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5 Life Altering Lessons I Learned From My Debt

Starting position of a chess game. House of St... — Image via Wikipedia

Several years ago, my wife and I dug ourselves into debt pretty deep. It wasn’t as bad as some, but it was much worse than anybody could actually want. Recognizing the problem as a problem was a life-changing event. From there, I’ve been examining every thing else about my life. As part of that examination, I’ve spent a lot of time really thinking about the ultimate causes of the debt and what it has taken to motivate ourselves to get rid of it.

I’ve realized a few things:

The things I want right now do not matter. I own around 2000 movies. Up until last spring, every time I went into a store that sold movies, I’d peruse the cheap rack and buy 2-3 moves. I’d watch them all, but the vast majority were only ever watched once or twice. The rest may as well have been rented. I wanted them and I wanted them “right now”, but after watching them once, the value vanished. Most things I’ve bought on a whim lost their value to me shortly after bringing them home. Planned purchases are enjoyable longer.
The things I care about do not cost money. I cannot buy a kiss from my kids, or a hug from my wife. The school project my son did on his hero(Me!) is absolutely priceless. The TV, the smartphone, a new car, these things are fleeting. Teaching my kids to read or ride a bike, getting beat by a 6 year old at chess, these things will last us all forever. It took $30,000 of unsecured consumer debt to drill that lesson home.
Instant gratification is easier than security, but not nearly as gratifying. It is incredibly easy to buy what you want when you want it. It is much harder to postpone buying something until you can afford it. Once you build that habit, and see the savings of delayed gratification, it’s worth it. There is a comfort in having a few months worth of expenses in an emergency fund that no amount of knickknacks can match.
I like getting stuff more than I like having stuff. It’s easy to succumb to the temporary high of a quick purchase. It’s easy to train yourself to crave that high to the point that it’s impossibly to walk out of a store without buying something. I did that. When I cleaned out my entire house this spring, I came to the realization that I don’t need–or even want–most of the things I own. I wanted it once, but once I had it, the infatuation was gone. I didn’t have many problems unloading most of my crap. It felt good to get rid of it.
Owing money sucks. The borrower is slave to the lender. When our debt exceeded our annual income, we were working 3/4 of the time just to stay afloat. Instead of being able to spend my time and money on the things that matter, I was forced to spend thousands of hours just covering interest and pretending to make progress on my shackles. That’s not how I recommend spending your life. Time is the one thing you have that you can never get back. Don’t waste it on crap like debt.

Have you learned anything from your debt?

Brown Bagging Your Way to Savings

Finance

Today’s post is written by Mike Collins of http://savingmoneytoday.net as part of the Yakezie Blog Swap in which bloggers were asked to share their best day to day money saving tip.

Do you buy lunch at work every day? Have you ever actually sat down and added up how much money you’re spending?

I did once…and I almost fell out of my chair when I saw how much I was spending!

Back in the day I used to buy lunch at the office almost every single day. It certainly didn’t seem like I was spending much. A chef salad here, a cheese steak and fries there. But every day I was spending about 7 dollars and change. That’s $35 a week, which adds up to a whopping $1820 over the course of a year!

I started thinking about all the things I could do with that extra $1820, like paying off some of our debt, increasing my 401k contributions(ed: but staying with your 401k contribution limits, of course!), picking out a new big-screen tv, or enjoying an extended family vacation at Walley World.

I immediately starting bringing my lunch to work 4 days a week (I do treat myself once a week) and I’ve been saving money ever since.

Now I know what you’re thinking. It costs money to bring lunch from home too right?

Yes, of course it does…but nowhere near as much as eating out every day. Let’s do some basic math to prove the point. Say you swing by the grocery store to buy some ham and cheese so you can make sandwiches for the week. You pick up a half pound of ham for $3 and a half pound of cheese for $2. A loaf of bread on sale runs you another $2. That means you just spent $7 for a week’s worth of lunches. Even if you only bring lunch 4 days a week you’ve still saved yourself $21. That’s over $1000 a year!

And here’s a tip to save even more: If you have extra food from dinner, just bring the leftovers for lunch the next day. We always try to make just a little bit extra so I can have free lunch the next day.

So the next time you’re sitting around complaining that you don’t have enough money for so and so, think about how much money you are spending every day on lunch, or coffee, or cigarettes, etc. You might just find that you have plenty of money after all if you just shift your priorities a bit.

Money Problems – Day 1: Setting Goals

Finance

Today, I am starting a series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

I’m not going to run the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.

In this, the first installment, we’re going to talk about goals.

First, we’re going to ask 3 questions.

What is your financial goal?
Why?
How can you get there?

The first question is “What is your goal?” Of course, in this series, on this site, we’re only going to be addressing your financial goals. Losing 300 pounds, growing wings, and flying to the moon may be an admirable goal, but it’s considerably outside of the scope of this project.

So, what is your financial goal? Do you want to retire a millionaire, or become financially independent? Do you want to pay off your debt, or save enough money to see the world? Do you want to learn how to retire by 40?

Your goal does not matter…to anyone but you. To you, though, it is terribly important. Without a goal, how can you measure you progress and see what you have accomplished? It’s easy to get frustrated and give up when you can’t look back and see what successes you have actually accumulated.

Whatever your goal, you have to do two things:

Don’t let anyone tell you it is stupid or impossible. There is a quote that I can’t find attribution for, other than as an old Chinese proverb: “Those that say it can’t be done should get out of the way of those doing it.”
Write it down and hang it up. This lets you see your goal every day. It will be impossible to forget and difficult to ignore. I have Dave Ramsey‘s Baby Steps hanging on my refrigerator where I see it a dozen times per day.

The second major question to ask yourself is “Why?” Why is this goal important to you? Why do you care?

If you can’t answer that, it’s time to sit back and think about it for a while. Without a solid reason to succeed, you’ll lose motivation and fail. Are you getting out of debt to give yourself a secure retirement? Do you want to save to travel the world because you’ve been dreaming about it since you were in diapers? Do you simply want to provide a secure future for your family? Whatever your reason, it is–and should be–uniquely yours.

The third and final question is “How can you make it happen?” That question has an extremely simple answer: read the rest of the series.

How to Have a Perfect Life

Life

A few years ago, my wife and I were discussing life improvement, the options in front of us, and our future goals. She said she felt trapped by the scope of our goals and didn’t know where to start. That led to a discussion on

achieving our goals, which led to this.

Examine your life. Take stock of every aspect of your life. What pleases you? What upsets you? What do you do that adds no value to your life? Or worse, removes value? What do you do that adds the most value? What would you like to change? Eliminate? Improve? Count the small things. Nothing is insignificant. Write it all down and be specific.

Analyze your list. Are there any obvious patterns? Is there a single thread that is making you miserable or affecting multiple other items? Would eliminating 1 factor improve 90% of the rest? Is there a bad job or a toxic relationship ruining your happiness? Be honest and be critical.

What are your dreams? Where would you like to be in six months? A year? 5? 10? How would you like to retire? When? Write it all down. This is now your life plan.

Set goals. Set concrete, definable goals. Set goals that have an obvious success point. When you reach your goal, you want to be able to point it out. “Lose weight” is not a goal. “Lose 50 pounds in the next year” is a measurable, definable, concrete goal. Set incremental goals to reach your larger goals and, more importantly, your dreams.

Here’s an example:

Dream: Retire at 50.

Incremental Goal: Get a 10% raise within 6 months
Incremental Goal: Eliminate debt within 3 years
Incremental Goal: Max out 401k contribution
Incremental goal: Save 150,000 within 10 years
Incremental Goal: Save 45k each year after that.
Retire

When you are setting up your goal plan, make sure to include the analyzed items mentioned earlier. These are the things that will make today happier for you.

Now, you have examined your life. You have analyzed the results. You’ve gathered your dreams and compiled a goal plan based on your hopes, dreams, goals and desires. What’s next?

We’re going to take a page from David Allen. It’s time to Get Things Done. What do you have to do next to reach your goals? What is the next step? Don’t let yourself be overwhelmed by the scope of the entire list. Select one single item from your plan and look for the one single next step to make on the path to that goal.

Going back to the retirement goal plan, the next step towards a 10% raise could be researching salaries for your job description in your area to give you ammunition in the meeting with your boss. It could be updating your resume to hunt for a better paying job, or even just studying up on some resume tips.

If you want to run a marathon next year, the next step is to start walking every day to train your body.

If you want to improve communication with your spouse, the next step is probably to let her know.

If you want to eliminate debt, the next step may be setting up a budget or canceling unnecessary services like cable.

Every goal has a path leading to it. If that’s not true, you haven’t defined a concrete measurable goal.

Examine your life. Analyze your situation. Know WHAT you want. Know what you want to change. Set goals to get there, one step at a time. Take a single step towards your goals.

Then take another.

What are you doing to reach your goals and improve your life?

Money Problems – Day 7: Paying Off Debt

Finance

Today, I am continuing the series, Money Problems: 30 Days to Perfect Finances. The series will consist of 30 things you can do in one setting to perfect your finances. It’s not a system to magically make your debt disappear. Instead, it is a path to understanding where you are, where you want to be, and–most importantly–how to bridge the gap.

I’m not running the series in 30 consecutive days. That’s not my schedule. Also, I think that talking about the same thing for 30 days straight will bore both of us. Instead, it will run roughly once a week. To make sure you don’t miss a post, please take a moment to subscribe, either by email or rss.

On this, Day 7, we’re going to talk about paying off debt.

Until you pay off your debts, you are living with an anchor around your neck, keeping you from doing the things you love. Take a look at the amount you are paying to your debt-holders each month. How could you better use that money, now? A vacation, private school for your kids, a reliable car?

If you’ve got a ton of debt, the real cost is in missed opportunities. For example, with my son’s vision therapy being poorly covered by our insurance plan, we are planning a much smaller vacation this summer–a “staycation”–instead of a trip to the Black Hills. If we didn’t have a debt payment to worry about, we’d have a much larger savings and would have been able to absorb the cost without canceling other plans. The way it is, our poor planning and reliance on debt over the last 10 years have cost us the opportunity to go somewhere new.

The only way to regain the ability to take advantage of future opportunities is to get out of debt, which tends to be an intimidating thought. When we started on our journey out of debt, we were buried 6 figures deep, with a credit card balance that matched our mortgage. It looked like an impossible obstacle, but we’ve been making it happen. The secret is to make a plan and stick with it. Pick some kind of plan, and follow it until you are done. Don’t give up and don’t get discouraged.

What kind of plan should you pick? That’s a personal choice. What motivates you? Do you want to see quick progress or do you like seeing the effects of efficient, long-term planning? These are the most common options:

Debt Snowball

Popularized by Dave Ramsey, this is the plan with the greatest emotional effect. It’s bad math, but that doesn’t matter, if the people using it are motivated to keep at it long enough to get out of debt.

To prepare your debt snowball, take all of your debts–no matter how small–and arrange them in order of balance. Ignore the interest rate. You’re going to pay the minimum payment on each of your debts, except for the smallest balance. That one will get every spare cent you can throw at it. When the smallest debt is paid off, that payment and every spare cent you were throwing at it(your “snowball”) will go to the next smallest debt. As the smallest debts are paid off, your snowball will grow and each subsequent debt will be paid off faster that you will initially think possible. You will build up a momentum that will shrink your debts quickly.

This is the plan I am using.

Debt Avalanche

A debt avalanche is the most efficient repayment plan. It is the plan that will, in the long-term, involve paying the least amount of interest. It’s a good thing. The downside is that it may not come with the “easy wins” that you get with the debt snowball. It is the best math; you’ll get out of debt fastest using this plan, but it’s not the most emotionally motivating.

To set this one up, you’ll take all of your bills–again–and line them up, but this time, you’ll do it strictly by interest rate. You’re going to make every minimum payment, then you’ll focus on paying the bill with the highest interest rate, first, with every available penny.

DOLP

This is the plan promoted by David Bach. It stands for Done On Last Payment. With this plan, you’ll pay the minimum payment on each debt, except for bill that is scheduled to be paid off first. You calculate this by dividing the balance of each debt by the minimum payment. This gives you an estimate of the number of months it will take to pay off each debt.

This system is less efficient than the debt avalanche–by strict math–but is better than the snowball. It give you “quick wins” faster than the snowball, but will cost a bit more than the avalanche. It’s a compromise between the two, blending the emotional satisfaction of the snowball with the better math of the avalanche.

Snowflaking

For each of these plans, you can give them a little steroid injection by snowflaking. Snowflaking is the art of making some extra cash, and throwing it straight at your debt. If you hold a yard sale, use the proceeds to make an extra debt payment. Sell some movies at the pawn shop? Make an extra car payment. Every little payment you make means fewer dollars wasted on interest.

Paying interest means you are paying for everything you buy…again. Do whatever it takes to make debt go away, and you will find yourself able to take advantage of more opportunities and spend more time doing the things you want to do. Life will be less stressful and rainbows will follow you through your day. Unicorns will guard your home and leprechauns will chase away evil-doers. The sun will always shine and stoplights will never show red. Getting out of debt is powerful stuff.

Your task today is to pick a debt plan, and get on it. Whichever plan works best for you is the right one. Organize your bills, pick one to focus on, and go to it.

Assuming you are in debt, how are you paying it off?

Sunday Roundup: Reddit Rocks

Misc

Friday was my biggest traffic day, ever. Mike‘s guest post, Brown Bagging Your Way to Savings, went slightly nuts on reddit. For a few hours, it was in the top 10 on the front page, generating more traffic every half hour than I normally see in a day. That was fun.

In other news, my kid is in the #2 slot for wrestling the heavyweight slot on his wrestling team.

30 Day Project Update

This month, I am trying to establish the Slow Carb Diet as a habit. At the end of the month, I’ll see what the results were and decide if it’s worth continuing. For those who don’t know, the Slow Carb Diet involves cutting out potatoes, rice, flour, sugar, and dairy in all their forms. My meals consist of 40% proteins, 30% vegetables, and 30% legumes(beans or lentils). There is no calorie counting, just some specific rules, accompanied by a timed supplement regimen and some timed exercises to manipulate my metabolism. The supplements are NOT effedrin-based diet pills, or, in fact, uppers of any kind. There is also a weekly cheat day, to cut the impulse to cheat and to avoid letting my body go into famine mode.

I’m measuring two metrics, my weight and the total inches of my waist , hips, biceps, and thighs. Between the two, I should have an accurate assessment of my progress.

Weight: I have lost 25 pounds since January 2nd. That’s 3 pounds since last week. 17 more to meet my goal for February.

Total Inches: I have lost 14 inches in the same time frame, down 2.5 since last week.

Best Posts

J. Money has launched an awesome new project called Love Drop. Once a month, they go make a huge difference in someone’s life. Wise Bread interviewed them yesterday.

Tip: Use the word “solved” in a google search to find the answers to tech problems.

If OMG and Awesome got drunk and made a baby with Optimus Prime, Arnold Schwarzenegger and Cobra Commander’s nastiest fantasies, the offspring wouldn’t be this good. Holy crap. Major cheese alert.

Q. Why do some business lobby hard for excessive regulation in the name of protecting the environment or forcing people into decisions they disagree with, only to turn around and lobby for waivers to those regulations once they are passed? A. Because it’s not about the environment or health or giving-a-crap. It’s about the money. When an established company pushes for regulations, it’s to keep upstarts from entering the market. Regulations add barriers to entry. Anybody who’s trying to force you to do something for your own good has a product to sell to meet that “need”.

LRN Timewarp

This is where I review the posts I wrote a year ago. Did you miss them then?

Have you ever given any thought to the idea that debt is a social disease? It’s taboo, you usually didn’t do anything nice to get it, and it’s hard to get rid of.

In case I haven’t made it obnoxiously clear, I’m more than a bit of a geek. The post I wrote about D&D and personal finance should make it more obvious.

Carnivals I’ve Rocked and Guest Posts I’ve Rolled

Medical Costs and Choices was included in the Festival of Frugality.

How to Save Money On Anything was included in the Carnival of Personal Finance.

Mike from http://savingmoneytoday.net presented Brown Bagging Your Way to Savings, which is the post that went kinda nuts on reddit. He also hosted my post, Resisting Temptation.

Thank you! If I missed anyone, please let me know.

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Search Results for: brown-bagging-your-way-to-savings/contact-me/money-problems-day-1-setting-goals/5-life-altering-lessons-i-learned-from-my-debt

Debt Snowball

Debt Avalanche

DOLP

Snowflaking

30 Day Project Update

Best Posts

LRN Timewarp

Carnivals I’ve Rocked and Guest Posts I’ve Rolled

Get More Out of Live Real, Now