Choices

What made it easier to transition to my new status as unemployed?

We lived below our means.  Our lifestyle choices made it easier.   We had taken certain steps years earlier, when we were both starting our careers, that have given us the financial flexibility and ability to deal with this blow.  We have always lived below our means, and so we were not dependent on both of our incomes to make ends meet.

What did it mean to live below our means? 

When I mentioned our lifestyle choices, there are several components and categories.  There are so many choices.  Housing.  Variable expenses.  It's very easy to spend A LOT in Silicon Valley or anywhere for that matter.

• Housing - in Silicon Valley, housing is a major expense.  In certain cities, the average cost of a home can be more than $1 million!  Cities such as Palo Alto, Los Altos and Cupertino have averages that exceed $1 million.  How can an average person afford a house?  Most people I know stretch quite a bit to afford a house.  

• While we bought  a house quite a while ago, housing was still quite expensive.   While we looked at houses in Los Altos and Palo Alto, there just wasn't that much value.  The houses were just too expensive (the cheaper houses didn't have the square footage we wanted, were older and required quite a bit of work) and our monthly mortgage would take up too much of our net income.  After paying the mortgage on these houses, we would barely have enough to cover our other expenses.  It made me think about the housing/mortgage industry and how it does not have our (the consumer) own interests at heart.  Real estate agents want us to buy the most expensive house possible so that they can get a bigger commission.  Mortgage companies say that one could get a mortgage that represents up to 30% of our gross income (they get more interest), but in my opinion, that is much too high.   

• Ultimately, we chose to buy a more modest house.  We ended up looking at houses in more affordable areas like Santa Clara, San Jose and Willow Glen.   I just wasn't comfortable stretching our budget too much to buy a house.  I wanted a mortgage that one income could support.  We made this decision based partly on our other goals:
• Family - we knew that we want to start a family and thus other expenses would need to factored into our plan (childcare expenses, saving for college, etc.).
• Retirement - both of us were conscious of the need to save for the future.
• Standard of living - we weren't really willing to sacrifice too much just to have a house in a certain zip code or have a house that had all of the bells and whistles. One thing that we realized is that real estate taxes are also quite high.  The more expensive the house, the bigger the tax bill. 

 It's a funny thing when I think about housing expenses.  I know a lot of people who had stretch quite a bit to buy a house.  Maybe it was because they wanted to live in a certain school district or maybe they just wanted a big "show" house, but to see their day to day struggle to pay the mortgage (in addition to their other expenses to keep up with their desired living standard) just made me feel as though I made the right decision. 

Funny thing is (or, really not so funny), it's a vicious cycle.  In some ways what makes us want to keep up with the mythical "Joneses"?   Once you live in a certain "prestigious" neighborhood, there is there pressure to keep up appearances.  Once you have a "nice" house, you'll need a "nice" car, and "nice" furniture and then go to the "right" school or preschool or even private school, and it's endless. 

 I think this is the main reason why even with my being laid off, we'll be fine.  By living below our means, it makes it easier to live without both of our incomes.  If we had spent all of the money that was coming in, then we would become dependent on ALL  of our income and any reduction would be a problem.   It would be difficult if not impossible to save.

However, by living below our means, we got used to living on a certain income.   Also, since we had the habit of saving, we have a cushion to lessen the blow.   I realized that there are so many demands on our money.  It's a finite resource and should be respected.  Balance.  That's what's needed.  Balance of wants and needs and a healthy dose of realism.  Yes, I would have loved to live in a really nice house, but was I willing to deal with the sacrifices to live there?  Would I want to deal with the stress to make enough to pay the mortgage month after month after month?  How would I deal with other expenses, such as childcare?  Would I be limiting my options in the future? Would I feel stuck if I had such a huge mortgage?  In the end, there were too many doubts and common sense prevailed.  I still think about the houses that could have been, but I'm so much happier now in my house.  It may be modest, but it's still my home.

We created a habit of saving.  This is part of living below our means.   We have saved and save consistently.  This now gives me great comfort during this uncertain time because now we have a bit of a safety cushion to manage any contingency.

We invested in our future.  We had always saved for our future by putting money into our 401(k) accounts (at least to maximize our employer match and then some). 

We avoided debt.  Don't get me wrong.  We still have credit cards, but we paid them off in full each month.  The interest rates were just ridiculous and if I couldn't afford it, I just waited until I saved enough so that I could pay it off by the time the bill came.