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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?

Net Worth Update

Misc

It’ s been 8 months since I’ve done a net worth update. That’s not 8 months since I’ve shared, it’s been 8 months since I’ve bothered to check for myself. Let’s see how I’ve done.

This is where I was sitting in January:

Assets

House: $255,400. Estimated market value according to the county tax assessor.
Cars: $23,445. Kelly Blue Book suggested retail value for both of our vehicles and my motorcycle.
Checking accounts: $2,974. I have accounts spread across three banks.
Savings accounts: $4,779. 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.
CDs: $1,095. I consider this a part of my emergency fund.
IRAs: $11,172
Total: $298,865

Liabilities

Mortgage: $33,978
Car loan: $1,226. This will be paid off this month.
Credit card: $23,524. This is the next target of my debt snowball.
Total: $58,728

Overall: $240,137

Here is my current status:

Assets

House: $252,900 (-2500 ) Estimated market value according to the county tax assessor. If I lost $2500 in value this year, why are my property taxes up?
Cars: $19,740 (-3705) Kelly Blue Book suggested retail value for both of our vehicles and my motorcycle.
Checking accounts: $1,342 (-1632) 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: $5,481 (+1156) 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. When I hit some of the goals, I will stop saving for them and redirect the money elsewhere.
CDs: $1,101 (+6) I consider this a part of my emergency fund.
IRAs: $10,838 (-334) I lost $1500 recently. I wonder how that happened? Also, my company stopped the IRA program and I have procrastinated the heck out of setting one up independently. Bad, Jason.
Total: $291,402 (-7463)

Liabilities

Mortgage: $31,118 (-2860)
Car loan: $0. (-1226) Woo!
Credit card: $20,967 (-2557) This is the current target of my debt snowball. It hasn’t gone down as much as I would have liked, due to $4000 in vision therapy bills.
Total: $52,085 (-6643)

Overall: $239,317 (-820)

My big hits were obviously my house–whose value is subject to bureaucratic whimsy–and my rapidly depreciating cars. $4000 to a vision therapist didn’t help, either.

My debt goal is to have that credit card paid off by next August. $21k in a year on top of my mortgage isn’t crazy, is it? Since 4/15/2009, I’ve paid down $37,947.06. That is not the total of payments made, but the difference in total balances over that last 28 months. That means I’m reducing my total debt by an average of $1355 every month.

My savings goal is to boost that by at least $2500 over the next few months.

My immediate goal is to get an IRA rolling. I’m kicking myself right now for ignoring it for as long as I have.

Budget Lesson, Part 3

Finance

I keep calling these lessons, but they are examples and explanations, more than lessons. Names aside, please see Part 1 and Part 2 to catch up. The Google Doc of this example is here.

This time, I’m going to review my non-monthly bills. These are the bills that have to be paid, but not on a monthly basis. Some are annual, others are quarterly, or even weekly. Every month, the amount–adjusted to the monthly equivalent–is set aside in Quicken.

School Lunch – We don’t qualify for any of the reduced lunch plan, and I don’t know that it is possible to send a brown-bag lunch that is both cheaper and healthier than the school’s menu. This is automatically replenished whenever it gets below $15. This actually gets paid about every other month.
Property Taxes – Semi-annual and increasing every year. I know the valuations around me, so I don’t think an appeal would win.
Life insurance – We pay this quarterly. If I die, my family will be completely covered for several years, without adjusting a single expense. If the expenses are adjusted to account for the fact that I won’t be eating, driving, or using electricity, it will last much longer. This is a separate policy from the one discussed in Part 2. GET INSURANCE! Take care of your family.
AAA – Since we got reliable cars, this hasn’t been a money-saver, but it’s priceless in terms of peace of mind.
Vehicle Registration – We have two cars and a motorcycle that need registration every year. I’m planning to sell the bike in the spring, but I was planning that for last spring, too. It’s easy to put that off, since I enjoy riding.
Daycare – Daycare is a weekly expense. As a two-income family, this isn’t an expense we can do away with…yet. As time goes on, the bill will be getting lower. In June, my youngest reaches a cheaper pricing table and my oldest is almost ready to be done with daycare completely.
City Bill – Our garbage and sewer are paid through the city on a quarterly basis.
Web host – I’ve got this blog, plus a few other side projects hosted here. I have been simplifying and reducing the projects that aren’t fun or profitable, but I’m not sure this expense will ever go away.

There aren’t too many items here that can be legitimately and responsibly trimmed.

Things to teach your kids about money

Finance, Parenting

cute kid (Explore) — Image by Swami Stream via Flickr

As parents, it is our job to teach our kids about a lot of things: driving, reading, manners, sex, ethics, and much, much more. How many of us spend the time and effort to teach our kids about money? A basic financial education would make money in early(and even late) adulthood easier to deal with. Unfortunately, money is considered taboo, even among the people we are closest to.

It’s time to shatter the taboo, at least at home. Our kids need a financial education at least as much as they need a sex education, and—properly done—both educations take place at home.

How do you know what to teach? One method is to look back at all of the things you’ve struggled with and make sure your kids know more than you did. If that won’t work, you can use this list.

Balance a checkbook. This is the most basic of financial skills. The easiest way to teach this is to help him open a checking account and demand he keeps the register current and reconciled. Make him use a paper register. Quicken or an alternative may handle the work, but your kid will never learn the underlying principles if he doesn’t have to sit down with a pen and calculator to do the work. The cheat can come later, when he is capable of handling the task himself. It’s the same reason schools don’t let kids use calculators until the basics are thoroughly mastered.
Calculate paid interest. Understanding how much something costs after accounting for interest should be enough to scare anyone away from credit cards. I believe that the reason it doesn’t is because most people don’t understand how to figure out what interest is costing them. In case you don’t know yourself, the math is simple: balance X interest rate(as a decimal) / 12. That will show you how much you are paying each month for the privilege of borrowing money.
Use your money to make money, not to pay interest. The flip side of interest is earned interest. It’s always best to let your money work for you, building your wealth than to struggle to finance a bank’s payroll liabilities.
Save 25%. My son is required to put a quarter of everything he earns in his bank account. He gets $20 for shoveling the neighbor’s driveway, so $5 goes in the bank. The money he gets for gifts is handled the same way. Everything he gets, whether it be from a gift, his allowance, or work he does—gets divided the same way. If I can establish that habit for him, and impress upon him the value of saving 25% enough that he continues into adulthood, he will never have money problems.
Always contribute to retirement. At every opportunity, from every paycheck, make a contribution to retirement. At a minimum, a 401k contribution should be made at a level that takes full advantage of any company match. If there is no match, even $25 per paycheck will add up over time. Teach them to work towards the 401k contribution limits.
Spend less than you earn. This is the shining, glorious foundational principle of successful finances. Not just individuals, but businesses and even governments should learn this lesson. If–at all times–you are spending less than you earn, you will have more options to handle the remaining bits. If you live on the wrong side of this equation, you will never be able to get ahead, no matter how hard you work.

Those are the lessons that I am working to instill in my children, a little at a time. Am I missing any?

Your Budget is Worthless

Finance

When you realize that you’ve buried yourself in debt and decide to get out from under that terrible burden, the first thing you’ve got to do is build a budget because, without that, you’ve got no way to know how much money you have or need. After you’ve got a budget, you’ll start spending according to whatever it says. Hopefully, you’ll stay on budget, but what happens when an emergency does come up? What do you do when your car dies? When you suddenly find out your kids needs vision therapy? How do you manage when your job suddenly gets shipped off to East De Moines?

Your budget isn’t going to help you meet those expenses. Most people don’t have enough money in their bank account to make it all the way to the next payday, let alone enough to keep the lights on and food on the table. How can you possibly hope to deal with even the little things that come up?

You whip out your emergency fund.

The problem with a budget is that it does a poor job of accounting for the unexpected. That’s where an emergency fund comes in. An emergency fund is money that you have set aside in an available-but-not-too-accessible account. Its sole purpose is to give you a line of defense when life rears up and kicks you in the butt. Without an emergency fund, everything that comes unexpectedly is automatically an emergency. With an emergency fund, the things that come up are merely minor setbacks. Without an emergency fund, your budget is nothing but a good intention waiting to get shattered by the next thing that comes along. With an emergency fund, you are managing money. Without it, it’s managing you.

How much money do you need in an emergency fund?

Every “expert” has their own opinion on this. Dave Ramsey recommends $1000 to start. Suze Orman says 8 months. The average time spent looking for work after losing your job is 24.5 weeks(roughly 6 months), so I recommend 7 months of expenses. That’s enough to carry you through an average bout of unemployment and a little more, but that’s not a goal for your first steps toward financial perfection. To start with, get $1000 in a savings account. That’s enough to manage most run-of-the-mill emergencies, without unduly delaying the rest of your debt repayment and savings goals.

How do you build an emergency fund?

Let’s not kid ourselves, $1000 is a lot of money when can barely make it from one check to the next. Unfortunately, this vital first step can’t get ignored. If you really work at it, you should be able to come up with $1000 in a month or so. Here are some ideas on how to manage that:

Cut. Drop every possible expense. If you drop cable, your cell phone, Netflix, and a weekly dinner out, you will already be saving $400 that month. You’d be almost halfway there.
Sell. How much stuff do you have that you don’t need, want, or use? I’d be willing to be there’s more than you realize. Last spring, I had a garage sale that brought in about $1300. Everything we sold was just crap we don’t use any more. We sold candles and candle-holders, DVDs, books, clothes, toys, electronics, games, and anything else we could find. I spent a month going through every room in my house to find my inventory. Craigslist is a good way to sell just one or two things at a time.
Work. Have you thought about delivering pizza or working weekends in a gas station? If you have some technical or writing ability, you could pick up some part time work on oDesk or eLance. Your opportunities are only limited by what you are willing to do.

Stop at a grand?

Dave Ramsey’s advice is to get your fund up to $1000 and then leave it alone until your debt is paid off. Screw that. I’ve got money going into my fund every month. It’s only $25 per month, but over the last two years, it has almost doubled my fund. Don’t dedicate so much money that you can’t meet your other goals, but don’t be afraid to keep some money flowing in .

Using the fund?

When can you pull the money out? That is entirely up to you. I have ju st two points to make about withdrawing from your emergency fund:

Don’t keep the money in an easy-to-access account. If your fund is in the savings account that serves as your overdraft protection account, it’s too easy to spend it, and it will go away. I keep it in my INGDirect account. I don’t use the checking account for anything in person, so I don’t carry the card. If I want to spend that money, it will take 2-3 days to transfer into my main bank account.
Never decide to spend the money on the spur of the moment. There are very few major financial decisions that can’t wait until morning to be answered. Sleep on it. If it’s still necessary tomorrow, you can spend it without guilt.

An emergency fund makes your life easier and your budget possible when the unexpectable happens. Don’t forget to fund yours.

How much money do you keep in your emergency fund? What would it take to get you to spend it?

The Zombie Guide to Saving

Finance

Brains!

Nobody has ever accused a zombie of being smart. The are, after all, dead and rotting. Their primary means of education themselves is eating the brains of the living, which is hardly an efficient learning style. Besides, in a strictly Darwinian sense, their victims are among the least qualified to teach useful skills.

Zombies smell. They are little more than flesh-eating monsters. They are lousy in the sack. Yet, for all their flaws, have you ever heard of a zombie in debt or worried about financing retirement? They are obviously doing something right.

What can you learn from a zombie? That depends on the type of zombie. Not all of the life-challenged were created equal.

There are 3 main types of zombies:

1. Slow shamblers are best recognized by their lurching gait and unintelligible grunting, similar to a frat party at 3AM. They are rarely fresh specimens. Arguably the the scariest of all zeds, due to the sheer inevitability of their assault, they do always get where they are going, even if it takes a while. Trapped in a pit or a pool, they will keep trying to reach their goal. A slow shambler, were he able to effectively communicate beyond the basic “Hey, can I eat your brain?” would tell you to approach your goals like the famous tortoise: slowly. Set aside an affordable amount in savings every week, no matter what. Even if your are stuck saving just $10 each month, you will eventually get your sweet, sweet brains.

2. Voodoo zombies are the still-living, yet mindless minions on a voodoo priest. These unlucky non-corpses crossed the wrong people–usually by stealing or not repaying their debts–and ended up cursed for it. They are forced to do the bidding of their masters until such time as their debt has been repaid, if ever. Their warning is to always pay your debts and do not steal. Honest, ethical behavior is the best way to avoid this fate.

3. Runners are almost always “fresh” to the game. As they decompose, they slowly transform into slow shamblers. These fellas can often pass for the living…from a distance. By the time you get close enough to identify them as monsters, your brains are on the menu. They are capable of sprinting for short distances and, on occasion, have even been seen to run up vertical walls. To properly categorize the runners, we have to break them down into 2 sub-groups. The first sub-group is the envy of all zombies still capable of envy. They have used their skills to trap enough prey(that’s us, folks!) that they will feel no hunger for the foreseeable future. They are secure. They are the successful runners. The other sub-group tries to emulate the first, but lack both planning and follow-through. While the first group builds momentum to secure their future, the second group tends to use that momentum to smack face-first into the wall, confused at where their lunch went. Constantly charging from one thing to the next, they never manage to sink a claw into their goals. To avoid falling into the second group, you’ll have to settle on a strategy and pursue it with all the single-minded, decomposing determination you can muster.

You know what they say: “Great minds taste alike.” What kind of financial zombie are you?

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Assets

Liabilities

Here is my current status:

Assets

Liabilities

How much money do you need in an emergency fund?

How do you build an emergency fund?

Stop at a grand?

Using the fund?