Steadfast FinancesVisualizing How the Things You Own, End Up Owning You.

Visualizing How the Things You Own, End Up Owning You

Filed in 20s , 20s Something Advice , Infographics & Chartology , Saving Money , Strategic Planning 64 comments

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.

The Slave to My Stuff Years

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:

  1. I bought way too much house on a single income.
  2. I was 2 paychecks away from defaulting on a loan (if I couldn’t borrow money from family).
  3. I wasn’t living beyond my means, but I was very close!

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!

How to Calculate your “Stuff per Hours Worked” Metric

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.

  1. Calculate your daily post tax bring home pay. Take a look at your pay stub or direct deposit receipts, and convert this number to your annual, post tax bring home salary. Then, divide this number by the number of days you work each year. For example, assuming you work a standard 9 to 5, five day a week job, let’s say your biweekly direct deposit total is $1500 post taxes, retirement contributions, etc. Simply multiply $1500 by 26 paychecks, then divide this number by 260 work days. In this example, the total will equal $150 per day.
  2. How many days you work to pay each individual bill and liability. Let’s assume your mortgage (or rent) is $1500 per month. If you bring home $150 per day, you will need to work 10 days at this pay rate to stay in your home. So take your calendar, and draw a line through the first 10 business days, and label them as “mortgage payment”, “rent” or as I did, “my townhouse owns me”.
  3. Repeat Step #2 for every bill or liability you currently have. If you have a car, add how much you pay each month for your auto loan, your monthly auto insurance payment and any personal property taxes you might have. Do this for your student loans, credit card debt, and any other long term contractual agreements. Of course, don’t forget that having a home means you have an electric bill, water bill, in-home entertainment and telecom costs just to keep the place habitable. And finally, you still have to pay fuel costs to and from work, keeping yourself clothed and presentable just so you can keep your job. Feels like I’m forgetting something. Oh yeah… you still have to eat!

If you have any other financial obligations that I didn’t include — a family perhaps — make sure to add them into your calculations.

Digging Out of Debt by Improving Cash Flow

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:

  1. Increase the amount of money coming in (e.g. your cash flow).
  2. Decrease the amount of money going out.
  3. Start selling assets to reduce my liabilities.
  4. Win the lottery (I do not recommend relying on option #4).

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.

If you enjoyed this post, make sure you subscribe to my RSS feed!
Posted by CJ   @   12 March 2015 64 comments
Tags : , , , , , ,

64 Comments

Comments
Mar 16, 2010
5:37 am
#1 Carlo :

Great post! As always, visualizing the data dramatically improves our understanding about the issues.

TNX

Jun 9, 2010
9:35 am
#2 Jeff :

Great post! The only thing I take issue with is the food category. After all, you do have to eat, so it’s not really a thing that owns you. What I’d like to see now is your new schedule.

Mar 19, 2011
11:49 am
#3 Eddie :

Car loans are a special pet peeve for me – no other thing do we pay 15% over the asking price, for an item that’s worth 1/4 of that by the time we’ve finished paying for it.

In a period a couple years ago of needing to make some tough financial decisions for some short-term but unavoidable (family health) reasons, I found myself in the position of learning to live below my means. In my case, I decided not merely to become more frugal but to decide which parts of my standard of living I wanted to sacrifice and which parts I wanted to hold onto.

I made a chart similar to the above, and then made deep, DEEP cuts in my expenditures. When the short term issue went away (which happened much, much, much faster than I’d anticipated) – I simply couldn’t imagine going back to how things were. I had relearned how to live on what I made immediately post-college (something I did a really poor job of back then), in spite of now making five times as much. I ended up with *no* debt, and recurring monthly bills that are covered by my takehome on the first couple days of the month. The rest is recreational and a substantial percentage that goes into investment & savings. I have since made and remade this sort of chart over and over again, as I way of visualizing the impact of various financial decisions. Seeing days lost of savings & investment potential, or even watching that new car loan encroach on your vacation plans can help you make the right decision.

Mar 19, 2011
12:03 pm
#4 Matt SF :

I hear ya Eddie. Cars, and especially SUVs, are widely considered the worst investment Americans make. Granted, you get from A to B so you get the value of transportation, but if you’re financing them, you’re paying interest on a depreciating asset. Not a very wise move in my opinion.

Apr 14, 2011
4:25 pm
#5 Mike T :

So I like your post so much I had to comment. 6 years ago I graduated college, 5 years ago I bought a townhouse. One paycheck covered the mortgage, the rest went to bills. I couldn’t save a hundred bucks a month. I also had 7k in student loans left and 5k in personal loans for my “toys”(motorcycles, cars, etc..)

It took me a year of owning that place and then I said “What if I lose my job?” Hell, I didn’t even want to live in the area in anymore. I was so pissed off at myself for what I had gotten into, the feeling was unbearable. The idea that I was going to work for the next THIRTY years for that crappy townhouse made me just want to give up. I was making good money, but had less than $500 in the bank.

I changed everything. 3 years ago I sold everything. Furniture, old sports equipment. I removed all the clutter from my life. Sold my car and motorcycle and picked up a cheaper vehicle. I stopped buying small every day items that add up. I sold my townhouse knowing that the $10,000 of materials put into would be lost, but I knew the feeling of being debt free would be worth it.

I now have 30k in the bank account and live in a cheaper small apartment with a friend. The feeling I have now after that situation is indescribable. Not only am I a much happier person with minimal possessions, I feel like I have much more freedom than what our corporate society has trained us to do.

Apr 14, 2011
4:32 pm
#6 Mike T :

I wasn’t clear in my post, but I have absolutely no debt. I never plan to go in debt again. I might have taken things a little over the top, but it was well worth it. I could never imagine being in that situation again. I’d gladly trade every dime in my savings account to NOT own all those possessions and have that debt.

Apr 14, 2011
5:10 pm
#7 Matt SF :

Good stuff Mike. I felt exactly the same way. The stress relief from having zero debt is almost indescribable.

One of the problems I frequently run into is the feeling of a debt free life is so unimaginable to some people that’s it’s difficult to explain or comprehend… until they do it.

Trackbacks to this post.
Leave a Comment

Name

Email

Website

Previous Post
«
Next Post
»