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A Moment of Clarity

: 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?

Selling Your Car

Finance

: English: Jalopy car in Joshua Tree National Park in Hidden Valley Campground (Photo credit: Wikipedia)

When it’s time to replace your car, most people focus on the new car, instead of the old, but that is ignoring real money. Your old car–unless it has disintegrated–still has value. Sometimes, it’s just time to ask yourself, “When should I sell my car?”

When you’re looking to sell your car (like with We Will Buy Your Car), you generally have several options:

Tow & crush. If your car has been wrecked, doesn’t run, or is just old and beat up, you may be stuck with calling a junkyard and accepting $50 for them to pick up your car and crush it for scrap.
Trade it in. This is probably the least hassle, but–other than #1–doesn’t pay well. Dealerships are willing to pay something under what they will get at a wholesale auction, which is quite a bit less than the blue book value.
Sell it yourself. Now you’re thinking, “He’s going to buy my car! Oh, bother.” It can be a pain, but it’s also the best way to get a decent price for your wheels.

When you sell your car, there are a few things to keep in mind, much like when you sell something on Craigslist.

Don’t be alone. There are bad people in the world, but they don’t like witnesses. Bad things are much less likely to happen if you have company.
Know your price. Specifically, know three price: your dream price, the price that would make you happy, and the absolute lowest price you are willing to accept. Make sure you figure these numbers out ahead of time. Know what you are comfortable with before it comes time to close the deal.
Check IDs. The buyer is going to want to test-drive your car. That’s fine, but you want to make sure you know who is driving off in your car. “Officer, Sumdood took my car. He was wearing jeans.” That won’t get your car back.
Clean it up. Get the car detailed before you show it to a potential buyer. A sparkling-clean car will almost always bring in a few hundred extra dollars. It’s well worth the expense.

Following this plan should make the sale go as smoothly as possible and bring you the most possible money.

Readers, what have you done to dispose of an old car?

This is a sponsored post written to provide some insight into the world of used car retail.

Credit Cards: My Failed Experiment

Finance

Back in April, we went off the cash plan.

In the two years prior to that, we paid down about $40,ooo in debt by completely forgoing credit cards. We went on a strict budget and all of our daily expenses–other than gas for the cars–was paid in cash. The only other exception was anything bought on the internet. Amazingly enough, Amazon doesn’t take cash. When that happened, the amount we spent online was taken out of the cash supply and set in a box until we could get it back in the bank.

No other exceptions.

In April, we decided that we had changed our relationship with money and could–judiciously–move back to credit card use, to take advantage of the rewards. We’d still use the same amount we had budgeted for groceries, clothes, and everything else. I set up an automatic payment for the budgeted amount, so we could use the card for our daily spending and the bank would automatically pay it off every month. What could go wrong?

Ugh.

We are not predisposed to be able to use credit cards well. It’s just not good for us. Credit cards just don’t feel like real money going out. When we were using cash for everything, we could see when money was running low, and we’d adjust our spending to stretch it out as needed. With plastic, it just became too easy to keep spending.

For the first couple of months, it was easy to overlook the problem. We paid my son’s vision therapy on the credit card, to get a discount on the therapy and cash in on the rewards program. That was around $4,000. Combined with the regular spending, it took us a couple of months to get it all paid off and current.

This month, we’ve managed to overshoot our monthly budget by $500. We’re only halfway through the month.

This weekend, we had a fairly unpleasant conversation about money. In the end, we decided to go back to cash-only. It works for us, in a way that credit cards don’t. Credit cards were a failed experiment. We’re going back to what works.

Have you ever had to switch from cash to credit cards and back? How did that work out?

Cutting Costs While Cutting Hair

Finance

About once per quarter, my wife and I have a…I won’t call it a fight. It’s more like she-comes-home-looking-stunning-while-I-make-disapproving-grunting-sounds-while-giving-the-checkbook-dirty-looks.

I hate salons.

$80 for highlights, $30 for a haircut and $15 for eyebrow “shaping”. It’s an afternoon of chemicals and hot-wax torture, for the low, low price of $125 + tip. Frugal it’s not, but that’s an argument I lost long ago.

This weekend, she tried something new.

Beauty school.

For roughly the cost of materials, she got her eyebrows “shaped” and her hair highlighted and cut by a senior student at the beauty school, under the supervision of a licensed beautician/instructor.

It looks good, and she said she had more fun during her appointment than any other salon trip she’s had. I guess there’s something to be said for interacting with someone who isn’t burned out on interacting with the general public.

What does it cost? What normally runs $125 cost just $35. That’s for a $5 cut, $25 highlighting, and $5 wax. That’s a $90 savings or 72% off. Yay!

Other services they offer include:

Full color, cut and shampoo for $20.
A Perm for $25.
Mani/pedi for $24.
Full set of acrylic nails for $15.
Wax for $5. Have I ever mentioned that I am happy to be a guy?
Seaweed treatment for $10. I don’t even know what this is. A buffet, maybe?

They also have a “Princess” package that we’re going to use for brat #2’s birthday party next month. It’s an up-do, nail polish, make-up, and tiara for $10 per kid. We’ll take the girls out to get made up all pretty-like, then off to the dollar theater, for a $35 party.

The school my wife visited has more than 90 locations in 21 states, but I’d be willing to be every city big enough to support a Wal-Mart also has a beauty school nearby. They don’t tend to advertise their customer services, so you’ll have to call, but for a 70% discount, it worth spending a bit of time on the phone, isn’t it?

I have two questions for you, dear readers:

Would you consider going to a beautician trainee?
What the heck is a seaweed treatment?

The Happy Challenge

Life

Watch this video.

Done?

Great.

For the cheaters, the part I am most interested in is the bit about reprogramming your brain for happiness. Studies are showing that you can rewire yourself to be happier by doing happy things.

The science is sound. Good things trigger a dopamine reaction. Your body likes dopamine, so you start craving the things that make it happen, which all happen to be good things. As you suffer dopamine withdrawal, you become driven to do what it takes to get your fix.

The process is similar to heroin withdrawal, with no downside.

Hugging your kids(assuming you like them) triggers the reaction. So does sex, successes at work, and beating a video game.

The specific plan mentioned in the video is to write down three things that you are grateful for, once per day, for 21 days in a row. That will begin the self-reinforcing training that can get you hooked on being happy.

That’s a win. 75% of job success is predicted by your attitude. You are 31% more productive when you are happy. You’re also more fun to be around.

That’s a win.

Here’s my challenge:

For the next 21 days, do it. Write down 3 thing you are grateful for. What makes you happy? It’s okay if it’s hard. If it’s hard for you, you need it more than most.

Now, the truly hard part:

Fill out this form every day. Your answers can be as long or as short as you’d like, but there has to be 3 new things every day for 21 days. We’re going to train your brain to look for the positive, so you can’t give me 63 things on day 21. 3 things, 21 days.

On day 22, tell me how the previous 3 weeks have been.

When it’s over, I’ll hold a drawing for everyone who completed the challenge. Not everyone will see this immediately, so I’m going to run the challenge until May 15. That means you have until April 24th to get started.

3 answers per day means three prizes. I’ll give away a total of $250 to three lucky participants. That’s a $125 prize, a $75 prize, and a $50 prize, but you have to obey the rules. 3 things, 21 days in a row.

Be happy. I dare you.

Net Worth Update

Misc

Now that my taxes are done and paid for, I thought it would be nice to update my net worth.

In January, I had:

Assets

House: $252,900
Cars: $20,789
Checking accounts: $3,220
Savings accounts: $6,254
CDs: $1,105
IRAs: $12,001
Investment Accounts: $1,155
Total: $297,424

Liabilities

Mortgage: $29,982
Credit card: $18,725
Total: $48,707

Overall: $249,717.00

Here is my current status:

Assets

House: $240,100 (-12,800) Estimated market value according to the county tax assessor. This will be going down in a few months when the estimates are finalized for the year. I don’t care much about this number. We’re not moving any time soon, so the lower the value, the lower the tax assessment.
Cars: $15,857 (-4,932) Kelly Blue Book suggested retail value for both of our vehicles and my motorcycle.
Checking accounts: $4,817 (+1,597) I have accounts spread across three banks. I don’t keep much operating cash here, so this fluctuates based on how far away my next paycheck is.
Savings accounts: $6,418 (+164) I have savings accounts spread across a few banks. This does not include my kids’ accounts, even though they are in my name. This includes every savings goal I have at the moment. I swept a chunk of this into an IRA to lower my tax bill, which is also why my IRA balance is up as much as it is.
CDs: $1,107 (+2) I consider this a part of my emergency fund.
IRAs: $16,398 (+4,397) I have finally started to contribute automatically. It’s only $200 at the moment, but it’s something.
Investment Accounts: $308 (-847) I pulled most of this out and threw it at a credit card.
Total: $285,005 (-12,419)

Liabilities

Mortgage: $28,162 (-1,820)
Credit card: $16,038 (-2,687) This is the current target of my debt snowball. This has actually grown a bit over the last week. I did a balance transfer that cost $400, but it gives me 0% for a year, versus the 9% I was paying. That will pay for itself in 3 months, while simplifying my payments a bit and saving me almost a thousand dollars in payments this year.
Total: $44,200 (-4,507)

Overall: $240,805 (-8,912)

Well, I lost some net worth over the last quarter, but it’s still a good report. If I disregard the change in value of my house and cars–two thing I have no control over–my overall total would have gone up almost $9,000.

All in all, it’s been a good year for me, so far, though paying off that credit card by fall is going to be a challenge.

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Assets

Liabilities

Here is my current status:

Assets

Liabilities