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Wednesday, June 30, 2010

Financial Tips for Newlyweds Who Have Never Paid a Utility Bill

A reader wrote me with a special request for a post. I thought the idea to be fantastic. Granted, those "Newlyweds Who Have Never Paid a Utility Bill" of their own aren't exactly my main readership, there are a good number of us who do have extended family for which this is the case. And, hopefully the tips I'm putting together are words of wisdom worth sharing with the novice who is interested in listening and learning.

This post has been long in developing as I have a hard time relating to such a position. Elementary school math included some check writing and register exercises. Once I had check writing down, I started to write checks for my mother for phone and utilities (back in the day, there were drop boxes located within local stores for utility checks). When I was in middle school, I used to help my father out in his office which included some basic book keeping. I have a hard time imagining being thrown into an apartment, with a new spouse and likely a new baby before shana rishona is up, never having dealt with some of the basics from check writing to making a budget. On top of that, advice for chatanim and kallot is more likely to contain advice about gift giving than dealing with the big financial picture, or more likely the lack of finances.

Following are 5 tips I'm hoping will be of help to those who need a reference point as to where to start when dealing with money. These tips have less to do with the actual mechanics, and more to do with developing a philosphy. The mechanics are something that need to be practiced and organized, each according to what works best.



1. Resolve to Communicate with your spouse: Functioning as two ships passing in the night is the quick road to disaster. Within certain circles there is an expectation that a man takes on certain functions, while a woman takes on others. Better to be a unit where both parties understand the expectations of the other and the financial picture.

2. Know What Trouble Looks Like Before It Strikes: Or, in other words, don't ignore the future and make appropriate plans, rather than find yourself in crisis later.

3. Understand Risk and Know What an Asset Is: There are too many stories of young people in the frum community loosing their wedding money to schemes as well as investments that were too risky for them. Additionally, understand what an asset is and what it isn't. To make this short, your sheitel isn't an asset, even if it is the most fabulous custom. If you are investing, buy assets and avoid risk that is financially inappropriate for your profile and your age.

4. Don't Ignore One Side of the Financial Equation to the Detriment of the Other: I've read some frugal tips that border on the extreme. I also know people who believe the answer to financial issues is to bring home more and more. Each solution, carried to its extreme, isn't particularly healthy. Try to walk the middle road between increasing income (especially long term earnings) and decreasing expenses.

5. Take a note from Mah Tovu and Seek Advice from Appropriate Sources: In other words, don't look in your neighbors windows and when you need advice, seek out people demonstrate the appropriate expertise and objectivity.


Readers, people add your advice, words of wisdom, and personally experiences regarding pitfalls, both philosophical and practical. Also, try to keep the comments light and respectful, especially during the three weeks.

63 comments:

JLan said...

Regarding the actual utility bills (which this post isn't about): it may be useful to have one bill come to one spouse and another bill to the other. We've discovered, a bit too late, that certain financial things request proof of residence by your name on a utility bill. Since both the electric/gas bill and the telecom bill are under my name, in can make things difficult when applying for joint accounts and such.

rache q said...

Learn to keep track of expenses. nobody can begin to discuss finances unless they know how much they spend on what. It makes little differnce if it's quicken or just excel.

Anonymous said...

I would add: get into the practice of saving. Even if its just a few dollars a week at first, something should be set aside each week. Think of the seven fat cows.

Anonymous said...

Save. Save. Save.

Anonymous said...

In my opinion, the best advice is that the couple should be on the same page in terms of financial goals.
It doesn't matter which one of the 2 actually pays the bills, but if both know how much they spend a month, how much they want to save, they can then honestly decide how to spend the money properly.
I run all my large purchases (100+) by my wife before buying and vice-versa, so that it shouldn't look like we're hiding anything, but I can't remember a time when she didn't agree to my expenditure or vice-versa.
If you have the same financial hashkafa, no matter how much you make, you'll not have shalom bayis problems due to finances.

Paying Parent said...

While this post is great for those who already share those responsible values, the yeshivish newlyweds play by different rules. We have tried counseling my younger, more yeshivish, newlywed brother and sister-in-law in financial responsibility and received the following response:
"We plan on having as many children as Hashem provides us, as quickly as he provides it. No job that I am qualified to take will net me enough money to provide for our family [he has taken a few courses at Touro and is currently unemployed]. I might as well invest our money in the riskiest schemes that can possibly result in very large windfalls, and if that falls through, I am no worse off than I was before. If I am going to be making negative income anyway, and will need financial assistance, I might as well enjoy my free time as opposed to slaving away for my boss."
What do you even begin to say to that?

efrex said...

Paying Parent:

In deference to our esteemed host's wishes, I will try to keep my comments civil.

Your brother should look at a Rambam, hilchos matanos le'aniyim, 10:16-17.

tesyaa said...

Paying Parent - what you can do is resolve to never, ever help them financially as long as they persist in this irresponsible course. It sounds harsh, but really, it's like giving handouts to a drug addict.

Deb said...

anon 9:34- I agree with running your large purchases by your spouse. In your case it's $100 +
Just noting that this amount can and should vary by couple. The important thing I think is for them to be on the same page as to when it's important to consult; For some couples, it's $300, for some, anything over 20...

and to paying parent- who is the person supporting these financial babes in the woods? That's the person who needs to have a clear talk with them about responsible financial management.


I think if parents are supporting their married "children" it's important not to infantilize them by paying their bills directly anyway. They need the awareness of how to budget a set sum so they can live within their means (even if they're not earning their own means).

gavra@work said...

Paying Parent:

Given the choices they (think they) have, they are making the best economic choice.

The fact that they only have these choices makes me think they are doomed to Listus (thievery) to start with, and their parents have failed them.

YU College Student said...

College student here, with hopes of being a newlywed soon enough:

Any investing advice for someone in their young 20's? Ie How to diversify and split investments for short-term (3-5 years) and long-term (10+ years)?

nuqotw said...

YU College Student -

(1) Some of the best (and shortest) financial advice I ever got: "Save a third, spend a third, and spend a third on housing." It may not always be a realistic budget, but if you have these goals in mind, it will help you keep your costs in line.

(2) Sock away as much money in your retirement accounts as possible. Now is the cheapest time to save for the future. You don't need to know anything about investing. Put it all into a target retirement date mutual fund and forget about it. (I am a big fan of Vanguard. Not only are they are low cost, but they are the only investment business of any type that has actually been professional, helpful, and nice to me.)

(3) Learn to differentiate between "need" and "want".

(4) Track your finances. Keep a log of expenses (thanks SL for that advice to me), projected expenses, etc. If you wait until you need to know something about your money to figure it out, it might be too late.

Ely said...

Here are a few of my suggestions:

1) Avoid debt like the plague

Sometimes you have no choice but to take on debt like for advanced education or home ownership. Besides that, you should not have any debt (i.e. credit cards). Credit card debt should only be accumulated in an emergency and NEVER should be used as an expected monthly savings account that can go up and down.

2) Budgeting

Sit down and figure out what your monthly expenses are and what your monthly income is. Do not include where you may be getting some help from parents. Assume you are taking on that cost. Make sure to include % of income for Roth and 401k (every little bit helps) as well as the little costs (like $10 a month for Netflix or the $2 a day on coffee). Adjust this document every few months or after a significant change.

3) Tracking

Unless you have the time to track your expenses every month, use a site like Mint.com that aggregates all your data and tells you where you net out at the end of each month. It's free to use and is known to be VERY secure (as secure as online banks).

4) Credit cards can be useful

Once you have zero credit card debt, credit cards can be useful because you can easily track all your purchases from one statement. Put EVERY purchase you can on one card and pay it off in full every month. You can earn points that can be redeemed for hotels and flights to ease the cost of a vacation one day.

5) SAVE SAVE SAVE

Every penny that can should go towards savings. Your wedding money should be the beginning of a down payment for a house, not a chunk of cash to decorate your new apartment.

6) Wait to have kids

Halachic issues aside, from a financial perspective, having a kid in your first year or two of marriage can have incredible detrimental effects on your future lifestyle, especially if you're young and don't have a large savings. Kids eat up a lot of cash and once they start school, you've got to earn a solid minimum salary just to not be in the red every month. Wait a year or two, see how finances are, and then decide whether you can financially support a child.

7) Most importantly, be in constant communication about finances with your spouse

All too often, I hear about wives who don't know about the finances of the household. It's VERY bad and can not only lead to financial problems in the future, it could easily lead to marital problems. You should have a joint bank account, review statements together, explain to each other what you're spending and why, and discuss future plans together while looking at your budgeting document and seeing how you can afford that new car/house/coat/couch.

Anonymous said...

Deb: Unfortunately, taxpayers are probably helping to support this coule and others like them, through medicaid, section 8 and food stamps. I am a strong supporter of these types of programs, but young (and older) people who can get an education/job training and work/work more and live responsabley are going to ruin things for those who truly need these programs and its people like them who keep food stamps and some other benefits at pitifully low levels for disabled and elderly people who need these programs.
I don't understand how there is anything holy about that.

Paying Parent said...

We refuse to help them out until they reign in their spending (you should have seen my face when my sis in law showed me the $95 bag she just bought)and my brother in law gets a job (he actually has offers that he refuses to take because they don't make enough money). His parents gave them an apartment to use rent free and my in laws babysit for free every day all day. They also eat at both parents houses most nights. And with all of this they can claim paupery and qualify for WIC, child Health plus, food stamps, etc... Rediculous

Anonymous said...

Paying Parent: Why would you help them out at all? Shouldn't they be getting jobs? I can't imagine turning down job offers and expecting family to support me.

Anonymous said...

Being Orthodox and meeting those expectations is incredibly expensive and increasingly unattainable.

No you do not have to spend 30K for a wedding and 10K for a bar / bat mitzvah. Be realistic.

Care less what the Schwartzes are doing and do what is financially prudent for your family.

Much Hatzlachah!

Anonymous said...

Never buy a new car and never rent one.

Don't buy a house until you understand all the costs of home ownership and have savings to cover emergencies, like the furnace dying in the middle of winter, termites, replacing a roof, etc. If you will have to put those expenses on a credit card and not be able to pay them in full, you can get into a downward spiral.

Don't take on any debt (i.e. other than a fixed mortgage) or make any investments that you don't understand.

If an investment (other than a CD in a federally insured bank or a T-Bill) says "risk free" it isn't. If something sounds too good to be true, it is.

Infants and young children do not need new things. Most baby/toddler clothes, furniture, toys, strollers, etc. should be bought used, with the exception of items where safety standards have been changed - i.e. don't buy a crib that is so old that the slats are too far apart for current standards.

Anonymous said...

Buy life insurance while you are young and healthy. That means today, since health can change in an instant.

JS said...

It's scary how little people know about finance when they're supposedly adults, getting married, and having kids. I remember in college I was treasurer of a student group and was training my successor when I realized he had never written a check in his life even though he was 20. I had to explain where to put the payee, amount, signature, etc.

On to advice:
1) You and your spouse need to be on the same page. Without this you can just forget everything else. If you're not on the same page you will have endless strife and likely a lot of debt or insufficient savings.

2) Read a simple finance book like "Personal Finance for Dummies." Personal finance is not complicated. People tend to think you need to be a genius or work some kinda scheme to get ahead. It's really 90% having the right attitude and follow through and 10% knowledge. However, you need the knowledge to have the attitude I think.

3) Realize that both doing and not doing something is making a decision. Understand the financial implications of each. Spending $X on one thing means not spending it on something else. Forgoing a purchase means utilizing $X in another way. Even small decisions add up. A temporary apartment that's $300 more per month may not seem like a lot, but it's nearly $15k over 4 years.

4) Know what you are spending and why you are spending it. Recognize needs versus wants. Prioritize the needs and put off the wants. Set goals so it makes it easier to justify putting off the wants. Track expenses in a program at least till you get the swing of things.

5) Save. You need emergency money, retirement money, money for a down payment, etc. Again, put off wants. Recognize the financial impact of decisions.

6) Earn more money. Life is expensive. You need to ensure you're on an upward track financially. Figure out what your maximum earning potential is. How soon till you get there? Can you utilize your skills in another way to make more money? Is another degree beneficial? Can you work another job?

7) Controversial, but delay having kids. Once kids are in the picture everything is more complicated. The wife, if not established in her career, can do serious harm to her career mobility. Going to school at night might become impossible or impractical. Taking certain career risks may be irresponsible. And once a kid is born you're on a one way track to certain inevitable expenses that you may not be ready for if it happens too early.

8) Think simple and don't try to be so darn smart. Most financial mistakes are made by people trying to outsmart everyone else - it can be some investment scheme, some business idea, some scheme about using debt to leverage a purchase, etc. Just keep it simple and you'll be fine.

9) Eliminate all bad debt. Debt can consume you before you know what hit you. Eliminate it as quickly as possible.

JS said...

Another piece of advice:

Don't be like a high school kid who just got his first paycheck from a summer job and thinks he's rich now that he's got $300 in his pocket. The first thing that kid does is buy himself that luxury item he's been dying for - the iPod, Wii, HDTV, etc.

I see young couples with the exact same attitude. They think they're sitting high on the hog because they have some job that makes $35k and they just got wedding gifts of several thousand dollars.

So many young couples rush out, just like the high school kid, and get all the new toys: the HDTV, the new, expensive leased car, the larger, nicer apartment, etc.

It's a "nouveau riche" attitude and it's just plain stupid. Avoid the temptation and, if possible, find a better class of friends who don't succumb to this nonsense.

YU College Student said...

Wow, thanks for all of the advice. Honestly, I think SL should include this somehow in another post, as I feel many of my friends and people my age slowly coming out of school, getting married, and joining the workforce are ill-prepared, if not clueless, about financial stability and preparing for future financial growth.

JS - While I'm interning this summer and making a decent amount (net ~$6-7K), I've already taken your advice to heart and am looking for ways to invest that money for when I have actual expenses to pay.

Any more advice is welcome too!

JS said...

Good for you. I find that, unfortunately, sometimes the best way to know what to do in life is to look around and do the opposite of what everyone else is doing.

That $300 extra for the apartment wasn't made up. My wife and I got the smaller one bedroom. Everyone else in our building had the 2 bedrooms despite not having kids. Our apartment was $300 less per month. Over the 4 years we were in the apartments before buying our house it saved us $15k. I'd rather have a down payment for a house than a slightly bigger apartment for 4 years. This is what I mean in terms of setting goals and forgoing wants.

In terms of investing, I like Vanguard index funds. Just make sure your risk profile is suitable for how soon you think you need the money. Also, investments come after emergency funds.

My priorities are: emergency fund, down payment, retirement, and saving for big items. Others may disagree, but if you start saving young for a house and can put away real money once you're done saving for the down payment you can throw all the money into retirement and not lose out since you're still so young. The only caveat would be if your work matches retirement funds, then fund retirement to the maximum of the match.

Anonymous said...

I agree with JS, except as someone who is now facing retirement in the not too distant future, I would prioritize retirement savings before a down payment. People are rushing to buy houses way to young. Better to really know where you want to live, what tuitions, commuting expenses, etc. are in the area before you buy. Also, sometimes its better to save up and buy a house you can stay in long term, rather than rush out and buy a starter home you will outgrow just because all your friends are getting into houses.

orthofan said...

One thought: If tax rates are going up, and even if not and someone is in a low tax bracket (e.g. starting at $50k) putting money in a tax deductible/deffered 401k/IRA is NOT the best decision. For them the ROTH (not deductible but tax free forever)is a much better solution. And saving outside a retirmenet plan is a must for someone who does not yet own a home and plans on buying one!

JS said...

Anonymous,

I agree with what you're saying. In case I wasn't clear enough before, it makes sense to prioritize housing over retirement if you can save up for the house quickly and return to saving for retirement while you're still young.

For many reasons (some financial, some practical) I don't like starter homes.

efrex said...

YU College Student:

The single most important thing you and your fiancee can do is meet with a reliable financial advisor. There is no shame in not understanding different investment options; speak up, and make sure that his/her advice makes sense to you and your particular situation.

Scott Adams (of Dilbert fame) wrote the most succinct, nearly-universal, nine-step financial plan a few years back.

1)Make a will
2)Pay off your credit cards
3)Get term life insurance if you have a family to support
4)Fund your 401k to the maximum
5)Fund your IRA to the maximum
6)Buy a house if you want to live in a house and can afford it
7)Put six months worth of expenses in a money-market account
8)Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement
9) If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio


The only thing I'd change is the order of 4 & 5: fund the 401k to the match point, then the Roth IRA, then back to the 401k.

What's critical, though, is that both you and your intended have an understanding of your goals and timeframes, as well as a realistic picture of your financial situation.

Behatzlacha!

efrex said...

YU College Student:

The single most important thing you and your fiancee can do is meet with a reliable financial advisor. There is no shame in not understanding different investment options; speak up, and make sure that his/her advice makes sense to you and your particular situation.

Scott Adams (of Dilbert fame) wrote the most succinct, nearly-universal, nine-step financial plan a few years back.

1)Make a will
2)Pay off your credit cards
3)Get term life insurance if you have a family to support
4)Fund your 401k to the maximum
5)Fund your IRA to the maximum
6)Buy a house if you want to live in a house and can afford it
7)Put six months worth of expenses in a money-market account
8)Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement
9) If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio


The only thing I'd change is the order of 4 & 5: fund the 401k to the match point, then the Roth IRA, then back to the 401k.

What's critical, though, is that both you and your intended have an understanding of your goals and timeframes, as well as a realistic picture of your financial situation.

Behatzlacha!

efrex said...

YU College Student:

The single most important thing you and your fiancee can do is meet with a reliable financial advisor. There is no shame in not understanding different investment options; speak up, and make sure that his/her advice makes sense to you and your particular situation.

Scott Adams (of Dilbert fame) wrote the most succinct, nearly-universal, nine-step financial plan a few years back.

1) Make a will
2) Pay off your credit cards
3) Get term life insurance if you have a family to support
4) Fund your 401k to the maximum
5) Fund your IRA to the maximum
6) Buy a house if you want to live in a house and can afford it
7) Put six months worth of expenses in a money-market account
8) Take whatever money is left over and invest 70% in a stock index fund and 30% in a bond fund through any discount broker and never touch it until retirement
9) If any of this confuses you, or you have something special going on (retirement, college planning, tax issues), hire a fee-based financial planner, not one who charges a percentage of your portfolio


The only thing I'd change is the order of 4 & 5: fund the 401k to the match point, then the Roth IRA, then back to the 401k.

What's critical, though, is that both you and your intended have an understanding of your goals and timeframes, as well as a realistic picture of your financial situation.

Behatzlacha!

efrex said...

apologies for the multiple posts... the advice might be good, but not that good!

Anonymous said...

In terms of tracking, keep it simple. writing every purchase over x dollars (i.e $5 for newlyweds with low or zero income) is useful, but not for everyone.

We did a detailed log for a couple months, then went an easier method I still use today (10+ years later). All our spend goes through either our savings (ATM withdrawals) or checking account (including credit card payments). Thus, any income and expenditure goes through one of the 2 accounts. Each month I note the difference between starting balance and ending balance, this is our net income for the month.

You can toggle this a little, to include retirement accounts. I track 401k contributions separately, but philosophically do not include in the bank account analysis because they are not readily accessible funds. I would include retirement savings for a net asset assessment, but not for regular budgeting. Instead, set an automated savings target (i.e. Roth, 401k...) based on your cash flow, and then look at it every few months to gut check your assumptions. Otherwise, there is no need to track that as part of budgeting.

Note: This works well for us, where I would be happy to track many line items while my wife has a hard time doing it for even the big ticket items. The high level approach works well for discussions, then we can dig down into specific months/bills if something breaks the trend, or periodically to determine if we can increase our savings / take a larger vacation, etc...

Good luck!

Be'er

LeahGG said...

To the anon above who said "never rent a car," I assume you meant never to lease one.

I have friends who rent a car for a day whenever they need one rather than owning one. If you live in a city and you don't need a car for your daily schedule, the math often works out much much cheaper - because you often pay a fortune just to park the thing, not to mention insurance, maintenance, etc.

My aunt lives in Philadelphia - parking in her complex was $700/month. She gave up the car, takes buses and subways or walks whenever it's practical, takes taxis when it's not, and for the rare times she needs to go someplace out of town that isn't easily accessible by public transit, she rents a car. She's not hitting anywhere near $700 a month on transportation now, and $700 was before insurance, gasoline, maintenance, and parking in her destinations.

Sometimes the decision that seems expensive (renting a car, taking taxis) end up being cheaper in the long-run than the "normal" decision (owning a car).

My advice: Always do your own math and check it with someone who knows finance.

You know how everyone says that paying rent is throwing away money - Paying interest is also throwing away money. Again, work the math before listening to what "they" say.

Anonymous said...

Leah: Thank you for the correction. You are correct that I should have said don't lease a car. I agree that for some people living in a city with expensive parking and insurance, ocassionally renting for a day or two and using taxis and public transportation can be far more sensible than car ownership.

JS said...

"You know how everyone says that paying rent is throwing away money - Paying interest is also throwing away money. Again, work the math before listening to what "they" say."

Definitely.

Before buying a house I heard this all the time. I still hear it from friends who rent. It's simply not true. Often renting is a MUCH smarter financial decision. I tell people if your rent is cheap, you're saving good money, then what's the problem right now? You're not the street, you don't have to be concerned when something breaks, you have a lot of security, and no risk.

This also factors in to what I said before: unfortunately, sometimes the best way to know what to do in life is to look around and do the opposite of what everyone else is doing.

Lots of people paid TONS of money for nothing houses in the housing boom at ridiculous mortgage terms when they were doing just fine in an apartment all because everyone else was doing it and everyone was talking about the "idiots" in the apartments are throwing their money away.

You have the same nonsense in paying down good debt as slowly as possible (mortgages, student loans, etc) so you can get the interest deduction for as long as possible. It's like paying the bank $500 a month so the government will give you back $150.

JLan said...

"One thought: If tax rates are going up, and even if not and someone is in a low tax bracket (e.g. starting at $50k) putting money in a tax deductible/deffered 401k/IRA is NOT the best decision. For them the ROTH (not deductible but tax free forever)is a much better solution."

Orthofan is generally right about this, but note that your situation may change this. For example, if you're in the 15% tax bracket and living in NYC, you'll be paying about 25% in marginal rates. Now, if you plan on ending up in Texas or Florida (which lack state income taxes), then future increases in income tax brackets may be offset by the lack of state/city taxes.

Anonymous said...

One more thing. Young couples (indeed anyone) should learn what can hurt your credit rating and how to build a good credit rating and why a good credit rating is important. I'm not as obsessed about FICO scores as Suze Ormon is, but when you go to apply for that mortgage you are going to pay a lot more in interest over the life of the loan if you don't have a good score. This may be particularly true with tightening credit standards.

Steven said...

"You have the same nonsense in paying down good debt as slowly as possible (mortgages, student loans, etc) so you can get the interest deduction for as long as possible. It's like paying the bank $500 a month so the government will give you back $150."

True. BUT if your mortgage rate is 4.5%, you may be better off paying your mortgage off as slow as possible if you believe that inflation is going to increase in the coming years. Remember, if inflation in the next 30 years is even half as bad as some predict, you will be better off paying off your 4.5% mortgage as slow as possible.

JS said...

Steven,

No offense meant at all, but your advice is exactly what I was referring to above when I said:

"Think simple and don't try to be so darn smart. Most financial mistakes are made by people trying to outsmart everyone else - it can be some investment scheme, some business idea, some scheme about using debt to leverage a purchase, etc. Just keep it simple and you'll be fine."

Look, maybe you're right, but I just don't think it's smart to be thinking along those lines. I'd rather have my house paid off than take some bet on inflation.

Miami Al said...

1. Pay yourself first.
2. Don't step on financial land mines.

The rest is commentary.

Pay Yourself First: that means if you want 50k for a down payment in 4 years, and you have 2k saved up, that's 1k/mo for 48 months. Take the first 1k you earn each month and put it in the down payment fund.

Basically, when you do your budget, pull the dollars for long term goals out first, then the rest is your play money. Live frugally, don't life frugally, do whatever you want, if you are meeting your long term goals, you can do what you want. Family finance is a marathon, not a sprint, the goal is to meet your needs (short/long term), not maximize every dollar.

In terms of land mines, don't do anything colossally stupid, at least not repeatedly. Everyone decides that they are smarter than the market, and starts trading on "tips" etc. does well, then something blows up and they lose it. Might as well take that first $2k that you're going to invest, put it in a brokerage account, "outsmart the market" until you lose it. Better to get it out of your system before real money is involved. Doing it with 2k when you have no responsibilities is a LOT better than doing it with 200k when you are desperate to "catch up."

Don't have a kid until your marriage and careers are established. Exceptions to this exist, but it's a good general rule. Established doesn't mean you made partner at a law firm, it means that you've finished school, finished grad school, and have "run the gauntlet" of 100 hour weeks to prove you can. Every industry hazes you for the first 2-3 years, much easier to deal with when you aren't juggling childcare. Obviously, if you are 30+ and getting married and want a large family this doesn't apply, but if you're in your early 20s, you have time. A kid while you are an undergrad, or trying to work through grad school is a land mine.

Do NOT move to Bergen County, expensive part of New Jersey filled with a bunch of broke Stepford families over there... Though the Italians I've met from that area are all pretty cool and nice, the Jews there suck. :)

But seriously, do NOT join a community where you will be on the lower part of the income range unless you BOTH have the discipline to not play keeping up with the Jones. Also, don't compare your lifestyle to people 20 years older than you and think you should be able to afford the same stuff.

Finally, the most important:

Talk to you spouse about priorities, and not just in a stupid way.

i.e. of course you want to put the kids in Yeshiva, preferably the right fit for each child, pay for their year in Israel, college, graduate school, wedding, and perhaps a down payment on their first home, all while saving for a wonderful retirement and giving 20% to charity.

In the real world, what comes first? If you can't fund both college savings and Yeshiva, which do you choose? What if you can afford college savings and a RW Yeshiva, but if you do the MO Day School you want, you can't fund college. Are you prepared to downsize and live in a "retirement home" on social security because you didn't save but lived in the "best" community for you?

These sort of decisions will be what govern the rest of your life, and are FAR MORE significant than table clothes, skirts vs. pants, head covering, or whatever nonsense seems really important when you're in the Frum bubble.

Miami Al said...

Oh, spend some quality time reading the comments on 200k Chump's blog. There have been a bunch of references to it in this thread including:

The Nouveaux Riche spending patterns of people flaunting wealth
Spouses on different priority scales
Inability to separate needs from wants
Choices -- going with the flow is a choice

This is a website of people that all make between $200k and $250k a year in income, and are DEAD BROKE... well, not all dead broke, but most of them are or are on their way.

You'll learn a lot from the screaming, yelling, and total insanity that's going on there.

These families are total disasters and can't figure out a solution, because they made bad choices, and now find the consequences very painful. These choices include moving to a neighborhood with very expensive Day Schools, picking a school without financial consideration when tuition was 1 child, and a few years later when it's 4, they are kind of stuck emotionally. It's now too painful to make a move, and they are being wiped out financially because they can't afford their lifestyle.

See past the venom towards the scholarship families, and you'll get Family Finance 101, how not to screw up.

Zach Kessin said...

Paying Parent,

I would buy your brother a copy of the Total Money Makeover or "Your Money The Missing Manual" (From O'Reilly) And tell him that if he lives the way he is proposing that you will never even consider helping him, even if it means that he falls off of a cliff. And yes you will have to let him hit rock bottom, that will be really UGLY.

2) If you really want a high profit high risk investment I know a nice man in Nigeria. To be truthful with that attitude he might as well hang up a sign "Scam artists welcome".

Anonymous said...

"Also, don't compare your lifestyle to people 20 years older than you and think you should be able to afford the same stuff."

To that, I would add: Don't compare your lifestyle to people who will not be paying or are not paying private school tuition and think you should have the same stuff. In particular, do not compare yourself to yourself to your colleagues at work.

Auntie said...

Also, do not compare yourself to people in professional jobs when you are in a modestly paying career. Do not compare yourself period! Or compare yourself to people who have a lot less - and feel lucky! If you are on a modest career path, feel fortunate that you do not have the huge tension and client-finding problems that professionals have. Do not live beyond your means!

tesyaa said...

On the subject of comparing, don't compare your lifestyle to an idealized 1950s version of the world. Most American mothers work - whether or not they're struggling to pay tuition and buy expensive religious items.

mlevin said...

I agree with most of what is said above except for the buying the house part.

Houses are now underpriced and it's a great time to buy one. If you are a young couple with a stable job, make buying a house your first priority.

The number one reason for it is that rent keeps on going up, but fixed mortgage stays the same. Yes, the first few years it takes a lot of sacrifices to pay for that house, but it gets easier and easier with each raise. After 3 or 4 years you will discover that your mortgage is the same as paying rent and after 10 years you will discover that compared to renters your mortgage is peanuts.

Dave said...

Buying a house can be a bad decision even if you buy at a good time in the market, *if* you may need to move within 5 years. Or even 10, depending on how the housing market breaks.

Miami Al said...

mlevin,

Unless you lose a job, unless you can't afford the upkeep and end up with problems. Or the market re-tanks and you end up upside down... or you can't repair a roof leak and you end up with 10s of thousands of dollars of mold damage.

I love being a homeowner, but life was MUCH simpler when there was a rent payment on the first of the month, and no "misc" housing expenses.

Painfully frugal said...

I don't know if anyone else has this problem, but I am going to put this out, anyway.

It is okay to spend money. You should save, and you should invest. But you are allowed to spend money. If you are a just entering the job market and making $40,000 a year, and you find you are saving 60% of your income, make certain that you are not depriving yourself too much. Know the difference between needs and wants but know that it is okay to have wants. My parents saved every penny they could and raised two kids in a small two bedroom apartment. They never bought new clothes for themselves, refused to take vacation, and generally deprived themselves. My mother died young, never having a chance to benefit from all the money she and father saved. The money that I inherited from her feels like blood money.

tesyaa said...

Painfully frugal - clearly your mother derived some psychological benefit from saving and being frugal. There are people for whom it is more painful to spend than it is to deprive themselves. I'm sure your mother would not want you to feel bad about having the money.

A Fan said...

MLevin- I wouldn't make that blanket advice. We probably could afford a house at this point (my husband has a substantial trust account), but we are both still in school, which means when we graduate, we will move to wherever we get jobs. Sure, we may get to stay where we are, but there is no reason to take that risk, even though by the raw numbers we can certainly afford to.

Speaking of my husband's trust, I want to make a point, which is that people get wealthy and stay that way by SAVING. That trust account came from DECADES of his grandparents saving, and it stays substantial by us not using it to fund our whims. We are doing everything the newlywed way even though we don't have to- modest apartment, not eating steak for dinner every night, old car, we're not running around on fancy cruises...

Only thing I would say that I disagree with is the notion of waiting to have kids. There are reasons to wait, and some of those reasons may be financial. But I don't think it's right (both halachically and hashkafically) to wait until you have "enough". What does enough really mean anyway? It kind of reminds me of all those people who say they'll make aliyah when they're "financially ready", and somehow, they never reach that point. At some point, you have to take the leap. And you know what? Even if you are "financially ready", unexpected stuff can happen to mess with that. Like getting pregnant with twins. Or having a special-needs child. Yes, you should be responsible, don't have kids if you don't know how you'll pay for them; but I think it's just as wrong to wait and wait and wait till you reach some magic number. Kids don't have to be as expensive as everyone says they are, but that a different topic already.

JS said...

Painfully frugal,

This is a very good point. I think Miami Al was making it earlier as well when he stated that once you save for your long/short term needs the rest is play money. I think so much of the advice has been to the opposite extreme because people have a tendency to misplace wants and needs and spend first and figure out how to pay for it later.

When I was first starting out I found that budgeting actually helped me spend money on myself. By allocating $X for clothes or entertainment or other purchases I didn't have to feel guilty when I indulged myself. Knowing that there was money set aside for "me" that wouldn't get in the way of anything else was very liberating.

JS said...

"Only thing I would say that I disagree with is the notion of waiting to have kids. There are reasons to wait, and some of those reasons may be financial. But I don't think it's right (both halachically and hashkafically) to wait until you have "enough"."

I advocated for waiting and I will continue to do so. I never once tied waiting to having "enough." I think I was very clear that I said one should wait until they are established in their career and/or gotten school out of the way. Especially for a woman, having a child can completely upend a career. A woman can basically end up throwing away an expensive college and graduate school education by having kids too early and never getting her career on track. Or, a career that could have been fast tracked, gets mired and bogged down. Further, when you start a career you often need to put in serious hours in the first few years if you want to get ahead. A kid makes that difficult if not impossible. Ditto going to school at night.

If you're planning on having 3-4 kids and you get married in your early 20's there is no harm in waiting till your late 20's to start a family. There's plenty of time to have the kids you want and you will be orders of magnitude ahead career-wise just by waiting a few years as compared to those who don't.

"At some point, you have to take the leap. And you know what? Even if you are "financially ready", unexpected stuff can happen to mess with that. Like getting pregnant with twins. Or having a special-needs child. Yes, you should be responsible, don't have kids if you don't know how you'll pay for them; but I think it's just as wrong to wait and wait and wait till you reach some magic number."

It's not about a magic number in savings as I made clear above. And yes, anything can happen. So, why not plan for the worst case scenario? When we bought our house we made sure the down payment and fees didn't completely deplete our savings in case there was an emergency. By your logic I should just leap without looking - buy the house, don't worry about savings, since bad things can always happen. It's precisely because bad things can happen that you plan ahead! I don't understand the logic at all. Twins or special needs can happen so just go ahead and have the kids and throw caution to the wind? You wouldn't give the advice in other contexts so why here?

Orthonomics said...

I've said my piece already on holding off children, especially for long periods of time.

The type of couple I'm attempting to address (not easy, nor one of my best posts) is not going to be entering marriage holding off on the establishment of a family. A more appropriate piece of advice might be the knowledge that birth control is not always forbidden.

Frummie said...

A more sober thought on holding off having children: Don't play games with g-d. Saying "I am only 22 and will wait until I am 30" assumes that once you hit 30 g-d will grant you the kids. Rabos mach-shavos b'lev ish.....Note that I would NEVER question a Rov/Mentor who advises a couple to wait. One Rov I know told a couple to wait, telling the boys Choson Teacher that after meeting the couple it was a divorce waiting to happen. And he was soon proven to be correct.

JS said...

With all due respect, your "sober thought" is nonsense. A rabbi is able to discern God's will and can make a determination of whether or not God wants the couple to have kids now or later? You do understand this is what you're saying, right?

The fact of the matter is that no one knows what life has in store for them. In my opinion you plan to have things work out the best for you and your family. If it doesn't happen, at least you tried your best. But, to set yourself up for failure on the off chance that something bad may happen down the line is just foolish.

Why not say, "Well, who knows if God has in store for me that I'll live long enough to retire? I might as well no save for retirement or spend all my money now?" Why is that any less foolish?

It's amazing. You talk about having kids and all sense leaves the conversation.

Miami Al said...

Nobody said "until your 30s." We said "late 20s" and "done with graduate school" and career "established" established is you did your first 2-3 years of running the gauntlet (for doctors, it's residency, for everyone else, it's the first 2-3 years of jobs). In "professional" tracks, those early years are simply a requirement of putting in time. The money doesn't come until a few years in (big money later), but those first two jobs are more about face time and long hours than one you do.

If you are going to have children before you have established yourself, then you will not have two solid career paths without tremendous effort and some dumb luck. You will be chasing "parnoseh" instead of a career that is meaningful and lucrative.

You will be worrying about one working days, one at night to avoid child care, or losing the second income because child care costs more, or any of the traps that keeping the working class in the working class.

Build a House, Plant a Field, find a Wife -- might not be Frummy, but legitimate Jewish advice from our sages.

My wife got seriously derailed by getting pregnant at 26 instead of at 28... Those 2 years were enough time to get all her industry credentials in line, but we felt "ready" and now we have to hustle to get things on track.

Had we waiting a year or two to get everything in line, we'd be in a MUCH better situation... and guess what, being able to both afford more "help" AND needing less... Instead my wife is back to night classes 2 nights/week with the kids getting an afternoon/evening nanny instead of time with mom.

OTOH, if mom has waiting just a bit longer, the kids (actual living, breathing children, not conceptual ones) wouldn't have their mom having to go to night school since dad works all day and mom works all day and at night.

The difference between 24 and 28 is MASSIVE, those first few years of your career are all about long hours.

But do what you want, one of the most successful guys I know from grad school had a child at 17, worked through college, etc. He and his wife actually have very successful careers. However, they didn't have another child for 12 years, and had more work ethic than anyone else I know to get there.

JS said...

I wrote about this on HonestlyFrum's blog, but I'll post here too because I think it applies. There it had to do with attitudes in Orthodoxy towards women, here it has to do with family planning.

I received an email from a shul about halachot of the 3 weeks and 9 days. Part of it had to do with bathing and doing laundry.

In the 21st century in America the email talked about bathing and laundering as if we're still living in the middle ages in Europe. For example, halacha based on the assumption that people bathe or launder their clothing infrequently and that warm water is not generally available and is a luxury. Or that swimming is halachically considered a form of bathing since this is how people used to bathe. I could give more examples. And you know what? Intelligent, Orthodox people don't even blink when they read this stuff. It makes perfect sense.

This is the problem. This is precisely why Orthodoxy (especially Modern Orthodoxy) is in such shambles. Once something enters our codified halacha, it can never leave, no matter how absurd or ridiculous it currently is.

This is the 21st Century. This is America. You live in a remarkable age. You have a life expectancy that is more than double your great grandparents most likely. You can actually have 8 kids if you wanted to and they will almost certainly all live long lives - they won't die by age 2. You wife isn't likely to die in childbirth. Most serious diseases are eradicated. I could go on.

Above all else, reproductive medicine has made unbelievable advances. Women routinely have children in their 40's. Women used to DIE in their 40's.

And yet, we're all walking around like it's the middle ages in Europe. Gotta pop out those kids immediately when you're 20 or you'll never get another chance to. Don't play games with God. Waiting even 3-4 years is just asking for it.

Wake up. 21st century not 11th. America not the Pale of Civilization.

Miami Al said...

Orthonomics,

What's the advice: earn more than you spend, make sure you are on a path to earn more than your expenses are long term.

Utilities and everything else scale up with a bigger hour, don't rush into it.

However, if making sure you both have solid careers is out of the question, then what can you advise, very different advice:

Go find an area where you want to live. When your first child enters preschool, buy the biggest house that a bank will give you a mortgage for. Lease the biggest cars you can. Hide the money you have from before that time, i.e. when your first child is in preschool, make a big payment toward your mortgage.

Take out a 15 year mortgage so more of your payments is principal, and refinance every 2-3 years, you'll pay a fortune in fees and interest, but it doesn't matter, the more you pay in mortgage, the less you pay in tuition.

Since presumably this family will use expensive Day Schools, and has zero intention of earning enough money to pay the tuition, the secret is to accumulate as much wealth as possible without usage of any financial products available to normal upper middle class America.

Perhaps 529s in your parents name for the benefit of the children will work. You can take money out of the ATM each month, report it to the Yeshiva as grocery money, and hand it to your parents who can deposit it and write a check to the 529 accounts, that way they can have college dealt with.

Or is this NOT the advice you want? If the family isn't going to focus on having a substantial income, and plans to send the children to Yeshiva, I'm not really sure why any of the frugal living or anything else really matters, they aren't going to earn ahead of tuition, so all the accumulation of assets means is that they have assets to draw down before getting scholarship.

Critically Observant Jew said...

Miami Al:
Shouldn't there be a middle ground there? ;-)

For example, having 1 kid under a year old, I do the following:

1. keep 3-6 mo emergency fund
2. funding 401k up to employer's match
3. everything above the emergency fund money goes into paying off a) car loan (for a very recent used car); b) (after the car is paid off) mortgage.

That way, there's much less liquid assets for creditors (read: schools) to go after when the time comes.

tesyaa said...

Critically Observant Jew - bear in mind that as yeshivas need more and more money and have fewer people to get it from, there's nothing to stop them from demanding you use your home equity or tax-advantaged retirement savings for tuition. They may not be doing it now (though I'm sure that some are), but they will probably be doing it in the future.

Avi said...

Have a plan. Of course man isn't in complete control, and the plan is going to change. Have a plan anyway.
Avoid $4 habits and $400 luxuries.
Make a budget, track your expenses, and make allowances for occasional $40 luxuries (ex: date night). You're trying to be responsible, not an ascetic.
If all your friends are fiscally irresponsible, maybe you shouldn't be friendly with them. No, really. It's OK. They'll be too preoccupied with all their stuff to notice that you aren't hanging out with them and feeling jealous and inferior much any more.
Don't buy an iPhone if you can't afford the data plan.
Avoid multi-level marketing schemes; focus on your career instead.
If you don't like your job, find something you do like that you're good at and can be lucrative over time. It's OK to start over.
Don't assume that "you'll go on scholarship. Everyone does." First of all, it isn't true. Everyone isn't on scholarship - in the MO world, the majority of people pay full tuition. Scholarships are tzedaka - would you invite a bunch of people over for a meal knowing that you'll have to pick up supplies at the food kitchen first? Of course not. Finally, you may discover that the schools don't have enough scholarship money to go around, and if you can maximize your family income, you may be required to do so by the scholarship committee, so you might as well plan for that from the outset.
Consider aliya.
Don't buy a house unless you can afford a house.
There are valid hashkafa (and sometimes health) reasons to have a bunch of kids in your early 20's, but from a strictly financial standpoint, it's bad. Kids need care when they are young - either from a spouse, which kills career momentum, or from a caregiver, which kills income. Then they become tuition time bombs before you have reached your peak earning years where you can afford it.

Critically Observant Jew said...

Tesyaa: if it comes to that, then my kid(s) are going to public school (and I may move to a neighborhood with better public schools). The only way I will pay for tuition is to use the on-going income. If I can't - well, then my kids will either be on a scholarship or in public school. The idea of using savings to pay for 12-13 years of tuition sounds ridiculous to me.

nmf #7 said...

Just wanted to say thank you to the Student who asked for solid advice, and those who provided solid answers. I will be looking into further options for my own family.