In theory one is aware that the earth revolves, but in practice one does not perceive it. The ground upon which one treads seems not to move, and one can live undisturbed. So it is with Time in one’s life.
~ Marcel Proust, The Past Recaptured, 1927
Yesterday I posted Part I of Our Money Story. I would have preferred to keep the story to one post, and maybe I could have if I were 25 years old. But alas, I am 4 weeks away from my 40th birthday. When I left off, Mr. Cents and I were nearing the end of our first decade together. Next, the ground on which we tread began to move.
Mr. Cents was still working in a retail store, although he did not like it as much as he had liked his job as a buyer for the same company. An executive change with the company made it clear that he would need to find another job. His was our only income, so we had to be careful about choosing a new position. Having moved from a larger city to a smaller one meant that our options were more limited.
Mr. Cents had filled out an online questionnaire for a sales position on a lark, as we were getting desperate. He eventually ended up taking that job, even though it was in a field in which he had virtually no experience: sales for construction-related materials. He began his new job in March of 2001, just a few months before 9-11 caused a major economic and political upheaval.
I almost forgot. When Mr. Cents left the retailer, he had some stock options to dispose of and didn’t have the time to follow the market. That’s how I got involved with trading, finance and economics. I’ve been studying it ever since. Before that, I didn’t even know what stocks, the S&P 500, or any of those other mysterious things in the business section were.
The Second Decade
Chapter 4: New Job, New Life
In spite of the tumult of September 11th, we were able to sleep at night because Mr. Cents’ base salary was guaranteed for 3 years. After that, he could take the salary as a draw, but it would have to be backed up by sales. Mr. Cents quickly became a top performer and was able to earn some nice commission on top of his salary. In addition, I worked as a self-employed assistant to him, helping him run his business and keeping track of our more complicated financial and tax situation. (Those of you who are self-employed or in commission sales will know what I’m talking about.)
Our family was quickly outgrowing our home. We lived in a 70 year old home with very small rooms and almost zero energy efficiency, but plenty of character. In the end, the space constraints outweighed the character and we started to look at building our dream home.
At first, building a new home really seemed more like a pipe dream. But mortgage rates were really low and we wanted a home of our own where we got to choose everything rather than trying to fix up an older home. We had done enough sanding, painting and fixing up to last us for quite a while by that time.
Mr. Cents did well enough for us to take yet another huge gamble. Just a few months and piles of house plans and Excel spreadsheets later, we went ahead and had a nice, brand new home built. We moved in halfway through 2003, just as the housing market was really heating up. To say we stretched to afford the house would be an understatement.
If Mr. Cents continued to do as well as he had, we would be OK. I tried to structure the finances so that we would live on his base draw, and the extra commission would be for, well, extras. In reality, we experienced some lifestyle inflation as Mr. Cents did well for a few more years. We used the extra cash to finish the house nicely. We put in a driveway, landscaping, and finished the basement. We accomplished all of this without debt, but it meant putting very little into savings.
In the meantime, I was busy raising the boys and I was grateful to be able to run to school as needed and care for them when they were sick. I was also able to coordinate my son’s care during his leg lengthening procedures and be with him for the duration of his recovery, physiotherapy appointments, etc.. Mr. Cents was very busy with work, so it was nice to have everything to do with home taken care of. I had also sold out of our mutual funds and taken control of our investing myself. I read, read, and read some more. (Tangent: Michael James recently wrote about mutual fund deferred sales charges and I had to laugh at Gene’s joke in the comments section: Q. Why does it cost so much to get out of a DSC fund? A. Because it’s worth it.)
Chapter 5: Gathering Storm Clouds
Around 2005/2006, I began to get uneasy about our lifestyle inflation. We were not living with great excess, but if Mr. Cents had a rough year, we could be in trouble. We were no longer living on his draw of roughly $60000, but needed at least $80000 plus to maintain our mortgage and other commitments. We bought 2 new vehicles in 2006. We paid one off a year later. The other was financed for 2 years at 0% interest, so we just made the payments. I felt like we finally had our heads above water, but I was nervous about the economy.
Everyone seemed to be extremely over-leveraged, with new kitchens and home additions popping up everywhere. To some extent, we were part of that. But we did not take on debt to do the home improvements we chose. By the end of 2007, the only debt we had was our mortgage, but it was pretty large and our ability to make the payments could come into question if our income took a hit. Mr. Cents was still doing well, but he was selling a premium product, and we began to worry about how many sales he could make if companies needed to deleverage and cut costs.
Chapter 6: Thunder & Lightning, But No Permanent Damage
In 2008, Mr. Cents left the company he had been with for almost 8 years to join a local contractor, with a guaranteed salary for one year. Our timing was just about perfect. It was just about that time that the debt bubble burst and our income would likely have cratered – another bullet dodged. He received a fairly sizable deferred compensation package from his previous employer. We used approximately 40% of that to pay down the mortgage, and we placed the rest in an RRSP savings account to avoid the income tax hit.
By that time, I had reduced our stock weighting to nil, so our investments did not suffer in the carnage. I still have not re-entered the market, as our financial position became more precarious and I did not want the risk. During that time period, we aggressively paid down our mortgage instead. I don’t want to make it sound like I am any kind of investing expert. I am more like an investing wimp. Although I avoided the subprime catastrophe, I was out of the market very early and did not benefit from the 2005-2007 market rise.
There was just one problem with our new life: Mr. Cents hated the new job. The workers were not competent and he felt uncomfortable selling for the contractor as a result. A year later, he took a sales position with a telecommunications company. He didn’t care for that job either, for good reasons that I won’t go into in the interest of brevity.
That pretty much brings us to the present. Mr. Cents started yet another new job at the end of November, 2009. He is back to selling in the construction industry for a larger local contractor. So far so good, but our current income based on his base salary (not including potential commissions) is about one third of what it was 3 years ago. I had increased our weekly mortgage payments for a year or two, but recently had the mortgage company reduce them again. We just can’t afford the accelerated payments right now. I’ll boost them again or make a lump sum prepayment if the commission starts rolling in.
On the plus side, the insane mortgage paydown vendetta I embarked on a couple of years ago has left us with a mortgage balance of just $34000. It was originally $202600. As recently as July of 2008, it was $145000. If things got really dicey, we could use some of our RRSP money to pay the thing off or make our payments.
And Now, Back to Our Regularly Scheduled Programming . . .
Again, my apologies if these 2 posts have bored you to tears. I have not decided to turn this into a personal blog where I report daily on our menu and grocery list. I just hoped to provide some background and maybe some real life examples of money management and mistakes.
Writing this has helped me put things in perspective in this young year. I know that many of our financial decisions were not wise if you follow the rule book, but I don’t think I would have done anything differently if I had it to do all over again. Still, we were very lucky and there were several points at which things could have gone way off track for us. In coming posts, we’ll explore the many personal finance themes that surfaced in our money story.
I encourage you to look at your own money story and maybe even write it down. Is your tale headed for the ending you want, or do you need to write in a plot twist?