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Don’t Screw Future-You

Finance, Life

A conversation between me and my temporally displaced self.

Future Me: Excuse me, Jason?

Me: Yes?

FMe: <Slap!>

Me: May I ask what that was for?

FMe: Of course.

Me: What was that for, jerk?

FMe: That was payback for all of the hell you have put me through.

Me: What?!? I’ve never even met you, before.

FMe: Of course you have. I am future-you, and I’m sick of getting screwed by past-me, that is, you.

Me: Huh?

FMe: Listen close. You’re not the sharpest brick in the box and I don’t want to explain this twice.

Me: ???

FMe: A long time ago, when you first met our wife, you were dumb.

Me: I don’t appreciate….

FMe: Shut up. I was dumb then, too. Remember? You…err…we bought a new truck, built an addition on our…err…your…err…whomever’s house, got married in the same year. On top of many other expensive decisions. Do your recall?

Me: Yes, I do. So what?

FMe: If that wasn’t enough, you and your smoking-hot bride are still shopping like you’re rich. You drive a new car. Your kids wear new clothes. You’ve got a house full of new furniture. How did you pay for all of that?

Me: Naturally, I charged it. Zero payments, zero interest for a year! Pretty smart, huh?

FMe: What happens in a year?

Me: I don’t know. I’ve got a full year to figure that out.

FMe: <Slap!> I’ll tell you what happens! Future-you, that’s me, gets screwed! Your raise didn’t come through. You had a baby. The truck broke down. Your wife took maternity leave. A roommate moved out. You took a loss in the stock market. You didn’t plan! You had no savings to cover any of those problems because you were too busy servicing debt to pay for your current life.

Me: How was I to know?

FMe: <Slap!> Life happens! You never know what is coming next. You need to plan and save for what might happen. Otherwise, you’ll just accumulate more debt to be serviced by yours-truly. That is not acceptable.

Me: So? What are you going to do about it?

FMe: <Slap!>

Me: Really? Again?

FMe: <Slap!> I’m struggling to pay your debt. Your son starts college next year, but you’ve left me completely unable to help. Your daughter wants to get married in a couple of years, but the Father-of-the-Bride can’t afford a tux. My wife, your beatiful bride, wants a vacation that I can’t afford. You’ve screwed me, dude.

Me: I’m sorry. What can I do to fix it?

FMe: Buy me dinner, first.

Me: Huh?!?!?

FMe: Stop the excess spending. Spend less than you make, for a change. No credit.

Me: None?

FMe: None. Nada. Zip. Zilch. Only spend what you can afford. Budget. Pay off those nasty bills. Don’t leave me hanging.

Me: So, what you’re saying is that, if I don’t have the money, I shouldn’t buy it?

FMe: Exactly. That’s the path to wealth, freedom, and financial independence. Live in the real world.

Me: Gee, thanks, Future-Me! Now I know.

FMe: And knowing is half the battle.

What would your future-you have to say to you?

How to Cut Costs on Legal Fees

Finance

Occasionally, life goes truly pear-shaped and you’re forced to enter the legal system.

Even if you’re not embroiled in a tawdry, tabloid-fodder divorce, there are still legal issues that everyone needs to address, without exception.

The problem? Or rather, one of many, if you’re having legal problems?

Lawyers are expensive.

Before I go any further:

If you are having criminal court issues, get a lawyer. Get the best possible lawyer. Really. The cost does not compare to a lifetime in jail, or even 10 years. If you’re facing jail, get the best dang attorney you can find.
I am not only not an attorney, but I’ve never even played one on TV. I have driven past a law school a couple of times, but never stopped in. I do know several attorney, carry the business cards of a couple and have a couple on my speed dial, just in case. If any of them thought I was giving legal advice, I’d be in trouble. To reiterate: I am not an attorney. This is not legal advice.
Don’t do a prenuptual agreement at home. A prenup will almost always be found unenforceable if both parties don’t have an attorney.

Where was I? Ah, yes. Lawyers are expensive, but there are ways to mitigate that.

There a couple of things you can handle yourself.

Small claims court, also known as conciliation court. Typical cases in conciliation court include cases involving sums under $7500(varies by state) that involve unpaid debts or wages, claims by tenants to get a security deposit, claims by landlords for property damage, or claims about possession or ownership of property. Fees and procedures vary by state, but generally cost less than $100 to file. The procedures for your state can be found by googling “small claims court” and the name of your state.

Small worker’s compensation cases can be handled yourself, if they don’t involve a demotion or termination related to the injury.

Apartment and car leases are usually simple and straightforward. Read them carefully, but you probably won’t need a lawyer.

You can probably handle your own estate planning and will writing with some decent software. I love Quicken Willmaker. It walked me through a detailed will that takes care of my kids, and gave me advice on financing their futures in the horrible event that I am tragically killed before my wonderousness can fully permeate the world. It also contains forms for promissory notes, bills of sale, health care directives and more. If you have extensive property, I’d still seek an attorney’s advice, but I’d bring the Willmaker will with me to save some time and money.

Purchase agreements. A few years ago, I sold a truck to a friend and accepted payments. I made a promissory note and payment schedule. When he quit paying or calling me, that paperwork was enough to get the state to accept the repossession when I took the truck back.

A simple no-fault divorce is actually pretty painless, on the scale of divorce pain. Again, the procedures vary heavily by state.

Other resources for finding legal information free or cheap include www.legalzoom.com and www.nolo.com.

Have you had to do any of your own legal work? How did it work out?

Babies Are Expensive

Finance, Parenting

From the comments here. The discussion is on how much it costs to have a baby. Edited for clarity.

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Actual birthing costs vary. We’ve had three kids over ten years and birthing costs have varied from $250 out of pocket to $8500. Our highest and lowest price births were 20 months apart. The highest price birth involved induced labor with an epidural. For the lowest out-of-pocket price, I added my wife to my policy before the birth, so she was double-covered. If one of your policies is less than ideal and there are multiple policies available, I recommend doing this. It saved us thousands. All told, If things go well, you could slide for as little as $1500 total.

For the highest price birth, we threw ourselves on the mercy of the finance department. They have a charity fund to pay the bills of the less fortunate. We qualified…barely. If you have a medical bill you can’t afford, ask if there is a grant or donation you can apply for. Always ask if there is some way the bill could be lowered.

Breast-feeding beats the heck out of formula, financially, but breast-feeding doesn’t always work. Ignore the boob-nazis who insist you are slowly killing your kid by using formula. I’ve got 3 kids, and each had different feeding issues.

Baby formula runs $19 for a big container at Sam’s Club, or a large percentage of your soul at most other big box stores. Formula alone will pay for your membership in under a month. For a big eater, that’s $20-30 per week. For a normal eater, 2-3 weeks. For planning purposes, assume $100/month in formula costs for the first six months, when food starts coming into play heavily. After that, the formula expense goes down, but not away for at least 6 more months.

Diapers are painful. Not just the smell–though that hurts, too, sometimes–but the expense. I currently have 2 in diapers; one is potty-training. Our monthly costs for diapers, now, are about $75. It was easily twice that when they were younger. Figure at least $100 per month in diapers. Unless your baby has irritation problems, go with cheap diapers. Leak-guard is a joke. If you are relying on leak-guard to keep the contents inside the diaper, you aren’t changing your baby often enough.

I couldn’t begin to guess at how much you’ll spend on baby clothes. I have never bought clothes for our kids. Whatever didn’t come free from friends and family walked into the house of it’s own volition, following my wife home from the store.

Toys are an almost purely voluntary expense. You’ll get as much as the kids needs free, as presents. You’ll go overboard and give the kids 10 times that, without realizing it. Don’t. For the first four to five months, its fingers and toes will be entertaining enough. After that, if there are more than about ten toys, it’s too many; the kid will never get attached to any of them. Keep it small. It’s better for the kids and the budget. Little kids prefer boxes to toys, anyway. Give the kid a shoebox instead of a Leapfrog. Really.

Portraits suck, too. If you have to get them done professionally, get a membership that covers sitting fees, and use coupons. I recommend JC Penney’s. Using judicious coupons and the membership, we get portraits for under $20.

Baby food is probably cheaper to make in a food processor, but you can’t beat the convenience of the little jars. If you watch sales, you can stock up affordably. Mix every meal with some rice or oatmeal mush to stretch it, without making it unhealthy. Depending on your kids, and how much you listen to the “experts”, this is a nonexistent expense before six months. Our kids started eating baby food in their second months, at least a little bit.

Babies are expensive. Don’t doubt that for a second, but ignore the polled averages when it comes to expense. Hand-me-downs, thrift stores, and good sales cut the expense a lot.

How do you save money and value with a baby in the house?

How We Handled The Windfall

Finance

Landlord (Photo credit: FletchtheMonkey)

Three years ago, my mother-in-law died. She didn’t have a will, but that’s a story for another day.

My wife, being an only child, inherited everything. All of the assets, and all of the problems.

She inherited the house, which was completely paid off. That was nice.

My mother-in-law was a hoarder who didn’t buy into the idea of maintaining your property. That was not nice.

Between the life insurance policies and the ready cash, she inherited about $60,000. Also nice.

It’s all gone. Not so nice.

Now, I know you’re asking where it went. Lucky for you, that’s what this post is about.

We paid off the last $10,000 of our credit card debt, and haven’t accumulated a balance since. Now our cards are paid off in full every month.

We put $5,000 down on the Chevy Tahoe we bought in 2012 and paid off in full 9 months later.

Every last cent of the rest went into the house we inherited.

Huh? 45 fricking grand to get the house ready to rent?

Yep.

$3000 to clear out the brush and landscape the yard
A few hundred to have the hardwood floors sanded, stained, sealed, and buffed
An intense carpet-cleaning
Painting every single room
3 large dumpsters to handle the garbage we pulled out of the house
New refrigerator
New washing machine
New boiler
New stove
New patio door
New locks for the doors and windows
Security lights
Food for all of our helpers whom we can never thank enough
Finishing the basement

All of that pretty, pretty money, gone in less than a year.

What did we get out of it? A rentable asset that is bringing in $1200 every month, with minimal work.

We could have chosen to sell the place, but we would have had to do nearly all of that work, anyway, so it wouldn’t have saved anything.

I like having the new stream of income, even though it will take several years to turn a profit. That house isn’t going anywhere, and since it’s only 3 miles from Minneapolis and 5 miles from downtown Minneapolis, it will always be an in-demand area for renters.

It was just a lot of work turning it into a useful property instead of a year-long drain on time, patience, and money.

Cheap Drugs – How I Saved $25 in 3 Minutes

Finance

: Image by cackhanded via Flickr

Today, I stopped by the grocery store to pick up a couple of prescriptions. I always get the generics, because they are less than half the price of the name-brands, while still being chemically identical. That’s not what I’m talking about, although it did save me about $75 today.

When the pharmacist rang up my medications, the total came up to $35. That just wasn’t right.

Many chain pharmacies have gone to a cheap pricing model for generic drugs. That usually means $4-6 per monthly prescription. Cub Foods doesn’t have that.

So I asked for the price match.

Cub Foods matches prices on generics with whatever large pharmacy is nearby. In this case, they matched Target’s prices, bringing the price from $35 to $10. Instant $25 savings. I just had to wait for them to look up my prescriptions in their match-book.

Pharmacies with cheap generics:

K-Mart offers a 3 month supply for $15.

Target and Wal-Mart both have a 30-day supply for $4.

Publix offers a 14-day prescription for some antibiotics for free. That’s insane! It’s also a heckuva way to get people in the door. “Why don’t you shop for half an hour while I fill your scrip?”

If your pharmacy is anywhere near any of these stores, call and ask if they’ll match the price for generic drugs.

A few tips:

Before you go get your cheap drugs, call ahead and make sure what you need is on the cheap list. Don’t assume.

You won’t be able to use your insurance to buy the cheap generics. The overhead in insurance processing would mean that the pharmacies would be operating at a loss for each prescription. You can’t make that up in volume. Between our copays and deductibles, it’s far cheaper to just pay the generic price without involving the insurance company.

Don’t be afraid of generics. It’s not like Nike. Generics are chemically identical to the name brands. There are two differences: the price and the letter stamped on the side of the pill.

The stores offering cheap drugs are generally bigger stores hoping to use the drugs as a loss leader. Places like Walgreens or CVS make up to 70% of their profits from the pharmacy. They can’t stay open treating that as a loss leader.

How do you save money on prescriptions?

Evil Interest

Finance

Everybody with a savings account or almost any form of debt has at least a passing familiarity with interest. How many of you actually know what it is, or even how much you are actually paying?

First, some definitions.

Principal is the term used for the amount of money you have borrowed.

Interest is the rent you pay to have that money. Interest is money-rent, expressed as a percentage of the principal. If you borrow $100 at 10%, you pay approximately $10 in interest. I say “approximately” because it’s just not that simple.

There are two kinds of interest: simple and compound.

Simple interest is called that because it is just that: simple. It’s easy to understand and it’s what most people mistakenly assume they are paying. With simple interest, the interest rate is only applied to the principal, never to the accumulated, or accrued, interest.

For example, if you have borrowed $100 at 10% annual interest, this is what your balance will look like:

At the time of borrowing the money, you owe $100.
After 1 year, you owe 10% of the $100, in addition to the original $100: $110.
After 2 years, you owe 10% of the $100, in addition to the original $100 and year one’s interest: $120.
After 10 years, you will owe a total of $200.

That’s simple.

On the other hand, in addition to five more fingers, you have compound interest. Compound interest complicates things considerably. With compound interest, interest is applied to the entire balance of what you owe; both the principal and the accrued interest are included in the calculation.

For example, with $100 at 10% compounded annually:

Year 1: You will owe $100 + 10% of the original $100, or $110
Year 2: You will owe $110 + 10% of the $110, or $121
Year 3: You will owe $121 + 10% of the $110, or $133.10
Year 4: You will owe $131.10 + 10% of the $110, or $144.41
Year 5: You will owe $144.41 + 10% of the $110, or $158.85
Year 6: You will owe $158.85+ 10% of the $110, or $174.74
Year 7: You will owe $174.74 + 10% of the $110, or $192.21
Year 8: You will owe $192.21 + 10% of the $110, or $211.43
Year 9: You will owe $211.43 + 10% of the $110, or $232.57
Year 10: You will owe $232.57 + 10% of the $110, or $255.83

That is a total of $155.83 in interest paid over 10 years, or $15.58 per year, for an effective interest rate of 15.583%.

To throw another twist into the mix, interest is rarely compounded annually. Monthly, or even daily, is much more common. With monthly compounded interest, the annual rate, or APR, is divided by 12 and recalculated every month.

For example, using the same $100 at 10% APR, compounded monthly:

Since the interest rate is compounded monthly, we will be using the monthly periodic rate, which is 10% / 12, or .83%

Month 1: $100 + .83% of $100 = $100.83
Month 2: $100.83 + .83% = $101.67
Month 3: $101.67 + .83% = $102.51
Month 4: $102.51 + .83% = $103.36
Month 5: $103.36 + .83% = $104.22
Month 6: $104.22 + .83% = $105.08
Month 7: $105.08 + .83% = $105.95
Month 8: $105.95 + .83% = $106.83
Month 9: $106.83 + .83% = $107.72
Month 10: $107.72 + .83% = $108.61
Month 11: $108.61 + .83% = $109.51
Month 12: $109.51 + .83% = $110.42

That’s $0.42 more interest paid the first year, and that number will continue to climb each year the interest is compounded.

It gets worse if interest is compounded daily, like most credit cards. If you see “Daily Periodic Rate” anywhere in your agreement, you are getting compounded daily. This same loan, compounded daily instead of monthly will yield $110.51 owed the first year. That $0.51 might not seem like much, but imagine it on a $10,000 credit card, or a $100,000 house! And that’s just the first year. Every year after, the disparity gets bigger.

Edit: The formula for calculating compounding interest is Principal x (1 + rate as a decimal / compounding term)^{compounding term}. So, for $100 at 10% compounded monthly, the formula is 100 x (1 + 0.1 / 12)¹²

That’s the downside to compounding interest. There is an upside, if you have investments or interest-bearing accounts. If that’s the case, compounding interest is working in your favor.

If you save $100 per week, and manage to get a 10% return on your investment, you will have $331,911 after 20 years(with $104,000 contributed) and $2,784,424 after 40(with $208,000 contributed). That mean you will have tripled your money in 20 years, or vingtupled* it in 40 years.

That’s how you get rich. $100 per week for the rest of your life will leave you with a comfortable retirement, without missing out on life now.

—

* Yes, it’s a real word**. It means a twenty-fold increase.

** No, I did not know that yesterday.

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