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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?

 

4 Ways to Change Your Life for the Better

Life, Parenting, Relationships

Everybody has bad days.   Everybody has horrible days.   That doesn’t matter.   The important thing is how you feel about your life as a whole.   What can you do to make your life more worth living?

1.  Get out of debt.   When you’ve got no debt to pay, you have more options and less risk.   If you’re paying $1500 just to service your debt, it will be $1500 harder if you lose your job.   If you’ve got no debt payments to make, the impact of losing an income stream is far less.    On top of that, you’ll have that much more money to do the things you love every month.

2.  Find something you love to do…and do it.    Everybody has to do things they hate.  For some, it’s cleaning up the cat’s litter box, for others, they die inside a little each time they punch a time clock.   Life isn’t all puppy dogs and ice cream, but it’s important to have a little ice cream in your life.  What do you love doing?   Is there anything you love that you can start doing?  Start a business, write a book, volunteer for a charity that matches your values, or grow the world’s largest pumpkin.  Whatever it is, it’s time to get started.

3.  Eliminate the things you hate.    Life’s too short to live with the things you hate.   If something is destroying the value of your life, get rid of it.   Now, I’m not suggesting you off your mother-in-law, but it may be worth ignoring the phone when her number shows up on the caller ID and skipping Sunday dinner with her.   If you hate your job, find another.   If you can’t find a way to eliminate what you hate, embrace it and learn to love it, or you will eventually hate more of your life than just the bit driving you crazy.

4.  Let the ones you love know you do.   Do your children know you love them?  Does your spouse?  Are you sure?   If a meteor fell on your head today, would your kids spend the rest of their lives wondering how you felt?   If your wife were in a car accident today, would there be anything you wish you would have said?   Now, today, this morning, this second is the right time to let your loved ones know you care.  Don’t wait.   If you haven’t made it a habit, it may feel awkward.   Get over it.  Your wife and kids will love you more knowing beyond doubt that you love them.    A tight bond with your family can’t be bought, it can’t be bribed, and it can’t be faked.  It is worth everything.

What’s one thing you could do today to make your life better?

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Money Problems: 30 Days to Perfect Finances

Welcome to the series, Money Problems: 30 Days to Perfect Finances.   The series consists of 30 things you can do, each 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.

Day 1: Setting Goals

To start with,  we look at 3 questions:

  1. What is your financial goal?
  2. Why?
  3. How can you get there?

Day 2: What’s Going Out?

On day 2, you’re going to find out what you are spending.  For most people, this will be a bit of a surprise.

Day 3: What’s Coming In?

For day 3, you’re going to examine exactly how much money you bring in each month and think about how you can make more.

Day 4: Making A Budget

On day 4, you’ll build a basic budget.   This doesn’t have to be intimidating.

Day 5:  Boosting Your Income

This is the day we really dig into ways to make more money, whether that means getting a raise or finding work on the side.  Nothing beats more income for balancing your budget and getting out of debt.

Day 6: Reducing Expenses

Second only to more income, reducing expenses is the best way to save money.

Day 7: Paying Off Debt

If you’ve got debt, you are in interest-slavery.  Make that go away!

Day 8: Insurance

On day 8, you’re going to look at the insurance you have and the insurance you need.

Day 9: Health Insurance

On day 9, you’ll spend some time learning about your health insurance options and how to examine what you’ve already got.

Day 10: Debt Insurance

Debt insurance is insurance you pay for that will pay your lender in the event of your death, dismemberment, disfigurement, disembowelment, or unemployment.

The rest is yet to come.  Check back often!

 

 

 

 

 

 

 

 

 

My Financial Plan – How I Improve on Ramsey

Finance

In April, my wife and I decided that debt was done. We have hopefully closed that chapter in our lives. I borrowed, then purchased, The Total Money Makeover by Dave Ramsey. <a href=budget” width=”300″ height=”213″ />We are almost following his baby steps. Our credit has always been spectacular, but we used it a lot. Our financial plan is Dave Ramsey’s The Total Money Makeover, with some adjustments.

Step 1. Budget:

The budget was painful, and for the first couple of months, impossible.  We had no idea what bills were coming due. There were quarterly payments for the garbage bill and annual payments for the auto club.  It was all a surprise.  Surprises are setbacks in a budget.

When something came up, we’d start budgeting for it, but stuff kept coming up. We’re not on top of all of it, yet, but we are so much closer. We’ve got a virtual envelope system for groceries, auto maintenance, baby needs(we have two in diapers) and some discretionary money. We set aside money for everything that isn’t a monthly expense, and have a line item for everything that is. My wife is eligible for overtime and monthly bonuses. That money does not get budgeted. It’s all extra and goes straight on to debt, or to play catch-up with the bills we had previously missed.  I figure it will take a full year to get all of the non-monthly expenses in the budget and caught up.

Step 2. The initial emergency fund:

Ramsey recommends $1000, adjusted for your situation. I decided $1000 wasn’t enough. That isn’t even a month’s worth of expenses. We settled on $1800, plus $25/month. It’s still not enough, but it’s better. Hopefully, we’ll be able to ignore it long enough that the $25/month accrues to something worthwhile.

Step 3. The Debt Snowball:

This is the controversial bad math. Pay off the lowest balance accounts first, then take those payments and apply them to the higher balance accounts. Emotionally, it’s been wonderful. We paid off the first credit card in a couple of weeks, followed 6 weeks later by my student loan. Since April, we’ve dropped nearly $10,000 and we haven’t made huge cuts to our standard of living.    At least monthly, we re-examine our expenses to see what else can be cut.

Step 4. Three to six months of expenses in savings:

We aren’t on this step yet. In step 2, we are consistently depositing more, making us more secure every month.

Step 5. Invest 15% of household income into Roth IRAs and pre-tax retirement:

I have not stopped my auto-deposited contribution. It’s stupid to pass up an employer match. My wife’s company does not match, so she is currently not contributing.

Step 6. College funding for children:

We have started a $10 College fund.

Step 7. Pay off home early:

I don’t see the point in handling this one separately. Our mortgage is  debt, and when the other debts are paid, we will be less than a year from owning our house, free and clear. This is rolled in with step three. All debt is going away, immediately.

Step 8. Build wealth and give!

We have cut off most of our charitable giving. Every other year, it has been a significant percent of our income, and in a few more years, will be so again. The only exception to this is children knocking on the door for fundraisers. I have no problems with saying no to a parent fundraising for their kid, but when the kids is doing the work, door-to-door, especially in the winter, I buy something. My son’s school, on the other hand, gets fundraisers ignored. When they come home, I send a check to the school, ignoring the program. I bypass the overhead and make a direct donation.

Investing Basics

Finance

If you’ve got your debt paid off, or at least paid down enough to start thinking about using your money for the future instead of the past, it’s time to consider investing your money.  If you invest your money, it can grow and start building wealth for you, preferably without your active intervention.   Passive income is the best income.

Before you invest in anything, you need to understand the investment completely.  In the words of Dave Ramsey, you need to own the investment.   There are some questions to ask to get to that level of understanding.

What kind of return can you expect?   Will the income come from renters, dividends, or interest?  Is the income reliable?

How risky is the investment?  Generally, more risk comes with the potential for more income, but that is merely potential.   It’s called risk for a reason.  If your renters leave, can you make the payments on the property?  Will you be financially devastated if the investment tanks?   Companies like Standard & Poor’s rate the risk of corporate and municipal bonds.

How liquid is it?   How hard will it be to get your money out of the investment?  Stocks and bonds can usually be sold at will, but CDs and IRAs almost always come with restrictions.   Property requires a seller before you can get your money back out.

Is there a tax advantage?  Some investments, like U.S. Savings bonds and municipal bonds, are exempt from varying levels of taxes.  Others, such as some IRAs, allow your wealth to grow tax-deferred and can, in some cases, be withdrawn tax-free.   Other investments, like a 401k paid out of pre-tax income, can lower your taxable income and actually increase your take-home pay while building your retirement fund.  Do you understand the 401k alternatives?

When you are looking at an investment vehicle, make sure it is legitimate.   Don’t believe get-rich-quick promises and always back away from high-pressure sales tactics.    Always take the time to investigate your investments.

New Debt

Finance

music therapy
Image by emanuela franchini via Flickr

For the first time in 2 years(almost to the day), I am acquiring new debt that I can’t afford to pay off immediately.  On a credit card.

Last Thursday, my son entered vision therapy.  He has what is commonly known as a “lazy eye”, but is more properly called a “wandering eye”.  His eyes don’t always lock on to whatever he is looking at.  Instead, one of his eyes will (occasionally, but not always) drift to the side and shut off.  His brain doesn’t interpret the signals from that eye.

We had two sessions of tests to diagnose the specific problems: $350.

We will have 28 weekly sessions of therapy @ $140 per session:  $3920

There is an equipment fee: $85

That’s a total of $4355 over the next 7 months.

Insurance covers some of it, but the therapist is out-of-network, so it’s “pay first, get reimbursed later from the insurance company”.  If we pay up front, we get 1 session free, bringing the price to $4215, minus insurance.

I have a health savings account that I have been trying to max out to cover this, to make my payments all pre-tax.  I haven’t been able to get enough in there, yet.  In fact, since I don’t have my kids on my insurance, my maximum HSA contribution is $3050.

Since finding out that vision therapy was going to be necessary, I have managed to save $1000 in cash, and about $1500 in my HSA.   That’s $2500 of a $4215 bill, leaving $1715 that I still need to be able to cover.

Here is my plan:

We’re charging the entire $4215 at 11.9% interest on a card with a 2% travel rewards program.  This will give me $84.30 worth of travel rewards good for reimbursing any travel expenses.

I will immediately pay off $1000 from cash savings.

I will also immediately file for an insurance reimbursement, which will cover 80% – $500, or $2972 minus a bit.   Our insurance got a waiver on the pseudo-wonderful healthcare fraud act on the grounds that the plan sucks so bad that it would cost too much to comply with the law.  No joke.  I’m expecting about a $2500 reimbursement, and I have no idea how long that takes.

In 6 weeks, when I have maxed out my HSA contributions for the year, I will file for an HSA reimbursement for about $2500, leaving about $500 to cover some medical costs for the rest of the year.   Vision therapy doesn’t count against my deductible, since my kids are on my wife’s insurance plan.

Starting in June, my debt snowball will no longer be going to max out my HSA and will instead go straight to this card, to finish paying it off as quickly as possible.   That’s $750 per month.

Any money from any side work will also go towards this bill, but I don’t budget for that, because it isn’t reliable money.

 

The projected results:

$3215 on the credit card for 6 weeks @ 11.9% = $50 in interest payments.

After the HSA reimbursement, there will be $715 left to pay, which will be paid off in June for another $10 in interest.

When we get the insurance reimbursement, we’ll replenish the medical bill account, to start getting ready for the kid’s braces next year.  We’ll drop $1500 into that account and use the remaining $1000 as a debt snowball payment.

We’ll end up paying $60 in interest to save $140 in therapy costs, so it’s good math, but I hate the idea of racking up another credit card bill.   I could drop the interest costs a bit by raiding my emergency fund, but that still wouldn’t cover it all, and it would leave me with very little left for an actual emergency.  I could raid the emergency fund for half of its value($700), and reduce the initial interest paid to $25 and the total interest paid to about $40, then use the $1000 leftover from the insurance reimbursement to replace my emergency fund.

 

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