Is Money The Matter In Your Life?
David Ergo wanted to start saving for a down payment on a house. Given the decent salary he earned marketing software in Silicon Valley, he figured he wouldn’t have any trouble socking away some money. But after examining his finances, he found he had been saving just $1,000 a year.
“I was shocked,” Ergo said. “I thought to myself, ‘How can this be? - I’m not living an extravagant lifestyle. What’s wrong here? How am I ever going to afford a house?”’
And like many in today’s consumption-crazy society, he had no idea where his money had gone. A financial planner recommended that he read “Your Money or Your Life” by Vicki Robin and the late Joe Dominguez, gurus on how to gain control of your finances. The tenets of the book, which instructs readers to come to terms with their relationship to money, prompted Ergo to do some deep soul-searching about his spending habits.
He recognized that he resented society’s materialistic ways and felt trapped in an economic system that encourages overconsumption. He viewed his job as merely a vehicle to pay the bills.
“You ask yourself, ‘Who are you and what is your purpose in life?”’ said Ergo, 38. “Am I here just to sell software?”
For him, the answer was a resounding “No.” But first, he knew that he needed to do some financial housecleaning. Out were the $100 meals at fine San Francisco restaurants. Ditto a new car to replace his 1983 Volvo, which now has 300,000 miles racked up on its odometer.
Cutting unnecessary expenses allowed Ergo to quit his software marketing job and pursue his passion of flying. He took a part-time job as a flight instructor at Palo Alto Airport. He earns 35 percent less now, but his new life has turned up surprising results: He now easily salts away $10,000 a year. He’ll make a down payment on a house in three years or invest the money for his retirement.
Ergo isn’t alone in realizing that enough is never enough - that the American Dream always seems to be out of reach, no matter how much money you make. The trend to reduce consumption and return to old-time virtues of frugality and thrift has swept across the nation, from big cities to rural areas. Myriad books, newsletters, study groups and seminars have fueled the interest in this phenomenon that has been known variously as “voluntary simplicity,” “simple living” or “downsizing.”
“In the ‘80s, we all felt we should have everything: bigger houses, better cars,” said Janet Luhrs, a lawyer-turned-freelance writer who publishes the Simple Living Journal in Seattle. “But once we got it, we realized that we were not only not happy, but we were a lot more stressed, too.”
The Trends Research Institute of Rhinebeck, N.Y., predicts that 15 percent of the adult population will be participating in voluntary simplicity by the end of the decade.
“In the last few years, the word ‘yuppie’ has been removed from the lexicon and been replaced by ‘downsizing.’ It became unhip to be ostentatious,” said Gerald Celente, the institute’s director and author of “Trends 2000.”
But simplifying doesn’t necessarily entail dropping out of the rat race, moving into a log cabin in the mountains and living off the land. There are numerous stories of people living in big cities who have successfully streamlined their lives.
Take Peter Mui.
Mui “retired” four years ago at age 32. He left his $60,000-a-year job as an operations manager for O’Reilly and Associates, a computer book publishing company in Sebastopol, Calif. He got rid of his second apartment in Boston - which he used primarily during business trips to the East Coast. He and his girlfriend searched for four months before moving into their two-bedroom Berkeley, Calif. apartment - a find at $725. He kicked his costly weekend habit of buying the latest kitchen gadgets and household gizmos. And he resisted the urge to replace his 1974 Plymouth Valiant.
“There’s stuff that people spend money on and they’re not even conscious that they’re spending,” Mui said. “People could cut 20 percent of their expenses without even feeling it if they just became conscious about where their money is going.”
Through scaling back and investing wisely, Mui was able to amass $160,000. His nest egg generates roughly $20,000 a year to cover his annual living expenses.
Mui now takes advantage of free-admission days at local museums instead of engaging in expensive outings. And instead of being the “certified workaholic” he once was, Mui now spends his days volunteering for various community organizations, such as the Lawrence Hall of Science in Berkeley.
“I had always known that there was more life than ‘9 to 5 till you die,”’ Mui said.
Although the philosophy of simplifying typically calls for a sweeping reevaluation of every aspect of life, from building community to reducing clutter to eliminating stress, a fundamental step involves gaining control of your finances. Once people take hold of their money matters, they are free to make other important decisions about work, family and leisure time, experts say. Here are some suggestions on how you can streamline your money life:
Look at the big picture.
What are your financial goals? Write them down. When Robert J. Cohen, a financial planner in Berkeley, asks his clients to do this, he finds that many of them are looking for ways to retire early - not itching to buy a sprawling mansion in the hills.
Prioritize your goals, then assign price tags to them. If early retirement is what you’re after, identify what it will take for you to reach that goal, Cohen said. Once you’ve figured that out, start saving - now. Set up an automatic savings plan that allows you to pay yourself first.
“If you try to do it at the end of the month, it ain’t going to be there,” Cohen said.
But all this scrimping and saving shouldn’t be viewed as deprivation, experts say. In fact, Dominguez and Robin’s book suggests you shun budgets entirely. Budgets are like diet plans - you stick to them short-term, but then you’re likely to fall off the wagon. Instead, think of it as making choices. For instance, if you don’t spend $40 going out to dinner, you could use that toward your larger goal of taking a weekend ski trip this winter.
Track your spending.
David Heitmiller and Jacqueline Blix were once big-spending, hard-charging professionals, pulling down a comfortable $100,000 combined income. But they hardly knew where their money went. Several years ago, they began recording into a now well-worn notebook every cent they spent.
“Recording your expenses regularly is difficult. Most people find that daunting,” said Blix, who has written “Getting A Life” with Heitmiller about their experiences. “But this is the most valuable step. It gives you an awareness of where the money is going instead of frittering it all away.”
From their regular tally, the Seattle couple found areas where they could cut back: cable TV subscription, books, clothing and housing costs. Now, they stick with network television, check out books from the library, buy used clothes and rent a one-bedroom apartment (they sold their 2,000-square-foot home).
Determine what you really earn.
According to Ergo’s paycheck stub, he was making $23.25 an hour. But once he subtracted the costs of working - commuting, clothes, meals out and job-related illness - he calculated that his “real” after-tax wage fell to $6.12 an hour.
Other job-related expenses include the money you spend on hiring a gardener, a house-cleaner, a babysitter and a dry cleaner - all tasks you don’t have time to perform because you’re at work. And if you weren’t stressed at the office, you wouldn’t need to take weeklong vacations to relax, simplicity experts say. Subtract all these expenses from your hourly wage and you’ll see it rapidly spiral downward.
Using your “new” hourly wage, you can also determine the real costs of spending money. Assume that each dollar you spend is worth a certain amount of your time. In Ergo’s case, if he spends $100 on a fancy meal one evening, it would cost him more than 16 hours of work at his real wage to pay for that repast. Converting money into time spent working will help you think twice before you open your wallet to pay for yet another, unnecessary gadget.
xxxx BOOKS EXPLAIN SIMPLE LIVING If you’re interested in simplifying your finances and your life, here are some books to get you started: “The Circle of Simplicity: Return to the Good Life,” by Cecile Andrews (HarperCollins, $20). “Getting a Life: Real Lives Transformed by Your Money or Your Life,” by Jacqueline Blix and David Heitmiller (Viking Penguin, $23.95). “Your Money or Your Life: Transforming Your Relationship with Money and Achieving Financial Independence” by Joe Dominguez and Vicki Robin (Penguin Books, $12.95). “The Simple Living Guide: A Sourcebook for Less Stressful, More Joyful Living” by Janet Luhrs (Broadway Books, $20). “Simplify Your Life: 100 Ways to Slow Down and Enjoy the Things That Really Matter,” by Elaine St. James (Hyperion, $8.95). “Living the Simple Life: A Guide to Scaling Down and Enjoying More,” by Elaine St. James (Hyperion, $15.95). There are also a few Web sites: The Simple Living Network, www.slnet.com The Simple Living Journal, www.simpleliving.com Center for a New American Dream, www.newdream.org -Knight Ridder