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

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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?

Three Alternatives to a Budget

Finance

the envelope system: day one
Image by J. McPherskesen via Flickr

Budgets aren’t for everyone.  For some people, the very idea of trying to track where their money going is painful.  And that’s just the idea of tracking the money.  It gets far worse when you’ve got $10 budgeted for coffee, $12 for fast food, $66.50 for gas, and $0.75 for entertainment.  It’s can be hard to follow a strict budget for long.

If you know you need to track your money, and you also know that a strict, zero-based budget won’t work for you, what can you do?  Luckily, there are alternatives.

1. Hope and Pray. This is otherwise known as the “Call my bank everyday and see how close I am to over-drafting” system.  To fully embrace this system, you need to not only abandon a written–or even organized–budget, but you should also throw your checkbook register in the garbage.   Make sure you’ve got a good overdraft protection account attached to your checking account and let your money take care of itself.  This is the ultimate zen of personal finance.  Don’t stress or worry, just hope for the best.   This system works best if you make more money than Oprah and have modest tastes.  For those of us who have to watch our money a bit to make sure the month outlasts our money, this probably isn’t a great plan.

2. The Envelope System. To implement this system, you do need to create a basic budget so know what you are obligated to pay.  Once you have that done, take a stack of envelopes and label them for each item you have to pay.   Add another envelope for food, another for entertainment, and another for miscellaneous because there is always a miscellaneous.   Divide the money among the envelopes.   Now for the magic. When you have to spend something, take the money out of the appropriate envelope and spend it.  That’s it.  If, however, there isn’t enough money in the right envelope, but you still need to spend the money, you have to take it out of a different envelope and spend less on the category that lost money.

3.  Percentages. This is the simplest of the non-budget budgets.   Take 50% of your money and spend it on necessities, like the mortgage, food,  and utilities.   The next 30% goes to savings and retirement.  The last 20% is for fun or any other thing you want to spend it on.  This naturally works best if you are out of debt, but if not, just make sure most of the 20% fun money goes to repaying debt.   This system works best if your bills are automated and you will need to set up a basic budget first, so you can make sure your necessities come in under 50% of your income.

Not every budget plan will work for everyone, but there are always alternatives that can still help you manage your money.

How do you track your money?

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Saturday Roundup

Misc

Original sequel logo, from the test footage pr...
Image via Wikipedia

Congratulations to Claudia for winning the $100 Amazon gift card.

This week started with my wife getting sick and ended with her passing it on to me.   I hate being sick.

On a positive note, Tron is out this week, and is on IMAX 3D at a theater near me.   I get to share a piece of my childhood with my son this afternoon.

Best Posts

When a guy named Dragon says, “Hold my beer a second,” you know something badass is about to happen.

Michael Moore’s Cuban healthcare lies propaganda is too much even for Cuba.   Apparently, they are afraid the proles would revolt if they saw how good the ruling class has it in comparison to the 150-year-old rat-hole hospital the peasants are forced to use.  But hey, it’s free!

I could think of worse ways to get laws passed than Last Man Standing.   It would at least put a stop to frivolous crap that hurts everyone.

I had an eBay seller try to screw me once.   I had access to a number of skiptracing tools at the time.   When I sent him his phone number, his girlfriend’s phone number, his parents’ phone number, his place of employment, and all of those address, I got my refund the next day.

ChristianPF has a post on buying bulk herbs and spices.  Not all spices can be stored for long, even in the freezer.

LRN Timewarp

This is where I revisit the posts I wrote a year ago.

4 Ways to Flog Your Inner Impulse Shopper was my first bondage-themed post.  I still smile when I re-read it.

My post on cheap birthday parties is something I need to read every year.  The party this fall wasn’t nearly as cheap as it has been in recent years.

And finally, my Grinch post on saving money on Christmas.  My secret:  buy less for fewer people.

Carnivals I’ve Rocked

First Steps – Ramsey Was Wrong was included in the Carnival of Personal Finance.

A Moment of Clarity was included in the Carnival of Money Stories.

Top 7 Reasons To Trade Forex Over Other Financial Instruments was included in the Festival of Frugality.

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

5 Reasons to Quit Saving and Start Living

Finance, Life

paycheck
Image by owaief89 via Flickr

Life is all about trade-offs.  You trade your time for a paycheck.  Your trade your paycheck for food, rent, and security.  Don’t get so obsessed with saving and security that you forget to live your life.   There are many good reasons to put your savings on hold in order to really live.  Here are five of them:

1.  You have an adequate emergency fund. You will never hear me advise against an emergency fund.  If you don’t have one, stop reading this and get one.  Go.   Without an emergency fund, your budget is a financial crisis waiting to happen.  With an emergency fund, you can weather life’s speed-bumps without watching them become total train-wrecks.

2.  Your retirement is on autopilot. You are not allowed to stop saving and investing for retirement.  Ever.  Assuming you have a traditionally scheduled career that involves you working until you hit 65 and deferring a huge chunk of living until then, your income will cease when you retire.  Do you know how long you will live?  Do you want to spend your retirement broke and bored?  Are you relying on the responsible financial management of the federal government to make sure you will still get your Social Security?  Invest in your retirement and get this investment on autopilot so you can stop worrying about it.

3.  Your income is set. I don’t believe in the fairy tale of a company being loyal to its employees.  The aren’t.  However, if you have a stable-ish job, an in-demand career, and some side-income coming from alternate sources, your emergency fund can be enough to carry you through the low times.  That’s what it’s there for.

4.  You have dreams. If you’ve always wanted to travel the world, follow a band on your, volunteer extensively, or anything else, it’s time to do it.  Don’t postpone your passion.

5.   Deathbed regrets suck. Very few people lie on their deathbed lamenting the things they did.  Regrets tend to be focused on opportunities missed, skipped, or indefinitely postponed.  Do the things that are important to you before it’s too late to do them.  Don’t abandon your future in favor of current pleasures, but don’t forget to live, now.

Do you have any other reasons to stop saving?

3 Reasons You Hate Your Budget

Finance

Ice-cream dessert
Image via Wikipedia

One of the first steps in clearing up your financial mess is to set up a budget.    You need to figure out how much money you are making, how much you are spending, and what you can do to keep one of those numbers smaller than the other.   If your income is smaller than your expenses, you’ve got work to do.   If not, yay!

Even if you don’t obsessively cling to your spreadsheets and calculator, you need to spend the time to establish a budget–at least once–to know where you stand.  When you do, you’ll find out it sucks.  With good reason.

1.  It takes too long to set up. Setting up a budget can be a long, drawn-out pain in the butt.   Fortunately, it doesn’t have to be, but you won’t know that until after you make your first budget, then see some fairly drastic changes, and make a second budget.  That one will be easier.    For the first one, just concentrate on making a list of all of you regular bills and how often they are due.    Don’t be surprised when you miss some.   I missed a couple of our quarterly bills.  All told, it took a year to get our budget completely done.

2. It doesn’t lie. Once you have all of your expenses down on paper, you are done hiding.  You can’t tell yourself it’s all puppy dogs and ice cream when you are staring at the giant red pit that is the negative balance of your bad decisions.  Nobody likes the messenger who brings bad news.  When your budget shows you how big the hole is, you are going to hate it.   That’s when it’s time to confront the problem head on and get out of the hole.   Find the problems and rip ’em out.    Cancel the cable, taxidermize the cats, and start buying generic underpants.   It’s time to take an honest look at your situation.  If you can’t handle where you are, how are you going to get where you want to be?

3.  It’s not fun. When your friends go out, but you stay home because you’re broke, you will hate it.    Y’ou’re also gonna hate comparing your old cell phone to the iPhone in the hands of the d-bag contemplating bankruptcy.   Like Dave Ramsey says, “Live like no one else, so that later you can live like no one else.”   Skipping some of the fun now will turn into security later.  When you get to that point, it will have all been worth it.

Why do you hate your budget?

Carnival of Personal Finance #270, the Elvis is Dead Edition

Misc

Elvis mugshot2
Image via Wikipedia

Today is the 33rd anniversary of the death of Elvis, so I’m bringing you the “Elvis is Dead” edition of the Carnival of Personal Finance.

What can the King teach us about finance?  The immediate lesson is, of course, to not let success destroy you or your life.  Always remember what is important.

“Adversity is sometimes hard upon a man; but for one man who can stand prosperity, there are a hundred that will stand adversity.” -Elvis Presley

Before we get into the carnival, please take a moment to subscribe, either by rss or by email.  If you are on twitter, please follow me at @LiveRealNow.

Editor’s Picks

“When I was a child, ladies and gentlemen, I was a dreamer. I read comic books, and I was the hero of the comic book. I saw movies, and I was the hero in the movie. So every dream I ever dreamed has come true a hundred times…I learned very early in life that: ‘Without a song, the day would never end; without a song, a man ain’t got a friend; without a song, the road would never bend – without a song.’ So I keep singing a song. Goodnight. Thank you.”
-From his acceptance speech for the 1970 Ten Outstanding Young Men of the Nation Award. Given at a ceremony on January 16, 1971

Craig Ford from Money Help For Christians presents How to Buy Cars With Cash. This is great advice.   My car will be paid off in the next few months and I will be doing exactly this.

FMF from Free Money Finance presents Are Tattoos at Work Really That Acceptable? Do tattoos limit your career? I reference this graphic when thinking about a tattoo.

Pop from Pop Economics presents Getting a raise: The negotiation.   It’s always best to raise your top line as high as possible.  Bringing in more money is far more effective that simply reducing your expenses.

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