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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?

 

Christmas for the Destitute

Finance, Parenting

First, my disclaimer:  I’m not destitute.

However, I’m trying to spend Christmas acting like I am a pauper.

Why, with small children and beautiful-and-more-than-deserving wife, would I want to deprive my family of a bountiful holiday?

Before we get into the reasons for being a horrible grinch bent on depriving my children of their god-given right to rampant consumerism, let’s look at the Philosophy of Destitution.

The primary reason to pull back and tone it down is basic frugality.  Excessive anything is not frugal. I am training my children–and for that matter, my wife and my self–in the finer arts of personal responsibility and frugality.   Accumulating debt for a fleeting holiday is insane.  If we can’t afford to buy it, we certainly can’t afford to give it.   Anything else would be setting a bad example and children learn best by example.

Another piece of the Philosophy of Destitution(when I read this word, I hear a deep, booming voice in my head, like a 30s radio superhero voiceover)  is “green”.    I consider myself a conservationalist rather than an environmentalist, so don’t read too much into that color.  I try to be responsible, instead of destructive and I try to avoid being wasteful.  Toys that won’t be played with are wasteful. A garbage can full of packaging for those same toys costs money.  It is much cheaper to avoid the landfill here.

Back to “Why”. Why would I be willing to deprive my family?

[Read more…] about Christmas for the Destitute

How to Live Happily Without a Budget

Finance

Three years ago, we sat down and built our budget. We spent 9 months adding the non-monthly bills that we forgot about when we created the budget.   Setbacks and shortfalls almost killed the budgeting plan completely. It took almost an entire year to get our budget right.

Unrelated Image

Now?  I refer to the budget once per month.   No more.   I don’t check it at bill-paying time. I don’t think about it daily.   It’s there as a reference when I need it, but it no longer drives our finances.  How did we get to that point?

First, we firmly established our budget.  We know exactly what we need to cover our expenses.   None of the predictable bills catch us by surprise any more.  This is important.

Once we had the budget established, the rest was easy.   I moved almost every bill to US Bank’s online bill-pay system and switched to electronic billing and automatic payments.   The automatic payments are all through US Bank.  I only allow my mortgage to be set up with the merchant. I want total, instant control over the rest.  I won’t call a merchant to ask them to change a payment if something comes up.   The bank sends me an email when a payment is automatically scheduled, and again when it is paid.

Once I got comfortable with the automatic payments, I switched to electronic billing. I don’t need to see the bill or waste the paper if I know it is being handled for me which is why I encourage you to manage all your finances online.  I do check the few bills that may change, like the credit card and cell phone.  Now, I see few of my bills.  They are all sent electronically to my bank, automatically paid, and scheduled in Quicken–all without intervention from me.

[ad name=”inlineleft”]We also use an envelope system.  I know how much we need for groceries, baby crap, clothes, etc.   At the beginning of the month, I take out all of that money in cash and put it into the appropriate envelopes.   Other than this money, almost everything else takes care of itself. I don’t need to pay attention to by bills on a day-t0-day basis.   Any extra money that comes in gets divided among our debt repayment and savings goals, which only takes a few minutes to arrange.

I glance over my budget at the beginning of every month, but I only review it when something changes. If we change our cell phone, or our budgeted gas bill changes, I make the change to our budget.  Other than that, it’s not even an afterthought.

That’s how we do it.

Another option includes the Sloppy Math System. This consists simply of rounding deposits down and rounding expenses up.  The more you round, the better the system works.    If you round every deposit down $50, and round every expense up to the next $10, you are naturally building more room for error.  Given enough time, you will have enough of a slush fund to handle emergencies and the occasional impulse purchase.

3 Questions to Ask in a Spending Crisis

Finance

94 Stainless Steel Smart Money Clip Credit Car...
Image by ExecGifts via Flickr

Having a well-funded emergency fund is one of the foundation blocks for almost every saving or debt-repayment plan.   The theory is that you’ll be better able to weather a financial storm if you don’t have to raid your budget or beat on your credit card every time an unexpected expense rears its ugly head.   The number varies based on your pundit and your stage of life, but generally ranges from $1000 to 8 months of your expenses.  The money needs to go in a liquid account, so it can be accessed when necessary, but it needs to be completely ignored otherwise.  What good is an emergency fund that has been spent?

Now that you have your emergency fund, you are set, right?  But what happens when something comes up?  When is it okay to spend that money?  Emergencies can take so many forms: medical emergencies, car repairs, accidents, a good sale.  Wait.  What was the last one? What actually constitutes an emergency that is worth shredding your security blanket?

Here are three questions to ask yourself before you spend that money:

  1. Is the expense necessary? If it’s a voluntary expense, you should create a savings goal and wait to buy it until you can actually afford it.    Emergency funds are meant for emergencies, not whims.  A good sale is never an emergency.
  2. Is it important? When my motorcycle breaks down, it gets parked until I can afford to pay for the repairs.  When my car breaks down, I need to get it fixed so I can get the kids to daycare and myself to work.
  3. Is it urgent? Is this an expense that can be postponed until next month, when you have a chance to sell something you don’t need, or rearrange some items in your budget to “find” the necessary cash?  If it doesn’t need to be paid right now, it may be best to put it off.  In the case of medical bills, you can usually get on a payment plan with no penalties, if you ask.   That can change an expensive obligation to a manageable monthly bill.

Your emergency fund should only be used on things that are important, necessary, and urgent.  Anything else should get postponed until you can afford to pay it using your on-budget expense items.     As the wise man once said: “Lack of planning does not constitute an emergency.”  Of course, if you are in a financially stable situation and willing to take a small risk for a short time, eliminating an entire debt item to save the interest can be the right decision.

What would you be willing to spend your emergency fund on?

Choosing the Best Term Life Insurance

Finance

This is a guest post.

Term life insurance is arguably the simplest form of life insurance offered by companies today. It is a dramatically different policy than universal or whole life plans. The latter tend to charge policyholders much higher premiums over the lifetime of their policies. However, whole life plans remain in effect for the lifetime of the insured, until death occurs or the policy is cancelled. On the other hand, term life insurance policies last for a fixed length of time, and the periods usually range from five, 10, 15, 20, or 30 years. With a term plan, the premiums you will pay are much lower, and if you pass away during the term of your policy, your beneficiaries will receive a full death benefit from your plan.

Types

Term life insurance generally falls into one of five different categories. Level, decreasing, renewable, return of premium, and convertible are the five kinds of term life insurance policies that companies typically offer their customers. The best method for selecting term life insurance is to consider your amount available to spend along with your age in order to decide which variety is the best fit for you and your family.

If you choose level term insurance, you will get a predetermined dollar amount of coverage for a set length of time. You will enjoy low overhead and you will have peace of mind knowing that your premiums will never fluctuate with the vicissitudes of the market. The predictability of a level term plan is perhaps the greatest feature of this type. Another type of term life insurance is decreasing term life insurance. It is strikingly similar to a level plan, and the only real variation is the amount of money your beneficiaries will receive if you die. With a decreasing term plan, the amount of your death benefit decreases over time. A good reason for choosing decreasing term life insurance is having small children. You know that you need the money more now while they are young, so paying less for life insurance in the short term is a good idea.

A convertible term plan is a hybrid. It lets a policyholder change their existing term life policy into a whole life plan without facing hefty penalties for doing so. Another option, a return of premium term life insurance plan, is very similar to level term plans. The major dividing factor between the two is that a return of premium plan actually gives back all the money paid in premiums to the beneficiaries if the insured dies during the term of the policy. It’s best to pick this plan if you want coverage for your family but you death is highly unlikely to occur during the term of your policy.

How to Qualify?

The uniting thread between most term life plans is that you are required to fill out a formal application first, and then you must pass a physical exam so that you may qualify for life insurance coverage. Additionally, most life insurance plans force you to repeat the exam each time you choose to renew your policy. However, if you choose a type of term life insurance called renewable term life insurance, you are allowed to bypass this stipulation entirely, so you can score some massive savings on premiums you will pay in the future. It’s best to choose this type of term life insurance if you are already older, or if you have health conditions that you expect to get dramatically worse during the term of your plan.

During the medical exam, your physician will take a full and extensive medical history from you. This is so that the insurance company can get a complete and accurate picture of your health in order to assign you the right amount of premium for your plan. Next, the insurance company will consider your motor vehicle record. This is so the insurance company can get a feel for whether you pose a big enough risk on the road to have a high likelihood of an accident that may cause your death and end your policy.

Then, your doctor may ask you other health and lifestyle questions if the life insurance company requires him or her to do so. You will need Attending Physician Statements (APS) that certify your answers and the results of your medical tests were true and accurate to the best of your knowledge. You will also need Medical Information Bureau (MIB) reports for your application as well as corporate documents if you are applying for business coverage. After you have submitted all of these materials, your insurance company should be able to render a decision about whether they will award you a term life insurance policy, as well as how much your annual premiums will cost you.

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3 Habits Every Soon-to-be-Successful Debtor Needs to Cultivate

Finance

Getting out of debt is primarily a matter of changing your habits.   We’ve all heard people swear by skipping your morning cup of coffee to get rich, but that’s just a small habit.   Much more important are the big habits, the lifestyle habits.  Here are 5 habits to cultivate for financial success.

Frugality

“Beware of little expenses; a small leak will sink a great ship”– Benjamin Franklin

As Chris Farrel wrote in “The New Frugality“, being frugal is not about being cheap, but finding the best value for your money.  When my wife and I had our second baby, we couldn’t justify spending $170 on a breast pump, so we bought the $30 model.   It was quite a bit slower than the expensive model, and was only a “single action”, but for $140 of savings, it seemed worth the trade.   Six weeks later, it burned out so we bought a new one, still afraid to justify $170 on quality.   This thing took at least 45 minutes to do its job.  When it burned out 6 weeks later, we decided to go with the high-end model.   This beauty had dual pumps, “baby-mouth simulation” and it was fast.  The time was cut from a minimum of 45 minutes to a maximum of 15.   That’s 3 hours of life reclaimed each day fro $140. Six months of breastfeeding for each of two kids means my wife regained 45 days of her life in exchange for that small amount of money.   At the rate of 6 weeks per burnout, we would have gone through 8 cheap pumps, costing $240.   The high-end unit was still going strong when we weaned baby #3.  Buying quality saved us both time and money. I wish we would have gone with the good one from the start.  Sometimes, the expensive option is also the cheap option.

Maturity

A very sad, sad panda :(
Image via Wikipedia

“Maturity is achieved when a person postpones immediate pleasures for long-term values.” -Joshua Loth Liebman

Being a mature, rational adult is hard.   It means accepting delayed gratification over the more enjoyable instant variety. We save for retirement instead of charging a vacation.  It takes a lot of restraint to put off buying the latest toys, clothes, gadgets,  cars or whatever else is currently turning your crank until you actually have the money to actually afford it.   It means planning your future instead of looking like a surprised bunny caught in a spotlight every time your property taxes come due.   (Who knew that the year changed every year?  Do they really expect annual payments annually?  Geez!  There’s so much to learn!)   It means thinking about your purchases and buying what you actually need, actually want, and will actually use instead of resorting to retail therapy whenever you feel like a sad panda.    The only benefit to mature, rational management of your finances is that, given time, you will have the security of knowing that, no matter what happens, you will be okay.   That’s a huge benefit.

Pleasure

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“Do not bite at the bait of pleasure, till you know there is no hook beneath it.” – Thomas Jefferson

If it hurts, you won’t do it.   You have to learn to take pleasure from from things that won’t make you broke and you have to learn not to hate putting off the things you can’t afford.    Take pleasure in the little things.  Enjoy the time with your family.  Presence means so much more than presents. So many people never learn how to enjoy themselves.  Take the time to experience life and enjoy doing it.

Update:  This post has been included in the Carnival of Debt Reduction.