MONEY Out of the Red

How I Paid Off $158,169 in Debt

G. McDowell Photography

Think there's no way to get out from under your obligations? This first in a series of profiles of people getting "Out of the Red" proves that it's possible.

Rachel Gause just wanted to give her three kids more than she had growing up. So, though she was receiving a secure income along with child support, she found herself living beyond her means every month—eventually racking up six figures in debt. With a whole lot of determination and almost a decade’s worth of belt-tightening, she’s climbed most of the way out. This is her story, as told to MONEY reporter Kara Brandeisky.

Rachel Gause
Jacksonville, N.C.
Occupation: Master Sergeant, United States Marine Corps
Initial debt: $179,625
Amount left: $21,456
When she started paying it down: 2006
When she hopes to be debt-free: November 2015

How I got into trouble

“I was just trying to keep up with everybody else. I’m a single parent to three kids, ages 10, 14, and 16. I was always spending extra on Christmas and on birthdays. Also, growing up, I didn’t have new clothes and new shoes at the start of every school year. But I wanted to make sure my kids always did.

Looking back, I wish I would have known not to rely on credit cards. I wish I would have known that it’s okay to keep your car for four or more years, as long as you maintain it.

I started going into debt when my first daughter was born, 16 years ago. I remember I had to get a furniture loan. By 2006, I had $55,848 in credit card debt and $76,711 in car loans. Then there were the personal loans. I had a consolidation loan that I used to pay off my credit cards. Altogether, it came out to $179,625.”

My “uh-oh” moment

“I wasn’t aware of how much debt I was in. The turning point for me was when I hit the 10-year point in the Marines, and I saw other people around me retiring. I wanted to sit down and see where I was at. And that’s when I realized I didn’t want to retire in debt. I didn’t want to be that person.

At the time, I had a Toyota Sequoia, and I couldn’t make payments on it. I knew I was in way over my head.

Even though I had three kids, we didn’t need that big truck. It was going to put my family at a financial challenge. So I spoke to a lady at my church, and I said, ‘I have this truck, and I’m going to trade it in for something smaller.’ And she said, ‘I always wanted a Toyota Sequoia.’ I sold it to her and got into a Corolla instead.

I realized buying that truck was a bad choice, and I knew I needed to develop better habits from there. That was my first step forward.

How I’m getting out from under

Now I put roughly $2,100 a month toward my debt.

For the rest of my income, I use the envelope system. Before I get paid, I do my budget. Then I have 13 envelopes—one for groceries, one for clothes and shoes, one for charity, one for dining out, one for gas, and so on. I go to the bank, take the money out, and divide it between the envelopes.

I don’t spend anything that doesn’t come out of those envelopes. Debit cards are nice, but swiping is less emotional. Cash makes me more aware of what I’m spending my money on. If I run out of money for something that month, I don’t buy it. But I’ve never run out of money for something important—now I’m more aware of how much I’m spending.

That’s because I also got a small composition book from Dollar General to track my spending. Every time I spend money, I write it in that book. Then I compare that to what I’m supposed to be spending, according to my budget.

I also do a quarterly audit on myself to make sure I’m not spending too much more on my cable or cell phone bills.

But it’s not all deprivation. We have a chart that we color in every time we reach a milestone, and we treat ourselves to something nice. For example, recently I went on a trip with my high school classmates to Atlanta—funded totally in cash.

My kids have been understanding about our debt-free journey. They know that mommy has made some bad financial decisions in the past. Now I teach them about needs and wants.

The other day, I was coming home from work, and I said, “Do you need anything from the store?” My son said, “We don’t need anything, but we’d like some candy.”

If they want a video game, they know they need to save their money to get that video game—and that means there’s something else they won’t be able to get. They understand if you have a big house, that means you have to pay big electricity and water bills. I’m teaching them to live within their means and not just get, get, get to try to impress people.

What I’ve learned that could help someone else

My advice would be to sit down, see where you’re at—first, you have to know how much debt you’re in—and then create a spending plan. (Some people are scared of the word “budget.”) You have to tell your money where to go, or it’s going to tell you where to go.

The numbers may scare you in the beginning. It takes two or three months before you can get the budget right.

And you have to be consistent. If you don’t put 100% into it, it’s not going to work. You can’t be half, ‘I’m trying to get out of debt,’ and half, ‘I still want to spend money.’ You have to sacrifice.

My hopes for the future

Once I become debt-free, I plan to build up my emergency fund and then start actively investing and saving for retirement.

Then I hope to get my kids off to a better start.

My daughter will go to college soon. We’ve talked about student loans.

The main reason I joined the military was to obtain my college degree for free. I earned my degree in business administration from the University of North Carolina-Wilmington last year. But while I was there, I saw so many kids taking courses for a second and third time because they were failing and they weren’t going to class.

So I told my daughter, you’ll pay for that first year, and we’ll see how you manage. Then I’ll assist you with your second, third and fourth years. But first, I need to make sure you’re dedicated.

After I retire from the military, I want to become a certified financial counselor so I can help people break the vicious cycle of being in debt and dying in debt. My passion is to put together financial classes for non-profit organizations like women’s shelters, churches, and organizations for military service members. There aren’t that many in this area, and I see a real need. I see so many people struggling to survive, living paycheck to paycheck.

I’ve already started counseling some people who ask for help.

Every now and then, I get a message on Facebook from someone I helped that says, ‘I just paid off another credit card’ or ‘I paid off my car.’ That’s my motivation now. I don’t want to stop – the need is out there.

Are you climbing out of debt? Share your story of getting Out of the Red.

Check out Money 101 for more resources:

MONEY First-Time Dad

How to Cook a Real Dinner for Your Family…and Finish Before 9 p.m.

Luke Tepper

First-time dad Taylor Tepper asks parents and cooking experts for advice on feeding a family while maintaining your sanity. What he learns: Focus on formats.

Last week, I stood in the first aisle of my local grocery store for a few minutes blinking at a bin of scallions.

I had a cart in one hand, a shopping list in the other, and a podcast playing in my ear. I needed to grab a bunch of groceries, get home and make dinner.

But at some point in the produce section, I fell victim to a momentary lapse of cognitive function, as if I was a computer that had overheated. For a moment, I wished I had simply ordered in Chinese.

A parent’s day is long. Ours starts at 5:30 a.m. with a groggy baby and two sleep-deprived parents, and I don’t return home with dinner’s ingredients in tow until 7 p.m.

To be clear, I genuinely relish the responsibility of providing my family with sustenance. Plus I know there are real benefits to eating real food prepared at home: We can eat more healthfully and save a few bucks in the process.

But my problem is that I’m terrible at planning. I’ll look up a recipe before I head home from work, buy everything on the ingredient list (often forgetting that I have a quarter of the stuff at home), walk home and make the meal. On that day last week when I paused in front of the scallions, for instance, I ended up preparing a baked chicken dish with Kalamata olives, dates, tomatoes with an herb jus and mashed potatoes.

Delicious. Only, my wife and I finished eating close to 9 p.m.—at which point I devolved into a coma.

I know I’m wasting time and money. I need help. I need a plan.

So I turned to a few experts: KJ Dell’Antonia, who as the lead writer at the New York Times Motherlode blog has written on her successes and failures of cooking for a family, my friend Cara Eisenpress whose cookbook and blog BigGirlsSmallKitchen.com document dinner prep in a diminutive Brooklyn apartment, and Phyllis Grant, a former pastry chef whose blog DashandBella.com chronicles meals made with her kids.

The Game Plan

“Obviously I’m a big fan of planning,” says Dell’Antonia. “There’s nothing like realizing that it’s 4 pm and you’ll have to make dinner again tonight—but not only do you know what it is already, but you’ve got all the ingredients and maybe some prep work done. Saves my life every time.”

But what type of plan is best for a busy working parent like me?

Cara told me to forget about specific recipes and think more broadly.

“When planning, think in terms of formats,” she says. “Pasta, hearty soups, stir fries, roasted cut-up chicken, and eggs are all classes of weeknight dinner that are so simple to vary.”

In other words, rather than shopping for a pasta dish on Monday (like Lemon Fettuccine with Bacon and Chives) and then returning to the store on Tuesday in search of ingredients for for another (say Orecchiette Carbonara with Scallions and Sun-dried Tomatoes), plan on whipping up two pasta dishes and a chicken entrée over the next few days and then map out recipes from there. That way you’ll buy overlapping ingredients.

At the same time, though, be mindful of planning too far ahead, says Cara.

“Don’t shop for the seven nights’ worth of formats—you’ll waste food and money if something comes up,” she advised. “Better to plan out fewer and then grab a few miscellaneous staples that could turn into dinner as needed, like extra onions (caramelized onion grilled cheese), a box of spinach (lentil soup with spinach), or some bacon (breakfast for dinner).”

Grant even suggests preparing more than one night’s worth of a neutral protein like chicken, which she notes “can be a life saver, You won’t get sick of it because you can dress it up with some many different flavors and techniques.”

Most importantly, Cara said, make sure you have a stocked pantry—including olive oil, vinegar, mustard, salt, rice, pasta and cheddar, among others—to augment whatever recipes you’ve chosen.

The Defense Formation

After you’ve figured out the formats and recipes you’re interested in for the next couple of days, it’s time to actually buy the food.

But the grocery store is like a casino: The thing is designed to have you spend more time shuffling along the aisles so that you look at more food. They even mess with the music (see #19 here).

If you’re not careful, you’ll arrive home with a beautiful jar of jam that will sit in your fridge for the next six months. (Guilty!)

That’s why Dell’Antonia recommends shopping with a list, “and not buying anything that’s not on it,” says. “Ridiculously, I save money by sending my babysitter to the grocery store when I can. Her time costs me less than I’d spend in ‘Oh, look! Halloween Oreos!'”

Also, look for items that will make your cooking life easier, says Cara. “Don’t shy away from shortcut ingredients. Find brands of tomato sauce, salsa, stock, pre-washed spinach, ravioli, etc. that you like: each of those gets you a third of the way to dinner. There are some vegetables I think of as shortcuts too because they require so little prep: a potato you can rinse and then bake, and my go-to, fennel, where you just remove the outer skin, quarter what’s left, and roast to get a super simple serving of vegetables.”

Kickoff!

Time to practice my new strategy.

I replenished up my pantry—I was a little low on olive oil and pepper—and decided to prepare Chicken with Figs and Grapes from Grant’s blog. I even bought a little extra chicken and stock for some soup later in the week (guess I was in a chicken format mood.)

Her recipe calls for about a dozen different ingredients, but since my pantry is already full, I only need to pick up the chicken, anchovies, figs and grapes.

I’m in and out of my local grocery store in five minutes (without jam!) and before long my kitchen is humming right along.

The dish is relatively easy to prepare and after a little less than 30 minutes in the oven, my wife and I have a meal for tonight and tomorrow. I arrived home by 7:15pm and we finished eating around an hour later, about 45 minutes quicker than normal and nearly a Tepper weekday record.

Our stomachs were full, the kitchen relatively clean and my brain didn’t wither like a raisin during the process.

A sense of peace had been restored in my life.

Adulthood can be difficult—after a long day of work, it often just feels easier to order a delicious Korean BBQ kimchi burrito than expending the time and effort to put together a meal. So sometimes the Teppers do just that.

But as Cara says, “Cooking at home is one of the best parts of being a grown-up. You get to eat exactly what you want when you want it. So, if you like to eat, you like not spending all your money, and you like putting relatively healthful food in your body, you should probably learn to cook.”

And if you’re going to do it, plan ahead.

Taylor Tepper is a reporter at Money. His column on being a new dad, a millennial, and (pretty) broke appears weekly. More First-Time Dad:

MONEY Gas

Surprise: Gas Costs Less Than it Did a Decade Ago

The price of regular gasoline dropped to $2.659 per gallon at the Hi Tech Fuels station on Brainerd Road and other stations in Chattanooga, Tenn., on Tuesday, Oct. 21, 2014.
The price of regular gasoline dropped to $2.659 per gallon in Chattanooga, Tenn., on Tuesday, Oct. 21, 2014. John Rawlston—AP

But you may still feel like you're paying more. Here's why.

Gas prices have been plunging lately. For consumers, that’s great! It’s more money in your pocket.

Gas now averages $3.07 a gallon nationwide, down from $3.60 in June and $3.30 a year ago. That’s billions of dollars of savings for U.S. households.

But gasoline is one of the few products whose prices we vividly remember. Behavioral economist Daniel Ariely once explained:

For the several minutes that I stand at the pump, all I do is stare at the growing total on the meter — there is nothing else to do. I have time to remember how much it cost a year ago, two years ago, and even six years ago.

Gas may be cheaper today than it was a year or two ago, but I’ve heard several people recently say, “Sure, but I remember when it was $1.50 a gallon!” That nostalgia makes us think we’re still paying a fortune at the pump.

But several other things have changed lately that affect the real price of gasoline:

  • The average car has a much better fuel economy today than it used to.
  • The average American is driving less than they used to.
  • Average nominal wages are higher today than they used to be.

You have to adjust for all three improvements to show the true price of gas, and the real impact it has on our wallets.

When you do, the real price of gas is lower today than it was a decade ago, and about the same as it was in the early 1990s:

Source: Department of Transportation, Energy Information Agency, Bureau of Labor Statistics. The formula used to calculate this graph is: (average gas prices/average hourly wages of nonsupervisory workers) * (annual miles driven per capita/average MPG of passenger cars).

One of the most important forces in economics is that people adapt. And that’s what you’re seeing here.

Gas prices surged in the early 2000s, so auto companies started building more fuel-efficient cars, which consumers demanded (as did new regulations).

Fuel-efficient cars used to be dinky little toys that you’d be embarrassed to drive. That’s changing. GM GENERAL MOTORS CO. GM 1.8681% CEO Mary Barra commented last month: “The customer has that expectation. It’s not an ‘or’, it’s an ‘and.’ They’re expecting to have winning vehicles, but also to have the fuel efficiency. It becomes a business priority.”

Consider: A 1999 Chevy Suburban got 18 miles per gallon and had 290 horsepower. A 2015 Suburban gets 23 miles per gallon with 355 horsepower.

High gas prices also likely played a role in pushing families from the suburbs into the cities, where commutes are shorter. As Reuters reports: “In 2010, a total of 80.7 percent of Americans lived in urban areas, up from 79 percent in 2000. Conversely, 19.3 percent of the U.S. population lived in rural areas in 2010, down from 21 percent in 2000.”

I’m not a fan of forecasts, because they’re pretty much all wrong. But here goes: Over the next 20 years we’ll see moderately higher gas prices combined with much better fuel economy. Taken together, this chart — with all its adjustments — won’t look too much different two decades from now than it does today.

“Intelligence is the ability to adapt to change,” Stephen Hawking said. And we are.

For more on this topic:

Morgan Housel has no position in any stocks mentioned. The Motley Fool recommends General Motors, and has a disclosure policy.

MONEY Love + Money

5 Super Easy Online Tools that Can Help Couples Feel More Financially Secure

hearts made out of money
iStock

Can't seem to get on the same page with your partner when it comes to money? Help has arrived.

In order to achieve common goals, getting on the same financial page with your romantic partner is critical—but it’s also challenging.

As our own MONEY survey recently revealed, a majority of married couples (70%) argue about money. Financial spats are, in fact, more frequent than disagreements over chores, sex and what’s for dinner.

The Internet can offer some strategic intervention. From budgeting to paying off debt, saving to credit awareness, these five online financial tools can help everyone—and, in particular, couples—get a better handle on their money.

The best part: They’re free.

1. For help reaching a goal: SmartyPig

SmartyPig is an FDIC-insured online savings account that—besides paying a top-of-the-heap 1% interest rate—is designed to help consumers systematically save up for specific purchases using categorized accounts like “college savings,” “summer vacation” or “new car.” Couples can link their existing bank accounts to one shared SmartyPig account and open up as many goal-oriented funds as they desire. You see exactly where you stand in terms of reaching your goals, which can motivate you to keep saving.

Additionally, SmartyPig has a social sharing tool that lets customers invite friends and family to contribute to their savings missions. Don’t want people to bring gifts to your child’s next birthday? In lieu of toys, you can suggest a ‘contribution’ to his SmartyPig music-lessons fund and provide the link to where they can transfer money.

2. For help boosting your credit scores: Credit.com

If you and your partner need to improve one—or both—of your credit scores and seek clarity on how, Credit.com can help. The Web site offers a free credit report card that assigns letter grades to each of the main factors that make up your score: payment history, debt usage, credit age, account mix and credit inquiries.

A side-by-side comparison of each person’s credit report card can—even if the scores are roughly the same—actually reveal that one spouse scored, say, a D for account inquiries, while the other has a C- under debt usage. From there you can tell what, specifically, each person needs to improve upon. “It may lead to some friendly competition,” says Gerri Detweiler, Director of Consumer Education at Credit.com.

3. For help tracking your expenses: Level Money

Called the “Mint for Millennials,” Level Money is a cash-flow-management mobile app that automatically updates your credit, debt and banking transactions and gives a simple, real-time overview of your finances. It includes a “money meter” that shows how much you have left to spend for the remainder of the day, week and month.

A spokesperson tells me that couples with completely combined finances can share a Level Money account and see all bank and credit card accounts in one place. They can get insight into when either partner spends money and how that affects cash flow. The company says it’s continuing to build out tools for couples.

4. For help eliminating debt: ReadyForZero

If you and your partner need some nudging to get out of credit card debt once and for all, ReadyForZero may be of service. Launched three years ago, it’s an online financial tool that aims to help people pay off debt faster and protect their credit. The free membership gets you a personalized debt-reduction plan with suggested payments. The site tracks your progress so you can see how well—or how poorly—you’re doing and regularly posts “success stories” on its site to motivate users. You also get access to the ReadyForZero mobile app which sends you push notifications suggesting an extra payment towards your balance if you just placed a larger than normal deposit in savings or checking.

For couples, the tool can help one or both partners to stop living in denial and to come to terms with their financial obligations. Says CEO Rod Ebrahimi, “it demystifies the debt.”

5. For help syncing up generally: Cozi

When I asked attendees at the annual Financial Bloggers Conference last month about what sites, apps and online tools they like to use to keep their finances in check in their relationships, a few pointed to the website and app Cozi. It’s not a financial tool per se, but Cozi helps households stay organized, informed and in sync with master calendars and household to-do’s like food and meal planning, shopping and appointments.

Want to schedule a meeting to talk about holiday gifting and how much to spend? Put in in Cozi. Want to plan meals for the week so you’ll know exactly what to buy at the market and not be tempted to order in? Tap Cozi to make a list.

Ashley Barnett who runs the blog MoneyTalksCoaching.com says she and her husband have been using Cozi for years. “My favorite part is that the calendar syncs across all devices, so when I enter an event into the calendar, my husband will also have it on his,” she says. Cozi’s actually gone so far as helping the couple minimize childcare costs. “Before Cozi, if I accidentally booked a meeting on a night my husband was working late, I had to either pay a sitter or reschedule the client, which is unprofessional and hurts my business,” says Barnett. “Now when I pull up my calendar I see his work schedule as well. No more surprise sitters needed!”

[Editor's Note: Cozi was recently acquired by Time Inc., the company that owns MONEY and TIME.]

Farnoosh Torabi is a contributing editor at Money Magazine and the author of the new book When She Makes More: 10 Rules for Breadwinning Women. She blogs at www.farnoosh.tv

MONEY online shopping

Believe it or Not, Amazon Is Not the King of Cheap Online Prices

Amazon logo
Lionel Bonaventure—AFP/Getty Images

A new report suggests that Amazon’s edge is not as strong as people think.

As far as conventional wisdom goes, Amazon.com AMAZON.COM INC. AMZN 1.6012% is the king of low-cost goods bought online; the Wal-Mart WAL-MART STORES INC. WMT 0.6368% of the Internet, so to speak.

And that’s largely true.

In its rise from a humble online peddler of books into the most feared, and dominant, name in online commerce, Amazon has used its willingness to undercut the competition to send more companies than I can fit in this space the way of the dodo (RIP Borders, et al). However, a recently released report suggests that Amazon’s supposed edge when it comes to low prices might not be as strong as some believe.

Inside the battle for e-commerce

Earlier this month, Wells Fargo and online sales tracking firm 360pi unveiled their findings from a full-year analysis of the various online pricing habits of the world’s largest e-commerce companies across over 100 commonly offered stock-keeping units. And as you’ve hopefully gleaned by now, the findings came with their fair share of surprises.

Perhaps the biggest single bombshell was that Amazon.com has lost a sales edge in four important categories to the likes of Wal-Mart and Target TARGET CORP. TGT -0.1295% . According to the report, both big-box retailers generally offered lower prices online than Amazon in the clothing and shoes, electronics, housewares, and health and cosmetics categories. However, the report also notes that Amazon typically offered the lowest prices when it came to “like-to-like” specifics goods.

This comes as a surprise for longtime followers of Amazon and implies that online pricing software used by Wal-Mart and Target, which scans competitors’ prices and adjusts accordingly, has grown sophisticated enough to compete against Amazon’s own pricing bots. Specifically, the reports says Wal-Mart’s pricing in the four categories sat an astounding 10% lower than Amazon’s as of August and that Target enjoyed a 5% pricing advantage as well. The report acknowledges that the pricing survey didn’t account for the cost of shipping and taxes, areas where Amazon enjoys advantages with its Prime shipping service and its notorious state tax policies.

Either way, this new report certainly calls into question the conventional wisdom that it’s simply Amazon and then everyone else in the online retail space these days.

The bigger e-commerce picture

Still, I think this report misses the point to a large extent by painting Amazon in a negative light on pricing without discussing the overall profit opportunity online.

As Amazon.com and its online peers have been around for a generation now, it’s easy to fall into the trap of categorizing e-commerce as a whole as a somewhat mature business. In fact, the opposite is true. When viewed in the broader context of the entire U.S. economy, online retail sales represent a veritable drop in the bucket. See for yourself.

Source: U.S. Census Bureau.

With online sales in the U.S. consistently setting fresh all-time highs, it’s also important to understand just how paltry a percentage of total retail transactions they really represent: just 6.2% in the first quarter of the year. And this only reflects the new record figure in a technologically advanced market. Viewed globally, this figure is almost assuredly smaller and it represents a large opportunity for all e-commerce retailers.

There’s no question that the stakes are extremely high in online retail. As I’ve mentioned before, the only free lunch you get in broad-based retail sales are economies of scale. As the global e-commerce boom progresses over the next generation, the companies that control the greatest share of the proverbial pie will have the strongest hand. And both Amazon and Wal-Mart excel in online retail.

Foolish thoughts

Historically, Amazon has always outflanked other online retail outlets. However, owing to the stakes and its well-documented tenacity, it was probably never realistic for the media or investing community to expect a company like Wal-Mart to go quietly into that good night. So while this storyline gives Amazon’s dominance in the growing battle for online sales supremacy, it’s by no means the end of the story, and that is certainly worth noting.

Andrew Tonner has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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MONEY early retirement

The Most Important Move to Make If You Want to Retire Early

Small birdhouse
Michael Blann—Getty Images

Housing is the most dangerous expense for those seeking financial freedom. Here's what you can do to control those costs.

Looking to achieve financial independence and retire sooner? A top priority should be to control expenses—especially your major living expenses like housing, food, transportation, health care, and recreation. We’ll focus on the rest of these spending categories in future columns, but for now let’s take a look at housing—the single largest expense for many, and one that can all too easily sabotage your journey to financial freedom.

Housing-related decisions will impact your financial independence by years, if not decades. Homes are a downright dangerous expense variable, because price tags are high, leverage (borrowing) is usually required, and various financial “experts” with their own agendas are usually involved. And houses expose our vanities, tempting us to spend for the approval of others, instead of in our own best interests. Losses of tens of thousands of dollars are routine in real estate, and can completely derail your savings plan.

Even when you don’t suffer an outright loss, changing homes is expensive. I moved around in my 20’s, had few possessions, and rented, so the cost of relocating was minimal. Then I married, we bought our first house, and had a child. Our next move was punishing: We were forced to sell our house at a steep loss, and, because of all our new stuff, we had to hire professional movers for the first time. When we finally bought a house again, we stayed put for nearly 17 years. In retrospect, that long time in one place was an enormous help in growing our assets and retiring early.

How much does it cost to change homes? By the time you add up the costs of selling, relocating, buying again, and settling in, you can easily spend $20,000, or more. According to Zillow, closing costs to a home buyer run from 2% to 5% of the purchase price. The seller doesn’t have mortgage-related costs but is likely paying a realtor commission as high as 6% or 7%. Then there are moving costs, and the inevitable shakedown costs with any new home: painting, carpets and curtains, repairs, supplies and furnishings, and basic improvements to suit your lifestyle.

In short, changing homes is frightfully expensive, and will probably eat up most of the average family’s potential savings for several years running.

Of course there are scenarios like career moves, where you don’t have the luxury of staying in place. But anytime the choice to move is yours, stop and consider the expenses. The worst possible choice would be an optional move into a larger house that you don’t really need. You are taking on a big one-time expense, plus a bigger ongoing mortgage and maintenance obligation. If more space is truly necessary, consider instead modifying your current home: When our son reached the later teen years, we renovated a larger downstairs room so he could have more space.

Once you’re in your home, be smart about home improvement projects, especially those you can’t do cheaply yourself. Trying to create the “perfect” home is an uphill battle, at best. Borrowing to improve your home is an especially bad idea, in my opinion. You can spend vast sums of money without measurably improving your quality of life. And old assumptions about getting that money back when you sell are outdated. For 2014, Remodeling Magazine reports that the average cost-value ratio for 35 representative home improvement projects stood at just about 66%. In other words, you don’t make money when you sell: rather, you only get about two-thirds of your money back! Financially speaking, that’s a lousy investment.

Lastly, while there are situations where it makes sense, on paper, to hold a mortgage, for those truly dedicated to financial independence, the disadvantages of debt often outweigh the benefits. In general, pay off your mortgage as soon as possible. Using extra income to pay down a mortgage loan can be a solid investment in today’s low-return environment. We paid off our mortgage years before retiring, and the peace of mind was invaluable. Now, in retirement, we rent instead of own. It’s a flexible, economical, and low-hassle lifestyle.

In short, maintaining a home will be one of your largest life expenses. Pay careful attention to your housing decisions if you’re serious about financial freedom!

Darrow Kirkpatrick is a software engineer and author who lived frugally, invested successfully, and retired in 2011 at age 50. He writes regularly about saving, investing and retiring on his blog CanIRetireYet.com. This column appears monthly.

More from Darrow Kirkpatrick:

The Single Most Important Thing You Can Do to Achieve Financial Success

The One Retirement Question You Must Get Right

How to Figure Out Your Real Cost of Living in Retirement

Read next: 3 Little Mistakes That Can Sink Your Retirement

MONEY Budgeting

Guess Which U.S. City Is the Most Expensive

141014_REA_EXPENSIVELIVING
Nikreates—Alamy

Hint: It's not NYC.

On average, American households spend the largest share of their annual expenditures on housing. The average family spends $16,887 on housing per year, equating to 33% of the average household’s annual expenditures. But how much do those expenses vary from city to city, and which places are the most expensive?

Well, the Bureau of Labor Statistics recently released a report (link opens PDF) detailing Americans’ average annual expenditures on housing and related items. And contrary to popular belief, New York City is not the most expensive city to live in. Two U.S. cities have overtaken it.

A breakdown of housing costs

The BLS took a deep dive into all the costs of housing, rather than simply comparing the cost of rent or average mortgage payments. Their analysis also took into account utilities (electric, water, and natural gas), household furnishings and equipment (textiles, furniture, floor coverings, appliances, and the like), housekeeping supplies, and other household expenses. What they found was that average annual expenditures on housing were far higher in both Washington, D.C., and San Francisco than in New York.

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Source: Bureau of Labor Statistics.

The data is current as of 2012, and housing costs in the District of Columbia and San Francisco have risen since then. In D.C., the rise in housing costs is being led by the redevelopment and gentrification of the downtown area, which in turn is being triggered by the high relative number of government and government-related jobs, particularly in the defense contracting sector. Baby boomers are also moving from the suburbs into the city.

In San Francisco, housing costs have always been high, but they’re spiking because of a confluence of factors. The continued boom in technology companies in Silicon Valley — most notably Apple, Google, and Facebook — means that a growing cadre of high-paid employees want to live in the area. Add in a longtime lack of housing development in the city, and you have a rise in housing prices that has become a contentious issue in the San Francisco Bay area as longtime renters are priced out of the city. TechCrunch’s Kim-Mai Cutler provides a great, in-depth piece on San Francisco’s housing problem.

The difference in annual housing costs between the two most expensive cities and the national average is a staggering $10,000. Excluding New York City, the difference between the two most expensive cities and other major U.S. metropolitan areas is over $5,000 annually. If you’re thinking of moving, it’s smart to compare costs carefully before moving to one of the most expensive cities in the U.S.

National differences in housing cost

While the above data is just from major U.S. cities, we have other data from the Bureau of Economic Analysis showing the real value of housing dollars in each state compared with the national average.

real-value-of-housing_large

You can see that generally, coastal states are more expensive than non-coastal states, as many people enjoy living near the ocean. You can also see that the Northeast on average is more expensive than the rest of the country except for California. These high costs, coupled with better weather and low to no income taxes, are why many retirees move south to Florida, Texas, etc.

If considering moving to a more expensive city, you should be sure the benefits will be worth the extra expense. For instance, while I pay a high cost of living to live in New York City, the quality of life that I get in the city makes it well worth it, in my opinion. While New York state is ranked poorly in terms of the happiest states in the U.S., New York City is ranked in the top quartile by happiness among U.S. cities, according to the Gallup-Healthways Well-Being Index.

The most important thing is to live in a place where you are happy. While the main determinants of happiness are the same for everyone, the specifics vary. Be sure that an increased cost of living comes with an increased quality of life.

MONEY Travel

3 Top Retirement Trips That Won’t Break Your Budget

Bartolome Island, The Galapagos.
Bartolome Island, The Galapagos. Ray Hems—Getty Images

That retirement dream trip may carry a harsh real-world price tag. Here's how save on costs and still travel comfortably.

Where is retirement going to take you? If you’re like most people, you’re dreaming of grand European tours, African safaris, maybe even Antarctica.

But even if you think you’ve budgeted generously for trips, you might get a harsh dose of reality when you see the actual price tag. A couple that puts aside $10,000 a year for travel may only be able to pull off one major trip per year, with maybe some left over for smaller jaunts.

What Patrick O’Brien, 71, and his wife Bobbie, 68, found out is that you can’t get too far on that. So what the O’Briens have done is a combination of lowering their expectations and raising their budget. They nixed Australia from their list, but over the years have done about 10 group tours, including two weeks in Alaska this year.

Here’s what three of the most popular trips for retirees will cost you:

GRAND EUROPEAN TOUR

How popular is the big European trip for retirees? Consider this: Viking River Cruises, one of the largest riverboat cruise operators, will carry more than 250,000 passengers in 2014 with a median age of 55, and 75% of them will do one of their European riverboat tours. The majority of those will sail from Amsterdam to Budapest, or some portion thereof.

Cost: A mid-tier balcony stateroom for an eight-day Rhine cruise in the spring will run about $8,000 for a couple, not including airfare, which can cost $600 a ticket from New York. Excursions and food are included, but not tips.

Budget tip: Off-season cruises are always cheaper, but on this route, Viking marketing executive Richard Marnell says the late-fall Christmas market specials are a big draw. “It has a feel and a vibe – they are an artisans’ heaven,” Marnell says.

GREAT WALL IN CHINA

Thelma Tiambeng-Bright’s dream retirement trip was to go to China, a feat she accomplished last year on a tour with YMT Vacations. The 70-year-old retired teacher, who lives in Duncanville, Texas, flew to California to join the group, which then flew to Beijing. From there, she saw the Terracotta Army, cruised the Yangtze River, saw the Great Wall and then Shanghai.

Cost: Tiambent-Bright’s 12-day trip cost about $4,000, including airfare. The current discount rate for a couple is $2,400, with $1,500 for airfare from a destination like Dallas.

Budget Tip: Travel with a buddy or significant other, if you can. Tiambent-Bright says she pays $600 to $800 extra on any trip she goes solo.

GALAPAGOS ISLANDS

For Patrick and Bobbie O’Brien, their dream retirement trip was to see the extraordinary wildlife of the Galapagos Islands, off Ecuador. They took an 11-day journey with Road Scholar, which was previously known as Elderhostel, a popular nonprofit group that plans educational trips for seniors.

One important feature for their budget was that the trip was all-inclusive. “We want to know how much money we will spend, and the nicest part is that there are no extra costs—you don’t have to worry about tipping or side trips,” says Bobbie O’Brien.

Cost: $8,000 for a couple, not including airfare to Quito, which will add $1,700.

Budget tip: When you want to go on the big trip, set it and forget it, suggests Peg Walter, a 70-year-old retiree from New York. “I cringe when I see the amount, because you pay for the whole thing in one lump sum,” Walter says. But then by the time she goes on the trip, she’s able to just enjoy herself because there are no extras involved on most of her tours.

“I call them ‘SKI’ trips —Spend the Kids’ Inheritance,” Walter jokes. “We’re not rich by any means, but we say, let’s try to use wisely what we have so we have memories.”

MONEY Budgeting

Financial Habits of Happy Stay-at-Home Parents

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When you're a stay-at-home parent, spending money on yourself can lead to feelings of guilt and resentment. It doesn't have to be that way.

Next time you complain about your 40-hour workweek, consider this: The average stay-at-home mom works more than double that rate —94 hours per week, to be exact. Her duties include (but are not limited to) cleaning house, cooking, teaching, behavior management, and laundry. For this, in theory, she should earn close to $113,000 per year, according to researchers at Salary.com. The same can be said for the growing number of stay-at-home dads.

In reality, though, full-time stay-at-home parents don’t receive a paycheck. And as a result, many struggle with feeling financially powerless or emotionally torn when it comes to spending money on themselves. A personal purchase like a new item of clothing or lunch out with a friend feels like it’s “taking away” from the family budget.

“I feel like I have to justify what I need,” one stay-at-home mom of two tells me.

“I feel extremely guilty buying things for myself,” shares another.

So how can couples set aside money for the stay-at-home parent in a way that avoids tension and emotional battles? Consider these steps.

Acknowledge Both Partners’ Feelings

If, as a stay-at-home parent, you feel guilty for spending on yourself, it may be that you’re not feeling valued for the work that you do. If that’s the case, you should be communicating that sense to your partner, says Edward Coambs, a financial planner based in Charlotte, N.C. “The issue may have more to do with your relationship dynamic.”

Coambs advises speaking up if you don’t feel empowered to spend more freely on personal things, or feel the need to ask for “permission” to shop. In exchange, he says, income-earning spouses should talk about what it feels like when their stay-at-home partner spends money on personal things. “From a place of empathy, spouses can usually find common ground in the way the family money is to be spent.”

Budget by the Same Rules

Creating a budget just for the stay-at-home-parent can lead to resentment and feeling like a second-class citizen. The solution: allow both partners equal access to the household money by creating equal spend/save funds for each person in the relationship. That sends a message that while only one person is bringing home a salary, both partners work hard and have equally important responsibilities. “When both feel they have the daily freedom to treat themselves…household well-being prospers,” says Manisha Thakor, author of Get Financially Naked: How to Talk Money With Your Honey.

How much to allocate? There’s no one-size-fits-all amount. The important thing is that you play fair. Each of you should factor in your anticipated personal needs such as haircuts, clothes, incidentals, etc. (maybe even over-estimate a tad to avoid shortfalls) and, together, decide on an equal percentage of the working partner’s income (say, 5% or 10%) that will go into your personal funds. Some months you might spend every penny; other months you might want to save up for a big purchase. The beauty is it’s yours to control. No questions asked.

Never Say ‘Allowance’

Call it a ‘personal expense account’ or ‘my personal budget’—but whatever you do, don’t call the money set aside for a stay-at-home parent an allowance. Coambs, who is also a former stay-at-home dad, says the term “allowance” is childlike and shouldn’t be used in an adult relationship. “It evokes a sense of ‘I have authority over you’ and takes me back to the days of living with my parents,” he says.

Thakor agrees. She likes to call personal accounts “joy funds.”

Earn by Saving

If the stay-at-home parent finds ways to save the household money (say via coupons or smart negotiating tactics), shouldn’t he or she be entitled to at least some of that savings? I think so. Growing up I watched my mom—an on-again, off-again stay-at-home parent—negotiate the cost of everything from bedroom furniture to deli meat. One time, after losing her job and becoming a stay-at-home parent again, the first thing she did was call up every monthly biller we had and insist on lower rates. In the end, she managed to talk our expenses down by $400 a month, which she and my father agreed should be allocated to her existing savings account each month. After all, she’d earned it!

Farnoosh Torabi is a contributing editor at MONEY and author of When She Makes More: 10 Rules for Breadwinning Women. She blogs at Farnoosh.TV.

MONEY Budgeting

How to Keep Fantasy Football from Fouling Up Your Finances

Fantasy Football
How much does your weekend pastime cost you? iStock

Make sure your weekend hobby doesn't wreak havoc on your budget—or your marriage.

Allison Lodish used to be a huge football fan.

Her affection for the game evaporated when her husband got fixated on fantasy football, a leisure pursuit where participants draft their own dream teams and compete against each other, based on how those players fare.

Before she knew it, he was in three leagues of fantasy football. Then, it became 10. “It was crazy,” says the 41-year-old personal stylist from California’s Marin County.

Crazy not just in terms of time expended, but money. Since many fantasy leagues charge fees for entering, trading players, or picking up free agents, the sums involved can be substantial.

At the height of her husband’s involvement, the hobby was costing north of $1,000 a year, Lodish estimates.

Indeed, the fantasy game has plenty of fans, with more than 41 million players in North America, according to the Fantasy Sports Trade Association. That’s up from 27 million in 2009, with the typical player dropping $111 a year on the hobby, and others, far more.

In an era of stagnant incomes and rising prices, it’s no wonder some spouses are alarmed by the amounts involved. The average player spends more than eight hours a week perfecting his or her team, the trade group says.

So, is there a fix for the obsession?

Experts say the first steps toward resolving familial conflicts around a fantasy sport involve turning off the TV for a few minutes and not obsessively checking statistics. Then, start working through marital differences that can easily spiral out of control.

“You have to figure out the crux of the problem,” says Sharon Epperson, CNBC’s personal finance correspondent and author of a financial advice book for couples, The Big Payoff. “It may be about the money, or it may have nothing to do with that. It may be the amount of time being spent away from the spouse or the children that is really annoying the other person.”

If a partner feels neglected, or the cash involved is being drawn from other family pots, that is a problem, says Matthew Berry, ESPN’s senior fantasy analyst and author of Fantasy Life, which chronicles the exploding interest in the field.

“Everything in moderation,” he says. “I don’t think fantasy football is different from any other couples issue. It’s about communication, and understanding what’s important to the other person.”

Here are some tips that may safeguard the family budget, or your marriage, from an unchecked fantasy-football fetish:

Family needs come first

“I don’t think spending money on fantasy sports is a bad thing—as long as you can afford it,” says Epperson, herself a devoted Pittsburgh Steelers fan who grew up watching greats like Franco Harris and Lynn Swann.

But if that cash is being siphoned from other critical needs, it’s a guaranteed recipe for marital discord. So before you sign up for multiple fantasy leagues, get your other bases covered.

Epperson’s advice: Stay current on all monthly bills, save 20% of your income in long-term vehicles like 401(k)s, and another 10% in short-terms savings like a household emergency fund. Then you can set aside 10% of income for “fun money”—and that’s where your fantasy-sports budget needs to come from.

Avoid secrets

Everyone likes to spend a little time and money on personal passions, whether it’s fantasy sports or designer shoes. And that’s okay – unless that information is being hidden from your significant other.

“It’s only a big deal if you are not telling your spouse,” says Epperson. “That’s like loading up a credit-card that your spouse doesn’t know about. That’s financial infidelity, and that’s a big problem in marriages.”

Involve your partner

If your spouse pushes back against your fantasy-football interest, take it as a compliment: They want to spend more time with you. So here’s an elegant solution: Get them involved, if you can.

“My advice is always, ‘Try it, you’ll love it,'” says ESPN’s Berry. “My wife now plays in my fantasy league. That way, Sunday becomes a day you can spend together, instead of apart.”

Hand over the winnings

If your spouse has zero interest in fantasy sports, here’s a novel approach: Pledge that any cash you win will go directly into their bank account.

“That’s what I did with my wife originally,” says Berry. “Whatever I won, she got to spend. So when I won my league, she got a brand new purse. It worked out great. Nowadays, if I’m falling behind in third place or something, she tells me to get it together and start studying up.”

Still, the outcome may not always be so collegial.

Allison Lodish eventually set up a website for fellow fantasy-sports “widows” and ended up splitting with her husband.

“It should be a fun game that brings people together,” she says. “But if it’s driving people apart, that is where you need to take a hard look at it.”

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