It’s 2008 or so, and I am enjoying an influx of good fortune. Unfortunately, every good turn is countered by a disaster. I get a lump of money from contract work, but then the car breaks. Heather gets some money from painting, but something goes wrong with the house. My website begins generating more money, but our bills go up even faster.
Cars and Windows
Heather and I are really hemorrhaging money now. Our aging Ford Taurus needs some expensive work. If the bill was any higher, I'd say get rid of it and replace it, but I'm willing to put down the cash if we can get another year or so out of it. I bite the bullet and pay for the repairs. Then four months later something else expensive breaks.
I agonize over this, but really I shouldn't. We don't have the money to repair or replace the car without borrowing, so we're stacking up debt either way. The only question is to figure out how to minimize our debt, which is just an exercise in delaying the inevitable.
I can see that this money loss problem isn't going to go away. I figure it's better to borrow now if it means we can get our spending under control later. It's time to make a command decision.
Making my best guess, we replace the twenty-year-old Taurus with a much newer Mitsubishi Gallant. It's smaller, newer, more fuel efficient, and hopefully it will cost less to keep it on the road. It’s tough to get all five of us into the car, but I’m willing to trade comfort if it means we can live within our means.
|Looking back through the hundreds of pictures in our archives, this was the only shot I could find of the Gallant. Not to spoil anything, but we didn’t own it long and didn’t want to take pictures of it. Also: Dig that crazy early snow.|
Making another guess, I decide to replace the downstairs windows. Those are the largest windows with the most severe drafts. This racks up a couple grand in debt, but I hope they'll pay for themselves quickly by putting a stop to these murderous gas bills.
I have never hated a car before now. I like some cars, I’m indifferent to most, but I have now found a car I can hate. I don’t just mean I’m angry at it. I mean I hate this car on a personal level. The Mitsubishi is a nightmare of continuous repairs. It’s like the thing is trying to spite me. I lose count of the number of times it leaves Heather and the kids stranded on the side of the road during a simple shopping trip. In our first year of ownership it feels like we replace half of it.
It’s not even fuel efficient. It’s a cramped little 4-door that’s much lighter and about ten years newer than our old station wagon, so I’m not even seeing any savings with fuel costs.
The new windows are nice, but they don't produce the game-changing reduction in fuel use that I was looking for. Our bills drop from $400 to $300. Nice, but $300 is still a monumentally oversized heating bill, the kind sent to houses much larger than ours. Do I borrow more money and take another guess at where the heat is going?
It's a trick question. It's more debt either way.
When the Mitsubishi turns out to be a financial disaster, people say helpful things like, “A Mitsubishi? You should have known better than to buy one of THOSE!” Of course, if this was true then nobody would ever buy Mitsubishi. The problem is that data on auto reliability is incredibly noisy, as well as being both politically and emotionally charged. It's like the console wars with a dash of Red State vs. Blue State. For those of us who don't care what brand logo we have on the grill or what sort of engine is under the hood, the entire thing is incredibly tedious. All I have to go on are consumer reviews and ratings, and it's hard to get Apple-to-Apples comparisons for the same class of vehicles of the same age. It's hard to tell the difference between “Nobody ever complains about this car because it's reliable” and “Nobody complains about this car because nobody buys this car.” Research is difficult and of course the best cars aren’t available on the used car lot, because people don't sell those. (Also, it's still 2008, and the world of aggregating consumer opinions isn’t quite as useful or reliable as it will be in a couple of years.)
So I’ve made the problem worse and all I have to show for my troubles is a slightly less drafty house and a lot more debt. The pile of bills is starting to look kind of scary. We’re starting to hit the cascading failure state that poor people run into, where missing a couple of bills leads to late fees, which leads to panicked over-correction, which leads to overdrafts, which leads to bouncing checks, which leads to double-punishment fees, which annihilates the money you were going to use to pay the bills next month and pushes you that much further in the hole. We’re in a downward spiral, and I don’t know how to stop it.
Sometimes people who make decent money get snarky or condescending about it. “You just need to learn to manage your finances.” True, but this is like saying the solution to traffic accidents is to not get in crashes. It’s totally possible to be careful and frugal and end up financially ruining yourself anyway.
If you’ve never lived paycheck-to-paycheck, then here is how it goes…
- An irregular bill shows up. Something broke, somebody got sick, you get a speeding ticket, whatever.
- You don’t have enough money to pay the bills. The cash just isn’t there. Paying late incurs late fees, which make the problem worse, so you want to be late on as few things as possible. You pay as much as you can, taking your bank balance down to almost nothing.
- Except! You forgot about that one auto-pay fee for your website, or that one time you used the debt card to pay for gas, or you accidentally bungled the math and spent slightly more than you had, or there’s that one check you sent out two months ago and forgot about and the recipient is now getting around to cashing. Because of this, you bounce a check. That $100 check to pay the electric bill doesn’t clear because you only have $95 in the bank. The bank punishes you for this by charging to a fee, which ranges from $20 to $100 depending on the bank. So not only do you not have enough to pay the bill, but now your bank balance is actually negative. They charge you another fee for that. So your bank balance is now -$50 and you still haven’t paid the bill. A bunch of angry notices are sent out.
- You put some more money in the bank. Say $100. You now think you should have about $100, but you actually only have $50. You write another check to the phone company and it bounces, incurring another double-whammy overdraft fee + extra fee. Once again you’re in the hole.
- The mail finally arrives, and you realize your blunder. You’re now down a couple of hundred dollars and you still haven’t paid the electric company or the phone company. They hit you with some punishment fees for sending the bad checks, plus a late fee for not paying on time. So there’s another hundred bucks in random fees. More bills end up late the next month. Since you live paycheck-to-paycheck, you will never, ever be able to catch up.
Think about a situation like that: You know that your entire coming week of work is all going to be eaten by fees stemming from a simple mistake.
For a while I say firm, declarative things like, “We need to keep this from happening!” But if your solution to a problem is “don’t make mistakes”, then it’s not a solution. If you’re worried about falling off a cliff, the solution isn’t to walk along the edge very carefully, it’s to get away from the edge.
This cascading failure is not the problem. It’s a symptom. I'm actually walking around thinking I’ve just recently screwed up, but the truth â€" which I'm about to figure out â€" is that I blew it years ago.
It's late 2009, and I've finally figured it out. It's about 8 years too late, but it's nice to finally debug the problem. I've run the numbers and I've realized that this house was a bad purchase. Not because it's drafty. Not because it's old. Not because it needs too many repairs. This was the wrong house because I was shopping in completely the wrong price range.
I'd blame it on a bad call made during a stressful time when I was dealing with the loss of my dad and in a terrible hurry to find a place to live â€" and I'm sure those were contributing factors â€" but in truth I had no idea what I was doing.
The bank approved me for $N house loan, and so I just passed that number along to the realtor. They showed me houses in that range. I was shopping in passive mode. I'd had such phenomenal good fortune with my first home that I didn’t realize the danger I was facing. I mean, of course houses go up in value, and of course you can sell them whenever you like! I made $35k in a year and a half and I sold it in two weeks. How can you go wrong with numbers like that?
|Image unrelated. Just put this here to break up this wall of text. Protip: If you want a picture of someone who is really camera-shy like my wife Heather, the best thing to do is to give the camera to a little kid. The pictures might be from a low angle and are sometimes a little blurry, but shy people are more comfortable around kids and don’t get the “OMG I’m being judged” feeling like they get when an adult is aiming the camera.|
I ran the mortgage payments in my head and they seemed reasonable, but that's because I was over-simplifying things. Now that I've sat down and forced myself to think through the problem, I see that our monthly bills and groceries come to exactly what I make. We can pay our bills just fine, assuming nobody ever gets sick, cars never break, computers never need to be replaced, we never observe Christmas, and I always get timely raises that keep up with inflation. Instead everybody is taking turns in the hospital, the car is about as reliable as a Doofenshmirtz device, the house costs a fortune to heat, and I haven’t gotten a raise in six years. And I can’t handle the unexpected costs because I didn’t leave any room in the budget when I bought the house.
I feel stupid now. It seems simple in retrospect, but of course the input data is incredibly noisy. Heating bills travel on a year-long sine wave. Electric bills follow the inverse wave. It’s hard to get a feel for how things are overall. But the other contributing factor – and I think this is true of a lot of slow-moving problems – is that it’s hard to diagnose problems if you view them at a really low framerate. I was only looking at and thinking about finances for ten minutes a month, and it’s really hard to see changes at that speed. If I was playing a strategy game and the last eight years were compressed into a couple of minutes I’d be able to see things easily. At any given moment a snapshot of the bills might look dire or reasonable. It's not until you average things out that you can see the true costs of living someplace. And if you want to get a handle on spending, you need to expand your definition of “groceries” to be “anytime we buy the things we need to live” and not just “stuff we buy at the grocery store”.
I guess this is what managers call having a “big picture” view of the problem.
Head. Hit. Desk.
|I don’t have a picture of my face the moment I realized how badly I blew it, so here’s a picture of the kids doing I Have No Idea What.|
Normally the solution to this problem is simple: Move someplace you can actually afford. However, the housing bubble has popped. If this house was any further underwater I’d be paying my property taxes in Atlantis. Even during the housing “boom”, this area wasn't exactly booming. The population of this particular town is falling and aging. Baby Boomers are selling off their empty nests and moving into apartments, retirement homes, managed care facilities, or little suburban houses were they won't have to cut so much dang grass. Their kids have left town. Nobody wants drafty old four bedroom homes that need constant care.
I’ve done what I could for the place. We’ve patched the bad spots, fixed some pipes, added air conditioning, put in new windows, replaced the abominable 70's carpet with wood flooring, and pulled out the horrible ugly fence. But even with all that work, I can drive a mile in any direction and pass half a dozen houses that are newer and nicer than this one and that are asking less than I owe here.
|Here we’re pulling up the evil 70’s CARPET OF DOOOM.|
Worse, I'd be compelled to be as open and honest about the problems in this house. The previous owner wasn’t criminally deceptive or anything, but they did a good job of painting over the cracks, as it were. I couldn’t do that. If I sold this place, I’d have to let the buyer know this place is a demanding project.
Now that I have a better sense of how it works, I see places where we could have gotten the room we need for a lot less money. If we could live in a place in town, give up the garage and the yard, and put up with a bit more noise, we’d be fine. We could live someplace a lot cheaper and still have all the space we need for the kids and computers. We’d have half the mortgage payment and the rest could have gone towards paying off Heather’s student loan. If I could do it again, I'd know where to look and what to say to the realtor. But I can't do it over again. I need to deal with the mess I’ve made.
It is physically impossible to pay the bills here, and it is physically impossible to sell this place. I have no idea how to solve this problem.
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