Personal economics question

[seafey]

It is easy to go the way most Americans do: increase expenses, increase salary, increase expenses and debt, increase salary, increase, increase........ and on and on. House, car, etc. etc.

However, does anyone know the best way to decrease everything in anticipation of a giant decrease in salary? I'm not talking about retiring (I'm 32) but of giving up my well-paid position eventually to take a low-paying one in politics, non-profit, or something. Like how do you know if you should sell your house and move into a smaller more central one first, or if you should just pay off all debts including student loan and car first, or lose the car, start taking the bus, and keep your house--- these kinds of decisions- where is all the help on that? There are a ton of books out there on how to go the *other* way- like increasing your comfort along with your income, but hardly any on decreasing it in a smart way, then quitting the fulltime bullshit ratrace.

[Jacobin]

1. Its a bit daunting to "downsize" significantly

And it feels like its hard or impossible.

It's not so hard though.

1. Find out what you will be making
2. Make a list of your current expenses monthly (budget)
3. If number two is more than number one, start cutting.
That will dictate whether you have enough for a car or need public transportation, which will dictate where you live, etc.

Good luck to you

[theboss]

2. Consolidating your debt may be the move to make, if possible

After that you have to cut expenses.

[RoeBear]

3. Housing should be 25%

of your monthly income. If you have a car loan, sell it and buy the best used car you can afford without a loan.

This is for starters.

[MissB]

4. I'd start by looking at some

simple living resources. I'm not sure there is a specific book out there that will tell you how to downsize in this culture. But there are books out there that will help you learn how to live a more simple life (or a more frugal one).

I'd also suggest Your Money or Your Life by Joe Dominguez and Vicki Robin. It sounds like you are there mentally, but the book may offer some additional insights into how to get to your goal.

[IrateCitizen]

9. Your Money or Your Life

Defnitely one of the best books on this out there. I swear by it, and tell all my friends about it. They think I'm nuts, but my wife and I have experienced a marked improvement in our lives by just following much of its advice, especially regarding tracking every cent that flows in and out of your household, and how much fulfillment your expenditures give you.

[ramapo]

5. Where does your money go?

It's pretty basic. You need to understand where you spend your money. If you use Quicken or something then it's pretty simple to generate a few reports. If not, sit with your checkbook and figure out how much you;ve spent in the last year and on what. From that you should be able to come up with a monthly budget.

Then you take what your new net income will be (gross is meaningless).
If your new net is less than old then you have to decide what you want to give up. Selling your home for a less expensive one might help but housing prices have gone up so much that it might not be the answer.

The car is a hugh expense but often mass transit is impractical at best. I'd love to shoot my car if I could. Cable TV? You might be better off without. Magazines, books...go to the library.

I'd recommend you get as debt free as possible as paying interest can be a huge drain. Once you get rid of your debt, keep it off. It's better to have less than to dig yourself a big hole that you may never get out of. Debt kills.

Good luck

[DustMolecule]

6. Divorced woman/mothers can give you TONS of advice

about 'going the other way'. We've HAD to make things 'work' after a rapid downsizing.

My 'quick' advice:
1) Pay off all your debts - starting with the highest interest ones first

2) Don't incur any new debt. (old rule: never PAY interest, only EARN interest)

3) As far as the house goes, it all depends on a) if your house is appreciating (and at what rate) b) what your needs are, in terms of needing/wanting to be in your current location vs. a need/want for a different location. How much will it cost you to move? What will new transportation costs be (bus/train) vs. just operating a car? Lots of angles to consider AND CALCULATE ON PAPER before you can know which is the most cost-effective (it may not be as great a difference as you might think).

4) Start shopping wisely. Try giving yourself only 1/2 of what you currently give yourself for spending for a month. It's AMAZING how much you will save (i.e., you'll find that the "on sale" $2.50/100 oz. laundry detergent works just as well, if not better, than the $9.00/100 oz. one you buy now. You'll stock up when there's a good sale on a frequently used item. Over time, all of this makes a significant difference. You'll find that you'll be living pretty well and spending significantly less than you did before.

Good luck with your efforts!

[seafey]

14. Yeah, I'm a divorced single mom myself...

I probably should have said more about my situation- I have already done most of these things- I'm just to the point now, though, where I'm ready to make the really large movements- I have some debt left (car, student loan) but nothing major. I have read voluntary simplicity and use a lot of the ideas in there, but I think I will try Your Money or Your Life like others were suggesting.

I just can't decide if I should finish off the debt then move (if at all) then change jobs or change jobs and deal with it however I need to, or what- I'm really really tired of splitting myself into what I have to do and what I want to do. But being patient will be easier if I have a plan devised on a way out of this life into the one I envision.

So thanks everyone- I'm not done reading all your responses- I'm at work, but thank you...

[IrateCitizen]

7. Check out the following...

THE SIMPLE LIVING NETWORK

Here is an excellent guide for people looking to disengage from "making a killing" to "making a LIVING". I'd suggest you check out their NEWSLETTER for some pretty good ideas. One of the other resources they mention, which I think is perhaps the best one out there, is the book Your Money or Your Life by Joe Dominguez and Vicki Robin. The book is an excellent one because it offers a concrete plan that was followed by the authors (Joe Dominguez retired from stockbroking at 31 and was able to live comfortably on less than $12K per year) that is built around finding the greatest overall fulfillment in your life.

My personal advice is to NOT do an immediate disengagement from your current life. If you do that, you'll throw yourself into a life for which you are not at all ready. Instead, pick a plan (recommending Your Money or Your Life again) and stick with it over time. Your life will naturally progress in the direction you really want it to, in order to find happiness and fulfillment.

In any event, good luck with all of this. I've been doing it for about a year now, and have found that my wife and I are almost debt-free (outside of a co-op mortgage) and saving considerable amounts of money, without feeling as if we are deprived in any real way. We look for activities that don't cost a ton of money. We cook our own meals rather than eating out a lot. We take our own lunches to work. We live in an area in which we can walk to a lot of places rather than drive. When we travel, we do so on the cheap (non-luxury accomodations, kitchenettes, etc.) so we can experience more while spending less. Most importantly, we track every single cent that goes in or out of our house so we are simply aware of how much we are spending on certain areas, and whether those expenditures jive with the life we WANT to live.

If you ever want any more information, or just to chat about living simplicity, feel free to drop me a PM anytime.

[pelagius]

12. Excellent website!

Thanks for the pointer.

My wife and I are moving down this path. We found that we were unconciously living an overconsuming lifestyle even though we laughed at the whole "keeping up with the Jones" thing. But even though we scorned monstrous SUVs and $5000 dollar flat screen TVs, we went way overboard on books, CDs, musical instruments, toys for the children, and so on.

A radical involuntary change in my job and income -- buh, bye Silicon Valley! -- forced us into a a much smaller house where we were confronted with all the damn stuff we've accumulated. Our debt load -- quite "prudent" on my former salary -- became a crushing burden when I was making 40% less.

It's been a long, hard haul and we're not out of the tunnel yet. But the journey itself is the reward. For the first time in my adult life, I can comtemplate taking a job because I want to do the work, rather than because I must have a high salary. It's an incredible feeling of freedom.

[IrateCitizen]

13. Good personal testimony, pelagius!

While I haven't suffered the involuntary downsizing of which you speak, I have been preparing myself for a downsizing of sorts in the next few years. I decided to leave my career as an engineer and pursue one in teaching, with the eventual goal of becoming a university history professor. While this will mean a big financial hit for my wife and I, it will also mean that I will be able to do something I much more believe in, and have the freedom to do more of the things I really want (like move to the country, grow a huge organic garden, possibly raise some chickens, spend spare time hiking and exploring the outdoors, etc.).

You are completely right that the feeling of being able to take a job because you WANT to do that work, rather than feeling like you have to achieve a certain salary, is an incredibly free feeling. I only wish more people could realize it.

[eallen]

8. Eliminate debt, minimize outgo, and the rest is much easier.

If you're single, with low income, living in a house or standard apartment represents a huge expense. There are alternatives. Live out of a van. Rent a room, or a minimal garage apartment.

Which isn't to say you should give up owning real estate. That is an investment decision, based in part on its rental income. Let someone with a larger income, or who has a family, or who is just not as tight, rent the house. In the ideal situation, the rent pays for any remaining mortgage and your new, reduced living expenses. If it doesn't pay at least the mortgage, selling the house becomes more attractive.

Just my two cents.

[radwriter0555]

10. Sell the house; use the profits to pay off the outstanding debts and to

put a hefty downpayment on a far smaller house.

That way all your previous expenses are eliminated and you can live within your means.

It means putting yourself on a strict budget, not acquiring new debt and living with realistic means.

The first thing to pay, is yourself. The first deed for your paycheck is your savings accounts. Then you make sure you're putting your cash into well paying savings accounts and investment plans.

This can all be done pretty easily.

[newportdadde]

11. I would recommend picking up 'The total Money Makeover'

By Dave Ramsey. Interesting book I listend to the audio from the library. He is big into paying off all debts first. If you have a car loan sell the car and get a cheaper car don't even try to pay it off.

The only debt he is okay with having is for a mortgage, and thats a fixed mortgage of 15 years or 30 years preferrably 15 and absolutely no ARMS, we are at 40 year lows so were is the rate going to go.

[Tsiyu]

15. You beat me to it

Ramsey is the rare bird on radio. He's always bashing credit card companies and those living high on the hawg at the expense of their financial situation.

When i realized my single mother life was going to get financially worse ( after9/11) I traded the equity in my farm for total ownership of a much smaller farm. I moved from a farmhouse to a singlewide. No mortgage is the best feeling in the world.

Pay off those debts - Ramsey suggests starting with the smallest first ( this gives you confidence as you pay it off and work on the next and the next...) Really pay attention to where your money goes. The little things - convenience store coffee, hairbobs for the daughter, those new "on sale' shoes - add up so quickly. And if you're paying high interest rates on purchases, sale items really aren't much of a bargain.

You would be amazed what you can live without. The problem is convincing the kids sometimes, especially if they are used to material things. Good luck with your changes.

[lectrobyte]

16. Lots of good advice so far, let me throw in my 2c

Housing should be at most 30% of your budget, preferrably less... It may or may not be smart to sell your house depending on how much equity you have in your house, the local market, and all that. The house something that could appreciate, and there might be other options to consider, such as getting a roommate and charging them rent that would be more attractive than selling. I've always had a hard time downsizing, but it depends on your circumstances and family situation. If the house is located close to your future work, then a lower cost place further away may not be a bargain. It's hard to offer advice without knowing more specifics on whether you would be "house poor", locations, etc., but hopefully this will help you plan and think things through.

If you don't need a car, then by all means, sell it and get rid of the debt, plus all the other costs associated with a car (insurance, taxes, maintenance etc.) Cars are an insane expense when you look at how much you actually spend on the things.

You might be better off keeping the student loans and paying as you go, again, it depends on how much debt you have and how much money you will be making. Being debt free would be good, of course, but it really depends on everything else. If you sold your house and rented a place, and used the equity out of your house to pay off a low interest student loan, then I think that would be a bad move, without knowing any more specifics.

Beyond that, you need to arrive at a rough budget. Don't forget to allow for medical and dental expenses, and something for a rainy day.

There are lots of resources on frugal living, PBS in our area runs a show called "Simply Living" I think about ways to cut cost, but not the quality of life. http://www.simplelivingtv.net/