Due to the popularity of the visualizing how your stuff owns you post from several weeks ago, I thought it would be beneficial if I documented exactly how I use a simple monthly calendar and a few personal finance metrics to visually represent how many hours, days, even weeks, I had to work in order to maintain “ownership” of my stuff when I first entered the workforce.
Just to show that all personal finance bloggers aren’t a pristine model of financial responsibility all of their lives, the graphic below represents how my personal finances looked using what I call the “How your stuff owns you calendar?” method when I was fresh out of grad school, making ~$60,000 a year, and leveraged up to my eyeballs.
As you can see, like many green 20s Something young professionals, I quickly leveraged myself (e.g. handed over my future income) so severely that I was barely cash flow positive by the end of the month. Not to mention, having just bought a home, closing costs and the hidden costs of home ownership depleted most of my savings fairly quickly, so I was forced to become a serious frugal living expert after figuring out — too late of course — that I had officially become “mortgage poor“.
The observations I make from my personal finances calendar are:
So I hope this in-your-face method of visualizing this how your stuff ends up owning you exercise will help you think twice before over-leveraging yourself… as I did!
Generating this graphic is very simple and takes just a few minutes. All you need to know is your annual salary and how much you pay every month on each individual bill.
If you have any other financial obligations that I didn’t include — a family perhaps — make sure to add them into your calculations.
If you have spread your personal finances out as thinly as I did, it’s probably time to take action.
In my case, I only had 3 worthwhile options:
Notice how I did not recommend cutting out business insurance or general liability insurance from you bills, as insurance is the easiest way to protect what you already have.
At the time, I didn’t want to sell my home since I had just bought it and I couldn’t sell my car since I didn’t have a mass transit option available, so I had to play the cards I dealt myself.
Owning a larger than average home meant I had income generating potential. So I rented out the finished basement for $500 per month, as well as got my new roommate to pay half of all utilities and in home entertainment costs. With this one step, my positive cash flow increased 3 to 4 fold.
Being your average American male, I wasn’t a very good cook. I relied mostly on cheap take out food or medium scale restaurants for at least one third of my dinners. Once I learned to cook, and by cook I mean learning how to cook well (actually I cheated and dated a chef for 6 months), I was able to cut my food budget nearly in half by making restaurant like meals at half the price.
Wanting to have a killer bachelor pad, I got the most tricked out cable TV package I could get. Digital cable, HBO, Showtime, the digital music channels — the works! Problem was, this stuff was around $100 per month and I rarely watched it. Even though the introduction of a new roommate meant cutting the cable bill in half, we switched to basic cable and never missed it a second since I spent most of my time cruising the bars downtown or shooting hoops on the outdoor courts.
And the cost cutting projects continued. Six months later, I had paid off all of my consumer debt as well as built an emergency fund around $5,000.
Looking back, I consider over-leveraging myself one of the greatest mistakes I made as a young adult. Even though I walked away unscathed with a killer credit score, I had to hustle and use a few clever money hacks just to get by.
Obviously, I would also not recommend pushing the envelope to this degree. Not only did I miss out on a few life experiences I wish I had gotten to attend since I didn’t have the disposable income (e.g. saver’s remorse), the amount of anxiety caused by money related concerns gave more sleepless nights than I care to remember.
So if you landed on this page and decide to use this technique, you will, hopefully, learn from my mistakes regardless of your age since this applies to the young professional as well as the 40 year old first time home buyer. Plus, this occurred in the early 2000s when the economy was fairly strong and I had job offers out the wazoo, so it’s not like I couldn’t find a job the next day with the large number of headhunters I had in my email contact list.
But the key point to take away is that the more you leverage yourself, the more you’re exposing yourself to potential dangers. One unanticipated layoff and not having an emergency fund in place, and you could find yourself in serious trouble.
If you have questions, or you used this technique and it helped you reduce your expenditures or convinced you not to lever up more so than normal, feel free to leave your questions/comments below.