Friday, August 15, 2008

Dirty Little Secrets

So theoretically, I'm saving 75% of my income. Every month, I put $2650--after tax--into my Roth IRA and savings account. I decided on this percentage based on Jacob of Early Retirement Extreme's guidelines on how to retire in 5-7 years. And when I talk to people in real life about my early retirement plans, that's the number I throw around.

"I'd like to retire when I'm 35."
"How are you going to manage that?"
"I'm living on about 25% of my income."

Something about that hard number tends to quench any potential naysaying, which is awesome.

The trouble is, it's not quite true.

I am saving my $2650 every month. And that is 75% of my after-tax salary. But my irregular income--gifts, rebates, and, most significantly, freelance income--is disappearing into my checking account and inflating my lifestyle. That's not what I want. I want that freelance income--hard-earned through the work squeezed out of vacations, evenings, and weekends and the time spent reading poorly written and poorly conceived manuscripts--to be padding my savings, not my lifestyle.

This is actually quite easy to solve. All I need to do is deposit all checks I receive into my savings account rather than my checking account. So why don't I?

Because I'm scared. I like having that extra money in my checking account in case I want to buy a new shirt or splurge on entertainment. Putting all my "extra" income into savings would mean that I'm really committing to this early retirement thing. I'd have to start paying attention to the amount of money in my checking account again to make sure I don't pull an overdraft. I'd have to actually live on this theoretical miserly budget I've set up for myself.

That's what I say I want. And I think it is what I want. I spent $119 on opera tickets a few days ago, and I feel foolish. I don't really enjoy seeing opera live all that much. Sure, it's nice to have an excuse to dress up and go to the lovely opera house, but the seats I get are so far away I can't see the singers, and I could essentially have the same experience in my own house, for free, by renting a video of the opera from the library. And when I'm totally honest with myself, I find opera kind of boring. It's one of those thing I want to be familiar with, but don't actually enjoy that much. It is not worth $119 to me.

From this day forward, I will be depositing all "extra" money directly into my savings account. The fear is a chimera. If I ever actually need the money, I can transfer it instantly. And keeping the amount in my checking account to my actual budget, instead of just a kind of "funds on hand" account, will keep me honest.

Friday, August 8, 2008

July Budget Busters

July was my most expensive month yet since starting my early-retirement savings plan. It even came pretty close to last November, when I spent over $3000, largely on clothes and accessories (I had free rent that month, and I still managed to spend that much money! It had been a really long time since I'd bought any clothes.)

Total July spending? About $2700 dollars. What did I do to create that kind of wallet damage?
- $600 gift card at Jewel-Osco. As a promotion, they offered a 10% bonus on gift cards if you gave them your economic stimulus check, so my $600 got me $660 to spend at Jewel. We do most of our shopping at Aldi, but go to Jewel every few months for specialty items like dill (not sweet) relish and the particular rye crackers I like. I think the gift card will last us most of a year, and since we only buy items we can't find elsewhere for a cheaper price, I consider it a 10% return on investment--not bad when I've lost about 9% in stocks since the beginning of the year.

- $691 on a plane ticket. A domestic plane ticket. To Minnesota. It was a family reunion for the side of the family that isn't very close--some of the people there I hadn't seen in fifteen years. I tried to find another option, but the town I was going to doesn't have a train or bus station, is very far away from any other city, and even if I had a valid driver's license I don't think I could have managed an eleven-hour drive by myself. I think being able to spend a lot of money to see people who are important to you is an important luxury, if that's not an oxymoron. I hated spending the money, but I am very glad I went.

- About $80 on books. Part of that was a Korean bird book for my mother. They moved to Korea on Monday. Neither of them was terribly excited about it, but my mother in particular seems a little depressed by the prospect of spending two years in Korea--there's basically no chance of her getting a job in the ministry, and from past experience I think she's really much happier when she's working in her chosen field. At least once this tour is over they're done with the military for good.

The rest of the $80 was postage on books I sent out for paperbackswap. I posted a bunch of new books and most of them got requested, so I have a bunch of credits waiting for when books I want become available.

The good news is I still made my savings goal for the month, thanks to a bunch of freelance income, and my net worth is catapulting towards $40,000. At my current spending level (about $20,000 a year) that's about 8% of what I'll need to retire. I feel like I'm making real progress, and once the market starts to recover (I swear it's going to someday) I should be heading towards early retirement by leaps and bounds.

Hey, cool! Beany gave me an award! I really love Beany's blog--she always has interesting things to say and I think her oddnesses kinda match up with mine (super-cheap, introverted...).

I'm pretty out of the loop blogwise right now, so I don't have seven nominations, but I would like to nominate Carrie, who just stopped by and has a cool blog about environmental living in Chicago. I especially like reading blogs by people from my neck of the woods...The Budgeting Babe is another Chicago personal finance blogger I like.

Award Rules:

1. The winner can put the logo on her blog.
2. Link the person you received your award from.
3. Nominate at least 7 other blogs.
4. Put links of those blogs on yours.
5. Leave a message on the blogs of the people you’ve nominated

Sunday, August 3, 2008

The Cost of Location

In the past month, I've made two trips to small-town Minnesota, both of which included some discussion of real estate prices in small town America.

Real Estate Prices in Chicago (rough estimates):

A smallish two-bedroom condo in my neighborhood: approx. $300,000 with assessments of about $200 a month.

A "nice" two- or three-bedroom condo in Chicago: $400,000 to $500,000 with assessments of $400 to $800 a month

Any sort of single-family home in a non-scary neighborhood in Chicago: At least $650,000, and usually much closer to a million.

Real Estate Prices in Small Town Midwest:

1. Small two-bedroom house on large lot, no garage: bought for $27,500 in June

2. Grandma's old lake house (three bedrooms, two baths): currently offered at $97,500. Grandma thinks a fair price would be $65,000.

3. Victorian "mansion" (three floors, at least four bedrooms, adjoining barn and other outbuildings): bought for $70,000 in 1988

4. Grandma's custom-built, architect-designed four-bedroom home with large lake-facing lot, huge kitchen, dining room, two fireplaces, spectacular living room with very high ceilings and view of lake, three-bedroom garage, almost infinite storage: sold in June for $250,000

But what do you give up to pay this kind of money for real estate?

Properties 1 and 2 are in a town of about 6700. The nearest town of significant size is a three-hour drive away. The paper mill is the largest employer. The second largest industry is tourism to the beautiful nearby lakes and national parks.

Property 3 is in a town of about 1000, which is about 40 minutes away from a larger town of about 50,000. The larger town could provide some employment prospects for someone who wanted to live in a very remote place. My relative who owns this property is a doctor with a family practice for the town of 1000. Other relatives who live here own a drugstore and farm.

Property 4 surprises me the most. It is in a town of about 18,000. Like the other towns, this town is slowly aging and dying. But it is much more centrally located--if you were motivated, you could commute to either Rochester or Minneapolis. I could see this town becoming an exurb of one of these cities in 10 or 15 years. The largest employer is a fast-growing health care center. But a comparable house in Chicagoland would easily go for over a million dollars.

All of these towns have limited options for what big city dwellers think of as entertainment. A few dive bars. Maybe a music venue or two. Restaurants are mostly chains or independent places serving diner-type food. The Elks or Lions Club might be your best option for a good meal out.

On the other hand, fishing, boating, and other outdoor activities are common and much cheaper than they are in Chicago. It's plausible to have several pets and even a horse or two. The two larger towns have airports that offer flying lessons and manage to support small concert series and community theaters. Shopping is decidedly limited, but can't you do most of that over the Internet anyway?

I hate most suburbs and the sorts of medium-sized cities that seem to consist mainly of big-box stores and strip malls. I like the place I live in to have a sense of place. Chicago does. So do these tiny Midwestern towns. Someday, when I have a primary source of income other than my job and if my other activities are pretty location-independent, I might consider moving to a place like them.