Budgeting Bulimia

As the President is so quick to point out, ten years ago, there was a large budget surplus.  Naturally, the government went into a massive cycle of lifestyle expansion.   That expansion, combined with lower tax revenue and a recession has brought us from a $230 billion surplus to a $1.4 trillion deficit.  That’s a bit above the trivial level.  A definite binge.

In Minnesota, there was a $2 billion surplus just a few years ago, which was obliterated by, once again, government expansion and a recession.   During the boom years, government programs were enacted with no thought to sustainability.   Nobody thought about the fact that a surplus isn’t a balanced budget, either.   We just kept adding to the budget, thinking the good times would last forever.  Another binge.

Last year, the governor of Minnesota had to “unallot” money from the budget.  He went through the budget with a red pen and struck line items until the budget was balanced, a requirement in this state.  This infuriated his political opposition.  They were not prepared for the purge.

Federally, the purge hasn’t happened, yet.  Give it time.  Excessive spending using imaginary money can only last so long.  It will stop.  The longer the binge, the harder the purge.

Families are doing the same thing. Four years ago, I got a raise and immediately bought a new car.  Binge.  Two months later, I was laid off and had to cut everything possible to make ends meet.  Purge.   Tax refunds, inheritances, drawings.  So many of these things give us an excuse to commit to long-term expenses without planning for long term sustainability.  If I inherit $5000, is that a good time to add $500 to my monthly bills?  No!  That’s an unhealthy binge.   In ten months, if the money lasts even that long, I will be forced to purge something to keep afloat.

The responsible, healthy way is the same as healthy, responsible eating.   Diet and exercise.  Spend less, save and earn more. That’s the strategy that will let you level out life’s valleys, instead of puking all over the floor.  Don’t spend every cent you see, just because it is there.  Set some aside for a rainy day.

Leave the binge-and-purge financing to the politicians.

Update:  This post has been included in the Festival of Frugality.

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Balance Your Borked Budget

You’ve got a budget worked out to the penny.  You know every dollar that comes in and every dime that you spend.    All of your bills are getting paid on time.  Then, one day, it all comes crashing down. Your budget is no longer even a reasonable approximation of your cash flow.  You’ve got no idea what’s coming in or going out.   Bills are piling up and fees are digging you deeper in debt.

What happened?  More importantly, how do you get back on track?

The first thing you need to do is identify the problem. What, exactly, went wrong?  Did you lose your job or need a surprise botox injection?  Your car died or your kid developed a hockey habit?  Sports car or shoe sale?  Whatever the cause, if you can’t identify it, you can’t deal with it.  Some of the possible problems may be things that can get clubbed and buried in the backyard, while other things may be expenses that won’t be going away.    If it’s a one-time expense, you can simply refocus your debt repayment to take it into account.  If it’s an ongoing expense, you will need to adjust your other expenses, possibly in a drastic manner, to make ends meet.  You can’t know which way to go without knowing what caused the problem.

Next, commit to to making it right. Don’t leave it at a mere commitment.  Actually commit and actually do it right. Future-you is counting on you to fix the problem before he gets screwed.   This is important.  Without firm–and real–commitment, nothing else will matter.  At best, you will be treading water.  At worst, you will drown yourself in unanticipated bills.

Cut everything extra.   Every expense–whether it’s your mortgage or your maid–is a rock in your pocket, one hundred miles from shore.  How much can you carry and stay afloat?  This isn’t the time to keep paying something because you enjoy it.  If it isn’t absolutely necessary, it’s got to go.  Cut your internet, cancel Netflix, learn to shut off the lights when you aren’t using them.   Is the early termination fee less than 6 months of your cable bill, your satellite bill?  Cancel it.    You can always sign up again later.  This is the time to be ruthless.

Is there a way to bring in some extra cash?  Can you pick up a second job, or land a freelancing gig?  If you’ve suddenly found yourself unemployed, can you spend some time on being a Mechanical Turk?  Sell all of the things you don’t use anymore, or, more likely, never should have bought in the first place?  Do you have a spare kidney?

Remember, this is a drastic situation calling for drastic measures.  Your future is depending on you.  Don’t make him come back and kick your butt.

Update:  This post has been included in the Carnival of Personal Finance.

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Clearing Up Social Debt in 3 Steps

Debt can be thought of as a disease–probably social.  Most of the time, it was acquired through poor decision making, possibly while competing with your friends, occasionally after having a few too many, often as an ego boost.  Unfortunately, you can’t make it go away with a simple shot of penicillin.   It takes work, commitment and dedication.  Here are three steps to treating this particular affliction.

1.  Burn it, bash it, torch it, toss it, disinfect. Get rid of the things that enable you to accumulate debt.   If you keep using debt as debt, you will never have it all paid off.   That’s like only taking 3 days of a 10 day antibiotic.   Do you really want that itchy rash bloodsucking debt rearing its ugly head when you’ve got an important destination for your money?   Take steps to protect yourself. Wrap that debt up and keep it away.

2.  Quit buying stuff. Chances are, you have enough stuff.  Do you really need that Tusken Raider bobble-head or the brushed titanium spork?  They may make you feel better in the short term, but after breakfast, what have you gained?  A fleeting memory, a bit of cleanup, and an odd ache that you can’t quite explain to your friends.   Only buy the stuff you need, and make it things you will keep forever.  If you do need to indulge, hold off for 30 days to see if it’s really worthwhile.   If it’s really worth having, you can scratch that itch in a month with far fewer regrets.

3.  Spend less. This is the obvious one.  The simple one.  The one that makes breaking a heroin addiction look like a cake-walk(My apologies to recovering heroin addicts.  If you’re to the point that personal finance is important to you, you’ve come a long way.  Congratulations!).  Cut your bills, increase your income.  Do whatever it takes to lower your bottom line and raise your top line. Call your utilities.  If they are going to take your money, make them work for it.   If they can’t buy you drinks or lower your payments, get them out of your life.   There’s almost always an alternative.   Don’t be afraid to banish your toxic payments. Eliminate your debt payments.  This page has a useful guide to debt and how to clear it off.

Update:  This post has been included in the Festival of Frugality.

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What D&D Taught Me About Finance

I admit it: I’m a geek. I’m not a hobby geek who only geeks on the weekends. I’m a full-fledged, licensed and certified geek. I am a geek about so many wondrous things that it’s hard to list them all. My wife knows, my kids know. It’s not much of a secret. One of my many geek qualifications is my sordid history of gaming. Role-playing, tabletop only. If that’s gibberish, it’s okay. Nobody needs to understand my geekitude but me.

I started playing Dungeons and Dragons more than 15 years ago. There were no live chickens or human sacrifice. Just a small group of geeks, proto-geeks, pseudo-geeks, and the occasional nerd playing DnD in a poorly lit room for several hours. We laughed, we cried, we fought evil, saved the world, and raised the stock price of an assortment of caffeinated beverage companies.

As the man said, I told you that, so I could tell you this:

DnD taught me many things.  It taught me THAC0 calculation, dice-identification, and the fact that no woman, anywhere, considers tabletop roleplaying to be an alpha-male trait.  “I’m a level 73 kinder warrior-mage-thief” is not a pickup line anywhere in the world, even Gen-Con.  Remember that.  Also remember, the singular of dice is die.  If your are talking about one, it’s a die.  Get it wrong and I will throw a bag full of dice at you and make you dig out the purple, sparkles-like-a-vampire, 27-sided die from among the hundreds of other dice.

DnD also taught me some surprising things about the world of personal finance, which is not a part of a planar campaign.

All the best toys cost too much. At the current exchange rate of 10 silver pieces(sp) to 1 gold piece(gp), potions of extra healing will drive you into debtor’s prison.  Just as a sword of extra-slaying +10 will cost you everything you earned raiding that castle for the last 6 Wednesday evenings, so will a big screen TV set you back a full month’s salary.  Don’t risk your life or sell your life’s energy for something fleeting, just because it’s “the best” or the newest gadget, geegaw, or artifact.

Pretty Lady

Never sell your soul for a castle or a horse. When the Baatezu come to offer you a “no money down, 0% for a year, all-expenses-paid, surrender-your-first-born” deal for a castle or the prettiest horse in the park, take a cue from the former First Lady.  Just say no.  Spending money today that you have to pay for tomorrow is almost always a bad idea.  Don’t spend your soul, spend your savings.  Don’t buy something until you can afford it.  A Lexus or an Arabian, a mansion or a rambler.  Are any of them worth auctioning your future?

Your armor isn’t stronger just because it’s shiny.  A suit of Full-Plate of Protection-From-the-Charms-of-Bar-Wenches +5 may look pretty, but it’s not going to help against the orcs, kobolds, or trolls unless, of course, they are wearing skirts and sitting on a bar-stool above a sawdust-covered floor.  Does the shiny new iPod really provide a benefit, or is it just a shiny gadget to woo the ladies?

A good sword is necessary to keep your stuff. This is a not a call to self-defense, or mugger, err, orc-slaying–though why that’s ever viewed as a negative is beyond me.   You need to be aggressive in defending your loot.  Call your credit card companies and demand they turn over the booty, err, lower your rates.  Tell your friends to step away from the Diamond Ray of Disappearance, err, expensive outings or you will chop off their heads, err…no wait, that one can stay.  I think my friends may be scared of me.

[caption id="" align="alignleft" width="196" caption=" "][/caption]The promised reward for completing an adventure isn’t the only way to make money. Sure, the local duke(your boss), may be willing to pay you a chest of gems(your salary) for defending the town from the ravages of the Tarrasque(your job), but that isn’t the only way to make money.  You could do your job, collect your pay, and go home at night, but why?  Don’t forget to pick up the loot along the way.  If you spot the shiny penny, grab it, whether it’s abandoned gold, a new idea for a niche-blog, or a chance to turn your leisure hobbies into money.  There are thousands of ways to make money outside of your day job.  Every one will help your bottom line.

It takes cunning to slay the dragon. When tackling your debt(dragon), wading in swinging your sword may be emotionally satisfying, in the short term, but long term, it’s just a painful method of reminding yourself that you are crunchy and taste good with ketchup.  Make plans.  Have a strategy.  Come out a winner.  Then, sit down for beer and dragon steak.   Goal-less, plan-less attacks fail in the long-term.

Update:  This post has been included in the Carnival of Personal Finance.

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