Archive for January, 2008
Living Frugally
Frugal Living
Many people often confuse living a frugal life with not having anything. In fact, living frugally is not living without, it is living smarter (not to mention cheaper). Being frugal on purchases shows that the person has thought through the purchase. Frugality also shows that the purchaser has made every attempt to obtain an item by the lowest price possible.
I offer a living example: a movie date versus watching a DVD at home, etc. Recently, my wife and I took my 6 year old son to see “
Nearly every facet of our lives can be lived frugally. For instance, our family tries to primarily eat organic foods. They taste better and have been proven to be better for you. We used to shop for organics exclusively at Earth Fare; however, a local supermarket has recently begun increasing its organic footprint. The price difference is almost 40% for the exact same items. 40%! Same food, lower price. To boot, the supermarket is much closer to our home, so we are saving more gas money. With gas over $3 per gallon, saving fuel everywhere we can is a big help to our finances.
As you can see, we try our best to save on prices where we can, when we can. If it means going to multiple stores, so be it. If it means clipping coupons, then get the scissors out. You have to look for bargains because from my experience, bargains do not simply fall out of the sky into your lap. That is the reason they are called bargains. Do not forget to calculate the hidden costs of your bargains. The primary hidden costs are time spent and gas.
Of course, living frugally is usually frowned upon. Sure, people always like to announce the good deal they received here or there, but can it become a lifestyle? Of course living frugally can be a lifestyle. Why can it not be? Outside of personal choice, there is absolutely no reason you can not find a multitude of items at a reduced price. You have to buckle down and decide to put forth the effort. Your bank account will thank you 
Our Debt Plan
Our Personal Debt Plan
44% mortgage
23% auto loan debt
18% credit card debt
4% medical expenses debt
.6% personal loan debt
.53% department store charge cards
Our average monthly bills (minimum payments) comes to @ $1800, against a rough $4200 take home pay. Now that doesn’t seem bad, does it? Not at all. Now let’s add the actual necessities for the month:
Food $650, Daycare $200, Gas $520, Satellite TV $70, Car repairs $50, Eating out $175, Car insurance $50, Home Insurance $35, Property taxes $66, Electricity $260, Water $60, Cell and home phones $90, web hosting $15 (I have two other websites that I run), Internet access $10 (yeah, I am stuck in dial up hell), and our student loans ($28k are currently in forbearance).
OK, now our monthly bill total is more or less $4,050. Fine, we are still ahead of our take home pay of $4200. Given a normal “fudge factor”, this is close to the break even point. This is too close and approximately 50% of our pay is going straight into debt.
We created an emergency fund. Out target is a minimum of $1k. While Dave Ramsey advocates getting this fund in place and then attacking your bills, we simply can not afford to do it. We are already behind on every credit card bill, most of the department store bills, and medical expenses. A grand will not cover any major types of events, such as things that have happened to us in the past: blown transmission (my current car’s transmission is slipping) or the such. A grand will also not even come close to covering any type of major illness. Our emergency fund is in place to help us catch the smaller problems that pop up from time to time such as doctor office visits, etc. Although our emergency fund is not being created “The Dave Ramsey Way”, we are working on it.
It is important for both spouses to be on the same page. With only one spouse on board, no plan will ever work. My wife and I sat down and wrote out all of our bills and the minimums for each. In this list, we found it important to also include those bills and debts that are easily forgotten: charitable donations, land taxes, car insurance, home insurance, life insurance, and car repairs to name a few. Once we had the list written out, the wow factor was high, but this is achievable.
The snowball plan as advocated by Dave Ramsey and others is a solid principle to follow. Basically, you pay all of your bills to remain current (get current first if you are not there). If you have any money left over, apply those funds to a targeted bill. Once your targeted bill is paid off, take the money that would have gone to that bill plus the original remainder and re-target to a different bill. For example, our initial target will be our personal loan. The interest rate on this loan is 9.75%, which is not the highest interest rate that we have. The primary reason we chose the personal loan as our first target is because we only owe $675 on this bill. This bill will be paid in full this month due to our snowball effect. Once paid in full, we now have an additional $197 per month to apply to our next target. The debt snowball is a proven method for eliminating debt. This principle is the backbone of 99% of the “methods” out there.
Once the snowball has eliminated our unsecured debt, we will be going after the two auto loans and then our mortgage. At the same time, we will begin saving towards having a minimum of 6 months of expenses saved. While the emergency plan is extremely important in the beginning to prevent unexpected expenses from de-railing you, the total amount that you end up in your savings account will ultimately make or break you. For example, I have two co-workers that have been injured within the past year. One man was out of work for almost four months with no short term disability and no money coming in the entire time. The second man has been out of work for almost that amount of time and is still looking at missing a minimum of another three months. This man does not have short term disability either. If either would have had 6 months of expenses in their savings accounts, this tidal wave in life would have been reduced to a mere ripple. Getting out of debt is the primary goal; however, getting to the point of total self sufficiency is the ultimate end game objective.
Our next topic will be frugal living. I have the draft written and still need to tweak it somewhat, but be looking for it coming out soon!
The Plastic Prison
The Plastic Prison
Plastic Credit Cards are amazing creatures. These cards can be used to purchase those items your very own parents saved for years to obtain. Silly old parents, you could have had that 80” plasma HD 1080i LCD television today instead of 5 years from now. Credit cards are truly an ingenious item. Did you know that you can also use the card to scrape the ice from your windshield? Yes, it is a multi-use tool. OK, enough with the fantasy stuff. Used properly (ie: paid in full every month, every time) credit cards can be a tool of sorts; however, miss that first “in full” payment and the credit card is no longer a tool, it is now a plastic prison.
Credit cards by themselves are not inherently evil. They have no emotions. They can not physically cause any harm or pain. Add a credit limit to that 4” x 3” plastic wonder and it can become a sword that is used against you. We do not need credit cards to live. That is a basic tenet of life. My parents are living proof of this fact. My Dad passed away six years ago this past month. He lived to be 78 years old. How many multi-colored pieces of plastic did he own in his lifetime? Nada. Zippo. Zero. My Dad used cash (fast becoming a foreign item) for everything. What if he did not have enough cash to cover the purchase price of an item? He would save for a bit longer and then go to the store, negotiate the price of the item and then pay cash for it. It would not be beyond my Father to go to the grocery store, load a buggy full of food, go to the register, have it rung up and then request the manager’s presence. He would literally leave the store with $100 worth of food for $80. Yes, he was a good negotiator. Over the years, I literally saw him do the same thing over and over, but sadly was never taught the art of it.
Look around you, marketing is used in everything. When I was seven years old, I remember families purchasing Coca-Cola in a 32 ounce glass bottle. Typically, 1-2 bottles would supply a family of FOUR for well over a week. Now, it is not unusual for a person to consume 100 ounces in a day; all a product of marketing. Never mind the typical daily sugar intake is 20x higher per day now than back then and we wonder why obesity is reaching such heights? Many people today blame obesity on genetics…..give it time, debt and credit overuse will soon be blamed on genetics as well rather than personal responsibility. The marketing of credit and credit cards is currently at a fevered pitch, at the same time that credit delinquencies are at an all time high. Go figure. The marketing is everywhere and realizing that you are being marketed to is the first step to recovery. Credit cards can now be personalized with your own family photos, how sweet. Catch phrases can literally stick to you: “What’s in Your Wallet?” (preferably cash), “Don’t leave home without it”, and “Everywhere you go” just to name a few. Newer commercials portraying cash purchasers as slowing down the process to fun are especially hard hitting (and often ignored). You can not even watch a sports show on television without seeing a Visa logo super imposed on the field. You are being marketed to death and probably do not even realize it. As a society, we have stopped paying attention and to a certain extent, stopped caring. We are literally becoming numb to an ever growing problem. We want stuff, we want more of it than ever before and we want it NOW. In 78 years, my Dad never financed a car. My wife and I have financed 10 vehicles in 17 years. Madness. Plastic gives you the ability to obtain what you want, as long as you are willing to pay the price. Bad thing is, most people do not realize the true cost of credit. Would you be willing to pay $48 for a $16 CD? No? Not just no, but Hell No? That is what I thought. Charge a CD and make the minimum payments…..let me know when you get it paid off. If you were going to pay $48, why not save for just a little bit and pay $16 instead? Knowing that you would not be willing to pay $48 for something that has a sticker price of $16, then why do we do it everyday? Why do we constantly over charge our credit limits? The answer is simple. There is no pain felt when we charge an item.
Pain is an enormous motivator. Pain can make you run, make you hide, make you angry, make you fight, make you cry. Pain can also make you think. It can make you think before you make that large purchase. Not many people like pain. Credit card companies have developed an anti-dote for painful purchases: plastic. One swipe, one signature, no pain and the item is yours. Deceptive marketing practices such as low APR’s, no interest on transfers, etc can quickly become nightmares, simply miss two payments and see what happens. Credit cards give you ownership. Owning stuff, for many people, is a measuring stick for how they measure up to their peers. It has taken me 39 years to figure out the total non-importance of measuring up. Will your family love you less if you do not acquire that hot, new Christmas toy? Honestly, love you less? If they do, consider finding a new family. As the head of your household, whether you are a man or woman makes no difference, take charge of your life. If you can afford to charge something and pay it in full when the bill arrives, then congratulations! If you can not afford to purchase the item with cash, simply ask yourself:
Is this a necessity or a nice-ity? Will my life be altered without this item? If no, then stop and then start saving your money. If the answer is yes, then ask yourself what you have to do to pay for this item in full within the next 30 days? Develop a plan and then work the plan.
In any case, whether you purchase with cash or on short term credit (30 days!), the item must be paid for before other large purchases are made. Trust me, any other plan will fail. Do not make a purchase in anticipation of a coming raise/bonus/income tax return, wait for the money to come first. Unless you are getting a GREAT deal (greater than 70% off retail), then wait until the cash is in your hand. You will be amazed at how much you will think purchases through when paying with cash. Paying with cash hurts because you can see the money physically changing hands. Once it leaves your hand, it is gone. Smarter purchases can be made with cash because cash gives you something that plastic can not: leverage. Try negotiating with plastic, won’t happen. Like I have said before, plastic is not inherently evil; however, when abused plastic can become a prison. The good news is that you do not have to be sentenced for life, credit cards are a choice, not a necessity.
How We Stayed in Debt
Staying in debt is easier than it should be. After all, to stay in debt, we basically do not have to do anything. Give it a try for a month. Do not pay any bills, add charges to your cards and just have fun, let your hair down. Nevermind that night out on the town that you charged for $433 will take you 6 years of minimum payments to pay off, after all, having fun is more important, right? OK, now that we are back from Cool World, let’s take a look at this logically.
Flashback: Circa 1979: I was 10 years old. When I did chores (ie: mowing the yard, raking leaves, etc), I received a small allowance. My parents were instilling in me a basic fact of life: you will be paid for hardwork. Unfortunately, while Dad was OUTSTANDING with managing money himself, bluntly, he did not effectively pass this knowledge on very well (my other two sisters have had debt problems as well). Dad’s idea of teaching his children to save money was by asking “where did all of your money go” after it was all gone. See the fatal flaw in that one? Oops on Pops! That is why I challenge you right now, at this very second, to make a concerted effort to teach your children proper money skills. It is up to YOU to stop the cycle or your son or daughter very may well follow you down the path of debt.
Flash forward to 1983: 14 years old, working during the summe with a relative primarily mowing yards. In four months, I made about #3,000, a tidy sum for a cash poor high school freshman. This was a relative fortune that was spent almost as quickly as it was made. Where did it go? Like other debt throughout my life, you tell me and we will both know.
August 1988: My first foray into credit. As an American serviceman stationed overseas, it was a lonely life for a 19 year old kid. I obtained an AT&T phone card. Limit on the card? $100 and the balance had to be paid in full at the end of each month or the card would be cut off. It took a week to max the card out. No problem, I called AT&T and they gladly bumped my limit up to a $300 limit without receiving a payment. Woo-Hoo! Two weeks later, yep, maxed out again, but that was ok. I was single, stationed far from home and was making $900 a month…..hmmm, AT&T was receiving a full third of my monthly take home? Yup…..until I had the limit bumped up again to $600. They never laughed, said forget it or even acted like they thought I was truly crazy. So, two months into a 24 month term, I am shipping two-thirds of my take home pay to dear old AT&T. Heck, I was single and would have only spent it on booze any way. Having no savings skills nearly killed me. It took about 8 months for me to open my eyes and ask myself what the heck I was doing to myself. I could not maintain that type of lifestyle. This was not a credit card, the balance had to be paid in full each month and I was tired of writing that $600 check. So did I quit? Nope, just fell behind on the payment. Eventually, they turned the card off. It took approximately six months to finally pay the thing off….and about two months to max it out again. I can look back now and say what happened next was a turning point in my life. When I re-maxed my phone card out for the umpteenth time, what happened? I received my first piece of plastic in the mail. Credit limit you ask? Why $600 of course, how convenient. So, with the 22% credit card in hand, I paid off my phone card. Ooooops, HUGE mistake. It took 3 years of paying ahead to pay off my $600 phone card. Including interest and late fees, it cost me approximately $1900 or so. Did I learn from this mistake? Lets’s take a look:
1995: I have been married for a year. Together we find 5 acres of lake view/mountain view property for $10k (yes, an OUTSTANDING deal). We make a 20% cash downpayment, with no real bills we easily obtain the down payment in less than a month. We finance the balance ($8k) on a 9% personal loan through our credit union. This loan is payed off in about a year. We now own 5 acres of prime land FREE AND CLEAR. We were on our way with a very solid start. Instead of building a home (my wife was a college student at the time), we decided to purchase a mobile home. We find a repossessed mobile home for $19k (book value was $26k), yet another good deal. Our initial mortgage was $180 per month. I wish I could say that we saved a ton of money and are living on a sizeable nest egg, but we aren’t. We did not pre-pay my wife’s college which we could have afforded, so like most Americans we went the student loan route. To improve our land (we own horses) we obtained a credit card. Since we had outstanding credit, the credit line was $10k. Uh-oh. Unfortunately, we were like a lot of other people, we wanted stuff and we wanted it THEN and not later. $9600 of a $10k limit later, we had much of what we thought we wanted. We needed a barn, so I took out an $8k loan against my 401(k). In less than 2 months, we had gone from financially responsible to in over our heads. We had gone from taking two weekend trips a month to barely being able to afford the minimum payments on our “stuff”. Looking back, I can not tell you one thing that we bought. All I know is that we bought. Shortly thereafter, we obtained a $5k limit card and a $2500 limit card…..yep, maxed them both out. After college, my wife struggled to find employment and we somehow scraped by. We had easily made the transitition of living on cash to living on plastic and we never noticed it at the time. I am the head of my household, it was my fault. I can say that now, 13 years later; however, at the time, I never noticed it.
It took my wife 3 years after college to find employment. We had used credit cards to pay debts on other cards (numerous times). We had about $1900 worth of monthly bills against $1700 of monthly net pay….not good. We got another credit card to buy groceries with. Then when all seemed lost, I obtained a pay raise and she found a higher paying job. Dry beans and rice appeared to be behind us. Eventhough we made more than the tally of our bills, we felt the pressure and saw no way out. Through our credit union, we rolled $20k of debt into a consolidation loan. At the time, it was the best thing to happen to us, because we had to surrender all of our plastic. We had managed to lower our monthly bill total to roughly $400 below our take home pay. Then we refinanced our mobile home. We managed to take a $180 per month mortgage + a $600 month personal loan and come out with a $365 payment. Whew! Light at the end of the tunnel. Then we obtained yet another Platinum card ($15k limit) and a Sears card with a $3k limit…….yep, you know it. I lost my job and cashed in my 401(k). Instead of rolling it over, we lived off of it. Big mistake #10256456. We sold our home and property to a neighbor for $60k and paid off the mobile home, netting about $38k. I received a $25k settlement from an auto accident. My wife received a settlement for $8k. Together, we had $71k in the bank and still had a ton of bills and needed to find another home. We bought my mother-in-law’s home and property (4 acres)….a dream for my wife because every woman wants to own the home they grew up in. Before we had looked up, we had sank $60k+ in home repairs into the house, financed (lol) $8k worth of siding, and $8k worth of furniture……we looked up and we were farther in debt than ever before. The home is old enough to be considered “historical” and we did receive a fantastic deal on the home ($50k for a $225k home and property). Currently, we both have good jobs for our area and bring home around $4600 per month. By living the “American Dream”, we have approximately $5k in bills per month. We have looked at all of the “quick fix” schemes that abound on the net. We talked to a lawyer about Bankruptcy. We have decided to stiffen our back and dig our way out of this hole on our own. At this point, I am still laying the blue print, but we will become debt free. Join us on our journey to becoming debt free. When we do this, just two regular folks with children, it will prove that ANYONE can do it.
How I Got Into Debt
How I got into debt
Saving money is a skill. Do not lose sight of this fact. The vast majority of people simply do not have the monetary skills to get beyond the paycheck to paycheck lifestyle. I am currently one of those multitude. I know better, in fact I know much better; however, my family is still stuck. Why? I lack the will power to attempt to stop collecting “stuff”. We as a society, have a plasti-dementia. We are literally crazy about plastic. Plastic cards, plastic toys, heck you name it, it is made from the material. Nothing has the populace gripped in a choke hold like those little 4” x 3” plastic demons known as the charge card.
Need gas? Charge it. Need clothes? Charge! Need a down payment on a used car? Yep, might as well add it to the monthly revolving debt. Why do we like using our plastic so much? When you charge an item to your card, you are physically detached from the sales process. Simply put, it does not cause you pain to charge an item. At least not in the way that the same purchase does when you pay cold, hard cash. I can not name how many times I have charged items in the past and never thought twice; however, for a similar (or even the same) item, when paying cash, I thought long and hard before the purchase. Several times, I simply walked away from the purchase. Paying with cash not only gives you time to honestly think, it also increases your purchasing power. I have never paid retail at Dick’s Sporting Goods,
For more, please read on……
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