the past and our past money mistakes.  It asks the reader to calculate his or her lifetime earnings.  This was difficult to do, but I managed.  Then the book asks the reader to calculate how much of that money he or she has kept – that is, the reader’s net worth.  Calculating one’s net worth is simply finding all assets (liquid and fixed) and subtracting liabilities from that amount.  The book doesn’t ask the reader to make a ratio but, in my mind, a ratio emerged.  1/100th.  That is how much of my lifetime earnings I have saved – 1%.  And if the truth is told, I was negative as of January 1, 2010.  I owed more than I owned.  I hope to be at 3% by the end of the year.  That will be a stretch, but is doable.

A couple days ago, I posted about my spending percentages.  An offshoot of this was deciphering what percentage of my net income I am spending.  The number was a nice surprise: 78.25%.  That means I am paying down debt and saving with 21.75% of my income.

To stay with my current plan means that I will be better off financially every day than the day before.

I think that is motivation enough to continue.

I sold out and never looked back… until last month.  I looked up the stock symbols for the stocks I owned.  If I hadn’t sold out, my investment would be worth five times what it was worth when I sold.

I think I learned my lesson.

Today I bought my first stock since I sold out.  I bought this stock based on a number of factors: 1) It is easy to own 2) Reasonable p/e ratio 3) Valuable brand 4) Growth potential is enormous.

1) Easy to Own

For me, a stock that pays a dividend is easy to own.  This stock, at the price I paid, pays almost a 7% yield per year in dividends.  On top of that, it was inexpensive enough to purchase a reasonable amount of shares and, using dividend payments, I should be able to buy three or four more shares this year.

2) Reasonable P/E

Amazon.com’s P/E (price per share vs. $1 of earnings) is 57.43 right now.  That means for every $1 of earnings, the stock costs $57.43.  The stock I chose has a 30 p/e.  That is kind of high – there are better bargains – but it is reasonable.

3) The brand is very valuable.

It is instantly recognizable – it is not as recognizable as Coca-Cola, but more recognizable than Avon.  It is in the top 20 or Milward Brown’s Top 100 brands for 2010.

4) Growth Potential

Without a doubt, they are the best in a growing industry.  There is exponential growth potential.

Hopefully, this time, I have learned from my mistakes and can ride out any difficult times and watch my investments grow.

“Everything’s gonna get lighter, even if it never gets better.” –

People who know about this project often ask me how things have changed.  And with the exception of the financial category, concrete improvements are hard to come by.  Even in the financial category, money still feels tight – I think it always will.  I find it helpful to look back at the previous days’ posts, every couple weeks, and think about how my life has changed.

Faith

This is one of the most difficult categories to make concrete.  I think I am doing well, but I think this deserves its own post later.

Fitness

I am in the best shape of my life.  I was looking at some ten-year-old pictures of me – at twenty-one years old – and I was fatter, weaker, and lamer than I am today.  Who said your peak has to be at twenty-one?  Mine is at thirty!  Maybe I will be even better at forty.

I am four weeks in to P90X and it keeps getting both harder and easier.  Does that make sense?  I am more flexible than I have ever been since I was five years old.

Family

We have always had a strong family, but what the project has made me do is be ‘mindful’ of my relationship to my wife and daughter.  There are times when, as a parent, it is easy to ignore your kids.  They constantly talk and beg for attention.  It is tiring.  But paying attention to my kid is one of the most important things in my life and, therefore, I need to be doing that.  Being mindful in that way is really helping me relate to her in meaningful ways.

Finances

Two weeks ago, I wrote about how I had freed $2500 in two months to pay off debt.  That is about as concrete as it gets.  I should have one student loan, one that I have been paying for three years and only paid $200 in principal, paid off in June – four months after the beginning of this project.

Food

This is an area in which 168 minutes per week doesn’t do it.  Just cooking and trying recipes, etc. takes up way more than this.  I need to revolutionize this category somehow.

Friendship

I would consider this the one place I am failing.  Being a leader is difficult and lonely.  Most people make friends at church or work or both.  I work at church, but I am a leader and employee there.  It is difficult to make friends in that situation.  Reading the Bible, we see Jesus getting lonely a lot.  Often Jesus makes his way outside of his group to be alone with his thoughts and his prayers.  I understand this a lot.  Being responsible for people carries a great weight.

This category is too important to let it fall.

Lately I have been asking myself what it takes to go from lower middle class to upper middle class like my parents did.  They taught me well in that they made this move in front of my eyes.  I work part time because I want a certain lifestyle.  However, I saw my parents, on meager wages, live a very upper middle to upper class lifestyle.  While I can’t speak to all their financials, it looks as if they will retire comfortably.  Thinking hard about how they made it happen, I think it is this:

Good real estate decisions.

They have spent a lot.  They have saved reasonably well.  They have given well beyond their ability to charitable causes.  BUT…  they have been very business savvy with real estate.

30 years ago

My dad decided to go back to college and get his degree.  My parents owned a home in Ashland, KY and could have cashed out to pay for my dad’s education.  They didn’t do that.  They rented it and used the rent to pay the mortgage.  They have kept it rented all these years and it was paid for by other people all except for three years of mortgage payments.  Other people paid the mortgage and other people pay the upkeep and also give my parents a nice income as well.

25 years ago

My family lived in Ohio and it was evident that some developers were coming in to our town to attempt to make it a new high-end neighborhood.  They were building a Jack Nicklaus designed golf course across the street from my house.  My dad decided to buy the land behind our house.  He turned (my estimate) at least a 1000% profit on that one deal.

20 years ago

When we moved to California, the real estate market looked insane.  The smallest house we could buy was much more expensive than our four-bedroom home was in Ohio.  My parents stretched themselves to the brink to buy the best house they could afford.  When they moved they had more than doubled their money and they hadn’t even sold at the top of the market.

10 years ago

When my parents left California, they had a chunk of change rattling in their pockets.  They moved to the south and the house they sold for six figures in California could be bought for twenty-five percent of that price where they moved.  Instead, they bought a 5,000 square foot behemoth with nice amenities, five minutes from the water.  While the market bombed around them, they stated in the black on that house because it was such a nice piece of property.  They plan to rent it, like they did with their first house, and pay it off with other people’s money.

2 years ago

My dad’s friend needed money… bad.  He needed out from under his house and made my dad an offer.  He asked my dad to buy him out at 1/2 the assessed value of the house.  The house is a wreck, but the property is three blocks from the water.  When the market comes back, this house will be worth many times the current assessed value – the price my dad paid for the house.  This is where my parents are going to live while someone else pays off their massive home.  They will end up with two houses paid for on someone else’s dime.

Following their lead, I will end up in a great position, financially, as I get older.

The question I have is: how do I get to the next level?  How do I go from their solidly upper middle class to solidly upper class?

How much of the time you invest in a project is spent preparing excuses, creating insurance, seeking deniability and covering your ass just in case things go poorly in the end?

At some point, that effort becomes so great you never actually ship anything, which of course is the very best protection against failure.

This is something I have had to learn as I have grown up and matured.  People will not invest in someone who does not take responsibility for his or her failures.  People will not invest in a liar.  People will invest in someone who fails, but building deniability into a project is the mark of death.  One might as well not start.