Control Your Cash, real world edition

It's true. It's what you don't say that counts.

**A featured post in The Best of the Best in Money and Finance #14**

Is this all just a big waste of time?

It isn’t. People are taking these lessons to heart daily. Including our very own test case, Dana, a 27-year old who works in claims management. Dana lives in the east San Francisco Bay area, and graduated from San Francisco State in 2005. Judging from Dana’s Twitter photos, he knows his way around a bar and leads something of an active social life. But he’s living proof that doing so doesn’t mean losing control of your cash.

Dana’s first job out of college was as a shipping clerk for an online company. He made a princely $15 an hour while waiting to build enough vertical credits in the American workaday world. And while making that $15 an hour, he rented an apartment for $650 a month. Which likely meant he was either extremely cramped, or extremely far out in the burbs. In other words, he worked almost 5½ days every month just to put a roof over his head. Leaving an average of 14½ days a month to pay taxes, buy food, and save to purchase the biggest asset someone in Dana’s position can hope to amass: the down payment on a house.

4½ years out, Dana is now making $60,000 a year. Which brings up an aside: never mind getting a driver’s license or being old enough to vote; for many Americans, the most notable rite of passage into full adulthood is the movement from having remuneration quoted hourly to quoted annually. Truck drivers who get paid by the mile are an exception.

That rent payment will eat away at your savings as efficiently as any credit card interest rate will. Maybe even more so, seeing as the various levels of government in this country spend more time telling credit card issuers what they can charge versus fixing landlords’ rates. When Dana finally built up enough of a down payment to escape the -100% rate of return on his rental apartment, he bought a house as quickly as possible.

Fortunately, Dana doesn’t wait for perfect market conditions to come along before dropping the hammer. Tens of thousands of people in Dana’s position will sacrifice enough to accumulate a down payment, then waste valuable time by waiting for interest rates to fall by a few basis points. Or for houses to cheapen by a few thousand dollars. Either or both of which might happen, or fail to happen. Yes, a 25-basis point difference in interest rates can cost you significant money over the course of a 30-year mortgage term: procrastinating will cost you myriads more. The Control Your Cash authors know of one mid-40ish woman who spent years toiling for the same advertising agency, renting an apartment until she could finally afford a house. She was set to look at houses with a realtor one day, but the technician who cleans her carpets (actually, her landlord’s carpets) was running late. So she cancelled the date with the realtor, instead of telling the carpet cleaner to either wait or not come back until she’d finally vacated the apartment. Add a routine visit to the doctor, a sick pet, and a friend visiting from out of town, and soon a few weeks elapse and you’re that much closer to the grave. The woman in question kept the apartment, and last we checked, had been fired from the advertising agency after years of meritorious service. Which at least made it easy for her to get up and move from the non-investment she called home.

Anyhow, back to her opposite number, Dana. He recently purchased a house with a $1290 monthly mortgage payment. He put $50,000 down, which means he spent a good percentage of the time between shipping clerk and claims manager reducing expenses and saving as much as possible. Now, he’s locked in. Those $1290 payments should be easy to make when he’s 57 (assuming he hasn’t graduated to a larger house by then.) Again, making $1290 payments during his prime wage-earning years will be his worst-case scenario. Well, not literally worst, but he doesn’t live in the Rust Belt or Chernobyl, so the chance of his house’s worth dwindling to zero over the next 30 years is slim. He started deducting mortgage interest payments from his taxes, and continues to gain ground daily.

Add the effortless saving of Dana’s 401(k), which is now at $31,000 and counting, and it’s easy to see how Controlling Your Cash doesn’t have to involve tremendous sacrifice. Just a little prioritization.