February 18, 2009

Holy crap, are we the Joneses?

Until my Twittered revelation that you can find a used car for under $5000, it never occurred to me to consider who the Joneses were in my (extended) family.

*gulp* I think it was us.

Why else would I have forgotten that cheap, used cars are not impossible to find? 12 years ago, I was happily perusing the ads for a used car I could afford in the $2-3k range. Fast forward to now and we: still rent, are down to one car (bought new) out of 3 cars and 2 trucks, and I’m the only one who has cashflow and savings. Pretty? Oh yeah.

How did this happen?

Growing up, we were poor enough that I remember my parents driving an old used car, wearing hand-me-downs and homemade clothes, and a steady diet of growing-up-poor-in-the-old-country stories. We lived in a two-bedroom apartment until I was 12 or 13. My uncle lived with us between (my) ages 3-9, so he got the second bedroom, my Dad slept on the sofa in the living room and my brother, Mom and I cordoned off the king bed in the first room. For a while, we only had a queen mattress, but getting to sleep in the bed frame next to the mattress was a treat: we fought over that little cubby-like space. Eating out was the treat of a bowl of pho ($3 each, back then) once in a blue moon, and I didn’t know that people shopped at stores, not yard sales. I had 4 of 8 dresser drawers to call my own, and I owned 3 books. The ownership of a book was a precious thing, I would give up eating and sleeping to read back then, so if I could have a book for keeps, I was in heaven.

Then, after their business was launched and keeping them super busy: lifestyle inflation. Big money was not rolling in but they decided to move and get a new car. We moved into a rental home, we kids had our very own rooms, and the next car my parents bought was a leased sedan. Then a financed truck, maybe a year after. They felt like they needed to provide a better lifestyle for us, a more comfortable one. And maybe a more comfortable/convenient one for them as well.

I had no idea what leasing or financing was except that at the end of the lease, we would return the car. Sounded like sucky to me, but my parents said the lease made sense because they didn’t want to commit to a car long term before we were old enough to pick what we liked.

Mistakes:
1. Leasing.
2. Taking on new cars without regard for the overall cost: interest, insurance, etc.
3. Even considering what kids that age might want in a car and house. We were not old or wise enough to be included in this kind of decision-making unless we were also learning to budget. Obviously, we weren’t. They should have picked a modest home and bought it before the housing market went haywire, and invested their money in that, not in our opinions. Instead, we (sort of) practiced delayed gratification in the sense that we were willing to wait to own something really nice, but didn’t understand the part where you do without to save.

My parents owned a small grocery store, and supported my mom’s many siblings by hiring them to work at the store. They also helped pay for new cars, rent, school, time off, etc. Then they expanded to open a second, bigger store that was not in the best location, and coincided with the grocery store wars. (Which was followed by the major grocery store worker strikes. All ugly.) This was a bad business decision, followed by another bad one years later to sell the first (performing) business so they could focus on the second (underperforming) one.

Mistakes:
4. They were way too generous and didn’t set firm boundaries early on. The siblings/family assumed that because my parents were business owners, they were wealthy. In reality, they were spending just as much as they brought in thanks to employing the family. Even if it was “for a good cause,” they didn’t build wealth or stability for their own family. Doing business with family = SUCH a bad idea.
5. Overextending themselves physically and financially without taking a step back to evaluate performance. My parents have a major work ethic which meant that they needed to be at each store, every day, all day. It was awful. They worked 18 hour days, 7 days a week, 365 days a year, for more than ten years, and still ended up with very little.

They worked so hard to make enough money to send my brother to private school. I know they worried about sending my brother to the local public school because one of my older cousins had fallen in with the wrong crowd there, and that led to his untimely death in his early twenties. But that wasn’t the entire high school’s fault! My three other cousins did well, and even I went to that school. (In fact, my social awkwardness in high school worked wonders at keeping me out of the wrong crowd. Hah!)

Mistake:
6. Ditto #3. Coldhearted though it may sound, investing their time and attention would have been more valuable than wasting the money on him. More specifically, wasting the money on an education he didn’t appreciate or take advantage of. The money for 4 years of private high school could have been a decent amount of home equity, or retirement savings. Or health care!

During my second year of college, we had a truck and sedan, so I shared a car with my dad for several months. Then they told me that I should get my own car because sharing was difficult. Honestly, I thought it was silly because we had worked out a decent arrangement where I carpooled with friends, alternating driving days, or arranged my schedule to match my dad’s. It was a good exercise in making the best of our resources, but they kicked me out and told me to buy a new car. And not just a new-to-me car, a brand new car because I’m “a girl and therefore not capable of dealing with used car problems.”

Mistake:
7. Reinforcing the lesson that everyone had to have their own car, and that we always had to buy new.

My mistake:
Listening. BFF’s family could have found a great deal on a used vehicle. I should have stuck to my guns but I was 19 and stupid. When I was 15, I was looking forward to buying myself a cheap beater car on which I could learn basic maintenance like changing tires, oil, wipers, and other troubleshooting. Instead, I obeyed my parents and bought new for their peace of mind.

We’ve gone through 5 new cars in the last 15 years. What a waste. Can you imagine the amount of money I could have saved instead of wasting it on a new car and insurance? At least $15k in car expenses alone. I love my car, but I wouldn’t make that mistake again. [And I don’t plan to because I’m keeping her forever. Amortize that $20K+ mistake over 20 years of use, and I’ll get over it.]

When my freeloading brother finally moved out, they let him take the television and family furniture with him. I was livid: he thought he could mooch off the family, run up the bills, and then take off with anything he wanted? Yes, they let him, but what a selfish jerk. Call me a hardass, but if he thought he was so adult, then he needed to go and make it on his own. Not take whatever he liked, only to chuck half of it when he got to his new apartment, and then finance new furniture! Yeah. I lost it. My parents’ response? Was to buy a new big screen to replace the one he’d taken. A $6000 big screen that they couldn’t afford without financing. Because they thought the point of my protests were because I wanted “my” tv that I never watched.

Mistake:
8. Oh, for heaven’s sake.

So, for a (really) rough family profile comparison: my aunt is the sole breadwinner in her family, and she kept them in an apartment that costs about $800/month, drives a used car they bought for $3000 cash 4 years ago to replace their 15 year old wagon, and pays $800 in car insurance for two people a year. (That’s 66 dollars per month for two adults!)
Her two kids were each offered full-ride, merit scholarships to private schools (avg cost: 50k/year) with at least twenty thousand in additional private scholarship money so they’re not paying a dime for school. Oh, can I brag on my smarty-pants cousins a little bit? The admittance rate is something like 16%. So they kick butt.
Housing: 9600
Car insurance: 800
Total: 10,400

We went from paying about $800/month rent in 1996 to $1360 now with an additional $300-400 in utilities. Our car payments were $400+ for the recently totaled sedan, and just under $400/month for the recently sold truck. (My car was paid off in three years, but that was an expensive mistake as well: $21K in total, with an exhorbitant $XK in insurance the first year. but let’s not talk about that…..) Our car insurance was averaging something like $3400/year!
I personally paid for my entire state college education after the first year – I had scholarships and federal aid to defray the first year’s cost. [I call that the cost of being not as smart as the young ‘uns.]
Housing: 16,320
Car insurance: 3400
Total: 19,720

That’s just using the most bare bones, easily verifiable, expenses as examples. It doesn’t include any of the credit card debt that my parents had, which I think can be attributed to using cash advances/charging expenses for the business, to buy stuff for us kids, and cover unexpected expenses. Also, I’m sure that three international trips between the years of 1991 to 2000 to visit my grandparents, each costing in the neighborhood of 10K or more, were charged on the cards. By 2005, I had taken over at least 10K of their credit card debt, but you can be certain that that was not the whole of it. [Purely sentimentally, those trips were worth it because they were my only chance to meet my grandparents. Grandpa died not long after our first visit.]

At one particularly low point, probably around 2002, I remember numbers like $5-6K being discussed as the “minimum” monthly household expenses. That is absolutely insane.

When I review at their financial history, it’s staggering. It’s taken over 5 years to 1) identify all the leaks, breaks, and mistakes; 2) reduce or eliminate unnecessary expenses, and 3) see how much money was wasted as holes are plugged up.

It didn’t appear to be a lavish lifestyle, but it was for our income. There was far too much money spent unwisely, no wonder they don’t have a penny saved for retirement and my mom’s health/mental health declined so precipitously. New cars, a house, new furniture, that was all money flowing out into consumables, and not a penny to securing the future. If I’d seen the whole picture, I might have passed out. More than once.

My family scares me. I think we were the Joneses for a good long while: lifestyle was a much more visible issue than living within our limited means.

We used to sit around together and talk about the future, and what we’d have when we were financially stable or successful. Unfortunately, it was all about the things, not the obstacles we’d face or the decisions we’d have to make with regard to school, careers, and family. It was the houses, and which of the kids the parents would live with. [If we accidentally got one thing right, it was the joke that I would get the parents because I’d have worked my book-smart ass off to make the money, get the big house, and never give my brother the address. It was funnier back then. Also, I was a lot smarter pre-13-years-old; after that, it was all downhill.]

I wish we’d talked about making smart money choices, and that all choices have consequences. I wish we’d talked about making practical life choices. I am grateful that they were liberal enough first generation parents to see that a medical profession does not happiness create. For example, they never said I had to be a doctor to be good enough which is what many of my peers were told. But I wish they’d also encouraged us to make decisions based on the bigger picture, not just “do whatever makes you happy,” and realized that each money decision they made for us was a money choice they were making for themselves. And vice versa.