Keeping with the theme of expensive city living, I wanted to throw out the recent case I heard from a friend who now no longer has parking included with her job. This means that she was weighing the pros and cons of paying $415 a month to park at her office.
True it offers some convenience and saves time in the day, but there are certainly a few better things I could think of to do with that $415 a month.
Personally you can see where I fall in the spectrum, as having a car in the first place isn’t worth it to me. Another friend was trying to convince me that I needed to take the bus to work rather that walk 1.6 miles each way, but I’ll still take walking for a bit of extra exercise than pay $50 a month. I take it about once a month, and that is enough for me.
Needless to say, I’ll be skipping the parking, but there are plenty of folks in DC who do pay it year after year. Don’t know how or why, but clearly there is a market. There are other ways to get around that are not quite as convenient but are much more frugal and will allow you to save a lot of money over time.
Michael’s post yesterday inspired me to write about our own experiences in the realities of the cost of living in DC. James & I are both originally from Oregon and go back a couple of times a year to visit family.
Given how much I travel internationally, I find it crazy that the differences in prices between Oregon and Washington, DC are akin to traveling to another country. Certainly there are some chain places where prices stay consistent, but even these there can be a difference from time to time.
Oregon doesn’t have sales tax, so that also adds to the bliss of cheaper shopping. We can go to an outlet mall in Oregon and get a whole wardrobe of Brooke’s Brothers for the same price as an outfit on Connecticut in DC. I’ve learned that I don’t even both shopping for James in DC, it is rare to find a deal worth it.
Eating out is also crazy cheap out West. You can get a full fabulous sit down meal for the price of eating out at a “cheap” sandwich joint near to the office.
Unfortunately Oregon also has one of the highest unemployment rates in the country, but for those going back for a visit, it can be good times. Portland rocks as a city, so consider it for a nice weekend away as well! Catch it now as fall comes in, before the rains set in.
On the flip side – DC is simply expensive. About the only thing you don’t have to pay for in DC is breathing, though you do pay the price in terms of poor air quality in the long term.
Stop into Whole Foods (or whole paycheck) for a quick couple of things and you’ll be lucky to get out of there for less than $20 for a lunch bag worth of goods. Go actual grocery shopping, even at more reasonable stores such as Safeway, Giant, or Harris Teeter, and you’ll have spent $100 and you only have two full bags to carry home. It can be pretty incredible to see how spendy it really is. Saving money is essential when prices run so high.
However, given how expensive it is in the city, I still think one is better off right in the District than out in the burbs. First, you don’t need a car. Second, you can get your exercise walking. Third, the price you put into metro and car can go straight into your mortgage or rent. Really the only advantage of the burbs is more space, which then just leads to more stuff.
I will say that while our real estate is expensive, it could be much worse. Back at the height of the bomb we took a trip to San Francisco and Hawaii, both of which are much more expensive to live. That made us feel better about coming back to DC!
It might be more expensive living in DC, but we also have careers that would be impossible to have elsewhere. I’ll take my 600 sq ft condo over a place in the burbs any day. I know for those who live in American super sized places, I bet it is hard to even imagine, but it works for us DINKs!
Last week I picked up a copy of Felix Dennis’ How to Get Rich. So far its been a terrific read. If you haven’t heard of Dennis, he is the owner of a number of magazines in the UK and estimates his net worth somewhere north of $400 million. In addition to being really rich, he’s something of a poet and an iconoclast.
The following quote jumped out at me. Its on the topic of dealing with fear. Felix says that essentially you have to embrace it and work through it.
“The only way to deal with fear is to cozy up to it. Look it in the eye and pump its hand. To translate its negative energy into adrenaline. To harness it. To laugh with it, rather than at it.“
A city’s cost of living is not something I considered when I was about to graduate from college and needed to find a job. Competition was stiff, and I didn’t really care where I worked. I had always lived in Indiana, but my field did not have a lot of employers in my home state, so I knew that I’d probably have to leave to get a job. Which state I went to wasn’t really important, I just needed to find work wherever I could. I was fortunate enough to land two job offers, both in the Commonwealth of Virginia. I took the one closest to D.C. (eventually moving closer for subsequent jobs), not because of its location, but because it was a better job. As anyone in my position would be, I was excited (and a little nervous) but I was in for quite a shock when I finally moved out here and experienced first hand the giant impact that living in an expensive region can have on your finances.
The last three years have been quite an education in the impact of a high cost of living. I recently visited Bankrate’s Cost of Living Comparision Calculator to see exactly what the difference is between where I live now and where I grew up, and despite being intuitively aware of the difference, it was still disheartening to enter my salary and see the difference. According to Bankrate I could take a 36% decrease in salary back home and still maintain my current standard of living. That is simply unbelievable. Words can’t describe how that made me feel.
And yet I feel like I knew that already. A friend of mine purchased a house back in Indiana – before the housing market collapse, 5 minutes from where I went to High School, for less than $100,000. Even after housing prices took a nose-dive you couldn’t buy any sort of living structure for that amount out here. My rent payment is nearly three times as much as his mortgage. It all was quite shocking to me.
A lot of people can’t help where they live. There might be only a few places in the country where they could work in their chosen area. Or maybe they prefer to live near a certain city, or want to be close to family or friends. I could always move away, and one day I will. But this experience served to illustrate the substantial difference that living in a one city or another can make.
But how are these city comparison figures generated? The United States Bureau of Labor Statistics publishes something called the Consumer Price Index, which is often mistakenly referred to as a Cost of Living Index. They are not exactly the same thing. The CPI measures the costs of certain goods and services on a city, regional and national level. A truly comprehensive Cost of Living not only takes in account the price of goods and services, but attempts quantify the quality disparity in other hard to quantify areas, such as public services and certain environmental factors. Even so, the Consumer Price Index is a good, objective, quantifiable place to start when discussing the price difference between two cities.
The Consumer Price Index is a massive index of the prices of various goods and services; covering everything from the price of chewing gum to the price of dry cleaning services. The full list of goods and services can be found here.
There are two CPI categories: CPI-U and CPI-W. CPI-W is for Urban Wage Earners and Clerical Workers, and CPI-U is all for All Urban Wage Earners, which includes everyone except the military and rural earners. CPI-W represents about a third of the population (it excludes professional, managerial, and technical workers) while the CPI-U represents roughly 80% of the U.S. population. The CPI is calculated by aggregating a series of indices that correspond to each good and service that is a part of the whole CPI. Each good or service is multiplied by a weight, and then compared to the previous period’s value to develop the rate of change of the price level of that particular good or service, as well as the rate of change of index as a whole.
The CPI is most commonly used as an economic indicator (an approximation of inflation, although it has been shown that the there isn’t a one-to-one mapping of CPI change to inflation) and is also commonly used to adjust income during union wage negotiations, as well as adjustments made to Social Security payments and other government-funded assistance.
To give you an idea of how these numbers work, we can look at the July 2009 CPI-U for both the national city average and for comparison purposes, the Midwest city average. The U.S. city average, on a 1982-84 base (meaning the CPI for 1982-84 is set at 100.00) was 215.351, whereas the Midwest city average, for the same base year, was 204.814 (the August 2009 CPI will be released on September 16th). So by looking at the numbers, you can approximately say that the Midwest is generally cheaper than average to live in. More information on the CPI can be found on Bureau of Labor Statistic’s website.
So in general, what does this mean from a personal finance standpoint? It clearly illustrates the influence that the city you choose to live in will have on your bottom line. If you are trying to build wealth, it can be quite difficult to reach your goals when it’s so expensive to live. It’s more than just rent or housing prices that are affected by your geographical region; almost every consumable good is priced differently depending on where you live. I was unaware of the extent of this influence when I first moved out East, and although I probably would have moved here anyway, it certainly wouldn’t have been such a shock.
As a reminder, you can always contact me using the link under my profile at the top right of the page. Also, I think I’m going to give Twitter a shot. If you’re so inclined, you can follow me at: @michael_DINK.
In my last post I talked about a friend of mine who had difficulty getting a credit card due to a high student loan balance. It has always been important to know your credit score, but it’s especially important now to be diligently tracking your credit rating since the economy is continuing to struggle.
Most people are familiar with FICO as well as the three major credit reporting agencies: Equifax, Experian and TransUnion. FICO (stands for Fair Isaac COrporation, named after its two founders, Bill Fair and Earl Isaac) is the creator of the credit scoring model, which builds a statistical model of credit worthiness, which is used by the credit reporting agencies to generate a credit score.
If you’ve recently looked at your score from each of the three agencies, you may notice that the scores are different for each agency. This is because each agency has its own methodology and data that they use with the FICO model to generate your score. Most of the time the scores are relatively similar, but there may be large variations, depending what’s in your credit history. That is why most people recommend you look at the data that all three major credit reporting agencies have, as there may be inconsistencies between them.
The actual makeup of the credit scoring formula FICO has developed is proprietary information, so we don’t know the exact makeup of the model. But they have released a general outline of the formula, which can be found here. The formula is made up of the following parts:
Payment History (35%)
This includes late payments, defaults and bankruptcies. Although all given percentages are approximate, this is clearly the most important factor, and the one you have the most control over. You should nail this one in order to get a good score.
Total Debt (30%)
This is where your credit utilization comes into play. Here they look for how much total you owe, how many accounts with outstanding balances you have, and your ratio of debt-to-credit. Opinion varies on what a good debt-to-credit ratio is, but typically you want to have a credit utilization of less than 30%, but obviously the smaller the number here, the better for your overall score.
Credit History Length (15%)
This is pretty self-explanatory; typically accounts in good favor and more than three years old are the key here. Unfortunately for many young people, or people who have previously relied on a cash-only system, this can end up hurting their credit score, even if their income and lifestyle wouldn’t otherwise cause them to be viewed as a credit risk.
New Credit (10%)
This is another controversial aspect of the credit score, because if you’re looking for a new credit card, you may apply to a couple different ones in search of the one with the best rate. When a vendor checks your credit, your score takes a little hit, regardless of whether you are extended a line of credit or not. The best way to mitigate those little credit dings is to be very focused when researching credit cards, and be careful to not open numerous lines of credit within a certain period of time, usually a month.
Misc (10%)
This is where everything else goes: type of credit applied for, income, and even such things as marital status and whether you’re married or single are included here. Clearly this is the least-defined aspect of your score, and can often account for the variations in scores between credit reporting agencies.
Nowadays, there’s a ton of information out there about credit scores. Watch TV past 11pm and you’ll see scores of ads devoted to “free” credit reports or credit monitoring services. My personal favorite is the guy who claims to be so confident in his credit monitoring service that he’s supposedly willing to share his Social Security number with the world. That is so incredibly stupid, but I can’t help but laugh whenever that commercial comes on. I have not checked out each of those companies, but I am typically dubious about their products. Most claim to offer a free credit report, but most also require that you sign up for their credit monitoring service in order to get it.
You are guaranteed by federal law a free copy of your credit report once per year, but only AnnualCreditReport.com is authorized by the federal government to provide that to you. Note that this does not include your credit score, just your credit report.
Obtaining your credit score is usually something you have to pay for (usually around $50). If you are serious about working to improve your credit rating, we’ve found credit.com to offer a reliable and well priced provider of all three score monthly, as well as some other features around fraud prevention.
It’s obviously important to keep tabs on the health of your credit. Many long-term financial purchases revolved around having good credit in order to get the best rates (e.g. mortgages and auto loans). Credit reports are also often used when applying for jobs. This may be most applicable out here in Washington, D.C., but if you’re applying for a highly cleared position, you could be denied based on having too much debt (you’re considered a security risk, based on the fact that you’re heavily in debt and could be influenced by money).
So keep your credit clean, keep tabs on its health by using whatever free tools are at your disposal, and you’ll reap the benefits of getting the best rates on future purchases.
I was inspired by fellow bloggers to consider how much we’ve spent on clothing this year. Budgets are Sexy did an expose on his clothing expenses and admitted that he certainly surpassed Mapgirl’s $373 thus far in the year.
Thinking about it over here in the DINKs household I realized how little we’ve spent on clothing for James. In fact, year to date those expenses add up to less than $30 to buy him new gym shorts. Aside from that he has not had a single other purchase. He is in dire need of shoes of all sorts and probably could do with a real winter jacket, so I can’t say whether or not he’ll make it through the year on that, but it is pretty incredible.
On my end, it certainly doesn’t look as pretty. I started up a new job at the beginning of the year and thus was in need of quite a few new items, having been overseas recently.
I can tell you’ve I’ve spent far more than James this year on underwear alone! I do however keep a very lean closet and buy classics that I wear for years. I’d much rather have quality over quantity, but I still buy nearly nothing at full price.
In honor of Labor Day, I thought I’d discuss the value of our labor and why it is important to negotiate. This discussion holds true for both men and women, but it has unfortunately been widely documented how many women resist negotiating for their worth in the job market.
According to Babcock & Laschever‘s, Women Don’t Ask, doing so costs women dearly. This obviously impacts family income greatly, so pay attention too guys.
Even with only a high school diploma, without negotiation a woman will earn $700k less if she fails to negotiate her salary.
A college grad will $1.2 Million; a graduate degree earner will loose $2 Million.
Women are also 4 to 1 less likely to negotiate their first salary than men.
Women who fail to negotiate their first salary stand to lose more than $500k for not speaking up.
You aren’t alone, a full 20% of women (or a whopping 22 million people) say they never negotiate at all.
But ladies, there is hope. Women who do consistently negotiate their salary, increase their earnings at least $1 million more during their careers than women who don’t.
I’m glad to be one of those women who believes in negotiating for salary increases and has seen how well it works, but it is also an ongoing process.
So dig down deep and make sure you are negotiating for your value. Your future earnings and wealth depend on it!
Once you start investing, you realize that before long there can be a lot to manage in terms of accounts and what your actual investments are doing. This is particularly the case when you have a diversification of assets in a variety of retirement accounts, as well are IRAs, and a handful of individual stocks. I still consider myself a relative newbie when it comes to investing, but it is still really essential to have investment tracking to help manage my various investments.
For example, here is a cool feature of mint.com, where you can compare the performance of your assets to the S&P 500, Dow Jones, or NASDAQ. I guess from the picture it shows me that I may be doing oddly better with the downturn of the economy.
While in some ways it becomes more necessary to track investments as you do more of them, I also think that investment services such as mint can be very helpful for beginners as they learn more about investing. Plus, it can’t hurt you keep tabs on whether you are losing wealth or gaining it.
We DINKs continue to inch towards $400k. It has been an illusive goal for us for the last two years. We’ve been inching back and forth towards this nice round figure. Given how long it has taken us to inch towards this goal, I’m hoping we’ll be able to propel ourselves towards the half million mark faster than it has taken us to get where we are today.
Today our net worth stands at $381,320
This is up from $358k, just one month ago. While we are still inching towards $400k, we did pause to consider that this is up by $20k in one month. When we look at it that way it feels much better. We are also nearly back up to our net worth high. Hopefully we’ll surpass that in the near future.
The change can largely be attributed to a couple of main things:
1) Several thousand dollars were underestimated last month on Miel’s retirement accounts that she was having trouble accessing on the weekend.
2) Generally our stocks have gone up, rather than down, for a change. Considering that we now have a large chunk in the stock market, this means that when things go up we really see an impact in our net worth.
3) Less spending, to help reach our investment goals. It seems money still flows out far too readily, but we’ve also resisted several larger and smaller purchases that we could have caved in to.
4) Resulting in more investing. We’ve managed to save several chunks of money for investing towards our wealth goals for the year.
It’s not rocket science, but it does take some effort and energy, not to mention a bit of sacrifice. You can check out the details for yourself:
