Living a remarkable life should be fun, but it takes work. This episode is on the more serious side. Money Amy returns (from episode seven) to address the financial distress that some listeners are experiencing due to the pandemic. Peter McGraw and Amy talk about tactics to get your financial house in order (and your house in order, more generally). A few things to be ready for: 1) you are going to need to dedicate some real time to figure out your financial situation, 2) you will need to make sacrifices – in other words, you must learn to stop spending money on things that are not truly important, and 3) you may have to make big changes to your housing situation – maybe even get rid of your car. If you stick around to the end, Peter gives a few book recommendations and makes a case for the opportunity to build a better financial future and to pivot your career and maybe start a side hustle that could become a new business.
Listen to Episode #29 here
Financial Stress In The Time Of COVID
I want to interrupt for a moment to ask you to join the Solo Community. If you go to PeterMcGraw.org on the Solo page, there’s a Contact form. I’m going to be hosting a couple of live Zoom events and I want you to get invited to them. We’re going to talk about how the podcast is going, get a conversation going among the audience, see how I can serve you better, what is it that you want, what could be improved, what needs to go, all of that. Sign up for the Solo Community. Let’s get back to the episode. Thanks so much.
On balance, living a remarkable life should be fun. This episode is on the more serious side however, as Money Amy returns to talk about the financial distress that some audience is experiencing because of the pandemic. We discussed tactics to get your financial house in order and your house in order more generally. A few things to be ready for, one, you’re going to need to dedicate some real time to figure out your financial situation. Two, you’re going to need to make sacrifices. In other words, you must learn to stop spending money on things that are not important. Three, you may need to make some big changes to your housing situation, maybe even get rid of your car. You can always get another car at a later date. Towards the end, I give a few book recommendations and make a case for the opportunity to build a better financial future and pivot your career. Maybe start a side hustle that could become a new business. As a solo, you can more easily make changes in life, and now is maybe the time. I hope you enjoy the episode. Let’s get started.
Our return guest is Amy Gibb or as I call her Money Amy. Amy is a certified financial planner. She advises individuals and businesses. She was a guest on episode seven way back when Financial Freedom with Money Amy. Welcome back, Amy. I was prompted by an audience question to talk a little bit about the financial distress that COVID-19 is causing some people, not all. It’s an interesting situation where some people are not affected and some people are. It’s 20% unemployment rate, last I checked, it could be higher now. There’s a little bit of a different tone with this episode. The previous episode was uplifting and positive. How do we change our behavior to be able to be financially free? Now, this is about how do we change our behavior to financially survive? Let’s talk about some urgent financial issues. We’ll talk about some near-term planning, some long-term planning. I call you, Amy, as I always do when I have financial questions. Let’s talk first to the solo audience who may have lost their job, maybe concerned they’re losing their job, has a lot of uncertainty about their career path. What are some of the kinds of things that you’re seeing with your practice that come to mind that will be helpful?
It’s pretty obvious you’re not in this alone. People are experiencing all different effects of COVID. The common experience is anxiety and uncertainty. You don’t know what’s going to happen. You feel vulnerable. Just know you have a lot of company and sometimes it’s good to talk to other people about your concerns. Americans generally don’t talk about money. They’ll talk about sex, drugs, everything else. Find safe people that you trust that you can talk to, even if it’s just a vent, and share your concerns. Sometimes getting it out and talking about it, whether it’s to a friend on the phone or in the distance, walk down the street with a friend. Talk about it because you have a lot of company.
It’s a great starting point. A lot of people don’t want to talk about these things in part because it seems like a taboo topic. I found myself allowing myself, forcing myself to talk to the people who are close to me about my financial situation, especially if you’re going to lean on those people for some advice. It helps for them to have a real clear picture of how you’re doing. I know that’s hard to do. You should do it with people that you trust. The same people you might talk about your sex, drugs, and rock and roll with should be the same kinds of people that you can talk about your financial situation.
As when you get that advice to take everything with a grain of salt, some people will tell you, “Stop worrying. There’s no problem. Stop feeling that way.” Some people will say, “It’s the end of the world. You should have behaved better in the past.” Anybody’s advice that is not useful for you, leave it. It is not helpful to internalize any negativity and any self-blaming, “I should have.” “I have a list of about twenty things I should have done before COVID that if I had known COVID was coming and I didn’t do them.” There’s a little bit of that self-whipping process, leave that because that’s in the past and now we’re here. All that matters is the decisions you make for yourself moving forward in a way to support yourself.
The past is the past. The causes are sunk, the decisions are made. The other mistake would be to not make changes.
That quarantine thing where you pretend it’s not a problem, you open a new credit card, you buy out a new wardrobe, maybe it isn’t a healthy way to go forward either. It’s fine to cheat on your diet periodically, but not every day for a month. You need to have some self-knowledge, some self-control, and some information as you go forward.
Lean on the people that are good to lean on. The ideal person is to talk to your financial planner. As I said in the previous episode, find someone like Money Amy, a fee-based financial planner, someone who is being paid for their time and not from what you do with your wealth because that creates some perverse incentives for that person. Our audience is in financial distress. They’re facing financial distress. You’re great about making to-do lists. What starts to go on their to-do list?
The first thing is to take an inventory. It’s easy to freak out about the unknown. Maybe after you take your inventory, you’ll freak out again but at least do an inventory. I was watching the movie, The Martian. The first thing he did when he got his crap together and sewed up his injuries was, he did an inventory of the food he had. He marked all the packages and how much he was allowed to eat every day. He knew how many days he had left. In a sense like that, do an inventory. Take an inventory of everything you own and have, which includes savings, checking, investments, retirement accounts. If you have a loan on your car, include your car, cash under the mattress, people that owe you money. A list of everything you own and a list of everything you owe, credit cards, mortgages, 401(k) loans, student loans, how much you owe, the interest rate and the minimum monthly payment.
Do an inventory and that’s what we would call a balance sheet, what you own, what you owe and that is your personal balance sheet. What you own is called an asset. What you owe is called a liability. You want to know what the landscape looks like. You want to do what we call in the business a profit and loss. You need to see what kind of money you’re having coming in, if any, are you getting a partial paycheck? Are you getting unemployment? Whatever that is and a budget where all your money goes. What you might do is take a snapshot of February’s assets, liabilities, expenses, so you know where your money’s going. It’s an inventory.
A car is a liability if you owe money on it and it’s an asset if it’s?
You add it to the asset list, “I have a car. It’s four years old. It’s worth $20,000. I have a car loan for $15,000 at the Credit Union at 5% interest at $300 a month.” That’s what that would look like.
For solos, they have the benefit of sometimes the simpler financial situation. The thing is you have to go deep. There are things like your insurance payment, which might happen once a year, and so on. If I may try to guess one of the reasons why you’re suggesting this is because you have to figure out what you might be able to trim from those liabilities.
When we do financial planning, this is one of the first things we do anyway. We do an inventory. The process you’re going to go through on this fire drill, emergency concern during COVID is the process you might have done before COVID or maybe never have done, but it’s useful regardless. What you want to see is what the landscape looks like. What you own, what you owe, what you owe every month, what’s your budget looks like. You have some information with which then to take the next step.
I’m going to admit this to my audience. Whenever I have a big decision to make, Amy always asks me, “How much are you spending every month?” All this kind of stuff. I tell her, “I don’t know and I’m not going to do it.” The reason for that is that I spent many years of my life basically having to figure out every single penny that I had, where it was going and what I was spending it on. I had to be so tuned into my finances that I knew all that stuff. I did all the things that we were talking about. At some point, I got financially free enough that I never wanted to go back to that because it is unpleasant.
I’m at that stage too to a point, but I have a kid in college still. If your natural tendency is like Peter’s are, you’re pretty frugal and you generally underspend what you make, that is his given, even though he’s spending more now maybe than when he was fourteen. That’s his natural tendency. I will say that at some level, he does check in with himself even if he says he doesn’t on how he spends money. In this situation, if he came to me and said, “I have no income. I have all these expenses. I’m freaking out. It’s COVID,” I would push to have him do that so we have some self-knowledge. Going forward, we know what he could trim, what things he needs to do. The goal is that they don’t knock on your door in 30 days and say, “You’re out of here. You didn’t pay your rent. You didn’t pay your mortgage,” and leaves you with no choices. The goal is that you have more control.
I’m not suggesting anybody do what I’m doing now. I’m saying you can get to where I am now if you spend years and years being financially disciplined, which is either in your nature out of necessity. It happened to be both for me. You create your balance sheet and that may be painful. You should set aside an afternoon. This is not something you do in an hour. This is going to take some time.
You get online and look at your balance on April 30th. I recommend everyone for their balance sheet goes to April 30th, what’s in your checking account? What’s in your savings account? If you have a retirement account, what’s in your retirement account? How much do you have buried in the backyard? What do you think your car is worth? If you have a house, what’s your house worth? All those things. The same on the debit side. What was your credit card balance on April 30th? What’s your mortgage balance? What’s your student loan balance? You’ll start to see the picture.
You start to get this picture. You’re putting this into on a piece of paper or probably better on an Excel spreadsheet, then what?
It’s spending. I would say go back to the month of February, credit card, checking account, and look at where every place your money goes. I would create 4 to 10 categories. It’s living, rent, mortgage, whatever that is for your housing, housing utilities, food, insurance, car, all the basics, and then the extras, which might be eating out, entertainment, gifts, travel, and consider those extra. As Pete had said, sometimes we pay insurance once a year or sometimes things happen twice a year. Think about things that happen periodically so they don’t surprise you. If you own a house and if you don’t escrow on your mortgage and you pay your own property taxes, that’s a big one. You’ve got to see that one coming.
Although I find that a lot of people that tend to be tighter on finances pay their insurance every month in monthly payments anyway. Get a picture, it doesn’t have to be perfect, but you should have a picture of the landscape on where your money is going. Don’t make judgments because we need information. I spent $500 a month eating out. I go on four trips a year and spend $5,000 each trip. Make sure you pick up those periodic things that are happening too. It doesn’t mean we’re going to say the budget for those in the next 90 days, but at least you know what your habitual behaviors are.
This is good advice, COVID, or not. The world has gotten in some ways a little too easy. This might have come up in our previous episode. There was a time where you had to pay for everything with cash and check. It was very clear how you were spending your money because you felt the pain of paying it. You were putting it in a ledger. Now what happens is, I pay utilities and things with credit cards. I get one bill or two bills at the end of the month and occasionally the bill is huge. I go, “There has to be a mistake here.” I go looking through the individual charges and there are no mistakes. I know some credit cards will do this. It will give you the breakdown of where you’re spending your money and what the amounts are. Especially when it comes to things like eating out or ordering food nowadays or subscriptions and things and you go, “I can’t believe how much money I’m spending in restaurants and bars.” This is useful in terms of giving you clarity in terms of where did your dollars go and do they match up with intuitions about where you spend your money.
Your current income, your future income, and what you can afford.
We’ve hammered this. If someone is not willing to do that, they’re at a disadvantage, yes?
Yeah. They’re going to be making decisions. You’re freaking out because you don’t have as much money and it’s COVID. You’re saying, “I’m going to turn off the heat, the air conditioner and not buy groceries.” I would say half of your decisions are going to probably be okay. People have more instincts around what they should be doing, somehow their grandparents and parents got into their heads. You’re going to make half your decisions that aren’t to your best advantage. Why not make the math work for you?
It’s a simple Algebra. Excel and a calculator could be useful.
However, people’s behaviors are 90% emotion, 10% math. It’s good to know. You’re still going to have your emotional behaviors, but you can make better decisions with some information and to more benefit. You know you now can’t afford to do takeout once a week or something. You’ll be more comfortable with that.
What is the next step? Let’s suppose you’re in the black or in the red.
I’m going to slide a couple of other things here. Whatever you feel about politics or what they’re doing in Washington, there are a lot of programs including unemployment, PPP loan, lots of programs from the government to fill some of the gaps we’re all experiencing. If you’re self-employed, you can still do the PPP loan or the unemployment now, where you used to not be able to. If you were W-2, you can sign up for unemployment. I have walked twenty clients through these various processes. It is interesting as much as people give Americans a hard time about credit card spending, lazy, don’t work hard, people are very reluctant to sign up for unemployment even though they qualify. They’re reluctant to sign up for the PPP loan even though they qualify.
It’s this American, “I’ll be more frugal, I’ll be more careful, I’ll start working harder,” and I applaud people for that. At some level, there’s nothing wrong with filling the gap with the current programs because we’re all going to pay for it anyway. I would say on the income side, people that are having income problems because they’re laid off, they lost their job, they’re self-employed, they have no customers, take some time to delve into these programs, get your friends to help you, get people to help you. It’s a pain in the butt, but it’s a piece of the puzzle. Make sure you look at those things.
They are there to help you. They’re not always there to make it easy to be helped.
It’s a piece of the puzzle. You want to spend Labor Day filling out an unemployment form, but you’re going to do it anyway. You’ve looked at the world. You’ve seen your assets. You’ve seen your liabilities. You’ve seen your income. All of a sudden, you see you’re in the red. The reality is certainly you could go on living your life like you are probably for another 30 to 90 days before they come to knock on your door and you’re in a lot of trouble. In 60 days, 90 days and in a year, your life will be better and easier if you make changes now. That’s the big deal.
Even if you’re not in the red, there’s enough uncertainty about the future that it’s a good idea to pull back unless you are 100% certain you’ll be unaffected.
If you’re one of those people that has 6 to 12 months of living expenses, you have access to additional liquidity beyond that if you need to, you’re making as much money as you did in the past. You feel confident, be self-aware. In the past we’d say, “You need a month or two of emergency money,” we need 6 to 12 months of emergency money. Most people don’t have that. Even if you’re in a good position, you need to take an inventory. If not, make changes now, be ready to start making changes six months before you think you’re going to have some financial challenges.
The great irony in this is that essentially, COVID is either like this gentle reminder that you need to get your financial house in order or it’s an urgent call.
The first thing you want to do is look at essential things that you need to pay on time every month. The biggest thing that hit your credit report for paying on time every month is if you have a house, it’s your mortgage. At some level, if you still have money to pay your mortgage, you pay that on time every month. I even tell people, pay it five days early, ten days early, because then if you get into a pinch, you can now pay up to ten days after the first of the month, still be on time and all of a sudden you’ve bought yourself twenty days. Secondarily, your car payment. For whatever reason, your car payment, your mortgage payment are the big hits on your credit bureau. Things that don’t show up on your credit bureau generally are your water bill, your electric bill. Eventually, your cell phone will show up on your credit, but for a while.
If you have to lag on anything, lag not on your mortgage and your car, always car payment, mortgage. Everything else, you can lag a little bit on. Before you get to the point that you’re lagging on your credit card, your electric bill, you’re in such trauma that you are now starting to have to pay late on your bills, make a phone call. It’s so much better to get ahead of it and make a phone call, even if it’s your mortgage or a car payment. There are a ton of programs out there now with mortgage lenders and everybody that’s lending money, credit cards, everyone’s on board with this where you can renegotiate your monthly payment.
Be clear when you have that conversation. Number one, you want to say, “Will this affect my credit?” Generally, they’re going to say, “No, it doesn’t,” because, during COVID, they would get a lot of bad reputation after they negotiated a deal with you if they dinged your credit. The second thing you ask is, “Is this a deferral or I don’t have to make a payment?” What we’re all worried about is we get through this nine months from now. I’ve had my car payment on deferral for nine months and then they send me a due bill for $4,000 on December 1st for the last nine months of payments. You need to understand if it’s a deferral or a grant, a gift. I will tell you 99% of them aren’t going to be a grant or a gift. It’s going to be a deferral, so understand that.
The big thing we’re concerned about is the second hit of COVID, but the second hit on the economy where everybody got so far behind that now all of a sudden, we owe all this money and we can’t make it either. If it’s a deferral, understand what happens. You’re going to still accrue interest probably. After the fact, ask them if they’re going to restructure your payments so you can afford it. Make those phone calls before you ever pay late. You do not want to start making those phone calls after you’re 1, 2 or 3 months late. They’ll negotiate with you at that time, but you have less power in that situation.
This might be a good time for an audience question then. It’s related to this idea. This is from Kim. She says that she’s seeing lots of 0% interest opportunities for things like school loans and credit cards and so on. Her question was, “Should I take advantage of those things? Even though I have the money, I can still pay for things now, but I’m uncertain about my ability to pay later.”
Once again, you’re going to still owe the money in the future and a lot of these 0% loans than in the past have in twelve months they go up to 18%. You’re still going to owe the money in the future. Don’t be foolish about borrowing money now to stop from having to make hard decisions about what not to buy. “I still want to buy things and go out to eat and so I’m going to borrow this money to support my budget.” I would say be aware of what’s available. Line up the terms and conditions of those options. Maybe you do take advantage of refinance of your student loans at 0%, but it depends on what the interest rates are in the future. Do quick math about the difference, “My student loan is 5% now. They’ll do 0% for six months and it goes up to 10%,” do the calculation and the difference. A lot of times the interest is not necessarily that large of a number.
Read the fine print. This is not a way to work around having to cut costs.
Make hard decisions anyway.
What do those hard decisions need to be?
Not the worst case, but in a very difficult situation, one of your biggest expenses is your housing. Whether it’s a house you own or a house you rent or an apartment you rent or where you live, take a hard look at where you live and what it costs you. Ironically, housing sales and purchases are still rolling because the interest is so low. If you look at a house that you stretch to get into and you could barely make your mortgage payment. This is for solo people, you’re making 60% of what you were making and you can’t make the mortgage. You could probably make it for another 3 or 4 months. If this goes on for eighteen months, it’s never going to work. You might take a look at changing your housing situation to sell your house, move into a smaller apartment, to get roommates. Any of those situations because that’s your largest expense, also it has a strong effect on your credit if you default. Sometimes it’s a good time to make a housing decision even though you don’t want to look at stuff or have people in your house looking, there’s still a market there. That’s the biggest one.
As a solo, I like living alone. I enjoy it a lot. I’ve had a great benefit as a young man having jobs that gave me housing, which was nice. When I was a graduate student, I remember my first year living alone. This is in the late ‘90s. I was making $14,000 a year in the Midwest. I did the math on it. I was like, “I can cut my monthly expenditure on housing in half if I get two roommates in this duplex.” I remember having mixed emotions about that. On one hand, it was super fun to have roommates. We threw great parties and you have company. On the other hand, it was a drag when my girlfriend wanted to come over. I’m assuming one of my roommates was in the kitchen while we’re trying to make dinner. I made that half painful decision for that reason. When I looked at what my expenditure was, that was at least a third, maybe 40% of my expenditure.
It’s not going to be forever. You get to decide, set up in priority the top 5 to 10 things on where your money goes that you would give up other things for like, “I do not want to have roommates. I know I could make $500 a month if I had roommates. I would rather not eat out, not have air conditioning, not buy clothes for the next year if I don’t have to have a roommate.” That is fine. You can’t have everything on your list. If you have a list of 50 things that you like, choose the top ten, go for the top ten, cut off the other ones.
The one thing is that people often forget how adaptable they are. The transition is painful, but once you get settled in, it can become quite comfortable assuming you make a good choice in terms of the transition. Assuming you make a good choice in terms of your roommate or if let’s say you downsize your place or you go to a different neighborhood or whatever it might be, that you make sure that the essential things that you need to be comfortable and happy are there. I often think that space is a little bit overrated.
This is because we have too much stuff. If you get rid of your stuff, you can live in a pretty small space.
I want to return to that idea about stuff. I was jotting down a few ideas. This may seem a little bit counterintuitive. Your advice about doing the balance sheet is number one. Often what happens is with our financial situation, we’ve lost control. There are things that are outside of our control. I’m a big believer in how can you find a way to take more control over your life. You’re not going to be surprised to hear this, Amy, because you know me well. When I have those moments, I like to tidy up. I like the tidying up process. I would say that if on Saturday, you do your P&L. On Sunday, it’s worth tidying up. The idea being is it’s going to be a way to catalog what you have. Going through your wardrobe and making your piles, “This I definitely want to keep, this I want to donate, this I’m embarrassed to donate. I’m turning it into rags or whatever it is.” Go through and you’d be surprised how much stuff you have that you don’t need. How nice it feels to make that pile to donate, to give to people who need it more than you.
Whatever your motivation is, is it to help other people? Is it to make more room in your closet? Is it to give you a sense of control, to have a cleaner house? We’re spending so much time at home these days to have a nicer place to live. I agree. Any of those things that you can do to get a feeling for what you own and what is not important anymore. It motivates you to make those decisions around where you spend your money. What’s not important, we pay it because they send us the bill every month.
For example, going through and organizing your kitchen is a useful task in part because you probably should be cooking more. The world has made it so easy to order food that you would order food. It’s a time saving, but you pay for that. When you order that $12 entrée, it quickly through Grubhub or Postmates or Uber Eats is $18 between the tax, the tip and the delivery fee. You’ve got to wait for it anyways. Sitting down and learning to make some simple, low-cost healthy meals.
Not just by buying one of those services like Blue Apron or something. That’s not terrible, but it does add cost. You can still order out. You can still do pickup, just reduce. When it comes to changing spending behaviors and lifestyle behaviors, you don’t have to go all in. It doesn’t have to be 100%. Anything you can do to move the needle, to spending less money, being more frugal, being smarter with your stuff helps. 10%, 20% makes a difference.
It helps to know how much you’re spending on food to begin with.
It can be very sobering. “I certainly didn’t eat out and spend $500 this month.” You did. It is good to be aware of.
Let’s talk about eating for a moment because that’s another big expenditure. It’s also something you cannot do. You’ve got to eat. In the same way, you need some shelter, you need to eat. I would do all the right things. I buy healthy-ish at least food in bulk back then. You buy things like eggs, peanut butter, and cheese. Nowadays, you can get this big container of spinach or mixed greens for $5, which is a great base that’s going to fill you up in a meal. Learning the basics of how you cook in order to be able to look forward to eating because that’s part of the problem. Why is it that we order food? It’s not the convenience, but it’s like you want to enjoy your meal.
The beautiful thing about the world now is we’ve got YouTube videos. We have a lot of opportunities to learn the little basics. With COVID, I have been existing on salads and tacos, things that are pretty healthy, easy to make and tasty. Salads are tasty as you get used to eating salads. You’re not drowning them in a salad dressing in order to keep them on the healthy side of things. For a lot of people, their expenses are way down as a result of that. That’s something you want to carry forward.
Let’s talk about the car because that’s also another major expense. I also think the thing about cars is they’re such a part of the American fabric. We have a tendency to think that they are essential. They also tend to be major costs. The costs feel a little bit hidden. For example, people have garages in their homes, which they pay a mortgage on in order to store this thing. If you’re willing to either forgo your car and then now walk, bike, take the bus, take Uber, you can often cut your expenses quite a lot or if you’re willing to downsize your car, to get something that’s much more economical. One of the beautiful things about cars these days is that even the economical cars are incredibly reliable and they’re pretty good cars these days. As you once told me, know whether something is a necessity or a luxury purchase. A basic car can be a necessity, but your fancy car is a luxury.
It is a luxury always. If you can afford it and that’s where you choose to spend your money, that’s absolutely fine. In fact, our economy appreciates you spending money on a luxury car. If you have a car, a loan on that and you’re looking at that and you say, “If things stay the same for the next six months, I’m going to have trouble making that car payment,” trade down now. For the equity you have in your car, see if you can get a reliable use car with no payment. I highly recommend that. In general, between depreciation, your garage, your insurance, your gas, your maintenance, it’s about $1,000 a month for a car, give or take. It’s a lot. Downsize your car, get rid of the extra car. If you’re concerned, do it now. The good news is when our economy recovers in 8 to 24 months, there are going to be cars out there. They’re going to have 0% financing. You’re going to be able to buy a car with no problem. If you’re having trouble affording your car, downsize now, do it now.
[This is early on when Uber was starting to take off. An economist had done an analysis, it may be out of date now, but if you took Ubers instead of having a car, this depends on where you live, if you’re in an urban center, how much you drive typically, especially now that people are not commuting. If you’re going to work at home and so on, suddenly the financial side of Uber or Lyft, the car sharing can work for you. You can save money by taking car sharing services rather than owning a car. The problem is that it seems painful to pay each time you get into a car. Owning a car doesn’t have that same paying pain.
We don’t internalize the depreciation on the car. Your depreciation on the car is anywhere from $100 to $400 every month that you own the car and we don’t experience that. If we have a car loan, we are experiencing it with our car payment. In general, we’re not thinking about what a car costs. On the flip side, I had a couple of clients and a couple of friends have done Uber. It basically is using up your car faster. If you do the math and as being an Uber driver or a Lyft driver, all you’re doing is eating up your car and depreciating your car. It’s not a very profitable endeavor. It would be logical. On the flip side, taking an Uber or a Lyft vehicle is more economical than owning.
I’m not saying that you should get rid of your car and use Uber all the time. I’m saying that if you don’t drive that much, you don’t have a long commute, you have an expensive car. It can be a place to shave dollars off your monthly.
Once again, it doesn’t have to be forever. If you say, “I’ve got a nice BMW, but my car payment is $800 a month and my insurance is $400 a month. I’m worried I’m not going to make it in 3 to 6 months,” trade it in, get rid of it. In a year or two if you’re doing well and you can afford it, buy your BMW again.
If you have your six-month emergency fund, that will get you through it.
Know it’s not forever and it’s an interesting experiment. Think of it as you have a great opportunity during COVID to do some financial experiments, things that you were not motivated to do before that you’re now motivated to do.
I’m going to make one last case for switching over. I’m in Los Angeles these days. Even though I own a car, I sometimes take Uber. I do that in part because it’s less stressful. I don’t have to find parking. I don’t have to pay for parking. There’s a convenience factor that is also built into that depending on where you live.
My son has a 30-year-old Jeep car that we always worry that it’s not going to make it another day. He drives it around and I would say, “Don’t drive farther than you can walk home three hours.” If he’s going someplace where you have to park or whatever, they take Ubers. He doesn’t have to worry about the drinking thing. It economically works.
One thing I like about some of this advice is that it is designed to improve your health also. Eating at home, if you are more likely to walk or bike because you’re trying to limit the use of your car, some of these have zero effect. Another one is subscriptions. What is it you’re paying for every month, whether you use it or not? Let’s talk about some of those.
I am not a big subscriber, but I see that my kids are occasionally. They’re doing Netflix and whatever the music ones are. There are a lot of subscriptions you can do monthly. Here’s the thing with COVID. You cancel now. They’re going to take you back if you want to go back. Once again, it’s not forever. If you went through and canceled every single subscription that you had, you would be surprised the deals you’re going to get if you ever want to go back. They add up, your gym at $39.99, your Netflix, your music ones, your credit checking ones, all that is probably a couple $100 a month. There’s nothing wrong with canceling everything and then adding back if there were some things that meant a lot to you.
Some of these things depend a little on this cost-benefit as you were saying, what are the things that are essential to being happy in this way. I can imagine someone hearing Netflix and go, “I couldn’t do that.” I would say, “Yes, you can do it.” I know this because I did it in the sense that I spent two months in the desert. I watched almost no Netflix, maybe a couple of hours. What you have to do is have a plan for what to do instead. Netflix is not a great example because it probably only costs $14 a month. It’s a good thought experiment about what it is that you need to be happy. It’s even more of an important question, which is what should you be doing with your time if you are in financial distress? Should you be sitting and binge-watching Tiger King or whatever the latest thing that you’re going to be binge-watching is or should you be working on your career? You’re in a situation which you might have thought was secure and now you know it’s not secure. Is this a time that you should be planning a pivot? Is this a time you should be thinking about creating a small business?
You say, “It’s $15 a month for Netflix,” but if you cancel Netflix, now you don’t have that temptation. You’re like, “Here are some books to be reading.” I’m going to give the audience three books that they should be reading instead of watching Netflix. You can save your $15 a month. Use that $15 a month to buy these books. The first book is called The Magic of Thinking Big. It’s a book by this guy David Schwartz. It’s an old book. It reads like a Dale Carnegie book. It’s a little bit strange. This is a book that I read in my 30s that had a huge effect on my life. It is like step number one if you want to live a better life, if you want to live a remarkable life, you have to start thinking bigger.
Schwartz tells stories of people who think bigger and it provides a little bit of a kick in the ass that you need. Someone who thinks big doesn’t think, “I need Netflix to survive.” A person who thinks big goes, “I don’t need Netflix.” The second book is called The ONE Thing. I don’t remember the name of the author, but it’s a very good book in terms of getting people to, it’s as the title says, what is the one thing in your personal life? What is the one thing in your professional life? What’s the one thing in these various elements of your life that is the most important thing that’s necessary? For example, in a time of COVID, that one thing might be your health. You’re like, “I’m at risk,” or it might be your employment or your professional situation. What is that? Maybe it’s your family, whatever that might be. It’s a good book in terms of helping people get clear about that.
The last book is one that people might not have heard of but had a big effect on me called Making Ideas Happen. It’s like Scott Belsky or something like that is the author. There are lots and lots of books about making ideas. There are lots of books about creativity and so on. This is a book about taking an idea and turning it into an innovation. In the book, he talks about the process, who you need, and what you need as you move from the idea phase to the execution phase. What we’re talking about right now is a lot of ideas but at some point, you’re going to need to execute those ideas. You were saying, for example, talking to people about your finances. I’m a big believer in making announcements to people. To say, “I am going to do X,” and to tell people that you know and people who care about you, even tell people who don’t like you that you’re going to do those things. What is happening is the people who like you go, “How can I help?” Both groups go, “How is it going?”
I picked this up from this guy, Neval. He was working for a company at some point. He made the announcement that he was going to start his own business. After six months, he was still there. People were like, “I thought you were going to start a business. What’s going on there?” That level of accountability can be useful because the people who are going to support you, they want to see you succeed. The people who hate you, want to see you fail. Both of those seats are great motivators. Reading is a cheat code for success in life. A lot of people fail to realize how important reading is because it’s much more active. When things get written down, they tend to be more important things. Cutting out the services that are feeding you sugar all day, easy consumption, and substituting it for frankly more difficult consumption, which is reading. It has a lot of value especially if you can start to turn your reading on to topics that are going to help you live a better, healthier, more remarkable life.
People shouldn’t be afraid that they might be bored occasionally. They cut off all their sugar services and they might be bored or that some of this stuff might be a little bit hard. It’s okay to have those emotions, “I’m bored, I don’t like this. This is difficult.” It is okay to be there with those experiences. It is not easy. It is not always fun. It is okay to have those experiences while you go through this process. I’m very optimistic of how we’re going to come out of this whole COVID thing. We as Americans have been pushed out of our comfort zone. We have been forced to do things that we would never volunteer to do. It’s made people get creative. It’s going to shift society in a lot of different levels, whether it’s around social safety nets, around working from home, around how we interact with each other, how we maybe are hopefully a world citizen rather than so insular. For people that are creative, progressive, and proactive, there’s going to be a huge opportunity. As bad as all this is and tragic with the people that are losing their lives, it is forcing America and the rest of the world to see things differently. I’m optimistic we’re going to have some good things come out of this.
I’m an optimist by nature too. I’ve had such tight financial situations as a younger man. I know how stressful that is, but I also know that I am not living that way anymore because I was good about dealing with it. I got very focused on how I can have fun at a low cost, for example. I remember I became the happy hour champ, “Why are we going out at 9:00? Let’s go out at 5:00.” I can be in bed at a reasonable hour also. “Why do we have to go out to dinner? Why can’t we have a potluck?” There’s a lot of fun to be had that doesn’t have to be costly where you’re spending a minimum amount of money for an experience rather than a thing.
One thing that’s very clear about the research is that experiences matter. One of the things that’s very clear is that people matter. Nowadays, if you are bored, make a phone call. Phone calls are cheap. You wouldn’t call people back in the day because the long-distance rates were expensive. I call my buddy in Maine and we could talk for an hour. I’m highly entertained and it’s an enjoyable experience and I feel better, he feels better. That costs me 1/10th of $0.1. That’s a very good use of time and very good use of money. The return on 1/10th of $0.1 is great. I’m making up that number, but you know what I mean. What are some of the other things that come to mind as we talk about this constellation of behaviors around people who are financially distressed or concerned? They don’t know what’s going to happen. They’re fine now, but the future might be bad.
As much as you can make your plan, see how many months you have money left, try to pay your bills on time. Try to keep your credit good because you can maybe restructure your debt later. Keep decreasing your expenses in any way you can. It’s a good practice. I would say you want to know what your income is, how much savings you have, how long your money is going to last. If you’re looking at it right now and you’re planning out on cutting your expenses, you’re looking at your savings account, maybe you’re working 50%. You look at that situation and you realize you’re going to run out of money in four months. Do something now to downsize your housing. Have a conversation with family members.
You don’t want to have to borrow from family or move in with your parents or whatever, but you should lay some of that groundwork now and offer to provide housing to friends and family also. Never borrow money from family or friends that you don’t absolutely think you can payback. If for some reason you don’t think you’re going to be able to pay them back, don’t borrow money from them. It never works. It’s never a good situation. Negotiate with your lenders early. Think about new habits, now we’re all of a sudden caught here. I’ve got five credit cards. I’ve got all these loans. I can barely make it. Maybe learn positive things from that experience to change your behaviors in the future. There are other things too. You can take loans on your retirement accounts. You can refinance cars and take equity out. You can do 0% credit cards. There are a lot of tools you can use, but be very careful because eventually, you’re going to have to pay. Never do any of those strategies unless you see how it gets you to the other side.
I want to add something to this because I know you won’t advertise, but if you’re starting to get into that world where you’re starting to think about taking loans against your 401(k) when you’re starting to make big decisions that involve thousands of dollars, you should talk to a professional. Spending a little bit of money to talk to a fee-based financial planner like you, Amy, as I’ve always said, every dollar I’ve spent for you has returned $2 to $10 in terms of value. I would say that those big decisions should be made with the advice or the counsel of someone.
With lots of good information to understand what it means to you now and in the future, what it’s going to cost you, and is it worth it? Maybe another person might say things you don’t want to hear like maybe you need to get rid of the BMW, maybe you need to downsize. They might say things that will make you upset and angry, but at least you’ve heard it. It’s okay with people telling you things you don’t want to hear and you don’t like. You get to decide, but sometimes it plants the seed to make it less scary and less negative when someone else has said it.
Because this is for singles, there may be dating coming out of this. That ends up becoming a real expense at times. What ends up happening oftentimes is if you’re on the apps, you might have a lot of first dates. These are a lot of dates that don’t go anywhere. You’re trying to balance having fun and making a good impression of not spending too much money. Why would you want to spend a lot of money on a first date if you don’t have to? Especially knowing that there’s a good probability you’ll never see that person again. I get it. There are different opinions. There are some people who don’t like coffee dates for a first date. I’ve seen women on the apps who are like, “Take me to dinner or don’t bother,” kind of a thing. You’re like, “All right, I’m not sure.” That’s a good strategy. It’s good to agree to do that necessarily.
I’ll give you an example of this. I have a buddy of mine, this is back when I was in Boulder, within a week, we both met the same woman and we both took her out. I took her out for lunch and we had a nice patio lunch kind of thing as if I’m already not disadvantaged enough. My buddy is tall. He’s handsome. He’s charming. The ladies love him. I’m already fighting an uphill battle. The only thing I have is I’m taller than him. That’s the only thing I’ve got going in my favor. I took her to lunch and we had a nice time. He buys a picnic lunch and they had a picnic by the creek. He reads her poetry.
Did it work?
Of course, it worked. Not only did he spend less money, but he didn’t want to do the obvious thing. He had a first date that stood out. They walked, they sat in the sun. They had a nice healthy meal. He made a little bit of an extra effort. What I would say is for those of you out there who are dating, keep an open mind, if you’re not the one paying, that this person might be showing fiscal responsibility by their choice of the first date. If you are paying, to think is there are a creative way to get the same experience, which is to get to know someone without breaking the bank?
Having that conversation, I’m not dating, I don’t have to deal with that. Having the conversation if it’s available when you first meet someone, “I’m thinking of doing this. Does that sound good? How about this?” Usually, the guys are having to pay it still?
Yes. It’s not 100%, but it’s quite common. A little bit of creativity, a little bit of getting off script goes a long way in terms of making a good first impression that’s there. I realize it’s more work. That’s what ends up happening oftentimes is there’s a trade-off. It’s money and time. When you’re in financial distress, you have to spend more time in order to save money. The last thing that I want to do, Amy, is I want to talk about longer-term considerations. Everybody talks about this as a wakeup call. This is a call to action. I’ve used that term call to action because I agree with you. We’re going to get through this virus. Eventually, there are going to be strategies, tactics that are going to make this less risky. Things will go back to some semblance of normal and so on. There’s always going to be the equivalent of a pandemic looming. I like to say every ten years, the shit hits the fan.
We are going to have a recession. We’re going to have an oil crisis. We’re going to have a pandemic. We’re going to have other stuff.
The thing is that the alarm bells should be ringing. As soon as you read this, you should be sitting down and tidying up your financial situation, tidying up your house, tidying up your life in order to be able to make ends meet in the short run. As we emerge from this, what are those longer-term considerations that are coming to mind for you?
It’s certainly getting your debt in order, making sure you don’t have credit card debt, that you don’t have extensive car debt, that you don’t have mortgage debt that exceeds beyond when you turned 62 or 65. Saving in a way for your retirement or when you’re not working for your financial independence. Even during COVID, unless you’re in an extreme situation like you’re not going to be able to make your rent if you have a company that’s doing a match, you might want to stay with that. My son has backed off his savings, but he still is putting in enough for his match. I said, “You can’t be a member of our family if you don’t do that. It’s the basics. It’s saving 10% to 20% in for retirement, whether that’s in buying rental properties or your 401(k) or an investment portfolio outside of your retirement, keeping your debt in control so that if you have 50% of your income, you can still make your debt payments.
Still check in with yourself on what the good places you want to spend your money on. They should all reflect your values and your priorities, where you spend your money. The reality is if you make good decisions about your money, you can have more luxuries than if you don’t make good decisions. You’re going to pay less interest, fewer debt payments. You’ll be able to find the perfect department of the car at the right price and right interest rate. You’ll have the cash to put down on your car purchase, all those kinds of things. Unless you’re strapped during the pandemic and some people are, continue to save long-term, continue to pay down your debt, continue to watch your credit cards, and bring your credit cards to zero every month. Make decisions that support your values and your priorities.
This is not called surviving solo. This is called The Single Person’s Guide to a Remarkable Life. I want to add one idea here and that is that the long-term goal is to thrive, not survive. What that might mean is that there’s some pivoting that needs to go on besides like lifelong financial skills of investing early and often and not overspending your means. The other one is what is it that you’re doing? Can you make your work feel less like work? Is it possible that you can use your time for skill development? Are you going to wallow in it and watch TV and have an extra glass of wine? What are some essential skills? You’ve gotten a taste of not commuting. Would you like to continue to not commute?
You might not be able to trust your employer to take care of you because they’re going to take care of themselves first. I have a friend who’s a server at a restaurant. The restaurant laid you off very quickly. As this person was faced with going back to work, the restaurant owner said, “I want you to continue to get unemployment and I’m going to pay you some money under the table.” The person was not comfortable with that. You start to go, “Maybe I don’t want to work in a profession in which I’m so expendable.” I gave some recommendations for some books, but I want to say that now more than ever, there are many options in terms of learning new skills.
It used to have to be the case that if you wanted to learn new skills, you had to sign up for night classes or you had to go back to university or whatever. Now between Khan Academy, Coursera, edX, Udacity, YouTube, Amazon, the internet, there are many places for information about how to think in new ways, how to acquire new skills. In our Solo Entrepreneur episode, start something out as a hobby and get the tax write off and test it. See if our product-market fit there and so on. One of the things is like, “This sucks.” If it kicks you in the butt and it gets you to start thinking bigger about what you want your next ten years to look like, you’re taking the most opportunity here. First step is don’t be homeless. You don’t have to move into your parents’ basement. Don’t get your car repossessed. Don’t ruin your credit score.
If you think about that, if you have your financial house in order, then you have more choices, more freedom, more options to do these other things. You have less fear of being unemployed or changing employment.
I’ll leave with one thought experiment. This is one of the beautiful things about being solo is without dependence, you may be supporting people in your life, but largely without dependence, you have optionality. That is you can move to a different place. You can downsize. If Elon Musk is thinking about getting rid of all of his possessions, then you can. He’ll keep his car because he can write that down as a company vehicle. The Europeans are often much better at this than Americans because Americans are sold with this bill of goods, the American dream, it’s the big house with a white picket fence. As we talked about in our previous episode, it can be a ball and chain.
One of the very popular things in Europe are what’s called digital nomads. These are people who sell their possessions. They have one bag, their computer and their phone. They tend to work jobs that allow them to work remotely. Their summers are in Berlin and their winters are in Bali. They are working this gig economy and they have a very low burn rate as you might imagine. They are agile and they live adventurous lives, “I’m tired here, I’m going to go over there.” They work gigs that they want to work. They turn down gigs that they don’t want to turn down. I can imagine people hearing that going, “I can’t do that for whatever reason.” Sure, that’s fine but the point is that people do it. It is possible to do it.
To me, because you are solo means you don’t have to play by the rules that had been designed for most people who get married and have kids. Why not start to think about how you might make some bigger, more adventurous changes when it comes to either new career opportunities, new adventures, lowering your burn rate, and so on? Amy, it’s always fun to talk to you. It’s nice that we have an audience now. For the Solo audience, please send me your questions. We are going to be doing some live Zoom events. Go to PeterMcgraw.org, to the Solo podcast page to sign up, where we can start to have some conversations around these kinds of topics. This one is an incredibly important one.
Hang in there, this will pass. You’ll be okay if you do the work, keeping track of what you spend, know what you have, make a plan, call your lenders. It will be easier and better, you’re going to be okay, you’re going to make it through the other side.
I’m going to end with this because this is something that you always do with me, Amy, make a to-do list. You’ve got to get that to-do list. You’ve got to write it down on paper, and it feels so good to cross out.
This won’t take forever and it’s not as painful as it seems, so give it a shot.
Money Amy, thank you so much.
- Contact form – Solo Website
- Amy Gibb
- Financial Freedom with Money Amy – previous episode
- The Magic of Thinking Big
- The ONE Thing
- Making Ideas Happen
About Amy Gibb
Amy Gibb (or as Peter calls her, Money Amy) is a certified Financial Planner. She advises individuals and businesses, and you can find out more about her services at MoneySenseSolutions.com.
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