I love Jeopardy.
Yes, that's an odd way to kick off a blog post about money, but stay with me...I have a point.
I love that show.
It's pretty much the only show I "save" and never miss. I try out for the show every time the online test pops up...and even made it to the in-person test once (where I got my ass kicked by a bunch of PhDs. A humbling experience indeed.)
Ok, I'm going off topic.....
Last week I LEARNED something from my regular Jeopardy viewings. Something I made mental note of. I said "Self....make note of this. This is blog fodder."
Mortgage. The word "Mortgage". It LITERALLY means "DEAD.PLEDGE".
Yes. As in "pledge to be beholden to this sucker until you DIE".
I found this little Jeopardy tidbit to be both funny (in a nerd-joke kind of way) and sad. Sad I never really thought about the word origin "mort" before....and sad that all of us seem to be okay with signing our financial lives away on not only mortgages...but car payments, credit card payments, 90-days-same-as-cash deals, "Only $29 a month"! schemes.....etc. etc. etc.
This is how the companies, regardless of what they are selling, "get you". I mean, you've heard the car dealership commercials, right?
"All you need is a job and $99 a month and this brand new car is YOURS!"
Well, no. It's NOT yours. It's the bank's. It's not yours until you pay it off. Which you probably WON'T.
The Story of Average Joe and Average Jane
According to Experian Automotive Statistics, the average car payment is $493 a month (for a new vehicle loan). A statistic I found staggering....but moving on.
The national average household income is $56,516. So, let's pretend we are talking about average Joe Neighbor here, who has an average income and just bought the average new car.
He is spending roughly 11% of his income on a car. But, let's say Joe Neighbor has an average house (this is starting to sound like a Talking Heads song. And I just dated myself horribly....).
Mortgages vary GREATLY in this country, where most people who live in high cost of living areas like San Francisco are priced completely out of the housing game. This is not HGTV where you can be a used bicycle salesman and your partner a part-time flower arranger and buy a million dollar home.
But, statistically the average mortgage payment in America is $1061.00 for a 30 year mortgage. So, if we are talking Average Joe Neighbor, he's spending 22% of his income on his house, 11% of his income on 1 car. So, we have now eaten up 33% of Joe's income.
But Joe is married and Joe has a wife and Joe's wife wants a new car too, so...now we have 44% of the income taken up by house and two cars.
So, honestly, Joe is not doing SO bad. So far. I mean, that leaves him $2662.00 roughly a month for food, clothing, utilities, etc. Right?
Sure....but Joe and Jane Neighbor have kids. And those kids need care. Let's say those kids are not in school yet. They need to go to daycare. Average daycare cost is $972 a month. PER.KID. So let's say Joe and Jane decided they could only really afford 1 kid anyway. They're still down to $1690.00 a month now.
Joe, Jane, and Little Johnny need to eat, too. Right?
Per the USDA Moderate Food Budget, a monthly food budget for a family of three is roughly about $700. Now, I'll add some personal notes below, but I found this to be really high. But, Joe and Jane Neighbor work hard for the money and they are probably stopping at Mickey D's more often than they'd like to admit. Because they're average.
So, we are now at $990.00
For their average house, Joe and Jane are probably paying roughly $150 a month in utilities, $60 a month for cable and internet, $60 a month in gas for their cars, $250 roughly for student loan payments (if they have them, and let's face it...a lot of us do), and roughly $200-$300 a month repaying consumer debt.
That leaves us at ABOUT $270 left over for incidentals like kid's activities, clothing, entertainment, gifts, or hobbies. Things people just spend money on like gym memberships, giving to your church, or a case of Girl Scout cookies (not that I've ever done that......**whistles**). Haircuts, MEDICAL BILLS (I think that right there may have just put us all in the red, right?), pet care, and house maintenance.
But RECORD SCRATCH for a moment, folks.
Joe and Jane Neighbor are going to want to quit working at some point in their lives and retire, right?
Tell me, then, if Joe and Jane do not have a 401K or some sort of retirement plan via their jobs, where are they getting the money to invest? If we are working off AVERAGE here, that money is long gone by the time the end of the month arrives. If we are working off AVERAGE, Joe and Jane are not going to get nice little monthly pensions when they retire.
Pensions are a complete anomaly. If you ARE getting one, consider yourself a blessed little unicorn.
So, being average....can you afford MOST of where your money goes?
And that's normal.
But, do you WANT to be normal?
There's the real question.
Back in 2012 when the husband and I really started to go "Gazelle Intense" with the Dave Ramsey Snowball, we realized that in order for ANYTHING we were learning to "stick", we would have to be okay with not being normal.
Now, 6 years later, we have developed some abnormal spending habits that are pretty ingrained. Even though we are not yet debt-free, these habits have led to a payoff of $67,801 since then....and that's taking into consideration some MAJOR fall-age off the wagon at certain points.
We are human. No perfection here folks and our debt-free journey has been rife with potholes.
BUT...we have learned. And here is where I tell you WHAT we learned about affordability, payments, and spending...in hopes that maybe you can apply some of that to your journey and speed up your debt-free process.
What We Learned
1. Never Ever Ever Buy a New Car
Now, I typically don't like to speak in absolutes. And I can tell you right now if I gave the green light for the hubby to plop down the bucks on a new Tesla he would probably be unable to resist the temptation. It's not that I don't like that new car smell. I'm a person. I get it.
But, new vehicles are the biggest damn waste of money on the planet. They PLUMMET in value the minute you drive them off the lot, their "add-on's" are typically way overpriced, and the marketing from the car folks attempts to sway buyers into purchasing FAR more car than they would ever need.
I drive our own version of a Dave car. A Dave car is a beater that looks not-so-great but does its job, gets you around, and that doesn't kill your debt snowball or your budget.
It's not a TRUE Dave car because we did not pay cash for it. I will own up. We did that once, paying cash for an old Saturn Vue we named Suavecita.
Suavecita died after about 9 months of very gingerly driving.
That kind of killed us on the idea of a true cash "Dave" car. I travel out of town for work several times a week, I need something that is at least not going to drop it's transmission after 9 months (like poor Suavecita). Plus, I beat the shit out of my cars. I will own up to it. I am a terrible car mom.
So, when I needed a car I could fit 3 carseats into, I traded in my current vehicle and applied that trade in amount to a car that was 3 years older than the traded car and gave us the very minimum in payment. Sure, it's a little rusty. The door handle bits fall off sometime. There's a hole in the back hatch. But it drives and its a beast.
We learned awhile ago that really nice cars just really weren't worth it.
2. Meal Plan Like a Mutha
We have been living with family for 10 months now while we build our new house. So, meal planning has been really tough. But, in normal circumstances, it does wonders for your grocery budget.
I said above that I thought $700 for 3 people was a LOT, and it is. I live in Wisconsin where groceries ARE relatively cheap, but we spend $600 a month for a family of 5 and this includes diapers, wipes, toiletries and milk-based toddler drink for the baby.
The trick is to plan your meals out and only buy what you need for those meals. We buy off-brand cereal, we don't buy a ton of junk food (our kids are weird anyway and aren't really HUGE junk-food eaters. They've never even had a soda) and we stick to a "strict" $150 a week grocery budget. When the house is completed I'm hoping to grow, at the very least, my own herbs to use and maybe sometime in the future have a small garden.
I have never felt like our budget has left us wanting more or feeling hungry.
3. CASH IS KING
If it's anything we took away from spotty D-Ram Devotion, it was that you don't borrow money. Now, mortgages (DEATH! UNTIL YOU'RE DEAD!) are allowed in D-Ram world. We extended that to cheap-o cars but that was "last resort/smallest loan possible" situation and those are included in our current snowball. Soon, they will be paid off.
But with anything outside of our vehicles and our house, it's cash only. We do not borrow money for clothing, trips, gifts, or any larger purchase. If we can't afford something we want, we wait and we save.
This has led to us sucking it up quite a bit in some areas, especially furniture. When we sold our old house I went on a bit of a Minimalists binge, and I got rid of SO much stuff....including most of our crappy college-age furniture.
So, we have pretty much no furniture for the new house....and we may be going without some stuff until it all can be purchased with cash.
Delayed gratification. It eliminates the weight of something hanging over your head that isn't paid for. Like our cars are currently. Sigh.
The most important thing to remember is to not fall prey to the idea that just because you think you can afford the "payment" means you can afford the item. This is especially true for things like furniture or other large-ticket items. You don't want to be paying $40 a month for years past what an item's lifespan is.
Wait. Save. Pay cash or go without. You'll be all the better for it and will be living a life you can truly afford.