Are We Doing Personal Finance Wrong?

As you can probably imagine, as a personal finance writer, I think about personal finance quite a bit.  Often enough that I write several articles a week on the subject.  I don’t consider myself an expert, but I do think that I know a great deal about it.  And I’m beginning to wonder if we aren’t going about it in the wrong way.

The problem with Personal Finance

We rail on the Joneses constantly.  That, by itself, isn’t really a problem.  The Joneses just aren’t very smart with their money.  But, for all that we rail on them, we spend an inordinate amount of time trying to find ways that we can go about having things that are similar to what they have for less money.  And that is the problem. The Joneses have the fancy cable television package?  Try Netflix, Hulu, or Amazon Prime!  The Joneses have a fancy new car?  Try a newer off-lease car!  The payments are half what they pay, and the car is almost as nice!  The Joneses have a fancy house?  Try making it affordable by DIY, gardening, and renting out a few of the rooms!

We aren’t the Joneses.  We know that.  We know that we really don’t want to be the Joneses.  But, some part of our natural tendencies somehow pulls us back to them, time and again.  We strain hard to become less like them, and find ourselves back where they are.  That is the problem with personal finance.

Are we doing personal finance wrong?

Doing Personal Finance WrongMaybe the issue isn’t the Joneses.  Maybe, just maybe, it’s us.  I alluded a little to this recently (The Joneses and Jealousy), when I suggested that our tribal human history pulls us towards the leaders of our “tribe”, and that we should be looking for a new “tribe” that espouses the same values that we do.  I think that we all end up returning to our Joneses because we haven’t fully made that switch yet.  Because we’re afraid of what the rest of our tribe might think.  What our families might think.  Heck, what our spouses might think.  And, maybe all this frugality and saving aren’t really what we’re looking for.  After all, where does that lead us?  A cheaper version of the Joneses lifestyle?  Isn’t that what we’re pushing away from?

Changing personal finance

I think what we are really looking for, and what we are really jealous of the Joneses for is financial freedom.  It may only be perceived in the case of the Joneses, but it’s still there.  Freedom, financially, to be able to do the things we want to do, go the places we want to go, and have the things we want to have.  We emulate those who have those things without giving much thought to how they got there.  Maybe the Joneses did it through a boat load of debt.  We rail against debt.  Which only gets us so far.  So many of us struggle with even that part of it.  I know I have, and sometimes still do.  But, I can tell you with certainty, that had my perception of debt not changed drastically from where it was when I began this journey, I would be in a far worse place than I am now.  But, even that is only one small change in the way I think about personal finance.  Our entire perception has to change.

What’s the personal finance endgame?

What is it that we are really looking for.  We decide we want to change how we handle our finances, abandon the way of the Joneses, and make our way to a better life.  But, what is that better life?  If you’re thinking that a secure retirement is it, I think you’re wrong.  I think there’s a better way.  There has to be.  HAS TO BE.  There has to be a better way that doesn’t involve working for 40+ years, pinching every penny, saving every dime, only to end up at 65 or 70 with enough money to make sure you can pay for the medical bills your advanced age brings with it without having to live on welfare.  That can’t be all there is to personal finance, is it?  My word.  What if you retire at 65, and die at 66? I submit to you, that what we are really looking for is personal finance independence.  We don’t want to have to count on a job. We don’t want to count on a paycheck to (hopefully) cover the bills this month.

What is personal finance independence?

Here’s the tricky part.  I think it’s going to vary based on the individual.  What personal finance independence means to you is likely going to be a bit different from what it means to me.  Take, for example, Jacob.  Maybe you’ve heard of him, maybe you haven’t.  He writes a blog about early retirement.  He wrote a book all about it.  It’s got more scientific content than some of the science books I remember from school.  They guy is crazy smart about the subject.  But, when he says it’s early retirement extreme, he’s dead right.  If going to the measures that he went to in order to retire early is what is required, count me out.  In fact, it seemed for a long time that it was either extreme or not.  Nobody had really talked much about the in-between area.  Enter Mr. Money Mustache.  He, too, retired early.  And, while he has his extremities, it’s not quite the same thing.  It’s different for each and every person.  What one person thinks of as retirement isn’t what someone else will think of.  Heck, most of us have been so pre-conditioned to think that retirement should consist of afternoons golfing followed by bingo down at the VFW that it’s no surprise that we scoff at people like Jacob and MMM.

How do we get there?

Oh.  Well, the truth is, I just don’t know.  I think that, with a little help from the Jacobs and MMMs of the world, and a little trial and error, we can find our own personal finance independence.  I think that we can take what we learn, adapt it to our lives, and make something brilliantly wonderful out of it.  I know we can.  We just have to try.  We just have to change personal finance as we know it, and embrace something better.

Why I’m Withdrawing Money from an IRA

I’ve been going back and forth with myself over whether I should write a post about how I am withdrawing money from an IRA.  It’s not something that is recommended, and certainly not something that most people who write personal finance blogs talks about.  In fact, it’s somewhat embarrassing that I am doing it at all.  And, I had decided that I might not talk about it.  Until I saw this post on my friend Sandy’s blog, Yes, I am Cheap.  For those of you who won’t click through the link, I’ll give you the quick rundown.  One of Sandy’s readers lost her job a while back.  Since then, the reader has used all of her savings to pay bills, and her unemployment status is in a sort of limbo.  The reader has 21k in her 401(k), and she asked if she should take that money out to help pay the bills until she can find work.

What that post did for me, and the reason that I’m writing this post, is remind me that I’m not an island in the personal finance ocean.  When I started this blog, I didn’t have a 401(k), or really even know what one was.  I was up to my eyeballs in debt, and contemplating bankruptcy.  As I searched the internet for information about that and other personal finance related topics, I decided that I wanted to share what I was learning, in an effort to help others who might be in a similar situation.  Sometimes, when writing post after post, here, I forget that I’m not the only one who has the same questions, or who is in the same situation.  There are other people who’s circumstances might make them cringe when bills show up at the door.  It’s for those people that I write here and share here.  And it’s for those people that I am writing this post.  I think this may be the longest introduction to a post I’ve ever written. :)  Let’s get on with it, shall we?

Withdrawing money from an IRAThose of you who are regular readers will recall that I quit my job in November of 2011.  It was a decision that I had been coming to  for many months, and a decision whose timetable was advanced by several situations at that job.  All of those situations made it very unhealthy for me to be there anymore.  So, I quit.  I didn’t do much planning, and hadn’t done much saving.  I had to quickly cancel the mortgage paperwork we had been trying to push through as we wouldn’t be able to afford the house we had been planning to buy.  All in all, it wasn’t the greatest idea, financially.  Emotionally and mentally, it was the best idea I’d had in a long time.

Why I needed to withdraw from an IRA

I then spent about 7 months working part time while trying to rapidly build my blogs, here and elsewhere, to a point where they might sustain my without having to get another full time job.  I didn’t succeed.  And I ran out of savings about a week and a half after I had taken a new full time job.  It’s a good job, and I enjoy it quite a bit.  But, it doesn’t pay nearly as much as my other job had.  When I started there, our finances were still bleeding.  They continued to as we continued to try and make ends meet.

Sometime last fall, it became apparent that the ends were going to begin to not meet.  If you’ve ever been there, you know that looking forward to a month where you might have to decide which bills to go delinquent on isn’t a very comfortable spot to be in.  It became very apparent, after several hours going over our budget, that we had a cash flow issue.  Too much going out, not enough going in.  The problem wasn’t with discretionary spending, however, although we did find some places to cut there too.  The problem was that we had too many payments taking up too much money.  If we wanted to survive, financially, we needed to find a cash flow solution.

I should say that it wasn’t an easy decision to tap into my IRA.  At  the time, I’d only recently rolled my 401(k) from my old job into it, so I’d just taken a hit by doing that.  But, I needed a way to create some cash flow, and an infusion of money would do it.  So, I called my adviser and had him issue a check for the amount I needed.

It’s my money.

There will surely be a few naysayers who come upon this post.  Most of them will tell me (and you) that what I did was a terrible thing to do.  That I’ve permanently set myself back for retirement, and that there had to be other ways to accomplish the same thing.  But, there weren’t.  Trust me when I say that I know my finances.

Yes, it will set my retirement saving back by quite a bit.  Yes, I’ll have to save more in the future to achieve any sort of retirement nest egg.  I know all that.  But, I feel that remaining current on my bills, and not having to potentially declare bankruptcy is more important than that.

There’s also a rebellious part of me that would like to just say that it’s my money and I’ll do with it what I want. ;)  In all honesty, it is my money.  Just so much as the money in your IRA or 401(k) is your money.  And, in my opinion, our money is only worth anything when it is improving our situation.  My situation needed improving now, not in 40 years.  (not that it likely won’t need improving then too)

Using the withdrawal from my IRA

For those of you who are thinking to yourselves that if I made a withdrawal from my IRA, it’s ok for you to do it too, just stop.  This was a last ditch effort to stop us from going into delinquency on several accounts.  Would it have bankrupted us eventually?  Maybe.  I’ll never know, and I didn’t want to find out.  But, what I will tell you is it took a good deal of thought to make the decision, and it took a good deal of determination to use the money properly when I did get it.

When the check arrived, I cashed it and went to the casino.

Just kidding!  Ya’ll were looking so dang serious!  I deposited it.  Directly into our checking account.  During the decision process, I’d taken a full audit of our bills each month and determined the ones we would need to, and could, eliminate in order to get ourselves back on the right track.  So, even before I asked for the withdrawal from my IRA, I had a list of the things that I was going to pay off.  Over the next several weeks, as those bills came in, I send them payment in full.  Until all but one of them was completely paid off.  The one remaining was a bonus bill.  I didn’t have enough to pay it off in full, but was hoping that I could get them to negotiate the amount down.  I wasn’t able to.  So we still have that payment.  But, once it was done, we eliminated several hundred dollars worth of monthly payments.  More importantly, we cut our monthly payments by enough that we have enough each month to pay the remaining bills while still having enough left over to pay a bit extra. We’re on the right track again, and making strides to keep it that way.

Would you withdraw from your IRA?

There are only a handful of reasons that most people will tell you that making a withdrawal from an IRA is a good idea.  Most of them involve exemptions from the tax penalty.  Would you ever take a withdrawal from your IRA?  In my situation?  In any situation?

 

 

 

 

Paying for Services When There’s a Free Alternative

Sites around the web, including this one, are always pushing free or DIY alternatives to lots of things.  And, in most cases, I think that they (and I) am right.  There are so many things that we pay other people to do that we can just as easily do ourselves.  Just about a year and a half ago, I built my own deck.  It wasn’t necessarily easy, and it certainly wasn’t quicker than hiring someone to do it for me, but boy did it save me some money.

I truly believe that there is little that you and I cannot do ourselves.  With a quick search on Youtube for the DIY project, and a few quick web searches, we can have some pretty detailed instructions on how to do anything.  Well, OK.  Probably not something like brain surgery.  There’s probably a bit more of a skill/knowledge gap there. But, certainly, most everything else.

Occasionally, I find a service that I decide I’d rather outsource to someone else.  Oil Changes are an excellent example.  Can I change my own oil?  Absolutely.  But, for $30, I get someone else to do it for me.  I don’t have to mess around with getting the filter loose, disposing of the waste oil, and I certainly don’t have to crawl around under the car doing it.  For me, it’s well worth the $20 or so difference to have someone else do it.  That’s more of a choice of convenience. Meaning, for me, that it is just more convenient to have someone else do it and save me the time and effort.

There are, however, some services that have less to do with convenience, and more to do with some other factors.

Paying for Services when there are Free AlternativesSaving Time

In the case of my DIY deck, I could have saved a whole lot of time by having someone else do it for me.  For a professional with a crew of a couple of guys, it probably would have only taken 3-4 days.  Maybe less.  It took me several weeks.  Obviously, it saved me a lot of money to do it myself, but if I had been crunched for time, it would have made a lot of sense to factor the time it would save into my choice.  I had the time, so it wasn’t that big of a deal.  (note: I say that now.  At the end of the project, I was seriously wondering why I did it myself)  The choice to have someone else change my oil isn’t weighted so heavily on saving time, but that is a factor.  I can have someone else do the work, and all I have to do is drop the car off.

Motivational

I think this is one that many people discount too often.  In many of those cases, people choose to do something themselves strictly to save themselves some money and then fail at it.  In my case, I’ve tried, for many years, to control my weight.  I used to be an athlete, so I’ve always thought that I had the tools to lose the weight myself.  I’d start by finding some calorie counter that was free and start tracking calories.  But, what inevitably happens is that I forget to count for a day or two and then it stretches to a couple of weeks.  If I had lost any weight, it goes right back on.  Sometimes, paying for a service that has free or DIY alternatives can be motivational.  You’re paying for it, so you better get the most out of it.  I recently joined Weight Watchers Online and that factor has helped a lot.  There are other factors, but you better believe that the fact that I’m paying for the service is playing into it as well and keeping me working at it.

Hate/Fear

How could I write this post without adding this factor.  There are just some things that you hate to do.  For one reason or another, you just hate doing them.  To you, not doing that task is worth the money to have someone else do.  Maybe it’s mowing the lawn.  Maybe it’s changing the oil in your car.  Maybe it’s losing weight.  Wait, maybe not that one.  But, how cool would that be! For me, I tend to avoid major electrical work.  There’s just something about the possibility of electrocuting myself that I don’t like…  Another would be doing anything very high off the ground.  Can’t do it.

Impossible

As much as I (and you), would like to think that there isn’t anything outside of our realm of possibility, we always seem to find something that we just aren’t capable of doing.  While I truly believe that you can learn to do many of the things that you think are impossible, I recognize that sometimes there are things that are physically impossible.  It doesn’t happen very often, but it does happen.

Saving money by doing things ourselves is a good trait to have.  It helps us keep our budgets from overrunning. It keeps us learning new things.  It gives us a sense of self worth by developing new skills and knowledge.  But, sometimes, there are other factors at work and we make the choice to have someone else do the work for us.  Maybe the cost difference isn’t worth the time you’d put into it.  Maybe the extra time you’d spend on it isn’t worth the savings.  Or, maybe you need some monetary motivation.  Whatever it is, we develop our own factors that go into the decision, and make a choice over whether to do something ourselves, or to hire someone to do it for us.

What are your factors in deciding whether you DIY or not?