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Eleanor wrote with a question that could test even the mightiest personal finance expert. “What,” she asks, “can you do when you want to save money and your roommates don’t care?”

I share a house with four roommates. This saves me at least $200 a month from what I would be paying if I lived in an apartment. But roommates raise expenses in other, unexpected ways. I have been trying to cut down on monthly bills and am finding it incredibly difficult.

For example, I live with roommates that want digital cable and high-speed internet bundle. I can live without the cable (I don’t watch TV) and don’t mind having a lower-speed connection. But because three of my five roommates want the more expensive package, that’s what we get, and instead of splitting a $60/month bill five ways we’re splitting a $100/month bill. I end up paying more money overall. While I can simply not watch cable and argue with them that I won’t pay for that fractional cost of the bill, there’s no way I can somehow use a lower speed internet connection without some serious technological finagling.

Another way I find it difficult to cut down on monthly bills is electricity usage. I try to turn off lights, appliances, the air conditioner, and my computer when I’m not using them. My roommates would prefer to leave their computers and air conditioner on and are not as vigilant as turning off lights. The electricity bill is higher, but it still gets split five ways. Again, I have no idea how I would go about dividing the bill by individual electricity usage — how would you even start to go about measuring such a thing, when no one remembers who left the kitchen light on?

But perhaps I’m being too nitpicky — as annoying as these extra expenses are, I doubt they make it worth moving to an apartment.

It’s been a l-o-n-g time since I lived with roommates — wife and cats notwithstanding — and I’ve forgotten some of the stuff that occurs. I certainly remember the passive-aggressive games we used to play out of spite, but I think that, in general, I never had a living situation in which splitting money was an issue.

AskMetafilter often has roommate-related questions. Many of them involve money problems, but none that I could find involve this sort of problem. Though it doesn’t address Eleanor’s specific concerns, UK-based iOWEYOU looks like a great little web tool for tracking roommate accounts:

iOWEYOU is an expenses sharing calculator. It is ideal for people living in a shared house. To use iOWEYOU, you log all the items you buy that you share with your group. This may be bills, food shopping, light bulbs, TV license, etc., etc. iOWEYOU then tells you how much you all owe each other.

What general advice do you have for keeping money matters between roommates peaceful but fair? What specific advice do you have for Eleanor?

Source: getrichslowly.org

Apache is functioning normally

I had lunch with my friend Cameron a few weeks ago. Over plates of Kung Pao Chicken and Mongolian Beef, the conversation drifted toward personal finance. We began to talk about the repairs and upgrades we’ve been making to our homes.

Kris and I bought our current house three years ago; Cameron and his wife bought their home two years ago. Both were big upgrades from what we had previously owned. And though neither couple spent more than they could afford, we’re now realizing that bigger isn’t always better.

Our first house was a 1365 square foot ranch-style home on a 7500 square foot lot. It was an unremarkable house, except that it was located in my home town. We could walk to the grocery store, to the barber, to our favorite restaurants. I could bike to work. If we still lived there, we would be paying off the mortgage next spring.

But I had always dreamed of a bigger place. I wanted a home with acreage. When we found a hundred-year-old farmhouse nestled close into Portland, we bought it. Our new house has 1820 square feet on two-thirds of an acre (less land than I wanted, but enough). We love the place. After three years, though, it’s clear that 1820 square feet is too much for the two of us. We have two rooms that remain essentially unused, but which we furnish, heat, and cool nonetheless.

Cameron also had a modest ranch house on an average lot. When his wife got a good job in a different part of the state, they bought a bigger place. It’s a wonderful home: huge floorplan, five acres, an amazing view. But Cameron, too, is beginning to understand that upsizing has unexpected costs.

Don’t misunderstand me: both of us love our houses, but we’ve come to realize there are trade-offs. Too much house is as much a problem as not enough. “I feel like I’m always cleaning,” Cameron told me. “I feel like I’m always doing yardwork,” I said. There are other considerations, too, some of which are obvious, others less so:

  • A larger house generally brings a larger mortgage.
  • A larger mortgage means more total interest paid over the life of the loan.
  • A larger home has higher utility bills.
  • It costs more to furnish.
  • And from our experience, larger homes have more things that can go wrong with them.

Cameron and I talked about remodeling projects, about long-term plans, and about what we’ve learned since moving. “We’ll never use all the space we have,” he told me. “And with two young kids, it’s all we can do to keep up with maintenance.”

“My values have changed,” I said. “I always thought I wanted a big house. I thought that was a sign of success. I don’t believe that anymore.”

That’s the crux of the problem: What was important to me three years ago is less important to me now. In Stumbling on Happiness, Daniel Gilbert writes that it’s difficult for the present You to predict what will make the future You happy. You do your best, but sometimes the future You looks back and scratches his head wondering what his younger self was thinking.

Neither Cameron nor I intend to move, but we now appreciate the advantages of a smaller home, advantages we didn’t recognize when we had them!

Related Reading

Last year, NPR had a story on the ever-expanding American dream house, which looked at the pros and cons of large homes. Though this piece actually discusses very large homes, it still explores issues like the reasons large houses have become so prevalent.

Architect Sarah Susanka has a series of books (and a web site) that explore the concept of what she calls The Not So Big House. She writes:

The inspiration for The Not So Big House came from a growing awareness that new houses were getting bigger and bigger but with little redeeming design merit. The problem is that comfort has almost nothing to do with how big a space is. It is attained, rather, by tailoring our houses to fit the way we really live, and to the scale and proportions of our human form. Two must-read articles about this topic include Cultural Creatives: The Rise of Integral Culture, by Dr. Paul Ray and a recent interview with William McDonough in Newsweek magazine entitled Designing The Future.

Finally, for years I’ve been fascinated by people who choose to live in ultra-small houses. How small? The Tumbleweed Tiny House Company has plans for homes as small as 40 square feet! Really, though, I’m more interested in their 392 square foot glass house, or the 100 square foot EPU (which you can build for just $19,000 plus labor). You can find more homes like this at The Small House Society.

Source: getrichslowly.org

Apache is functioning normally

I hate plumbing. Whenever a faucet begins to leak or a drain clogs, my stomach sinks. I know it means hours of frustrating work. It’s not that plumbing is difficult — it’s just that I’m not well-versed in the ways of home-improvement. Somehow I missed that part of Manhood Training.

Despite my apprehension, over thirteen years of homeownership, I’ve made it a point to do as much repair work as I’m able. It has saved me a lot of money. And while I’m a ball of nerves going into a project, I get tremendous satisfaction when I finish something and know that I did the work with my own hands.

Yesterday we woke to find water on the floor of the upstairs bathroom. When we couldn’t immediately locate the source of the leak, we debated calling a plumber. Because it was the weekend, and because we’re trying to save money, Kris and I decided to tackle the problem as a team. While she buried herself in the Readers Digest Complete Do-It-Yourself Manual, I took the toilet apart. Ultimately we diagnosed the likely culprit: corroded fasteners connecting the tank of the toilet to the bowl. We drove to the hardware store, picked up replacement parts, and then put Humpty Dumpty back together again.

We were able to repair our toilet for $6.49 and an hour of time. Had we called in a plumber, it would have cost much more. This is how home repairs usually seem to play out for us: some initial frustration, a Eureka! moment, a trip the hardware store for a $10-$20 part, and then a final repair.

Here are some things we’ve learned when dealing with home repairs:

  • Don’t panic. A zen-like state is important for repair work. I don’t mean this in any mystical sense, but it’s helpful to be calm and relaxed when doing this sort of thing. Rash actions can turn a small problem into a disaster.
  • Act quickly. Don’t put off repairs. While you don’t want to charge blindly ahead, you do want to take care of the problem as soon as possible. We once put off fixing a small leak in the roof. You can guess how that ended during a rainy Oregon winter.
  • Use a reference. Google is your friend. We’ve found lots of answers on the internet. As I mentioned above, though, Kris and I find it convenient to have a book on hand. In 1994, we paid about 20 bucks for a copy of the Readers Digest Complete Do-It-Yourself Manual. The book has literally saved us hundreds of dollars.
  • Work methodically. When you take something apart, neatly set the pieces someplace safe. Label them, if appropriate. Be orderly. Follow instructions. Measure twice, cut once. If you have a digital camera handy, take pictures of how things were assembled before you dismantled them. These sorts of careful steps make repair work run smoothly.
  • Don’t make assumptions. Some of my most frustrating do-it-yourself experiences have come when I’ve made assumptions about a problem, only to be proven wrong. Here’s an example from my days as a computer consultant: I once spent several hours trying to fix a software problem that had caused a printer to stop working. As it turned out, it wasn’t a software problem at all — the power cord had gone bad. Boy did I feel stupid. Don’t assume things.
  • Pay attention. As you work, try to notice details. You never can tell what piece of information will be important. Are the electrical outlets you’re replacing two-prong or three-prong? How big were the screws on that gizmo, anyhow?
  • Be safe. Some tasks are dangerous. Electricity can kill you. So can a chainsaw. I have a friend who accidentally wired his outside power for 220 instead of 110. The first time he plugged in his Christmas lights, it was like the fourth of July! When one of our trees fell into the neighbor’s yard, I had my first experience with a chainsaw. I learned quickly that even a small tree has a great deal of mass.
  • Know when to call in an expert. Not everyone can fix every problem, of course. Some things do require a specialist. But there are many nuisances around the home that can be solved with patience, research, and elbow grease. Don’t be intimidated by replacing a light fixture or a garbage disposal. But call an electrician to replace the knob-and-tube wiring in your attic.

Home-improvement can be intimidating if you don’t have much experience with it. But with time, you can develop the confidence and the basic skills necessary to perform many common household repairs. If you’re interested in developing further competence, take classes from your local community college, or attend seminars at a home-improvement store. (I’ve also learned a lot by shadowing contractors as they work on our home. I always ask permission first, though. Some are happy to explain what they’re doing, but others are nervous to have an observer.)

Next on my home repair agenda: Diagnosing why the light in our guest room sometimes switches on, but mostly doesn’t.

Source: getrichslowly.org

Apache is functioning normally

Last year I asked, “How much do you spend on food?” Answers varied widely. Some commenters couldn’t comprehend that others could spend so much — or so little. I’ve always believed that buying produce at the farmers market is a good way to cut food costs. But is it really? This weekend I decided to find out.

Over the past two days, I’ve surveyed produce prices at five different locations: the farmers market, a produce stand, and three different grocery stores. I did my best to compare apples to apples (so to speak), but I cannot guarantee that my methodology was flawless. Still, this survey was accurate enough for me to draw general conclusions about my personal shopping. Here are the places I scouted:

The nearby farmers market is a great source for produce, but it’s not exactly convenient. It’s open every Sunday from 9:30am to 2:00pm between May and October. The market is a crowded, bustling place with dozens of local growers offering their wares. Quality is good, and most items are raised organically. The market also features cheese-makers, bakers, and the all-important knife man. (We take our blades to be sharpened at the end of every summer.)

You won’t find out-of-season or out-of-region produce at the farmers market. Ginger and bananas and asparagus are nowhere to be seen. You can, however, find a dozen different types of tomatoes, or sample the fall raspberries before you buy. Prices are good on some things, poor on others. For us, it’s worth paying a little extra to support local farmers and businesses with our food dollars.

This high-end grocery store is tucked at the edge of a wealthy neighborhood. We shop it a couple times a year, generally before dinner parties. It stocks a variety of interesting items, and has the highest-quality meats of any nearby source. New Seasons sells a lot of organic and “health” foods, but is less concerned with local items.

The produce here is high quality, but it’s expensive. I have friends that refuse to shop for groceries anywhere else because they support the ideals New Seasons represents. This hinders their ability to economize, but it’s a price they’re willing to pay. I find it difficult to justify the forty minute round trip and the higher costs.

Safeway (Oak Grove store)

Safeway is the closest source of food for us. It’s a mile from our house, and I often walk to the store if our grocery list is light. The prices are decent, especially on sale items. Kris usually plans her weekly shopping list around the Safeway sale inserts.

While the store stocks some organic items, these are costly. The concept of local produce — or local anything — doesn’t enter into the picture with Safeway; we’re treated to woody California strawberries even during the peak of Oregon’s berry season. Produce quality here is good but not great. Safeway’s real competitive advantage is that it sells just about anything we cold possibly need for our home.

Grocery Outlet (Oak Grove store)

Just beyond walking distance is a discount grocery store that features nick-and-dent items, as well as products approaching their expiration dates. We don’t shop here much because Grocery Outlet mostly sells processed food. They do have a small produce section in the back of the store, and their prices are excellent. I can’t vouch for quality, however, as I’ve never purchased any fruits or vegetables from them. On the downside, you must purchase produce in bulk. They don’t sell Costco-sized packages, but still — does anyone really need three pounds of plums?

The Willamette Valley is an agricultural region, and there are produce stands all over, even in the middle of the city. I pass three on my daily commute. Produce stands offer local high-quality organic fruits and vegetables. Selection is mostly seasonal, though; you’re usually limited to whatever is ripe. For this survey, I chose the closest produce stand, which is located across the road from a fish market.

At each location, I jotted prices and observations. After compiling the data, I created a spreadsheet. I had hypothesized that the farmers market would have the lowest prices, but I was wrong. Click below to open the results of the survey in a new window:

Based on my past experience with each produce purveyor, and based on this new research, I charted the pros and cons of each supplier:


My arbitrary system for evaluating my options.

The choice seems clear. During the peak of the harvest, at least, the produce stand offers the best balance of quality and cost, with the best price on 33 out of 63 items. But will it still be a smart place to shop in February? Instead of berries and tomatoes, perhaps the stand will stock yams and winter squashes, cabbages and turnips. Some produce stands shut down completely in the off-season.

Another advantage of shopping exclusively at a produce stand or farmers market is that there are fewer temptations that fall outside the realm of healthy eating. One vendor at the farmers market sells fresh bakery cookies, but that’s as bad as it gets. The produce stand carries bottled soda (including my beloved Mexican Coke), honey stix, wax-paper-wrapped cubes of caramel, and carob balls, but there are few other distractions. Grocery stores — even high-end natural food stores — are warrens of processed food.

What’s the cheapest source of produce in your town? Who has the best quality? Are you willing to pay more to support causes that are important to you? Do you always buy from the same source? Or do you shop around based on price and convenience?

Source: getrichslowly.org

Apache is functioning normally

This is a guest post from Shiva, who wrote to offer some advice on how to shop for prescription medicine: don’t assume that the new new stuff is better!

I am a general internist — a physician who provides primary care to adult patients — and am on the faculty of a medical school, where I teach medical students and residents. One of my interests is the excess marketing and use of expensive yet marginally effective prescription drugs.

I have found in clinical practice that the most effective medications tend to actually be “tried and true” ones approved over ten years ago with thousands of patient years of post marketing safety and efficacy data available. Rarely is the latest the greatest.

Unfortunately (this is hard for me to admit), my profession has been overrun by the pharmaceutical industry — you are very likely to be prescribed expensive brand name medications that are no more effective (in some cases less effective and/or less safe) than older, cheaper, and more thoroughly studied medications.

Here are two websites I recently found from Consumer Reports and Public Citizen that summarize the costs and benefits of various drugs prescribed for common conditions. They do it better than most reviews in the medical literature:

  • Consumer Reports Best Buy Drugs — “Free guidance for consumers on prescription medications.”
  • worstpills.org — “Your expert, independent second opinion for prescription drug information.”

While physicians should be looking out for their patients regarding out-of-pocket costs, the reality is most physicians don’t even know ball-park prices of the medications we prescribe.

Given the underinsured status of many Americans — especially related to pharmacy benefits — meeting your doctor armed with information about the relative cost-effectiveness of the drugs for your condition is essential for both your physical and financial health. And in terms of drug advertising, I recommend ignoring the magazine, newspaper, and television ads. We can all become “branded” within the blink of an eye. Don’t let the flashy advertising dollars sell you on what’s best for your health.

Remember: Check for coupons and rebates before having your prescriptions filled.

Source: getrichslowly.org

Apache is functioning normally

Is it better to buy or rent? It’s one of the eternal personal finance questions, and one that each person has to decide for herself. There are lots of non-financial factors that affect this decision, of course, including your hobbies, lifestyle, and personal psychology.

Despite these non-financial considerations, often the choice comes down to money. What makes the most financial sense? In July, guest-author Tim Ellis shared his thoughts on the rent vs. buy debate with us. While re-reading his article recently, I followed a link to this beautiful rent vs. buy calculator from The New York Times.

This interactive tool allows the user to play with the numbers, providing immediate feedback after adjustments to predicted home appreciation or rent increases. Don’t overlook the panel of advanced settings — these can help you evaluate tricky scenarios.

This could be a handy tool if you believe you’ll have to make a decision whether to rent or to buy in the near future.

Source: getrichslowly.org

Apache is functioning normally

This is a guest post from Mrs. Micah of Finance and Life. Look for a related post later today.

Getting an interest-only mortgage can seem like a great idea when you’re trying to buy a house and can’t afford a down payment (or if you have bad credit). Earlier this week, I read the story of a couple who are celebrating home-ownership under just such a situation. But while they’re happy, odds are that this is actually a disaster waiting to happen.

The Pros

There are two reasons an interest-only mortgage might work out for you:

Reason #1: You’re a house flipper.
No down payment, lower monthly payments for ten years — since you’re flipping, you probably plan to have the house for less than a year. Why bother paying more? Using interest-only means that you can direct more capital into fixing up the place.

And since your goal is to increase the value of the house, you probably won’t have to sell it for less than the mortgage. Congrats. You have an excellent reason to take out an interest-only mortgage.

Reason #2: You plan the stay in the home for all 30 years.
In the end, you’ll spend the same amount of money with an interest-only or a normal mortgage. If you plan to stay in the home, have a well-paying and steady job (perhaps you work for the government and the bureaucracy make you impossible to fire), and want to invest the money you’ll save in the beginning to take advantage of compounding, then get the mortgage if you absolutely must.

The Cons

Here are two reasons an interest-only mortgage is probably a bad idea:

Reason #1: You don’t build equity
Imagine you have a $100,000, 30-year mortgage at 6.25% with the first ten years as interest-only. (The calculators listed at the end of this article can help you run the numbers for different values and rates.) While the money you pay for those first ten years — $62,500 — will have value if you stay there for the full thirty years, it will be little or no better than renting if you move earlier.

Actually, it could be much worse than renting. If you need to sell before the interest-only period is over, you’ll still owe the full value of the mortgage ($100,000 in our example). If you can sell it for more, you come out ahead. But if you sell it for less, you’ll still owe the difference. In today’s housing market, that’s particularly worrying, since the odds are high that your property value will decrease.

So if the house sells for only $95,000, you’ll owe the $5000. When selling your home, there’s always a risk that you’ll lose money anyway, but an interest-only mortgage dramatically increases it. (And these are low numbers — suppose the mortgage is $250,000 and you sell it for $225,000!)

On the other hand, by going fully-amortized during those first ten years, you could build $15,223.87 in equity. That’s more than you’ll save by paying interest-only. Under an interest-only plan, it’s only around the 25-year mark that the equities equalize. Until then, you’d be ahead with the normal mortgage.

Reason #2: The amount due will increase
In this example, having an interest-only mortgage saves you $94.89/month at the beginning. That’s $11,386 in payments over the first 10 years. However, after the 10 years, your payments go up by $210/month. Now you’re paying over $100 more than the amortized rate and you have to find that extra money in your budget.

This might make financial sense, say, if you were in a secure job or field where you could be sure that you’d have the extra money within 10 years. But what if you lost your job (see #1 about having no equity)? Or what if you had more children and expenses? In the world of finance there are few guarantees — except that if you can’t pay the new rate and can’t refinance, you’ll be in trouble.

Looks like a bad deal, doesn’t it?

The Decision

Before you say an interest-only mortgage fits you, think long and hard. Consider the reasons it’s a bad idea for most people. If you’re the one in a million who actually could pull it off, then go in with eyes wide open. And best of luck to you!

Otherwise, I suggest that you avoid these like the plague. Are they better than adjustable-rate mortgages (ARMs)? I don’t know. Possibly, since you should know ahead of time what you owe and what the interest rate will be. But it’s like comparing arsenic and cyanide. You’re best off not taking either.

Source: getrichslowly.org