Live Real, Now

The no-pants guide to spending, saving, and thriving in the real world.

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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?

 

A Moment of Clarity

Finance

Money money money!
Image by Matt Stratton via Flickr

Ten years ago, I buried myself in debt. There was no catastrophic emergency or long-term unemployment, just a series of bad decisions over the course of years.

We bought a (short) series of new cars, a house full of furniture, electronics, hundreds of books and movies, and so much more.   We threw a wedding on credit and financed an addition on our house.   We didn’t gamble or drink it away, we just spent indiscriminately.  We have a ton of stuff to show for it and a peeling credit card to prove it.

What changed?

In October 2007, we found out brat #3 was on the way.    Don’t misunderstand, this was entirely intentional, but our…efficiency caught us by surprise.   It took several years to get #2.   We weren’t expecting #3 to happen in just a couple of weeks.   #2 wasn’t even a year old when we found out she was going to be a big sister.  That’s two kids in diapers and three in daycare at the same time.

The technical term for this is “Oh crap”.

I spent weeks poring over our expenses, trying to find a way to make our ends meet, or at least show up in the same zip code occasionally.

I finally made my first responsible financial decision…ever.   I quit smoking. At that point, I had been smoking a pack a day or more for almost 15 years.   With the latest round of we’re-going-to-raise-the-vice-tax-to-convince-people-to-drop-their-vices-then-panic-when-people-actually-drop-their-because-we-made-them-too-expensive taxes, I was spending at least $60 per week, at least.

Interesting side story: A few years ago, Wisconsin noticed how many Minnesotans were crossing the border for cheap smokes and decided to cash in by raising their cigarette taxes.   The out-of-state market immediately dried up.  Econ 101.

So I quit, saving $250 per month.

Our expenses grew to consume that money, which we were expecting.  (Remember, we were expecting a baby!)   Unfortunately, our habits didn’t change.   We still bought too much, charged too much on our credit cards, and used our overdraft protection account every month.  At 21% interest!

Nothing else changed for another year and a half.  My wife would buy stuff I didn’t like and we’d fight about it.  I’d buy stuff she didn’t like and we’d fight about it.   When we weren’t arguing about it, we’d just silently spend it all as fast as we could.

Bankruptcy was looming. We had $30,000 on our credit cards and our overdraft protection account was almost maxed out.  Have you ever thought you’d have to sell your house quickly?

One day, while I was researching bankruptcy attorneys, I ran across Dave Ramsey.   When I got to daycare that evening to pick up the kids, I noticed they had The Total Money Makeover on the bookshelf, so I asked to borrow it.

I read the book twice, had a very frank discussion with my wife about the possibility of bankruptcy, and we set out on the path to financial freedom together.

What made you decide to handle your finances responsibly?  Or, perhaps more importantly, what’s holding you back?

6 Questions to Financially Get to Know Each Other

Finance

This topic has been blatantly stolen from Budgets are Sexy.

1) How do you spend: cash, debit or credit? I use cash almost exclusively.  I live in Minnesota and have two small children, so bundling the brats up to go inside the gas station to pay is nuts.  Gas stations get the debit card.   Online shopping, or automatic payments set up in the payee’s system are done on a credit card that gets paid off every month.

[ad name=”inlineright”]2) Do you bank online? How about use a financial aggregator (Mint, Wesabe, Yodlee, etc.)?  I bank online.  I use USBank for my daily cash flow, INGDirect for savings management and Wells Fargo for business.  I used Mint strictly as a net worth calculator and alerting system.  I use Quicken to manage my money and a spreadsheet for my budget, but I really like the quick, hands-off way that Mint gathers my account information and emails low balance alerts.

3) What recurring bills do you have set on autopay? Absolutely everything except daycare, 2 annual payments, and 1 quarterly payment.

4) How are your finances automated? I use USBank’s billpay system, instead of setting up autopayments at every possible payee.   This gives me instant total control and reminders before each payment.   The exceptions are  my mortgage, netflix, and Dish.  My mortgage company takes the money automatically from my checking.  The other two hit a credit card automatically.  Our paychecks are direct-deposited and automatically transferred to the different accounts and banks, as necessary.

5) Do you write checks? If so, how often? Once per week, for daycare.  Occasionally for school fundraisers.

6) Where do you stash your short-term savings? I have quite a few savings accounts with INGDirect to meet all of my savings goals.  For the truly short term, I add a line item in Quicken and just leave the money in my checking account.

Who’s next?

Money Problems – Day 2: What’s Going Out?

Finance

Today, I 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 2 of the series, you need to gather all of your bills: your electric bill, your mortgage, the rent for your storage unit, everything.  Don’t miss any.

Go ahead, grab them now.  I’ll wait.

Did you remember that thing that comes in the plain brown wrapper every month?  You know, that thing you always hope your neighbors won’t notice?

Now, you’re going to sort all of the bills into 5 piles.

Pile #1: These are your monthly bills.  This will probably be your biggest pile, since most bills are organized to get paid monthly.  this will include your credit cards, mortgage(do you rent or buy?), most utilities and your cellphone.

Pile #2: Weekly expenses.  When I look at my actual weekly bills, it’s a small stack.  Just daycare.  However, there are a lot of other expenses to consider.  This stack should include your grocery bill, gas for your car, and anything else you spend money on each week.

Pile #3:  Quarterly and semiannual bills.  I’ve combined these because there generally aren’t enough bills to warrant two piles.  My only semi-annual bill is my property tax payment.  Quarterly bills could include water & sewer, maybe a life insurance policy and some memberships.

Pile #4:  Annual bills.  This probably won’t be a large pile.  It will usually include just some memberships and subscriptions.

Pile #5:  Irregular bills.   The are some things that just don’t come due regularly.  In our house, school lunches and car repairs fall into this category.   We don’t have car problems often, but we set money aside each month so our budget doesn’t get flushed down the drain if something does come up.

Now that you have all of your expenses together, you know what your are on the hook for.  Next time, we’ll address income.

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Money Problems: Day 11 – Extended Warranties

Finance

PACCAR Parts-Extended Warranty
Image by TruckPR via Flickr

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 11, we’re going to talk about extended warranties.

You’ve been there.  You walk into a big box electronics store to buy a $10 cable for your DVD player and the boy in blue at the register tries to pressure you into spending $4 on an extended warranty in case the cable dies due to too much adult video…or something.

The same nameless blue and yellow store is currently selling a laptop for $349 with a 2 year extended warranty for $89.   The sales pitch usually goes something along the line of “These things have a tendency to break.  You need a warranty to make it worth purchasing.”  Thanks, jerk.   You just sent me to a competitor since your sales pitch involves telling me you’re selling garbage.

Seriously, getting an extended warranty on electronics is almost always a bad deal.    Yes, almost 30% of laptops fail within  three years.    Most of those fail in the 3rd year.   What’s a 2 year warranty going to do for you then?    New laptops generally come with a 1 year warranty from the factory.    That leaves you volunteering for a 25% markup in exchange for protecting your device for a year that is not statistically likely to include a laptop failure.

A much better idea is to create a warranty/repair fund.   When you buy something and have a warranty offered, turn it down and put that money in a special savings account.   That money will get set aside to repair your stuff when it breaks.    If you do that with everything you buy, you’ll soon have a fund that can pay for most repairs, without stressing your budget.  I’ve got $25 going into my repair fund every month, so I’ll never have to worry about an extended warranty again.

It’s called a self-warranty.

But what about a car warranty you ask?

This is where I differ from most people.  I’m a fan of extended warranties on cars, with 2 caveats.

1.  Use it.  If you car has started shaking, knocking, or almost anything else, bring it in.    You have a warranty, so get your dang car fixed.    When you’re getting close to the end of your warranty, make up an excuse and get that car into the dealer.  “My car’s making an intermittent knocking sound.  Can you fix it?  While you’re at it, please do your 90,000 point inspection and fix whatever you find.”   There’s no reason that you can’t get your car running like new when it kicks over the 70,000 mile mark.

2.  Negotiate it.   The charge you see is typically twice the dealer’s cost.   Let them make some profit, since that’s what makes the world go round, but don’t let them take advantage of you.    If they offer you a warranty for $2000, counter with $1200.

If you can get a decent price and are willing to make sure you use the auto warranty, get it.

How do you feel about extended warranties?  Please leave a comment below and let me know.

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