Reality bites: the challenge of saving
Saving, as we learn a bit didactically from Aesop’s fable, is at some level both dull and timid.
Down payment? What’s that, dude?
Ant-like savings seems so vapidly incremental, one modest contribution at a time.
Try not to judge too harshly the young people whose former insipidity is so on display in this article from New York Times:
Amy Wegenaar, 31, wanted her own place. But she found it hard to save because the rent on her
Much more fun to enjoy oneself in the moment:
Ms. Wegenaar is an art director for the Publicis Groupe and her main client is Garnier beauty products. She worried that on her annual salary of about $85,000, she couldn’t buy anything for more than $250,000.
A single person earning $85,000? How ever could she make ends meet?
She also wanted an apartment large enough to fit her lunchbox collection, her Spiderman collection and her collection of Jack Skellington dolls in coffins from “The Nightmare Before Christmas.”
Sorry, there I go, judging harshly.
I’m your worst nightmare
Let’s consider a more responsible couple:
WHEN Janey Lee and Pablo Aguero were struggling freelance Web designers, buying an apartment in Manhattan seemed like a dream, one clouded by credit-card debt, student loans that had to be repaid and the bills for their wedding.
Their choice of career also had something to do with it; things cost money, so earnings are the prerequisite.
But now, five years later, they are about to move into a $445,000 two-bedroom condo in
Children too are a motivator to become financially adult; while apartments may be associated with sex, children are associated with owned homes.
Their combined salaries of just over $100,000 qualified them for a mortgage, but it took a lot more for them to come up with the down payment.
In a city synonymous with luxury and spending, Ms. Lee, 30, and Mr. Aguero, 35, decided to do without.
Saving is not just about accumulation, it’s also about re-sizing consumption.
They gave up smoking to cut costs, they stopped meeting friends after work for beers, they didn’t buy new clothes, and they stashed away tax refunds and as much of their earnings as possible. Whenever they wanted to buy drinks, gadgets or cookware, they asked each other: “Do I want an iPod or a house? Do I want a latte or a house?”
Pick one
Given time, and disciplined habits, savings add up:
More impressive, perhaps, than their willpower was that they were able to save $90,000.
Often the will to save arises only after a loss:
Mr. Aguero and Ms. Lee say that losing their jobs in the dot-com collapse of 2001 gave them the motivation to save. Ms. Lee quickly found a new job but then was laid off again. Mr. Aguero said he spent a full year freelancing and living on $1,000 a month.
A lot of time advertising, less time being paid
Nothing imposes savings discipline like poverty:
He survived each day on a $2.95 chicken special from a local restaurant; a 99-cent Coke; and a pack of cigarettes, before he finally just gave them up.
They both wanted a safety net.
“That was the initial thing that motivated us,” Ms. Lee said. “There is no job security.”
After they opened their own Web design business, they tried not to return to their old spending habits. The couple found that they spent the most money when going out in a group for drinks. So they would suggest meeting their friends for brunch or heading to
Not to be too grimly Dickensian about such matters, but there is such a thing as a grocery store, to which one can walk, and home from which one can bring groceries.
This obtrusive lad insists on Fresh Direct deliveries
They slowly built up a nest egg. In 2002, they saved their $3,000 tax return [sic: refund] and another $5,000 between them. They said that it was hardest not to spend in the beginning: in one case they missed shopping so much that Mr. Aguero splurged on a pair of $300 Prada shoes.
The devil made me buy these shoes
The path to financial adulthood is slippery:
Must’ve been the Prada shoes
After wearing them a few times, he realized they didn’t really fit, so he sent them to his brother in
The Careful Shopper would have kept the sales slip, and returned them.
Those shoes became a symbol of the perils of impulse shopping. Over the next two years, they each saved $15,000.
By 2005, they thought about using their accumulated $38,000 in savings for a down payment. When they realized that they couldn’t afford anything, Mr. Aguero got a job at a bank and saved his entire annual take-home income of about $40,000.
Homeownership is predicated on income stability, so there is a huge premium to shift from freelancing into regular income.
They lived off Ms. Lee’s salary. That drove their savings up to $78,000.
Conversely, once one has established homeownership, the home incubates new business formation, both because it offers space in which to conceive and inaugurate a business, and also because there is appreciated equity. Ownership of a home that is a financial asset therefore correlates powerfully with new business formation — and likewise, with economic growth.
By 2006, they had saved another $20,000, which pushed their savings up to $98,000. They started to search in their neighborhood,
They are happy to be the first people they know to have reached their goal of buying an apartment. “We actually don’t have friends who own,” Ms. Lee said. “We’re really kind of taking that leap, which is different from everybody else that we know.”
That difference depressed Ms. Wegenaar, of the Jack Skellington coffin dolls:
It’s enough to make a body die
She felt discouraged as her married friends bought apartments for more than double what she could afford, and as a single friend bought with help from her parents.
True enough, right up there with marrying right is being born to the right parents.
No homebuying problems for me!
In 2004, she started to save $400 a month from her paychecks, adding to that amount with raises and bonuses. By late 2005, she had saved nearly $10,000 and found a $160,000 apartment in Ditmas Park,
In the journey to savings and ownership, adjusting expectations is a key moment:
She had discovered
So she went into savings overdrive: she went grocery shopping only with a list and cut out luxuries like expensive juices. When she went out with friends, she ordered the happy-hour drink specials and often chose Mexican food so they could munch on free chips and split a cheap entree. She shopped the sales racks at Urban Outfitters and sewed dresses from discounted fabric she bought on the
By October 2006, she had saved $17,000. When she found a $220,000 one-bedroom co-op in
Unfortunately for Ms. Wegenaar, she may well have unwittingly committed fraud. Not by writing the check, but by falsely signing a representation that none of her down payment was borrowed. And credit card debt is one that most lenders categorically reject as a legitimate down payment source.
“I can’t let $6,000 stand in the way between me and a home,” she said.
Don’t stand between me and a home
Fortunately for Ms. Wegenaar, no one noticed.
Her mother, sister and married friends who owned their apartments encouraged her to take the leap. Makeba Lloyd, a broker at the Developers Group in
“She actually showed me her apartment, and she showed me what you could do with it,” Ms. Wegenaar said. “It felt so right.”
Similar thoughts are echoed by Mr. Aguero:
Mr. Aguero described it as “a mind-set,” adding, “If you want to own a place, you have to do everything to own a place and everything else comes second.”
Have I got enough for the down payment?
When I was a child, I spent as a child, I planned as a child, I bought as a child:
but when I became a man, I stopped buying childish things.
Now I see the value of owning a home
Write a comment