Friday, April 16, 2010

The Joneses

Friends of ours bought a new home last fall. They knew the market was bad and that they wouldn't be able to sell their old one for anything approximating what they felt it was worth, so they rent it out for approximately what they pay on the mortgage each month. Between their two homes, they own approximately three times as much house as we do, property-value-wise (space-wise, it's more like two times, and I don't have a clue regarding equity). I have no idea what these friends earn, but I don't imagine that it's significantly more than what we do.

Other friends of ours are currently looking to buy a new home (they currently have a condo). The places they are looking at are definitely out of our price range by a reasonable margin (not that we're looking -- I'm pretty sure we're underwater on our mortgage as it is). And they, combined, earn quite a bit less than we do.

I don't feel like we spend frivolously (but maybe we do?) or do anything crazy as far as finances go. Our debts are limited to 1. mortgage 2. student loans from law school (not huge) and 3. car loan (also not huge). For assets, we have our house, two cars (one paid for, the other worth far more than we owe on it), several retirement accounts (I think P has two from his current job, plus an older one, and I have one from my current job, plus an older one), a brokerage account, Harry's college fund, and our basic bank accounts. In the balance, we have a decent net worth, despite the craptastic economy and its effect on our home value and our various retirement and brokerage accounts. Yet somehow it feels like other people in our same geographic area (and therefore with a similar cost of living) seem to be able to stretch their money further. Part of it, I'm sure, is my uncertainty regarding my future job situation -- I feel like we have to maintain a reasonable savings level in order to ensure we can get by when I lose my job. But the rest of it? I have no idea.

Having had the realization that others seem to live better on less (and, yes, I recognize that it's a "seem to" issue), I signed up for in order to better track our finances, though it's a bit tough since P and I still (after nearly five years of marriage) haven't merged our accounts, so it really just reflects my finances right now (though I do earn 75-80% of our household income and am responsible for most of our expenses). I have also started pulling together a binder of important financial info, containing current statements from all our various accounts and copies of insurance policies, etc., both so we have a comprehensive record of everything should anything happen to one or both of us and so that we can begin to evaluate where we stand. To that end, I think we need to consult a financial planner. I need someone else to look over our stuff and tell me where we're going wrong (or tell me that we're not). I've started formulating my list of questions, but am not entirely sure where to begin. (I'm open to advice on that subject.)

Does anyone else ever feel like they missed some important day at school in which planning for the future and figuring out how to manage one's financial affairs was covered? Or is it just me?


Mommy, Esq. said...

It isn't something that is taught to us. It's funny because Husban and I were discussing this last night - about how I was raised not know how to invest (my dad made enough money that it wasn't an issue but even know my parents have very illiquid assets) whereas Husband did learn from his dad. I want him to pass that on to my kids. As for a financial planner you should use one that you pay for - an hourly rate or whatever, don't go to a products person - they are paid to get you to invest in their insurance, etc. products. We can talk more at lunch!

Photogrl said...

No, you are not the only one out there feeling like this.

I often wonder what we're doing wrong, as I watch people continue to buy bigger homes and cars than I'm comfortable even thinking about.

So, you like I've been thinking about trying to figure out a true budget for us...

HereWeGoAJen said...

Mint is good for looking at your money, but it didn't cut it for budgeting for us. It was too easy for money to disappear and not get counted in the budget. I am going to try some specific budgeting software next.

Anonymous said...

I bet some of the people you're referring to aren't putting much away. At least that's the best I can figure when I look around many times.

I wish I knew why financial management isn't taught more.

Amanda said...

I would be willing to put money on it that one or both of the friends you mention are living way beyond their means. The hubs and I know three families that seem to really have a lot of money and are able to spend spend spend. The one family, I know, has the same income that we do and own two houses (rent pays one mortgage, I'm sure), take extravagant vacations, enroll their young children in every activity you can imagine, splurge on all sorts of frivolous things, and are constantly posting about their most recent large purchase or another. On the other hand we owe way less on our house than even it's current market value (same with my vehicle and his is paid off) and live comfortably. We live within our means and are perfectly happy to do so.

It really sounds like you live within your means and your friends don't. But it never hurts to talk to a financial adviser! Never know where you can tweak something to have even more stability!!!

Nicky said...

We're constantly having this conversation at our house, too. We have friends who are definitively making less than us who astound us with their luxury cars, expensive houses, frequent vacations, pricey hobbies, etc. And we always end up saying essentially what Amanda said: they're living beyond their means. They're probably not saving for retirement, they're not saving for college, they probably owe tons on their cars, and they probably carry monthly credit card debt. They're probably one minor disaster away from financial disaster, which is just not how I would choose to live.

Having said that... two things to consider. First, in the case of a few of our friends, it turns out that they have external sources of money, usually in the form of funds from parents. One of our friends had parents who saved enough money for four years of an Ivy college, but he went to the in-state state school instead, on a full scholarship, so they handed the entire college fund over to him when he graduated to do with as he pleased. He invested the whole thing for the past 10 years, which now enables him to live way beyond his salary without taking on risk. So things aren't always what they seem.

Second, I recently sat down with our budget, since we're hoping to buy a bigger house in the next year. I track our spending to a moderate degree, and have household budgets going back several years. I was surprised to discover that we can comfortably afford a much bigger mortgage than I would have thought, because our other expenses have stayed fairly constant while our income has gone up. So maybe you actually have more room in your own budget than you think?

Katie said...

I think A LOT of it goes back to the "seems to."

I have a girlfriend who I thought had it all. . . the rental, the bigger house, trips to Hawaii, etc. . . and now they are basically homeless as they were living FAR beyond their means.

I know that M and I will probably never be fabulously rich (as I think that involves strategic risk-taking), as even when I was making good money, we were very conservative with it and didn't invest as well as we might have (just put it in the bank or paid off loans and such), but I think we'll always be "secure," and I guess I think that might work better for our personalities

I think it's smart to go to a financial planner, we have been thinking of doing the same. I look forward to seeing what comes of it and learning from you!!

Jericho said...

Yes--I feel like this all the time. Its so hard not to look around and see what other people who I would rank us "close" to financially (but i probably have it so wrong!!) and think that they have it better than we do.

Dont' really have advice---just don't beat yourself up cause you're definitely NOT the only one!

Danifred said...

I think that you are doing something that many people our age aren't, and that is saving.
I see our peers living WAY beyond their means and I am interested in what is going to happen in our retirement years. I am hoping that what my husband and I are doing (living modestly) will provide the life we want in later years instead of living beyond our means NOW.