Not Buying It

Judith Levine’s Not Buying It made a splash a few years ago. It appears in a trade paperback edition suitable for book club discussions, including questions at the end of the book. I happen to be in a book club and we read this book. Well, some of us did. Others sneered at it for not being interesting; some members like a meaty story, and the tale of one year in a New York City freelance writer’s life during which she and her husband undertook to not buy luxuries simply did not appeal. Others did not finish the book because from the title they had expected it to be funny. “Not buying it” taken to mean that the narrator will comment humorously on some aspect of our culture. But an utter lack of humor characterizes this book.

What does Levine attempt to show in her diary-entry style posts from a year of trying not to purchase anything but necessities? First, she is honest about her own frailties, about the arguments with her husband over whether wine is a necessity or not, and about how queasy she felt being out and about with friends and not able to spend money. This is a peculiarly acute situation in New York City because little in that town is free. Oh, sure, you could stroll through Central Park or other parks, but everywhere else you are expected to pony up in order to rent a place to sit down. I distinctly remember how unequal I felt going out to lunch with a college friend years ago when she had a job and I did not. I was living on a shoestring, and the ordinary amount she could afford to spend on a hamburger was above my budget. Levine’s personal and professional life in the city was fraught with decisions about spending, or more often, not spending on social entertainment. She even got into an argument with a friend about seeing a movie.

Her half year in the Vermont countryside was easier, because the buy-in to a homemade meal is easier when everybody has a house and a car, and driving over for dinner isn’t a big deal. But she still managed to wring some angst out of petty issues such as her SmartWool socks. They may be wonderful socks; one of our book club members swears by them. But Levine’s obsession with trivial possessions really annoyed me.

Here’s why. She is an influential writer. She has the ability to put her ideas out to a mass market while synthesizing the thoughts of major scholars and thinkers. She is not rich, but compared to all the women who have ever lived, she has vast amounts of disposable income, and enviable personal freedom. And until her year of Not Buying It, she frittered it away on garbage. On trendy new fashions. On expensive trifles. On acquiring too many possessions. Her saga might resonate with other women who have found themselves casually slipping into poor financial habits, daily feeding their amour propre with retail therapy when they could be using their money, and thus their influence, more mindfully. But to me—someone who has known relatively hard times, albeit briefly—reading about a person who is profligate about money is offensive. This woman has been wasting her life and her power.

She seems to get it during the course of the year. She seems to reconnect with the political activism of her youth. And to want to live more purposefully. All to the good. But her book was not well received in our group. We’ve made much harder choices about buying or not buying than she does in her essentially frivolous year of attempting to be non-frivolous. And I don’t think the poverty that forces people to make draconian decisions about spending is likely to show us our authentic selves, as Levine suggests but also does not agree with. Our desperate selves, maybe.

And here’s another funny thing. Levine reports that as a collateral event, her nearly $8,000 of apparently permanent credit card debt was paid off early in the year. She’d carried this debt, adding to it and subtracting from it in the typical manner, for who knows how long. In a year of not buying, and without any overt intention of doing so, she easily eliminated her debt. Where is the “Well, duh?” here? Doesn’t Levine understand that there’s a cause and effect when it comes to random spending? I found this wonderfully naïve for someone who is such a successful elite writer. Almost as naïve as Barbara Ehrenreich was when she bought clothes for her Nickel and Dimed adventure. Levine buys fashionable shoes that Parisians won’t disdain, which is a whole different level from Payless or Nine West.

So, yes, some of my reaction to this book was simply scorn at the upper-middle-class artiste follies of the author. But at least she presented them for what they were, and this made for a very big difference in tone from the typical personal finance book. Levine is not prescribing; she’s describing. Toward the end there’s a bit of preaching about getting involved in civic causes. But basically what happens is that for a year the author had to live as people of lesser means do all the time, making compromises, having to deny themselves luxuries, feeling awkward in financially unequal social situations, and more. It seems to have had a salutary effect on her. Perhaps her story will help others to see their own relationships with commerce in a new and different light. One hopes. I find it extremely frustrating that a newly empowered class, women, wastes that power. Even if only the power to control themselves.

The Wealth Watchers Idea

Here’s yet another personal finance plan, Wealth Watchers, by Alice Wood. Refreshingly, she does not come by her interest in personal finance from a background of having totally screwed up with credit cards and being addicted to shopping as therapy—or has she? She actually did endure a period of being in financial hot water, but it was the result of a brain injury that suddenly made it hard for her to keep track of every aspect of her life, finances being just one. Her solution was to take the well-known Weight Watchers point system and use it to plan daily spending.

I’ve encountered this concept only once before, in a television show about lottery winners. One lucky man now lived the high life in a mansion filled with very expensive furnishings, and all the rest. But he said that he knows exactly how much money he can afford to spend each day, and he never spends more than that amount. He lives off the interest he earns on his fortune instead of using up the principal. Unlike most lottery winners, he still has most of his winnings. He can reasonably foresee a comfortable financial future.

Alice Wood’s idea is the same as the lottery winner’s. You calculate how much you can spend per day and not go into credit card or other debt. When you reach the limit, you stop spending. This method has one beautiful aspect to it that I really like. It’s perfect for people who are perpetually foggy about what income is coming in and what they owe. It’s also perfect for people who are prey to impulse or bulk buys. Even if they are the type to rob Peter to pay Paul, to spend next week’s allotted cash on this week’s purchases, at least this method shows them how much total they can safely spend. People’s brains do work differently from each other. It’s nearly impossible to get certain types to pay constant attention to the big picture. Others are lost in endless minutiae. What Alice Wood has come up with is not a budget style per se. She has figured out a routine. The only hard part is the prep work, which requires you to learn what your carrying costs are by keeping track of them. Then you can break down your budget to fixed, semi-fixed, and discretionary expenses.

How do you separate your fixed expenses from your semi-fixed expenses? The fixed are the bills that must be paid and cannot be adjusted. These include

• Rent or mortgage
• Car payment

Here is where I disagree with Wood, because she includes several other items in fixed expenses that I don’t consider fixed. The next group, semi-fixed expenses, is my list. On it are items that can be modified by our actions:

• Car/Home/Life insurance
• Electric/Gas/Heat/Phone/Internet/Cable
• Day care/Private school/College
• Savings/Tithing/Charity
• Taxes/Medical
• Food

Wood does not include food as any kind of fixed expense, probably because it can fluctuate wildly depending on your style. But, like utilities that can be reduced by taking a cheaper Internet or cable package or turning the thermostat down, food costs can be modified via more or less eating out, buying of takeout, or home cooking. Every item of semi-fixed expenses is negotiable, but they are fixed to the degree that you have to have them. You must eat, but you can decide to spend less on food. You must insure your car, but you can find less expensive car insurance, or drop the collision on an older car. You can buy a premium cable package or just basic. You can skip going to doctors, although I don’t advise that, but you can decide to go to an immediate care clinic rather than an emergency room and that can drastically affect your medical costs.

A couple of items don’t fit these lists. You can choose to save, tithe, or give to charity; savings perhaps doesn’t belong in fixed as Wood has it, or in semi-fixed as I do. But it is not a necessity of life. And you may question whether taxes belong in the fixed or the semi-fixed list. We each choose the amount of our income tax withholding. Thus we can have more or less in our paychecks, and more or less in our refunds. Or no refunds at all. We also can choose the level of medical insurance we buy, if we have medical insurance. That’s why these ordinary expenses of life are semi-fixed. We can fiddle with them.

The bottom line of the Wealth Watchers program is that after all the fixed and semi-fixed expenses are tallied up and subtracted from your income, what’s left is your discretionary income. If you have included semi-annual expenses in your calculations (such as dentist visits), you can arrive at a daily figure you can safely spend on the items that are not fixed or semi-fixed.

Don’t imagine that it is easy to decide what you should spend on most of these expenses. Fierce arguments break out in many houses over how much should be spent on cable or telephones. People debate whether wine is a necessity of life and thus in a basic food category, or whether it is a luxury and thus firmly in discretionary. For Wood, food is all discretionary, but most of us are more comfortable with a baseline we expect to spend on food, thus making that figure semi-fixed. But we still argue over what is a food necessity versus a luxury.

To be frank, I think that Wood underestimates the difficulty of arriving at the safe daily spending amount. A book that is superior to all others in this regard is Make Your Paycheck Last, by Harold Moe. But Wood’s idea is something that one person in a family can do the work to compute and then others in the family can live by without concerning themselves with the big picture. It’s also possible to have a paid financial advisor calculate it all. Then the finance-impaired (or just bored) individual can still adjust spending to a safe level without going mad trying to figure out what that level is. And let’s be realistic; many people fall into this category. They don’t want to think about money. They just want to know if they can safely spend $20 or $2,000 today. Alice Wood’s book gives a good road map for making it possible.

With Great Power Comes Great Responsibility

I just read a scathing indictment of the Abrahamic head of household concept, by implication condemning the Washington Post personal finance guru Michelle Singletary’s fundamentalist Christian way of living. This straight-faced roundup of objectionable paternalistic policies aggravated me—as it was supposed to—but it also amused me. It describes the tyranny of the head of household in great detail. But it does not describe the weight of responsibility that lies on that head.

If you get to make all the decisions, then all the decisions and their outcomes are your fault. With great power comes great responsibility. Modern American men mostly are not under the illusion that women don’t look at them with critical eyes. Far the contrary. They know we are quite capable of analyzing and judging them, and finding them lacking. While I admit there are still plenty of stupid chauvinists around who genuinely believe that women are the mental and moral equivalent of dogs, most men know better. And even if a man is able to totally discount the opinions of his wife and daughters, the condemnation and hatred in his son’s eyes will eventually penetrate his thick skull.

As much as unilateral power over a household sounds appealing, there is terror involved. Men are tormented by their need to measure up to great expectations. Can I get it right? Can I keep my manhood—my job, my leadership role, whatever—and thus my reason for being the head of household? Can I make the right decisions? Can my decisions earn my family’s love? Can I make the world conform to what I need?

Most of the answers will be mixed, and that’s the number one reason to let the decision-making be mixed in a household, too. Whoever you are, you will not always pick the right electrician, or the right career, or the right words to say to your rebellious teenager. It’s a whole lot easier to sleep if your decisions are thoroughly mutual with your spouse. It’s fine to present a unilateral front to the world or to your relatives, but it is better to be a genuine team.

I shudder just as much as you do when employers talk all misty-eyed about teams, because work teams are usually the breeding ground of mediocrity, lack of responsibility, and in-fighting. But a family team has a reason to pull together and to make decisions and take actions that mutually benefit. In many families, if three or four people didn’t work, they couldn’t live in a comfortable home. Would it be better if just one, the father, did all the work, and the rest of the family stayed home and prettied up the place to his directions? No. Would it be better if the father ordered the others to work and to give him their paychecks? Of course not. They would have no incentive to keep working or to improve their job prospects. Or to stay in this household.

Incentive is the other half of the power situation. If one person holds all the power, the other’s incentive is naturally to resist. I can think of no clearer example than the typical situation with nursing home roommates. These are usually women who previously were in charge of their own households. Often women who have been solely in charge for years because they’ve been long widowed. That is the typical life expectancy of the American woman: widowed at 55, dead at 85 or so. These women move into nursing homes and immediately start bickering with their roommates because both of them are used to being the boss of their surroundings. Until and unless they reach a mutually satisfying rapprochement, they continue to fight. The blinds should be open. The blinds should be shut. The blinds should be up. The blinds should be down. The windows should be open. And on and on and on. You would think that at that time of life people would not be fighting for power and control. But they do. It’s a natural instinct.

So getting back to our Abrahamic household, the big problem is that if dad holds life and death power over everyone in it, they will struggle and resist that power. If law and custom won’t aid them, then their struggle simply goes underground, into sly manipulations. Who has not heard about seemingly obedient wives who secretly buy things and then hide them from their husbands? And why do you think that women have had the reputation since ancient times of being poisoners? Because poisoning is an undercover method of seizing power without giving the appearance of doing so.

Life is so much easier if we split up the power and the responsibility. Then men don’t die young from stress-induced heart attacks, and women don’t grow old resenting the men who had power over them. When we share the burdens of living, they truly are lighter. And there are fewer complaints along the way, too. If you pick the restaurant, then you get blamed if the food or service isn’t good. If the decision is mutually arrived at, you don’t. It’s that simple. Choose to share. It’s not only right; it’s the best way to negotiate the bumpy terrain of life.

Don't Quit Your Day Job

Those words of wisdom are often spoken in the arts world, usually to talented people with big ambitions but as yet no big successes. But today, as I was reading Michelle Singletary’s personal finance blog at WashingtonPost.com, it came up in relation to a young woman about to have twins, who already has a young child. She plans to quit her $100,000-a-year job and stay home with the kids. Her husband, who also makes $100,000 a year, will support them all. It’s a lovely idea, but it’s a recipe for disaster.

Singletary rightly suggested they try to live on just his salary beforehand, to test it out. But I was unsatisfied with her answer, which seemed too encouraging of this plan. Talk of buying a practical used van to haul all the kids is fine, but you don’t start a period of lessened income by making a large investment in a depreciating asset (a car). And the couple would pay for it out of their savings, which are only $50,000.

I know, you say, $50,000 is a lot. But it’s only a quarter of what this couple currently earns per year. At the rate they are living today, it would be exhausted in three months. And if they buy a $25,000 minivan, their rainy day savings drop to a mere $25,000, enough to cover just one-and-a-half months. That’s not good enough for Suze Orman, who wants people to have eight months of living expenses in savings. And it’s not good enough for me, either. I know people who have been out of work over a year now. What makes this couple believe that they won’t need enough savings to last that long? Add in the cost of COBRA, which with three small children they must have, and the rainy day savings look like nothing.

Probably this couple is feeling overwhelmed by the thought of having twins, and who can blame them? But they need to get over that and focus on ensuring that they have sufficient income to raise their children. This young woman may think she has a secure career she can return to in the future, but these are uncertain times and I would not take a bet on it if she walks away. Her husband may have a secure career, but again, we’ve seen recently that few jobs today are 100% safe.

So what should they do? They can’t hold off on having the twins in order to build up savings; these babies are coming soon. This mother wants to be with her children, a natural desire, and not one I would deny her. She should negotiate with her employer to go from full-time to part-time, of course. If she is valued enough to be paid $100,000 a year, I suspect she has some leverage. And right now is the perfect moment to negotiate, because she can spare her company the expensive task of finding her replacement, something companies hate. She should work out an arrangement that has her in the office part of the week and at home the rest, or part days, or telecommuting, or whatever. As a key element of the deal, she should strive to maintain as much of her status and responsibilities as she can. Only by doing so will she remain a necessary employee. And along with her current seniority, she needs to keep her health coverage.

Assume the ideal, that this woman retains half of her job and salary. Who will look after the children? She and her husband will, but with household help. A woman earning $50,000 a year can afford to hire a housekeeper, nanny, baby sitter, or au pair, or any combination, on a part-time basis. Assume she pays $20,000 a year to various part-time helpers, what’s the advantage? First, the household has $30,000 more net income per year than if she simply quit. Second, the woman still has her job, that’s the big one. It’s a lot easier to go full-time again (or find a new job) if she’s regularly at the office and/or telecommuting. And if her husband loses his job, or they want to switch off, she can negotiate to take on extra work for extra pay, or go back to full-time work. A third advantage is that her husband will not feel resentful because she gets to stay home and “do nothing all day” while he still has to drag himself to an office. Nor will he be able to cop an attitude about how she’s just a housewife and not interesting anymore—not when she’s still in the workplace and dressing the part and meeting other men just as he meets other women. And remember, they’ll have $130,000 a year instead of $100,000, and the babies will have plenty of quality attention. The couple can buy that used minivan and still keep their $50,000 in rainy day savings. They’ll still have to make compromises with their lifestyle, but they won’t have to cut it to the bone.

Yes, my alternate scenario presumes a flexible employer, and most of us have had experiences with the other kind. But it can be done. The woman’s future earnings depend on staying in the game. You might reasonably ask why should this woman have to keep working? Raising three children is a full-time job in itself. True. But only by accepting a much reduced lifestyle on a permanent basis can this couple live on just the husband’s salary. That puts a lot of pressure on the husband, the kind of pressure that makes men die young—or run away. And meanwhile, the entire burden of tending three small children all day long falls on the wife. That’s a lot of pressure on her, too. Together, this woman and her husband currently earn $200,000 a year, well above the national average. They aren’t in an either/or situation; they just think they are. They can create their own mix and have the best of both worlds.

My FICO or Yours?

What the FICO score measures and how the information is weighted:

1. Payment history 35%
2. Outstanding balances 30%
3. Length of credit history 15%
4. New credit 10%
5. Types of credit 10%

There it is, the formula that rules our lives these days. You do not need to pay for your FICO score, ever. All you need do is honestly survey your performance, based on each of these measures:

1. Pay bills on time?
2. Keep the amount of credit being used low?
3. Longtime cardholder or newbie?
4. Recent attempts to get new credit?
5. A mix of types of accounts?

Very obviously, paying your bills on time is the key. Its weight is over one-third of the total score. That means a single late payment is over three times more significant than your mix of credit lines, or the fact that you went car shopping and five dealerships pulled your credit score, or your status as someone new to credit or someone with decades-old accounts.

Pay bills on time. No need to pay FICO to learn this.

Debtors Who Are Clueless--And Scary

I just saw a television show called "Til Debt Do Us Part." Two episodes, back-to-back. What amazed me, really floored me, was how casually two different young women approached their debt. They claimed they did not know why they had no money. And on salaries of $45k a year, not including their men's incomes, they felt entitled to spend on anything and everything they saw or wanted. One of them was even living rent-free, but still managed to get deeply into debt. Even after family paid off her debts, she racked them up again.

This is crazy behavior. But the frightening thing was that both of these women behaved in pretty much the same manner: as if a credit card was their license to spend. And they were unapologetic about it. There was very clear self-will at work. Both women also browbeat their husbands, keeping them from exercising any decision power over how the household money was spent. The host took the men to task for using domestic peace as the excuse for enabling their women to overspend. But in my opinion, the women were the ones who needed a sharp dose of reality.

How can people be so clueless about their own money that they do not notice they spend thousands more per month than they bring in? What part of the brain shuts off to allow this craziness? And how can we turn it back on and save these people and others from an endless cycle of debt and rescue, debt and rescue?

I’m asking because I don’t have the answer. People with chronic debt problems must wall off their fears, their shame and guilt, from their daily lives and thoughts. How else can a person with $100,000 in debt dare to charge another unnecessary $20? You’d need a powerful firewall, but more and more, it seems as if people in our society have just that. Perhaps they feel no shame at all. Perhaps they believe that they will always be rescued by others, or by new legislation, or by bankruptcy, or by windfalls. Perhaps their future plan is to win the lottery. I don’t know.

What is obvious to me is that too many people are brazenly selfish even while behaving in a self-destructive manner. What the host pointed out was that if these people continued to spend as they did, within a few years they would owe hundreds of thousands of dollars. More than a house costs, and yet they would not have a house. They are ruining their future while indulging their todays. Big time. They’re all living like the grasshopper in the fable. But winter does eventually come, and where is the preparedness we need to survive tough times?

Don’t we all have moments when we are these silly people? When we know we’re behaving foolishly with money and credit, but we do it anyway? Yes, and that’s what is scariest of all. You don’t have to be perpetually in denial as these two women were to be in scary, intractable debt. All you need to do is have flashes of ignoring your reality. A few minutes here and there, and you can throw away another few hundred or thousand dollars without even noticing.

It’s got to stop. We’re the richest country in the world, with more individuals having significant money beyond a bare subsistence living than in any civilization that ever existed. And we’re throwing our wealth away on trifles.

New Year, Same Old Debt

Someone I know is in credit card debt again. The person was in a similar situation several years ago. At the time, I was able to help the person get out of it. I also tried to model the habit of making the regular, on-time payments that creditors like. I stressed this as the number one rule. But it did not stick. My friend’s credit score (FICO) is very low, so a car loan has been denied—which is bad, considering those are secured loans and they could just come get the car, so what’s the risk? My friend is flummoxed. But unrepentant, I suspect.

I wonder how many of us really change our disastrous financial habits for better ones? Or, after we recover from a dangerous low period, do we limp along, much in the same manner as before, slowly but surely ramping up our mistakes? Worst of all, paying little or no attention to what others want from us? The friend is indignant about the car loan, citing having paid off a car loan from that very bank a few years ago. But that was then, and this is now. Missing scheduled payments is one of the classic signs of shaky financial stability. The bank fears that the car loan will not be paid back, and the bank does not need a car; my friend does. The bank is understandably wary of lending in this scenario.

Of course this situation would be different if my friend had a good, steady job. (Pause to laugh hysterically.) Right. Like that’s happening anytime soon. So what can be done? Does my friend even have enough money to make regular minimum payments? And assuming so, how quickly can my friend’s credit score be rebuilt—again!—in this rocky economy? Would six months of perfect, on-time payments make a difference? Or will it take a year or more to climb out of this pit? And to what lengths must my friend go to fix things? Sell something major that would be painful to part with? Live without a car for a year? Or two?

Or is this simply an organizational issue? Some adults have serious attention deficit issues. Serious. They collect too much paper and they can’t seem to open their bills promptly (or even their bank statements) and they never are able to put everything in one place neatly so they can find it again. My friend is but one of thousands, if not millions, of these people. They’re more likely to buy a new set of storage containers or get a new checking account than to put all documents in one place or balance their existing checking account. And these people, these thousands if not millions, are walking around as supposed functioning adults. They’re being allowed, even encouraged, to sink deeply into debt through systems that work for people like me (Little Miss Organized), but never work for them. Unless they are very lucky, their chronic inability to cope makes them the financial dupes of the banks and every other financial transaction.

Some of these people are married to spouses who can handle money sensibly. Or even to spouses who can’t, but who earn enough to keep everything covered. But some people are alone and trying to deal with words on papers from financial institutions that they simply do not understand. They don’t understand the words. Or the banks. Banks don’t really care about your payment record of ten years ago. They care about your recent payment record. They’d also prefer that you have substantial income and assets—and that you do not need the loan you want. That’s right: banks prefer to lend to people who don’t actually need their money. If Warren Buffet asks for a loan, he’s going to get it. Or Bill Gates. You and me? Not so much.

The bottom line with financial hassles always comes back to paying attention. My friend will now have to enter into a penitent period of being very careful to make all scheduled payments on time. I’m sure my friend will do it, too, because the danger and excitement of this situation will be a constant reminder. For a while. And then, the ennui with paying attention to numbers will rise again. And the trouble will start all over.

I don’t know the answer to this one. Spend less money than you earn? Sure, but if you don’t pay your bills on time, that’s irrelevant. Pay cash for everything? That plan does not get the electric bill paid on time. Go off the grid? Okay, now you’re just being silly. The buy-in for going off the grid is very steep. Who has that kind of money—without getting a bank loan?