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Tuesday, June 16, 2009

Why Is My Budget Always So Tight?

When I came to this country almost 20 years ago, I had exactly $770 with me. That was the sum total of all my worldly possessions. I had a scholarship at the university where I was going to do my graduate studies, but that was it. I did not grow up in a rich family. We saved money every way we could all the time. So, being thrifty (or as some would put it, cheap) was ingrained in me. My savings grew quickly on the modest stipend I got out of my scholarship in spite of necessities like rent and food.

I have always had an interest in learning about personal finance. I am appalled at people who can not or do not know how to create a budget for themselves or balance their checkbook or whatever. As they say, a fool and his money are soon parted, so I guess society will find its uses for these people. But seriously, nobody cares about your money as much as you do. A hands-off approach to money does not seem to be the ideal recipe for good outcomes.

I invested my savings and kept track of how things were going and so on. I paid cash for the first car I bought, then when that was destroyed in an accident, I saved up the insurance money and drove a clunker for a while. Then I got married and took up a job after my studies. I bought a decent car, again with cash. My savings always seemed to be adequate for me to do this. I paid 10% down on my first house. All this on earnings that continued to be quite modest. My wife did not (and still does not) work, so all this was accomplished on a single income.

Every year since I got here, I have maxed out my IRA and that of my wife after I got married. At work, I have always contributed the maximum possible to my 401(k). I managed to add a good bit of money to my non-retirement accounts in spite of these. It helped that my wife is as thrifty as I am. I was proud of my savings rate and the resultant growth in my net worth.

But lately, I feel as if things are not going the way I want them to. I still manage to max out my retirement accounts, so I am saving quite a bit, but I seem to have nothing left over to put in my non-retirement accounts. Obviously, it does not help that they are not growing organically either because of the slump in the stock market. My house has gone up significantly in value, but I have avoided the temptation to refinance and cash out on the increased equity. So, I am on track to pay my mortgage off in another 9 years, but I do have an open home equity line of credit that I have been forced to tap into to some extent.

Truth be told, some of this was due to my own stupidity. When the stock market was doing fine, I borrowed money on margin to invest in more stocks. And then, the whole thing went south and I had to take money from the home equity line of credit to meet my margin calls. That was pretty traumatic and I remember repeating to myself several times: lesson learned, never put money in the stock market that you can't afford to lose.

Obviously, the kids growing up has increased the pressure on my finances to some extent because of the outlay for their myriad different classes and other activities. But then my income has gone up since the days I started working too. It is still a single income family, but most years I am within a hair's breadth of 6 figures.

So, where is my money going? Why are my savings not growing? I still have plans to retire as soon as I hit 55. But unless the stock market starts mending itself soon, it looks increasingly far-fetched. Yes, my house will be paid off in 10 years. But my kids' college education will be underway by then and suck up more money. This is the kind of thing that keeps one up at night, though money worries have never kept me up at night before.

The problem, I think, is that more and more luxuries have become necessities. When I got my first job, I did not have a cell phone. I did not have internet at home. Those were considered unnecessary luxuries for a thrifty lifestyle. Now, my cell phone bill comes to $100 a month. I pay $25 a month for internet service. And I could not imagine cutting either of them off right now. I am sure there are a dozen other things like that that are slowly but surely eating into my income and depleting my savings. And then there are the one-off expenses that seem to be getting more and more frequent.

Take yesterday, for instance. Last year, we traveled to Egypt and bought a nice painting on papyrus for about $50. Unfortunately, it was an unwieldy size that could not be framed in normally available ready-made frames, so yesterday we went to a store to get it custom-framed. The frame ended up costing $200! So, we are going to have a frame that is 4 times as valuable as the item it holds! That is the kind of expenses I am talking about. Expenses that I would not even think about in my college days, but which now seem to happen with some regularity. Expenses to keep up appearances, compete with the Joneses...

And obviously, owning a house always comes with its own set of problems and (expensive) solutions. I have put up new windows worth about $10,000 in the house since we moved in 11 years back. We have put up new siding worth $15,000. New garage doors, $2,500. New tiles in the bathrooms and kitchen, $5,000. Driveway crack repairs, $1,500. Floor repolishing, interior painting, $5,000. This spring, we suddenly started getting water in the basement of the house after rains. Patch a crack in the foundation, replace a slab of concrete next to the house to slope it away from the foundation, $1,000.

Now, the van I have owned for 10 years is ready to fall apart. It has rust stains all over it and its AC stopped working. I could tap some more into my home equity line and buy a new vehicle or I could continue driving it into the ground to put off a major purchase for another couple of years. I just don't have the non-retirement savings to pull off a new car purchase with cash at this point!

At one point in the past, I used to be happy when the stock market crashed or even just went down. More buying opportunities to accumulate stocks at lower prices. Now that retirement is actually on the horizon and I can contemplate actually retiring, I just want the stock market to go straight up, no detours, no meanders, no more dips for taking on more people like me looking for buying opportunities, nothing.

I guess I should consider myself very fortunate that I was not 10 or 15 years older and just saw my retirement pushed back by a dozen years because of the financial crisis, as is happening to several people right now, apparently. If things keep chugging along, perhaps my budget will start loosening up at some point hopefully...

I got past the 1600 mark with my ebook catalog, so I am still making progress on it. I saw the movie, Mr. Brooks yesterday. Not overly thrilled with it, but it was OK, I guess. Not much time to get started on a new book yesterday, but perhaps things will work out better today.

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