I've been observing a lot of venom out there these days, from bloggers, cable news pundits, and Op Ed writers, being directed at folks facing foreclosure.
I am aware that there were home buyers out there that were not truthful on their mortgage loan applications. Others borrowed more than they could really afford, expecting continual increases in home prices to save them in a pinch. There are also people facing foreclosure that didn't lie on their applications and could afford their homes at the time, but due to a subsequent job loss, a bankrupting health problem, or some other unfortunate turn of events, are struggling now to keep their homes.
I hate to see everyone being painted with the same brush by the media, because the reality is, many of us when buying a home, really stretched our budgets to achieve that dream, and didn't suffer the unfortunate circumstances that many face today. So we come off looking smart.
I think we were just lucky.
We bought our first house in 1991 in an up-and-coming neighborhood in San Francisco. We saved and searched for years, and when we found the home of our dreams, we borrowed some money from our parents to get us the rest of the way there. We put 10% down, borrowed the maximum the bank would allow us, and qualified with an adjustable rate mortgage.
After the first year, when our mortgage was about to reset, the bank contacted us and said we could keep our low teaser rate for another year. The following year, and every year after that, we adjusted into lower and lower adjustable rates, on occasion even taking money out in the refinance.
Eight years later, we sold that house for double what we paid for it. We then upsized. Flush with the cash from the sale of our first home, we were able to put 20% down this time. Our incomes had grown steadily over those 8 years, so we took out an even larger adjustable rate mortgage. Over the years we made additional principal payments as we could. We continued to refinance our lower and lower loan balance whenever the rate made sense.
Five years later, we sold that house for 50% more than we paid for it. We upsized again, this time putting in a down payment of 60%. We took out a larger loan, with another variable rate, although this time it was fixed for the first 5 years. Again, we made additional principal payments as we could. Our mortgage is now lower than the one we used to purchase our first home. The value of our house has decreased significantly since we bought it, but our loan balance only represents 17% of the current value of the house.
The rate will adjust later this year and we plan to pay off the remaining balance with money we had invested in a CD which was earning a higher rate than our mortgage interest rate. The variable rate is tied to the 1-year Treasury, and if it were to adjust today, it would go down even further.
My point in sharing all of this is, we're not all that different from someone that stretched to buy a house in the last few years, and then got burned by the tanking housing market, increasing unemployment, a catastrophic illness, or the stock market's decline. All the circumstances over the past 18 years: low interest rates, job security, increasing housing prices, and our increasing income, worked in our favor.
But it just as easily could have gone the other way, and then, Rick Santelliwould be saying how stupid and irresponsible we were. And that's why you won't see me high-fiving Mr. Santelli on the trading room floor, because I know the difference between smart and lucky.
I'm almost at my one-year anniversary of being retired. My husband Doug, is keeping the books now, and presented the preliminary fiscal year-end results to me in a PowerPoint presentation at our most recent board meeting. Ok, he just told me the numbers in the bathroom yesterday as I was putting on my makeup.
I'll post more about the details when the fiscal year is officially over, but the exciting thing is that so far, we are living on less than I budgeted for, without really trying.
I have a theory for this result. You spend less money when you are happy.
The year before I retired, we dramatically reduced our spending to "practice" our retirement budget. We still spent money on things that made our life easier while I was still working (housecleaning, gardening, gym membership, and take-out meals), but we went ahead with some other cutbacks in order to start taking the retirement budget for a test-drive. For me, the sacrifices weren't that hard because of the light at the end of the tunnel, retirement.
But there was an even more shocking bathroom-board-room revelation. The year before that, two years before I retired, we spent some serious cash. At that time, I really thought the dream of early retirement was going to be impossible. I had come to accept our current lifestyle as a given, and I couldn't imagine where we would make budgetary cuts and still be happy.
The irony is, I was spending so much money because I wasn't happy. I was dissatisfied with my job, so I spent a lot of money on work clothes. For one thing, shopping for work clothes on my lunch hour was a nice diversion from work. For another thing, I felt happier going to work the next day because I was going to get to wear that cute, new outfit. I thought I was on to something. It made work more bearable. So I thought.
When we went on vacation, I figured, I have a well-paying job, I only get 3 weeks off a year, so we may as well make them spectacular. I thought spending money on the 5-star hotel suite with the ocean-front balcony would make up for the fact that I only get to do it 3 weeks a year. I deserved it. I deserved the luxury. It made working more bearable. So I thought.
I could go on and on with the ways I tried to spend away my dissatisfaction with my job, but the bottom line is this: we currently spend about 60% of what we spent in those heyday spending years, the years before I thought that early retirement was a realistic possibility. (As a side note, it will go down to 50% of that number after we sell our second home).
Here's the kicker--we spent far more than my after-tax salary in those high-living years. As I became more and more unhappy in my work, more resigned to the idea that I would have to do it for many, many years to come, we spent a lot more money than my paycheck.
We made up the difference by taking money out of savings, of course. I figured, if I couldn't retire early anyway, what do we need all this savings for? As it turns out, we were taking more out of savings in those years than we are now to live on in retirement.
In other words, if I kept working, we would be depleting our savings FASTER than we are now that I am happily retired, living on less.
The difference between then and now is that I'm happier. I'm not trying to buy happiness anymore. Happiness is just a lot cheaper in retirement.
I just can't seem to get enough of Wall Street these days. I've been gorging on all the recent articles in the New York Times about the folks on Wall Street that are making adjustments to their lives due to the current economic turmoil. Just like Main Street. Well almost.
It's better than reality TV:
In Treatment:This article is one of many I've read, about the increase in mental health services being provided to executives and their spouses as they come to terms with the "drop in social status," "delusions of poverty," and the general "blow to the self-image of losing a job."
Sex and the City: In a similar article, a group of young women band together over cocktails, to form a support group, called "Dating a Banker Anonymous," as they "cope with the inevitable relationship fallout from, say . . . the Dow's shedding 777 points in a single day."
"As hard as it is to believe, bankers who are living on the Upper East Side making $2 or $3 million a year have set up a life for themselves in which they are at zero at the end of the year with credit cards and mortgage bills that are inescapable."
The lifestyle that goes along with such income is quite expensive. By the time these folks have paid their income taxes, mortgages (on the Manhattan apartment and the summer house in Southampton), property taxes, private school tuition and nannies for the kids, there's only so much left for the car and driver, personal trainer, and groceries. And we haven't even covered the charity parties, formal gowns, summer camps or eating out.
Now, someone that makes oodles of money is certainly entitled to spend every dime of it. It's an interesting reminder though, that living at or above one's income level happens at all income levels. Just as people that save significant portions of their incomes exist at all income levels.
What I am most fascinated by, as a person that was so focused on the dream of early retirement, isn't really that someone would spend such quantities of money, but the fact they aren't thinking, as I was always thinking, "It sure would be nice to have enough money amassed to just be able to walk away from my job if I wanted to."
During most of my working life, I entertained fantasies of early retirement. Whenever I was unhappy at work, or whenever I wished I had more time to just enjoy life, I fantasized about a life where I had saved enough money to not have to work. I thought about this pretty much all the time. I thought everyone did.
But reading this article, I realize everyone isn't planning their escape, and it's that fact I find so interesting. Whether it's because they are so happy with their jobs, they cannot imagine ever NOT working or whether they just love the lifestyle their jobs afford them when spending every dime, there seem to be plenty of people that made far more money than I ever did, that were obviously not socking away all those bonuses, planning for their own escape.
The other day my friend asked me to list the top 5 things that make me happy. I've been pondering this question for a couple of days now. When do I feel happiest, and what am I doing when I feel it?
Even more important than the actual list though, was the realization that I'm spending so little time doing these things in retirement. Even though I've eliminated the biggest excuse for not doing what makes me happiest, that is having a job, I'm not actually spending the majority of my time doing the top 5, or even the top 10 on my list.
I had no idea when I retired that I would actually have to make time to do things I enjoyed the most. It's kind of like a job, you have to schedule these things in. You don't just naturally gravitate toward the happy-making things. First you clean the house, then work on the overgrown yard, get some exercise, maybe even do some things you do enjoy, reading blogs or the newspaper, but not necessarily the things that are on your Top 5 List.
I recently read Ram's thoughts at An Experiment in Retirement, as he came to the realization that he needed some sort of structure in his day. He feels less content when drifting from one thing to the next without any real structure. I think he's on to something.
I don't really lack structure to my days, but last week I decided to schedule something from the Top 5 Happy Things List every single day, allowing the aimless drifting time to fill in around the edges. Well, guess what, I was really happy doing the things that I'm really happy doing.
I'm not sure why it isn't a natural evolution in retirement, that you would automatically drift toward those things that make you the happiest, but I do know it's worth the time to think about this question and make adjustments to your lifestyle to be sure to spend time doing what you really are happiest doing.
And not a bad exercise for those that are not retired yet either.