Financial Responsibility - What? Why?

What it Means

It means changing the way we have been thinking about money the past twenty years. It means taking a fork in the road as a debtor nation and becoming a nation that starts living within its means. It means...

A family of four does not need to have two new gas guzzlers in the driveway.
You do not need to buy a new car every three to five years.
You need to stop thinking about your home as an investment or a bank account that you can tap into.
Putting at least 4-10% of your income per year for retirement.
Saving another 6-10%.
Having a six month nest egg.
Only spending what you make.
Using credit wisely.

It means a lot more things. It means making changes in your lifestyle. It may not seem possible, but it is. Not only will you be doing the right thing, you will begin to adopt a way of life that is less about consumerism and more about other things in life that are more important.

Why Now?

Let's face it, the economy is in the crapper. The fix is going to take awhile and the road out will be hard. You can count on those of us who have not mortgaged ourselves to the hilt during this period to not start now. Those of you that are deep in debt are already maxed out. More debt is not the answer. It is not even an answer for the two reasons I just gave.

The only way out is through wise and disciplined managing of our money. Businesses need to contract to deal with this. Smart businesses expand when times are good, and contract when times are bad. Nothing has changed, other than many of todays business leaders have lost lost sight of this truth.

The Road Out is Not An Easy One

If businesses have to contract does that means we will be faced with large and prolonged unemployment? Not necessarily. Instead of the government throwing money to prop up failing businesses that are too ignorant to realize that their leaders should not be paid exhorbanant bonuses during times when they are LOSING money, they could put this money to begin funding the jobs of the future. They could throw some seed money into the bridge that takes us towards energy independence. They could put it into areas of education. A system that helps subsidize a college education in exchange for some form of government service.

But, I am here to talk about what digging out means for you and your family. As time goes by I will add pages to this topical area. Until then I would encourage you explore the rest of this site. The content here has been about wisely managing your money long before it was fashionable to do so.

Why Should you Listen to What I have to Say?

For one, I live on main street just like you. I have lived the lifestyle this site preaches about for the past twenty years. But, it was not always like that. There was a time when we were up to our ears in debt. We saw the light, we responded, dug out and have never looked back, or wanted to look back.

How My Wife and I Conserve our Finances

Consistent contributions of 4-10% of gross income (not counting matching) into 401k over past 20+ years.
Lived in same home over past 18 years. Current PITI payment today is 58% lower than it was when we initially purchased the home (property taxes have more than doubled during this time frame). Additionally, we have paid down 50% of the initial purchase price. Even in today’s depressed market our equity position is over four times what we owe. Should houses prices plummet another 50% of current market we would still have an equity position two times what we owe. During this time period we have tripled our gross income
Our total housing costs (Mortgage, including all utilities) are 21% of net income.
We save (not including 401k) 17% of net income
We give 11% of our gross income to charity
To date, we have paid 100% of Daughter’s college expenses (In-State, Public University). She is a junior.
Our transportation costs are 4.5% of net income. This includes: insurance, gas, preventative and corrective maintenance. Both vehicles are paid for.
Our monetary assets (we do not consider our home as an asset) outweigh our current debt even in this down market by a multiple of 6.5 to 1.
We have accomplished all of this from our income. No lotto winnings, no inheritance. Just hard work.

Charity Exhibition Game - Safeco Field

Some more facts…

Our retirement accounts are down 40% of their total value. We are not in risky funds. We have a balanced portfolio spread across growth and income producing securities. Since my wife and I are both 15+ years from retirement we still have a large percentage of our retirement in stocks and mutual funds.
We have no plans to touch any of our retirement accounts until retirement.
We now have a 40% cash position in our non-retirement investments. Of course the remaining amount are in equities that are "in the crapper".

Additional Information

While we feel extremely blessed with what we have, this is not to say that we do not have to make tough decisions regarding our situation. Our most recent involves transportation. Our daughter is going to begin student teaching next spring and requires a vehicle. While she has been good with her money she does not have the resources to buy a car outright or to take on debt for one. To assist her we are letting her use one of our vehicles and moving to one vehicle. Fortunately we are in a position to do this. She will be responsible for paying the insurance and for gas. We are also requiring her to keep $800.00 in reserve in case the car needs to be repaired.

We are as nervous as everyone else regarding employment. We can operate our household (minus our daughters education) on the lower of our two incomes so this helps us sleep well at night. Nonetheless, these are uncertain times for all of us.

We recently changed our budget to accelerate our cash position. Our goal in next nine months is to create a cash position that allows us to support our household for the next two to three years without any income. Frankly, we, along with everyone else have no any idea how long our current economic situation will last. We want to prepare for the worst, but hope for the best.

We are not anti-credit. We believe very much in the responsible use of credit.

Sacrifices we have had to make

Please understand my wife and I do not see any of these as sacrifices. In fact, we are quite content and feel very fortunate and blessed to have what we have.

We typically only take vacations where we travel somewhere (air, hotel, etc) once every five to eight years.
We do not have large expensive vehicles that we trade in every 3-6 years.
We do not own an RV, Boat, or other high-ticket items like these though I must admit it might be fun to.
We only eat out 1 to 2 times a month at the most. When we do, it is nothing extravagant. We like Applebee’s and have a favorite Thai place that is a great value.
Don’t buy a latte or two a day. We do like to get one every now and again.
We take our lunch to work. In the last 15 years I only need two hands to count the times I have eaten out.

SO?

So I think my curriculum vitae allows me to proctor some advice in this area. If you are looking to live a more conservative financial lifestyle wouldn’t you want to get your advice from someone walking the talk? You certainly would not consider signing up to learn piano from someone that could not play, would you now?

What is in it for you?

If debt is ruling your life…
If you are willing and can accept making some lifestyle changes…

If a situation similar to ours appeals to you…

Then you have the answer to this question. If is does not then you have likely stopped reading some time ago.

What is in it for me?

Helping others to get out of debt helps all of us and as such really is a big deal to me. I have been doing the everydollarmatters.com site for about a year and a half now. I do it as a hobby.

I really have no desire to become a “Suzie Orman.” There are too many other things I do which I also love and that serve to put food on the table.

It has taken this current financial crisis for me to realize that I need to spend more time on these matters.

As this site becomes more popular it becomes worth more money. I must say this is a nice by-product. It does not factor into why I do it at all. I hope I can keep this attitude as time goes on.

-E Matthews

[November 17th, 2008]

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