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CNN Extreme Savers Returns

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Back in the heady days of 2005, 2006 and 2007, CNN had a series that profile “extreme savers” who behaved against the grain, tucking away 25%-50% of their income when most of us were spending it up. Well, it seems as if saving is back in vogue, because I just saw a new Extreme Saver slide show on CNN Money website.

The profiles are still interesting tidbits of different families and how they’ve managed to save so much (I think the saving percentage is calculated from net income instead of gross income).  The common themes of each featured family are: healthy income and financial discipline.

One story stood out to me: Nicole and Mitch of Lake Oswego, Oregon, has been saving $250 a month for their daughter since she was born. She is now 11, and they have $50,000 in her 529 college savings plan. WOW! (By the way, Don at Money Reasons is doing something similar for his kids). I hope that in the event that I become a parent, my partner and I will be in a position to and have the diligence to do the same.

These stories certainly inspire me to reexamine my own saving efforts. Granted, many of these people profiled make a higher income than I do, but they also have higher expenses (mortgage and kids are the two big ones). Still there are examples of single-earner families saving big percentages. Christin and Patrick of Williamsville, NY, live on his $75,000 a year salary, and save 38% with Christin as a stay-at-home mom and 2 kids.

I hope CNN Money continues with these Extreme Savers profiles.

Do You Need a Dating Prenup Before You Move In Together?

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datingprenups 300x225 Do You Need a Dating Prenup Before You Move In Together?In today’s brave new world of dating, mating, and personal finance, couples who are moving in together may well be considering a “dating prenup.”  What is that, you ask?  Well, I’ve never heard of the term either, until I started Googling. A prenuptial agreement is a legal document that spells out what happens to a couple’s assets and liabilities in the event of death or divorce.  A dating prenup is like a prenup for unmarried couples who move in together (and thus have none of the protection or guidelines offered to married people), providing terms and guidelines for a host of issues surrounding a breakup.

There might be some cohabitation in the not-so-far off future, and while CB and I have casually discussed the financial mechanisms of such a move, we haven’t really drilled down to the nitty-gritty.  Despite a penchant for all things personal finance, I don’t particularly want to make everything out to be so, well, contractual.  In other words, we both agree that if we make different salaries, it’s fairer to divide the rent according to percentage of total income instead of 50-50.  But we don’t (nor do we plan to – I hope) expect the one person to reimburse the other for a gallon of water that was not equally consumed.

When I typed in “moving in together finances” into Google, however, most of the websites that popped up mentioned the importance of a moving-in-together contract.  There are many names for this phenomenon: dating prenup, cohabitation contract, written agreement, pre-prenups, live-in contract, etc. I think prenups are generally a good idea (especially for community property states), but I’m surprisingly lukewarm to the prospect of drafting and signing a live-in contract with CB.

According to Kiplinger, though, I’m letting my heart rule over my head.  Kiplinger says that it’s essential to put your arrangement in writing:

This little piece of paper can help you keep your trial of domestic bliss from becoming a nightmare. In it, you should detail how much each partner will pay for rent, who will cover what household expenses, when bills are due, and other space-sharing arrangements.

The article even helpfully provides a sample cohabitation agreement.  AOL Personals shares horror stories of couples who didn’t have a cohabitation agreement and ended up fighting over a pen.  NY Post reports that more NYC couples are signing dating prenups. In addition to the more mundane financial aspects of living together, these pre-prenups can also set the terms of pet ownership / visitation after a breakup, expectations for graduate school support, even who pays for a termination of pregnancy, etc.  A recent CBS News did a segment on this trend, featuring a real life couple who has a dating prenup.

As sensible as these dating prenups seem though, I just can’t muster much enthusiasm for them.  Part of the reason is because CB and I don’t have combined finances (unless you count our joint savings account for Galapagos), and we have no plans to enter into major asset purchases before we are married.  We are both fairly financially-responsible.  We have been in a committed relationship for a long time.

Part of the reason is good old-fashioned optimist: I don’t think we will break up, though of course there are no guarantees.  Or, if we do, I harbor the hope that in the event that we break up after we move in together, we will both behave with grace, dignity, and respect for each other.  But I understand the prudence of a cohabitation agreement for couples who do have significant assets together, or if one partner would be giving up a job to move in with the other person.

My question is: Did you have dating prenup before you moved in? If so, what did you include? If not, how did you decide to forgo it?

image source: cbs.com

Run ‘Round the Blogosphere 2/11/2010 – Valentine’s Edition

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The search for love and the search for wealth are always the two best stories. But while a love story is timeless, the story of a quest for wealth, given enough time, will always seem like the vain pursuit of a mirage.

- Mark Kurlansky

That quotation seems especially appropriate near Valentine’s Day, on a personal finance blog – doesn’t it? Love should be celebrated (but don’t do it with debt!).

In honor of the day, here are some real love stories: may you love, and be loved, like Billy loved Ruth, like Calvin loved Alice, like Joan loved John.

If you need some more science or social studies to go with your dose of love, I present to you this article discussing the always fascinating intersection of relationships, economics, and human behavior: When It Comes to Search for a Spouse, Supply and Demand is Only the Start [New York Times].

**My article on natural hair is included in Carnival of Personal Finance (hosted at Get Rich Slowly).

No More Free Checking?

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Growing up in the 2000s, I, like most of my peers, have come to take free checking accounts for granted. In fact, when a big brick & mortar bank started instituting monthly fees on my checking account a few months ago, I closed that account and turned all of my checking business to a bank that didn’t have any monthly fees for their accounts.

But free checking can become “endangered animals,” says a New York Times article:

The biggest impact on checking accounts, however, is likely to come from new regulations governing overdraft protection. Starting in July, banks will need explicit permission from customers before allowing them to use their debit cards to spend more than they have in their bank accounts on a one-time purchase. Similar restrictions will apply to A.T.M. withdrawals.

Banks earn billions in overdraft fees, money that helps pay for free checking.

20 years ago, most checking accounts had fees or very high minimum balance requirements for a free account. Washington Mutual brought free checking to the masses in 1990s and subsidized the free checking by selling more profitable loans and services. Other banks followed suit.

The article goes on to say, however, that debit cards (and the revenue from fees retailer pay to accept the debit cards) might be enough to pick up the slack from the overdraft fees, so banks can still maintain free checking for most of their customers. Personally, I am becoming more and more interested in debit cards, especially if I can’t have a free checking account without using debit cards.

As a consumer, I definitely hope free checking is here to stay.

My two questions:

1. If you had to choose between free checking with deep overdraft charges, or low monthly fee (less than $10) but with overdraft protection, which would you choose?

2. What can banks do to keep your business even if they don’t have free checking? (i.e. identify monitoring services? better customer service? other perks?)

Business Insurance Experts Premierline Direct

On Love, Marriage, and Settling

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In 2008, Lori Gottlieb wrote a fairly incendiary article in The Atlantic called Marry Him! The Case For Settling. She has since parlayed that article into a book called Marry Him: The Case for Settling for Mr. Good Enough (which was also optioned for a movie by Warner Independent Pictures).

goodenough On Love, Marriage, and Settling

From her Atlantic article:

My advice is this: Settle! That’s right. Don’t worry about passion or intense connection. Don’t nix a guy based on his annoying habit of yelling “Bravo!” in movie theaters. Overlook his halitosis or abysmal sense of aesthetics. Because if you want to have the infrastructure in place to have a family, settling is the way to go. Based on my observations, in fact, settling will probably make you happier in the long run, since many of those who marry with great expectations become more disillusioned with each passing year. (It’s hard to maintain that level of zing when the conversation morphs into discussions about who’s changing the diapers or balancing the checkbook.)

First of all – who is Lori Gottlieb to say that balancing the checkbook (and by extension, personal finance,) is not invigorating and fun?! icon smile On Love, Marriage, and Settling

But all joking aside – I found myself conflicted as I read this article. On the one hand, I agree that your priorities tend to change as you get older, and that if your stance if “I refuse to settle for anything less than perfection,” then, well, you’re probably going to end up disappointed. On the other hand, Lori Gottlieb makes such sweeping generalizations based on her very particular set of circumstances that she comes off, quite, well, rankling.

Lori Gottlieb seems to want a father for her child more than a husband (she became a single mother by choice in her late 30s/early 40s) – even though those are two roles often shared by the same man – it’s an important distinction. I think if a lady wants to have children, and she wants the father to live in the household and share in child-rearing, then that woman’s timeline for marriage may be very different from someone who does not want children. If someone is happy being childfree, then her timeline will be less constrained by biology.

But regardless if a person wants children or not, instead of exchanging a vision of Mr. or Ms. Perfect for Mr. or Ms. Good Enough, why not look for someone who is Mr. / Ms. Great For You?

If I find someone I love and respect, and he loves and respects me in return, and we are both attracted to each other, and find joy and laughter in each other’s company, and we agree on the broad contours of life (monogamy, children, religious beliefs), then I’ve hit the jackpot. I’ve found someone with whom to build a life and a future, and to say that I’ve settled is to spit in the face of romantic good fortune.

So I don’t call it settling if you’ve dreamed of a girl with red hair but ended up with a brunette or you’ve always wanted a man who is 6 feet tall but your beloved is 5’8″. It’s not settling if you wanted a movie star but ended up with an accountant. There is an ocean between falling in love with a flawed person (because, aren’t we all?) and having a relationship with someone who neither engages nor excites you (and, worse, with whom you always think you can do better), and I don’t think Lori Gottlieb explored that territory very well.

But my biggest problem with Lori Gottlieb’s piece, practically speaking, is this: if you think you are settling – even if the person you marry is smarter, cuter, wealthier, nicer, funnier (and whatever-er you want to add in there) than you are – you will act in such a way that says “I’ve settled.” You will try less, thank less, give less, and ultimately, receive less in this relationship.

It’s unhealthy to put your partner up on a pedestal – to expect infallibility from very fallible beings.  But those little moments of “how did I get so lucky?” is necessary in a happy relationship. Those moments push us to be a better partner and a better person. They help us get over the little hurts and perceived slights. I don’t want to commit my life to someone who looks at me day after day and think, “well, I guess she’ll do. But really, I deserve so much better than what she can give. ” Does anyone?

Getting married (i.e. entering in a complex legal and economic arrangement with another person with the expressed intention of being thus bound for life) when from the get-go you feel as if you’re settling strikes me as an uneasy proposition. I don’t think such a deal will work well for most people. I know it won’t work well for me.

image source: amazon.com

Buying A Home Together Before Marriage – Yay or Nay?

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couple looking at home 73 Buying A Home Together Before Marriage Yay or Nay?

Darling, I love you. Will you… buy a home with me?

Two of life’s greatest commitments, many would say, are buying a home and getting married. In the old days, usually couples would commit to each other then commit to a condo or a house, but times have changed.

A recent New York Times article talks about couples who decided to buy a home together before they get married, a decision that is partly driven by a favorable buyer’s market. What might be the right timing for real estate market still means more work for unmarried couples buying real estate together. They need to proactively address issues of equity, capital gains, buy-out provisions, etc., however, in case they separate later.

From the article,

Real estate lawyers say that there are more complications for unmarried property owners who part ways than there are for married property owners who divorce — and a less clear process for resolving them.

“By default, our laws are suited for married couples acquiring assets,” says Luigi Rosabianca, a real estate lawyer in Manhattan.

Deciding when to buy a home together is obviously different for every couple. Ideally, I would purchase a home with someone else only after we are married – the risk of something going wrong and then have to deal with complicated legal and personal issues should my partner and I separate is too great. After all, if I’m not sure I want to marry Mr. XYZ, I sure as wouldn’t want be taking out a several-hundred-thousand-dollar mortgage with him.

If I’m already engaged, however, and we found the perfect home at an unbelievable price and we are financially and emotionally ready to buy – well, then, it’d be mighty tempting, wouldn’t it? icon wink Buying A Home Together Before Marriage Yay or Nay? I gather that’s the situation that several of the couples in the article faced. But personally, I’d still want to get married first before buying a place together.

“We will eventually get engaged and get married,” Ms. Matthews added. “We’re kind of like, let’s get this apartment now, then let’s make it official.”

Mr. MacLaughlin said: “We were talking about getting married and I said, ‘Wait a minute, if we just put off the ring, we’ll get the apartment first.’ ”

And on that note, I think I’d rather have a bigger down payment than an engagement ring. Not to say a Tiffany solitaire wouldn’t catch my eye, but you can’t build equity with a diamond, even if it does last forever. Or, on a less financially virtuous route, I’d also rather have a bigger / longer honeymoon than an engagement ring. Think of all the traveling you can do for an extra $5,00o.

Would you and your partner legally commit to a house before you legally commit to each other? Or will you only sign the mortgage papers after you sign the marriage certificate?

image source: frontdoor.com

Maternity Leave & Career

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Most industrialized nations have more generous maternity provisions than the United States does. Consequently, many mothers (and fathers) in the States face a bigger struggle in balancing work and family than in other nations. But could the U.S.’s lack of policy mandating paid maternity leave actually help women’s careers? [Edit: I do not think the study's findings should be held up as proof that the U.S.'s lack of maternity leave is a good thing or as justification for the status quo. However, I find it an interesting study and an additional source for debate in this important issue.]

That’s the theory of a study featured in Britain’s Sunday Times – the study suggests that lengthy maternity leave encourages women to stay in the workforce, but hinders them from reaching top managerial positions.

Magnus Henrekson, one of the authors of the study, said:

When you have high levels of maternity leave, it pays for women to be in the labour market but not aim at a high-flying career. They are derailed from their objectives. The more generous you are, the fewer women you are likely to see at the very top.

According to the study, American women holds the highest percentage of “managerial position” jobs at 42.7%, followed by Australia, another country without paid maternity leave, at 37.1%. British women hold more than 33% of managerial positions. In Sweden, 31.6% of managers are female.

The study explains the reason behind the findings:

…women in Anglo-Saxon countries where maternal leave is less generous climb higher up the career ladder than in Scandinavian nations where years of female-friendly legislation may have inadvertently disadvantaged women.

I find this study fascinating.

If employers were rational actors, and if they perceive that hiring women is riskier because women might go on maternity leave then quit their jobs, then employers would be averse to hiring women, especially for top-level jobs. This would be neither legal nor admirable, but I imagine that it happens. [Charles Wheelan covers the maternity-leave-employer-discrimination topic in his book, Naked Economics: Undressing The Dismal Science].

However, it is wrong to not make reasonable accommodations for mothers, considering the physical trials they go through in bearing children. MaybeMBA writes an exceptional blog peppered with insights on business, elite business schools, and motherhood. She is recent graduate of Chicago Booth, one the top business schools in the world. She is also the mother of a baby and a toddler.

MaybeMBA wrote in a recent post [please read. It is so good],

It is a man’s world. I say this without ill will – it has historically made sense to be so. But making it a human being’s world requires more than just adding women to the mix and expecting men and childless women to understand the practical reality of birthing and bearing babies. …the only important difference between men and women is babies. All the other alleged differences are trivial. The baby factor affects all women, even if they never have children, as it weeds women out of the public realm. Accommodating women and their wayward uteruses (uteri?) is not about entering a new touchy feely world or lowering the bar, it’s about finding clever ways to overcome the inescapable physical burden of motherhood.

On a sociological tangent that I won’t get into – I find it interesting that fatherhood has much lighter impact on a man’s career [I would argue that based on outside perception, fatherhood does not harm a man's career, and may even enhance it].

I’ve read that biggest disparity in pay is not so much between men and women, per se. It is not between parents and non-parents. It is not between childfree men and fathers. It is a disparity that exists between childfree women and mothers.

However, because a majority of women are mothers and almost all young to middle-aged women can become mothers, policies and attitudes towards working mothers and motherhood can most definitely impact attitudes towards all working women.

The New Art of Alimony (Or, You Still Have To Support Your Former Spouse 25 Years After the Divorce)

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Revanche brought an interesting article to my attention last night… and we both agreed that it’s pretty, well, bogus.

There are certainly circumstances in which alimony / spousal support may be justified, especially when both partners agreed to have one partner give up his/her earnings to care for children. One of examples cited in the Wall Street Journal article, however, just makes me shake my head.

Consider this:  A couple divorced amicably in 1982. Both sides agreed to waive any right to alimony. Apparently, that agreement didn’t hold – a judge ordered one spouse to pay $400 weekly payments to the other, 25 years after the marriage ended. It’s a long excerpt below, but I think it’s really enlightening to read.

Paul and Theresa Taylor were married for 17 years. He was an engineer for Boston’s public-works department, while she worked in accounting at a publishing company. They had three children, a weekend cottage on the bay and a house in the suburbs, on a leafy street called Cranberry Lane. In 1982, when they got divorced, the split was amicable. She got the family home; he got the second home. Both agreed “to waive any right to past, present or future alimony.”

But recently, more than two decades after the divorce, Ms. Taylor, 64, told a Massachusetts judge she had no job, retirement savings or health insurance. Earlier this year, the judge ordered Mr. Taylor, now 68 and remarried, to pay $400 per week to support his ex-wife. “This is insane,” Mr. Taylor says, adding that the payments cut his after-tax pension by more than one-third. “Someone can just come back 25 years later and say, ‘My life went down the toilet, and you’re doing good—so now I want some of your money’?”

In 2003, more than two decades after agreeing to end a 17-year marriage without alimony, Ms. Taylor was diagnosed with melanoma. She lost her publishing job when her employer of 38 years filed for bankruptcy protection. She’d recently surrendered her home to the bank and filed for personal bankruptcy to resolve $27,000 in medical and credit-card debts. [1]

Mr. Taylor, meanwhile, had retired after 33 years working for the city of Boston, with an annual pension of $56,000.

In a September 2007 complaint filed in a state probate court, Ms. Taylor cited “changes in circumstances” and sued her former husband for support payments. She wrote that Mr. Taylor owned homes in Florida and Cape Cod and traveled to Europe. [2]

In court, Mr. Taylor said he was sensitive to his former wife’s plight, but that too much time had passed and that their divorce was final 25 years ago. His second wife, he said, had inherited the Cape Cod house from her father. Their trips were financed through home-swaps and reduced-fare tickets from his stepson, an airline employee.

In June 2008, a probate judge ordered Mr. Taylor to pay temporary alimony based on Ms. Taylor’s “dire immediate need” and his “ability to pay.” In its January final order, the court, citing Mr. Taylor’s income from his pension, told Mr. Taylor to pay his ex-wife $400 per week for five years. The payment will eventually fall to about $250 a week for the rest of her life. [3]

Virginia Connelly, Ms. Taylor’s lawyer, says she can see how Mr. Taylor could find the situation unfair. But under Massachusetts law, she said, judges who want to keep a person off public services can turn to the ex-spouse. [4]

In May, to seek relief from legal and other bills, Mr. Taylor declared personal bankruptcy. He is still responsible for supporting his ex-wife. “If she loses all her money, so what? She can just take me back to court,” he says. “Somewhere along the line I should have peace of mind.”

[1] I don’t think either party are the bad people. Ms. Taylor’s situation is sad – anyone would be sympathetic to her illness. She doesn’t appear to have any means of supporting herself, so I’m going to assume that she went after her ex-husband because she felt like she didn’t have any other choice.

[2] And I don’t see how Mr. Taylor’s situation matters one iota. It’s been 25 years – of course there are changes in circumstance! Even if he is a millionaire with money made off unsavory business practices in a 3rd-world country – his money is his. It does not belong to a woman whom he divorced 25 years ago, and with whom signed an no alimony agreement. If Mr. Taylor had the ability, it would be nice / morally right for him to help the mother of his children, but financial support should not be dictated by the courts.

[3] Mr. Taylor and Ms. Taylor divorced and signed an no-alimony agreement. Which in my book should mean you cut future legal and financial ties with the person you were once married to. Which should mean that the contract that you both came to (and there’s no evidence that this no-alimony agreement was made under duress by either party) should be upheld. Which means a court shouldn’t be able to go back and say to Mr. Taylor, oops, you’re still financially responsible for this person whom you have no legal relationship to.

[4] Under Massachusetts law… judges who want to keep a person off public services can turn to the ex-spouse. To this I ask: WHY? Why is the law set up in such a way that let the government shirk its responsibility and go after the ex-spouse? If an individual qualifies for government help, he/she should receive such help.

Right now I am receiving unemployment insurance payments because I qualify for them. It doesn’t matter that my parents have the ability to give me $X a month – can the government go to Mom and say, oh, sorry, you have to cover WellHeeled’s UI payments because you were her primary caretaker for 18 years, and we don’t really want to pay.

Um, NO. So why is this case of the ex-spouses separated by 25 years who have both agreed to an no-alimony agreement different?

In conclusion: In cases such as these, I’m sure there are all sorts of information / legal issues that are not covered here. But from what I’ve read from the article, I really feel for Mr. Taylor. I just really don’t understand what the court’s reasoning was. And if a divorce agreement can be overturned 25 years after the fact, I wonder how much water prenuptial agreements really hold.

Mindful Eating – Scared Straight Into Knowing Where My Food Comes From

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New York Times published an article over the weekend of a young woman who ate a hamburger, contracted E. Coli, fell into a coma for nine weeks, and woke up paralyzed.

Reading this article has shown me how little I truly understand where the food I eat (especially meat products) come from, and how frightening food-borne illnesses can be. I don’t think I can just sit back and trust that every product I buy and cook is going to be okay. As the New York Times investigation show, there are significant loopholes and missteps in the preparation and monitoring process of that one hamburger patty. I don’t want to be too alarmist, but I also realize that I need to educate myself more on what I feed myself and loved ones.

Here are some surprising things that I found out from the article (all direct quotations):

  • Ground beef is usually not simply a chunk of meat run through a grinder. Instead, records and interviews show, a single portion of hamburger meat is often an amalgam of various grades of meat from different parts of cows and even from different slaughterhouses. These cuts of meat are particularly vulnerable to E. coli contamination, food experts and officials say. Despite this, there is no federal requirement for grinders to test their ingredients for the pathogen.
  • Unwritten agreements between some companies appear to stand in the way of ingredient testing. Many big slaughterhouses will sell only to grinders who agree not to test their shipments for E. coli, according to officials at two large grinding companies. Slaughterhouses fear that one grinder’s discovery of E. coli will set off a recall of ingredients they sold to others.
  • “Ground beef is not a completely safe product,” said Dr. Jeffrey Bender, a food safety expert at the University of Minnesota who helped develop systems for tracing E. coli contamination. He said that while outbreaks had been on the decline, “unfortunately it looks like we are going a bit in the opposite direction.”
  • Agriculture Department regulations also allow hamburger meat labeled ground chuck or sirloin to contain trimmings from those parts of the cow. At a chain like Publix Super Markets, customers who want hamburger made from whole cuts of meat have to buy a steak and have it specially ground, said a Publix spokeswoman, Maria Brous, or buy a product like Bubba Burgers, which boasts on its labeling, “100% whole muscle means no trimmings.”

According to the article, Costco is “one of the few big producers that tests trimmings for E. coli before grinding, a practice it adopted after a New York woman was sickened in 1998 by its hamburger meat, prompting a recall.” This makes me feel better about buying meat at Costco (although I rarely do).

I also must admit, one of my first questions was “how about In-N-Out burgers?” I truly hope the company has a good meat source and food safety procedure, because it would be painful giving up their deliciously juicy burgers. I’m also glad I’m learning how to cook, because cooking at home means that I can at least control my ingredients to an extent.

I try to practice mindful spending, in that same way, I realize, I need to adopt a practice of mindful eating. That doesn’t mean I’m going to cut out all meat or stop eating hamburgers or buy everything organic or go vegan (because I love meat. And eggs. And leather boots), but it does mean that I need to take steps so that I am eating a healthier and safer diet, and that I need to adjust to food becoming a bigger percentage of my income for the future.

Because even though expensive doesn’t always mean better, when it comes to food (especially meat) you can end up paying a high price for something too cheap. And that I should buy a meat thermometer to make sure I cook my meat enough. And I really should start eating more vegetables and less meat. Is it just me, or do I never hear about vegetables killing people? (Well, except for cases of botulism in canning gone bad, oh, and the spinach and samonella scare. Hmm… I guess veggies do kill, after all).

Are You Looking For a Roommate Or a Soulmate?

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New York Times recently published an article “A Modern Answer to the Commune,” that talks about young adults who are looking to build an communal living situation where the people come before the real estate. Instead of the normal desired roommate qualities (pay the rent on time, don’t be a slob, don’t be crazy, etc.), these young adults are instead seeking something more. These housing posts are:

schooled in a culture of idealism that’s uniquely 21st century, those in search of shared housing and compatible mates are crafting come-ons that are as far removed from, say, “female nonsmoker wanted” as a business card is from a doctoral thesis.

Another ad is designed to deter people who do not share the communal living ideal or just want a place with cheap rent:

“You will probably not feel at home here unless anti-ableism, anti-ageism, anti-classism, anti-racism, consent, trans-positivity and queer-positivity, etc., are very important to you,” the ad read.

I’ve lived with a roommate in college, and after graduation I shared a 2-bedroom apartment with my friend for two years. Overall, it was a very successful roommate relationship (and we’re still good friends. Yay!). We split every bill in half, and kept separate groceries. Funnily enough, against the advice of most roommate “guides”, we never even talked about how neat we want to be, guest policy, or anything of that ilk.

I don’t know how I feel about the style of communal living. I guess it just strikes me as people who are trying to force a sense of cohesiveness and intimacy, whereas these things take time to develop (if at all).

After living alone, I don’t think I want to go back to living with roommates, unless it’s with a significant other. But if I had to, my requirements for a roommate would be much more pedantic: someone who is financially responsible, respectful, chill enough not too freak out over little things (dishes in the sink a couple of times? ’tis okay) but not so chill that the living situation gets out of hand (leftover food that attracts roaches or mice? NOT okay).

I’d like someone with whom I am friends with (or at least friendly with), but it’s not necessary that we share every interest or be of similar political persuasion. First and foremost, I want a good roommate, whereas these ads seem to seek a soulmate (who also does the dishes without prompting). These people’s idealism is admirable, but I can’t help but think they have set their expectations too high.

Overall, I’d say my reasons for getting a roommate would be finances first, then connection second. The young adults profiled in the article focus instead on the connection first and foremost, although I imagine the high cost of living alone is also a driving factor in their decision to live with other people.

What do you think of this style of communal living? Have you lived in a commune / housing situation before?

Profits & Markups in the Fashion Industry (or, Did Banana Republic Make Money Off My $20 Dress?)

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Given the proliferation of recession sales lately, I’ve been wondering about its effects on retailers, specifically women’s apparel. I recently purchased a linen dress from Banana Republic. It’s MSRP (manufacturer suggested retail price) is $98, but after several discounts, I purchased the dress for $20. So, how much of a markup did Banana Republic still receive? Did the retailer still make a profit off that dress?

According to my research, the clearest and most straightforward explanation on profit margins / markups in the fashion industry came from the Toronto Fashion Incubator website.

What are the profit margins in the fashion industry? What is the mark up for retail?

Susan Langdon (executive director of Toronto Fashion Incubator) says:

The basic costing formula for ready-to-wear apparel is this:

a) total of all raw materials (fabric, notions, cutting, sewing cost i.e.labour, label, ) x 2 = wholesale price

b) wholesale price x 2 = suggested retail price**

**You always need to provide the suggested retail price because this gives all of your retailers the same opportunity to sell the goods at the same price. It puts all of your customers on a fair playing field so that no one undercuts another.

The above basic formula is called “keystone” pricing and it’s suitable for selling in domestic markets. It builds in a basic profit margin of 100% from raw material cost to wholesale and again from wholesale to retail.

If you find that the suggested retail is higher than you would like it to be, you’ll have to reduce your raw material costs somehow by finding less expensive fabric or streamlining your production methods.

If you wish, you can also choose to increase the profit margin to be more than 100% between raw material cost to wholesale (not between wholesale to retail) so that it covers additional expenses like retailer discounts, sales rep commissions etc., but be careful not to price yourself out of the market. Look at where your competition is priced (both the high and low ranges) and try to remain around that.

Taking my $98 MSRP dress as an example:

The wholesale price will be 50%, or rounded to $50. To get down to the raw materials price, will be 50% of $50, or $25. Following the “keystone” pricing model discussed above, the price of the dress should be $25. But, since Banana Republic is part of the largest U.S. specialty apparel company by revenue (the Gap, Inc.) and have most of its clothing made overseas, I would assume the comapny was able to purchase the dress for much less than $25. This is because of (a) the volume discounting the Gap receives from manufacturers and (b) cheaper cost of labor and raw materials (although there will additional shipping costs).

As of the quarter ended in March 2009, Gap Inc’s shows a gross profit margin ( gross profit divided by total revenue) of almost 40%. Assuming a 40% profit margin and $20 sales price, Banana Republic made less than $8 in profit. That means the the cost of the dress to Banana Republic is around $12. (Banana Republic probably made less than 40% profit on this sale. This is because on full-priced sales, the company must be making much more than a 40% profit margin. Discounts are a way of life for mid-tier retailers, and would’ve been taken into account in company’s strategy and forecasting).

The cost of labor and raw materials of the dress is one factor, but taking into account the rent for stores, employee costs, advertising to broadcast sales, general and administrative costs, etc. etc., and the cost of that dress may have very well been close to $20.

So, did Banana Republic make money off the $20 dress?

I don’t know. Working on limited information and broad generalizations, I can only offer a vague answer: I think if Banana Republic did make a profit off the $20 dress, it must’ve not made a healthy profit margin. Sales with 80% discounts will work short-term to move excess inventory, but such drastic discounting is not sustainable nor viable as as long-term strategy.

Fortunately for Banana Republic, most consumers have purchased the dress at higher prices ($98 MSRP, $75 first discount, $50 second discount, $35 third discount), which means higher profits for the retailer. I picked up my dress during the final sale.

I love shoes and clothes, but the intersection of fashion and finance is almost more fascinating! If any readers work in the industry, please share your insights in the comments!

Women Hold Up Half The Sky

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Today New York Times published a very well-written and compelling story (The Women’s Crusade), part of a special issue on Saving The World’s Women.

In the 19th century, the paramount moral challenge was slavery. In the 20th century, it was totalitarianism. In this century, it is the brutality inflicted on so many women and girls around the globe: sex trafficking, acid attacks, bride burnings and mass rape.

The story of Saima illustrates how education and economic empowerment can help women bridge the wide gulf between servitude and fulfillment.

Saima is a Pakstani woman who was beaten by her husband and ostracized for not bearing sons. Her mother-in-law suggested that her husband take a second wife. That changed when Saima built a successful embroidery business (started with microfinance loans).

Now, she is no longer beaten. Her mother-in-law and husband have stopped mentioning the second wife issue. And Saima’s daughters are going to school.

In developed countries, economic empowerment might not mean the difference between life and death. But I do believe it can mean the difference between life and a better life. I suppose that’s why the topic of personal finance is such a compelling issue for me, and why I’m so interested in the intersection of economic issues, women’s development, and the expanding role of women in society.

Political and social empowerment are important, but women’s economic empowerment is a crucial ingredient in enforcing laws and changing societal attitudes.

Since I was young, my mother has drilled into me the importance of financial empowerment. There’s not much emphasis on the acquisitive power of wealth, but very heavy emphasis on the security and independence that financial independence brings.

My mother always said, “money doesn’t mean that you are more valuable as a person or you are smarter or that you’re better or that you’ve lived a more honorable life. But money will give you choices. Money will make you heard.”

The title of this post, “Women hold up half the sky” comes from a Chinese saying. There’s another Chinese saying that I think is equally applicable:  “Those who have money have a loud voice.” For women’s voices to be heard, economic empowerment has to be a goal.

When the Thrill of Blogging is Gone

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The title of this post doesn’t refer to me (the thrill of personal finance? Gone? Nonsense!), but to the recently-published New York Times article on the fate of “orphan” blogs left by their owners.

I actually have “orphaned” several blogs. Some of them I don’t even remember the addresses – I had one at angelfire.com and another one at geocities.com and another one at scribble.nu (which doesn’t exist anymore). I also have a brief, public blog at livejournal.com. But eventually, after a couple of months, I left every one of those blogs orphans of the blogosphere!

When I first started Well-Heeled, it was conceived as a blog devoted to lifestyle, fashion, decor issues. My first post (long edited away) had pictures of an Anthropologie dress, that, at $400+, I had no business owning. Then I started reading now-defunct blogs such as FreeTheCow, NYCMoney, and Laws of Finance (anyone remember them?), and I thought it was really cool that people are taking charge of their financial lives, and writing for the world to see. It was as if I’ve suddenly developed a taste for something that I not only find interesting, but is also GOOD for me (loving personal finance is like loving brussel sprouts?).

What has helped me continue blogging at Well-Heeled is 1. a genuine interest in my topic (and the fact that I can still write about decor and shopping and everything else, after all, the trademark of a personal finance blogger is that one can write about money and, well, anything!) and 2. all the reader feedback I get. If I haven’t gotten any comments, I probably wouldn’t have continued blogging for as long as I have. I expect that at some point I’ll stop blogging, but for now, I can’t imagine when!

The Transumer Transformation?

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Are you a transumer? Don’t worry, this is the first time I’ve heard of the term. “Transumer” refers to a “consumer in transit”, and apparently, more and more people are joining the transformation.

MP Dunleavey wrote an interesting post on MSN Money (an aside – I would love to write for MSN Money. Just, um, throwing that out there if any MSN Money folks are reading! icon wink The Transumer Transformation? ) on the ownership model vs. the “transumerism” model.

ABC News also had an interview on the subject (it’s a 6 minute video – worth watching).

From MP’s article:

The transumer philosophy is largely based on a “leasing lifestyle,” according to an analysis by Trendwatching.com, a global trend-spotting company based in the Netherlands. Rather than spending your money on individual things, which you then have to keep (suddenly an old-fashioned idea), you purchase access to an array of objects and experiences. It can save time as well as cash: The more you own, the more you have to worry about, maintain and upgrade.

I’m of two minds on this trend. There are some things that I rent, but others – I want to own!

Car: I definitely love owning my car – it’s paid off, it’s mine. I don’t have to worry about going over the mileage limit, or getting out of my lease if I have to move, or fixing the small dent on the side of my door.

Housing: At the same time, I love renting right now. I am not ready to assume hundreds of thousands of dollars worth of debt at this point in my life, so I will happily rent until I am financially and emotionally ready for the responsibilities of home ownership.

Purses: As for a bag – while I admire the ingenuity of companies such as Bag, Borrow, or Steal, I have to say that I would get more enjoyment out of a bag that I OWN, as opposed to one that is only mine for a week or two. I’d rather save my money and splurge on one bag that I know I will love (and have for years), rather than have to give back my bag at the end of the weekend.

Books/Movies: I like borrowing books and movies. But the books and movies that I really love? I want to own.

Another thing I realized is that in the ABC interview, there is a lot of emphasis on “not giving up your lifestyle, but living on a budget.” Is it just me, or does this sound an awful a lot like the monthly mentality? Just because you can “afford” to make a payment of XYZ every month doesn’t mean that it’s a wise financial decision.

What do you think of this trend? Are you a transumer?

Is frugality a trend? And will it stick?

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Frugality is the new trendy?

Reading articles on declining consumer spending and increasing saving rates (and watching new words such recessionista, frugalista, and cheap-chic enter the lexicon) has made me wonder: has frugality gotten too trendy? And, will it stick?

Frugality isn’t an issue I write on, because I’ve never claimed to be frugal – I try to save and invest, yes, but I certainly have my moments. Exhibit A: $200 worth of wool gabardine from J.Crew today (if you follow me on Twitter, you would’ve seen step-by-step how the consumer pummeled the pf blogger in me.)

As an example of some recent coverage of the new return to thrift, Friday’s New York Times article is titled: “In an Age of Austerity, the Miserly Thrive”

I cringed a little at the word “miserly”. A miserly person is someone who’s cheapness is inconsiderate and inconvenient to others. Miserliness is not a quality to aspire to in any economic situation. But I see how the title “In an Age of Austerity, the Financially Responsible Thrive” might not have the same ring to it.

Then NYT used this example of an enterprising nurse who took home a duvet off the street.

“My behavior has become less strange and more of a resource,” said Katy Wolk-Stanley, 41, a nurse in Portland, Ore. A practicing penny-pincher for the last decade, she is now spreading her gospel. Last May, she started a blog with tips and tactics for cutting back called The Non-Consumer Advocate.

She knows whereof she blogs. She darns socks, dries clothes on a line she recently hung inside her house (even though it takes a few days for the clothes to dry inside), washes and reuses plastic bags and takes used clothes and furniture people leave on the street — like the slightly torn Garnet Hill duvet cover she found recently.

“It was wet, and covered with dog hair,” she said. “I washed it really well a couple of times and mended it.” Her quest for money-saving ideas “is very energizing,” she says. “You see opportunities everywhere.”

I’m glad she was handy enough to take the duvet (it’s also great for the environment – one less duvet in the landfills). But I’d feel uncomfortable using a duvet I found off the street, “wet and covered with dog hairs.” The ick factor would be too great for me to overcome (curiously, I have no problem buying clothes from thrift stores). I’ll settle for my duvet set from IKEA (bought it during one of their one-day sales for $20).

I guess this confirms what I already know: I’m just not that frugal, I like my creature comforts, and I’m willing to pay for them (although I am willing to pay LESS for them in this uncertain economic climate).

Will Frugality Stick?

As far as will frugality stick? People will always want things (or experiences). That requires money. Real estate in desirable areas such as San Francisco, Manhattan, and Los Angeles will always be pricey. Conspicuous consumption has gone out of style – for now – but who knows?

In 10 or 20 years, if things are good again or we have another bubble – will New York Times be writing about fishing discarded bedding off the streets and washing plastic bags? Will a consultant skip her $4 morning latte at Starbucks? Will the middle-class professional woman be so eager to disclose that she got her holiday dress at Goodwill instead of Neiman Marcus? Will she even go to Goodwill?

As deep and as hurtful as The Great Recession is, can it truly, permanently reprogram us as a culture of frugality? I’m hesitant to say yes. We had a huge, wild party that went too long. Now comes the hangover and the recriminations. But after a while, after we feel a little better, after we promise to never let things get so out of control, we’ll raise a glass (or two, or three) again.

Will you have to support your parents financially?

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If you’ve ever wondered that, you should read this MSN article (via Escape Brooklyn).

I think I got lucky. My mom is a pretty savvy lady when it comes to money. Though my parents had a relatively late start to retirement planning and investing, they’ve done okay for themselves and are continuing to amass a little nest egg.

Sometimes I’m surprised at how progressive Mom is – she has never said “promise you won’t put us in a home,” instead, it’s “we want to prepare financially so that if/when we have to go to a retirement community, we can go to a nice one, or we can hire in-home aid.”

When family friends and relatives joke that when I become financially stable I will take care of my parents, Mom always interject, “the responsibility of children, when they grow up, is first to their family and kids.” She also said to me many times that the greatest gift she can leave me is peace of mind.

After reading this article, I come away with greater gratitude for Mom’s wise choices. I hope that if/when I become a mom, I can be as wise as she is.

To my readers:

Do you think you will have to support your parents in their retirement?

If you are a parent, would you expect your children to support you in your retirement? Either way, (how) do you make your expectations known?

I Don’t Want To Be Poor With Anyone

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On a sunny weekend morning, as the whole day stretched out in front of us like a long embrace, CB turned to me and asked, “would you be poor with me?”

If I was feeling romantic and dreamy, I might’ve answered, “yes, because I love you,” and then added a caveat about “but you won’t be poor.” But all this personal finance must’ve seeped into my subconsciousness, or maybe half-asleep I am more honest and less tactful than I might’ve been awake, because I managed to look straight into his beautiful big eyes and said, “I don’t want to be poor with anyone.”

I thought about that less-than-romantic (but very-honest exchange) after I read posts by Madame X and Meg on the topic of the “accidental woman breadwinner.”

Reading this article made me realize that I don’t want to be an “accidental” breadwinner in my relationship, just as I don’t want to become an “accidental” stay-at-home wife or mom. “Accidental” implies a lack of choice, a lack of introspection, a lack of conscious decision. “Accidental” spells “resentment down the road” to me.

In marriage vows people promise to stay together “for better or worse, for richer or poorer.” I believe in those vows very strongly, but I also don’t subscribe to the theory that “all you need is love.” I’ve seen the tension that bad finances bring to even the strongest of marriages. I’ve seen it with my parents. I’ve seen it with several of my mom’s friends. And what I saw scared me.

Maybe that’s why I’ve always envisioned that both my future husband and I will work, even after we have kids (one, maybe two). One of us may take a part-time schedule for a year while the kids are young, but I don’t see either of us taking a longer hiatus from our careers. A satisfying career is important to me, and I’d imagine, to my future husband as well. Maintaining financial autonomy is important to me. Being able to care for my family if anyone should happen to my spouse is important to me.

The topic of whether to have a stay-at-home parent is a sensitive one – I don’t think there’s one solution for all families. It’s a personal decision. My thoughts to this subject is influenced by my mother, who has always worked. In fact, she left me in the care of grandparents for FOUR years when I was young to work overseas. I did not see her (or my dad) from the age of 5 to 9. And I turned out okay. Given my experience, I think I can probably manage any guilt I will have as a working mother.

So, no, I don’t want to be poor. Not by myself and not with anyone else. No one knows what tomorrow brings, but I hope that by making smart financial decisions and by marrying a partner who shares my priorities (and whom I love and respect, of course – divorce is a huge money drain!), I will improve the odds of having a “richer” life instead of a poorer one.

Warren Buffett is buying, are you?

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A few days ago I asked “is now the right time to buy?” Well, Warren Buffett says yes!

Recently I managed to reach the 12-month mark in my Freedom Fund (aka emergency fund). Given the current economic environment, I don’t feel comfortable reducing my cash holdings. I am, however, debating how to allocate my FUTURE allocations.

I can keep saving in Freedom Fund, split savings into 1/2 to Freedom Fund, 1/2 to taxable U.S. equity fund (this fund will serve as a long-term, non-retirement, savings fund. The time horizon will be at least 8-10 years – I imagine it will serve as a “down payment” fund because despite all the upheaval in real estate right now, I STILL want to be a homeowner, and maybe eventually an owner of a small apartment complex), or split savings into 1/2 to Freedom Fund, 1/2 to 529 Plan (that will be holding primarily cash, because I expect to go back to graduate school within 5 years).

Much to think about…

This weekend CB and I went out of town for a wedding. Once again, when I think I’m too preoccupied with personal finance, something – a squeeze of the hands at church, a family gathering at brunch, a nap in the car while we cruise down the interstate – reminds me that at the end of the day, money is just a means to an end.

But then again, love is not all, it is not meat nor drink… and it certainly won’t fund my retirement. So, keep on saving, I shall.