Revisiting Expenses


When I was first getting out of debt, I found many little ways to save bits of money here and there to put towards my debt payoff. At the time, I needed every extra cent. Frugality was the name of the game. Now, my perspective has shifted. I’m not desperate anymore, because I’m out from under my debt! I no longer feel like I struggle for every dollar, because we’re ahead on our bills.

However, I’m not ok with feeling this way. The truth is, I got into debt a few dollars at a time, and if I don’t watch out, it will happen again. So, I’m going to rededicate myself to getting rid of the extra expenses to keep our budget lean!

There were some obvious cuts to be made initially. We budget $50 for household decor/furniture, because we’ve been setting up a new (rental) house since we married in June. However, we’re pretty much set on furniture and decor for now, so cutting this to $10 will be enough for the occasional picture frame, and to build up some savings for larger things later. Next went World of Warcraft, which I simply don’t play anymore. As a substitute, I’m going old school with a text-based MUD. Just as fun, but totally free!

After these obvious trimmings, I dug a bit deeper. I’ve been spending $35/month for my own virtual private server, which is indeed a good deal. However, I’ve been using the free Heroku plan for hosting the occasional small development application, and thus the only things left on my server are this blog, a few other miscellaneous blogs, and a few sites I used to host for a friend. I’m no longer getting my money’s worth, and even worse I don’t have the time to administer the server and keep it secure. So, I’ve switched to DreamHost, which costs less than $10/month, and is a pretty awesome hosting service. I’m totally happy with it thus far!

Then, I reduced our dining out budget by $10. We probably won’t even notice this decrease. I reduced the grocery budget by $20, which we also likely won’t notice. Tomorrow I plan to call the cable company to put us on a plan to save a few bucks each month but with better service. I reduced our entertainment budget to basically allow us to do Netflix and then a movie theater trip every other month. Finally, I called to see where my student loan consolidation was, and realized they were waiting on one company. So I called them to get the ball rolling for the consolidation, which will save me $150 per month in costs.

Overall, these changes amount to about $300 or so per month! Those little charges do add up! And even though you think some may not be changeable, you may be surprised when you try to cut costs. It’s particularly effective if you do it in a way where you won’t notice (cutting the dining budget by $10), or where you have a good alternative (MUD instead of WoW). The key is feeling like you just won extra money without sacrificing at all.

So, the lesson here is to always revisit your expenses, and never let your budget stagnate. Things change, and you have to be able to roll with it. And rolling with it in order to salvage 10% of the budget is always a positive thing!

Snowflaking Redux


Now that my debt is paid off, I still find myself with a steady snowflaking income! I still make bits of money here and there, and have updated my Snowflaking Page to show some of the ways I’m doing it now. But since my revolving debt is gone, I’m now faced with some options

  1. I could stop doing those things. They do take a bit of time, and since I don’t factor the money into my budget, I could easily drop them with no impact.
  2. I could factor it into my budget. Only, it’s not really enough extra money that it makes a big difference, so there would be no point.
  3. Put it toward savings. This is a good idea, but boring. There’s no motivation for me to put in effort to get $5 that I won’t see again for years.
  4. Use it for “fun money” or a trip fund. Collect it for a rainy day.

I think I’m going with #4. My budget is pretty tight now that we’re having a baby, so we don’t have as much entertainment money, or any money to put toward things like a bigger TV or new laptop. So, any snowflaking money will automatically go toward such a fund. I do want a slightly bigger TV eventually, and this will get me there in a year or so.

In the end, personal finance is about being willing to change when your circumstances do. For so long, I’ve had to scrimp in order to pay off this massive debt. But now that it is over with, I’m having to change my views on budgeting. When you have no debt, you are actually free to spend your money how you want! It takes a lot for me to do this, because I feel bad about using money for something frivolous, but this is the reward we get for paying off debt! When you don’t have this massive mountain to cross anymore, the journey is actually pretty easy. Once you’re there, have fun with your money! Be frugal and wise, but also realize you can have fun now, as long as you don’t take on more debt.

Having a Baby! (On a Budget)


Well, my wife and I just got the exciting news that we are going to have a baby this August! While we have a healthy fear about this, as the person responsible for our budget, I have a very real fear about how much this will cost. Put simply, babies are expensive! From the moment you conceive, plan on spending some major bucks the rest of your life. In my research and planning, I’ve arrived at some conclusions, and figured I would share them with others who may be fretting.

1. Talk It Out

The first thing you really need to do is sit down with your spouse and make sure you’re on the same page about taking care of a baby. While you envision a two income household and childcare, she may envision being a homemaker. While you may want your children to earn scholarships to college, your spouse may want to save money for them. Hopefully you discussed these topics before marriage, but if not, definitely spend the time to do it well in advance of the due date. On a non-financial note, it’s also time to make general plans of how you feel about punishment, babysitting, names, religion, nursery decor, etc.

2. Plan Healthcare

The fact is a baby can cost you a lot before you even see it’s pink cheeks for the first time. Monthly prenatal visits, vitamins, maternity clothing, healthier foods, and the delivery costs add up tremendously. Now would be a good time to make sure you have health insurance, and be aware of your deductible and covered expenses. Depending on your level of insurance, plan on spending anywhere from $1000-9000 on your entire pre-birth experience. Also, be aware that you will need to add your baby to your health insurance almost immediately, which can increase prices significantly per month. If both spouses have access to insurance, you may choose to hold two separate policies to save costs. Also, you should now consider increasing your life insurance benefits; if you or your spouse were to die, how would the remaining spouse be able to care for the child?

3. Budget, Budget, Budget!

It may go without saying, but you seriously need to go ahead and plan what it’s going to cost per month and find where that money is coming from. For us, we just finished off paying my old debt, which means we now have that $400 extra to spend. We were going to put it toward a house, but it looks like that will have to wait now! You may need to find ways to cut other categories down. Maybe less entertainment, or less eating out (especially since you will likely not be going out much anyway). But plan now so you will know what to expect! If you are totally clueless to the expenses of a baby, don’t worry; I was too. As a general rundown, I will give some basic monthly costs for you to consider:

  1. Disposable Diapers (200-300/month) – $100
  2. Wipes (4 boxes/month) – $15
  3. Formula (30 cans/month) – $110
  4. Childcare ($125 per week) – $500

Obviously, you may be able to cut costs in these categories, but do your research. You can save money by breastfeeding and cloth diapering, but those have very big drawbacks, especially for working couples. You may also be able to work from home, and save on childcare for awhile (while they don’t demand 100% attention) Also, this does not include the larger purchases such as equipment, nursery items, clothes, bottles, etc. that will be needed. And you may want to work on increasing that emergency fund! Now, you have one other member of the household that may need something unplanned!

4. Get Family & Friends Involved

You may have one untapped resource right nearby, and that is your friends and family. Maybe they will throw you an amazing baby shower that provides all your needs for the next year. Maybe someone is planning to have permanent birth control soon, and is getting rid of all their baby stuff. Maybe they will offer childcare. The point is, now is not the time to be proud. It does take a village to raise a child, and you do not have to do it completely alone. Allow them to help you out, and you will not be sorry! Even in a bad economy, family and friends will come through for you. As an example, my dad is going to build a cradle that will be both useful and become an heirloom of sorts. Our church will throw a shower, and one family member has offered up lots of gadgets, clothes, and equipment (car seats, swing) from her previous babies.

5. Cut Corners

This is where you decide what you really need. Does a baby need a a whole new changing table, or would an existing bed or dresser suffice? Do you need 3 strollers, or would one good one work? Do you need brand-name diapers, or would more generic brands work? Do you really need to outfit a whole new nursery, or would the baby be just as happy with the basics? Let’s face it – babies only use half of this stuff for a few months of their life and then it is worthless. And I’m not here to judge you if a decked-out nursery is what you want to do; it’s all about discovering what you believe is most important, and cutting corners on the rest. But at least explore your options – go to a baby consignment shop, or visit some garage sales in nicer neighborhoods. Research how to select quality, sturdy equipment.

6. Start now!

I use the toilet paper analogy – it is very expensive when you wait to buy until you need it. But if you use sales and coupons and stock up ahead of time, you can spend much less! Diaper coupons are common, but do not run all the time. Start saving coupons now, and you will appreciate it later. Even better than that, start buying them! Go ahead and start stocking up when they are on sale and you have a coupon. Look for free samples of baby products online. If you start deal-hunting now, you can be well stocked up when the time comes, and spend much less per month on the essentials. It’s also ok to start buying clothes on sale; post-Christmas we found several outfits for just a few dollars each! Be clever and wise, and you may get away without much budget increase at all!

Having a baby almost guarantees you will be spending more than you anticipated, but with some advanced planning it does not have to be a bad thing! Some smart budgeting and deal-hunting may make the transition almost effortless. The main point is to start talking about it with your spouse, and the two of you getting creative to find ways to give your baby a great childhood without ruining you financially! The more you plan now, the easier it will be when the time comes.

UPDATE: Evan from My Journey to Millions has featured this post in the 241st Carnival of Personal Finance. Be sure to check it out; there are several great articles in the carnival this week!

Investing With Purpose


Recently, my life has become crowded. Being married, working, serving in church, trying to work on the side… it all adds up. It seems everyone I know is in this predicament. Too many things to do, only 24 hours per day. So, I have been discovering the brilliance of living by purpose. Put simply, this means that if something does not fulfill a major goal in my life, I simply don’t do it. You may think this takes all the fun out of it, but it’s quite the opposite. One of my major goals is rest and relaxation (to counter the times of extreme productivity), and thus I can watch some football or play some games. I have made a list of core goals I have in life for now, and if something doesn’t fit it, I remove it from my life.

For example, I had several blogs I would read daily, wasting hours of each day. I decided that I only really wanted to read about 2-3 blogs I really loved, and a few daily comics. This has cut down my RSS reading by over 90%, and after a few months of adjusting I simply don’t miss those subscriptions I no longer have. Same with money; I have learned to only buy things that support my goals in life, and not to waste money on things I don’t need. Since I don’t watch a lot of TV, I don’t need a 52″ Plasma taking up space in my living room. Sure, it would be nice, but what would be nicer is to own my own home. My wife and I could go out more, but we are childless and do not need a “date night” outside the home. We get Netflix instead.

Now, I find myself in the predicament (or joy) of investing. My debt is paid off, my student loans consolidated, and I want to start looking at investments beyond a money market account. I want to do it right. I used to have a retirement IRA that completely tanked when the economic bust happened, and lost over 70% when it was all said and done. So, I wondered, how could I use this concept of doing things on purpose, and apply it to investing?

It’s actually simple. I did not read about stocks, bonds, commodities. I did not analyze charts and graphs, nor did I read forums about investment advice. I merely took a step back, and thought about what the word “investment” meant centuries ago. Investing in something used to mean that you were supporting a person, company, or cause that you believe in. There was risk of failure, of course, but also risk of great success. If a family member wanted to open a small factory to create widgets, you might loan some money to get it going. Your money became directly proportional to the profit he made. If you lost money, you simply made a bad choice in who you were investing in.

The contrast among this type of investment with today’s markets is easy to see. It’s somewhat the same, but instead of really believing in the person or product, you are shielded for many layers from the CEO and product. Shareholders are numbers on the screen, mere percentages. Profits and losses do not always correlate to what you earn. It’s a loser’s game, where it becomes pure speculation based on what others are doing. If Berkshire Hathaway bought a stock, you can be sure the price will then rise due to massive purchasing. Of course Berkshire then sells it and shows “once again, we picked right”, when in reality they earned money on their own fame, not necessarily the merits of the stock itself.

So, I’m going to invest in what I know. If there is an existing company I believe in, I will invest in it. If a family member needs a startup loan, maybe that is something I can help with. I want to start my own business, and that will be its own investment. If I fail, then at least it won’t be due to market speculation. I’m willing to bet that if I really believe something will work, then it will probably return a good deal on that investment in years. The plan is not to speculate or day trade, it’s to keep buying stock that I believe will rise, and stock in products that I personally use and like. If Chick-Fil-A traded publically, I’d buy it in a hearbeat, because I think they offer the best service and food of any fast-serve restaurant out there. There are other businesses that I think offer good service and good products, and I will continue to put money there.

Likewise, I can invest in our nation. If I think the policy makers are headed in a great direction economically, I may buy bonds or notes to invest in the US. If I think Brazil is more expansionary, then I might buy into it instead.

Of course, I may not earn anything. Or I may even lose. But this way, even if I lose, I did it while supporting something I believed in. But I have a feeling that supporting things you believe in will usually return on that investment. Clearly, the days of earning 10% return are over for now, and we have to be satisfied with a few percent anyway. Why not put that otherwise stagnant money into a business you think has a good chance of succeeding? For me, it’s all about purpose. What better way to live by purpose than to put your money where your heart is?

Weak Dollar = Debt Payoff?


Recently I have seen quite a few searches related to the weak dollar and debt payoff. I hope to give my perspective on this, and maybe a few more searchers will have what they are really looking for.

For those new to economics, a weak dollar is what it sounds like – weak. As a quick example, buying a Euro half a decade ago was cheaper than it is now. Almost half cheaper, in fact. This is partly due to inflation, and partly due to trade and budget deficits. Most people agree that a weak dollar is a bad thing if you are a consumer, and a good thing if you are producer. As an example, my business is getting a lot of attention from international clients, because our products are cheaper here than they are in their home country. On the flip side, if you travel to Europe, expect to pay twice as much for everything.

So, basically, if you had a total debt of $20,000 five years ago, that amount does not change with the dollar (unless it is in overseas currency). Meaning that you would technically be paying less for it now, even though the amount is the same.

However, this is not true, for the most part. If you had traded your money for Euros five years ago, yes, they would now be worth twice as much. But since you kept your money in US dollars, then you have the same amount as you did then. Your debt and savings both weakened at the same time and to the same degree. It is no better to pay off debt now than it was at the time you built it up. In fact, since your debt likely carries an interest penalty, your debt actually weakened LESS than your savings, meaning you now owe more than you did back then, unless you’ve been trying to pay it off.

Since your debt is worth the same it was back then, relative to your savings, then it will be the same thing when it bounces back. $20k ten years ago = $20k right now = $20k ten years from now, when you only consider a strong or weak dollar. It only becomes worth more or less when you invest in international currency. When the dollar is particularly strong, you may consider trading it for a currency that is particularly weak. And then, when the situation reverses, you will have extra money. However, when you factor in a typical inflation rate, this is not a sound investment strategy; you almost always lose in the long run, and it requires a long run to see a gain. Of course, there are always higher risk currencies (if a country is about to crash and you believe they will bounce back), but most of the time you will lose on long term gains.

So, then, what is the right time to pay off debt? Put simply, the right time is NOW. With interest rates rising, that $20k right now will become $30k before you know it. If you’re waiting for the “right time”, then your money is sitting there gaining interest by the minute. In general, paying off debt is almost always smarter to do immediately, rather than waiting for some magic moment. The monetary benefit is eclipsed by the psychological benefit – imagine being free of the weight of that debt! Imagine if you owed nobody but yourself, what you could do with that paycheck every month.

So, start now! Create a strategy, maybe review this blog and some other ones for support, and get started today. List your debts, create a budget, and put as much money as possible towards it to get it paid off soon! In a bad economy, the one thing that makes it worse is debt. Losing your job is terrible no matter what, but imagine losing it and not having to really pay any bills but the necessities… it would be great, right? So, the best way to prepare for the worst is to get out of the red. It’s a difficult road, for sure, but it’s rewarding in so many ways.

An update


It has been awhile since I’ve posted, primarily because I have sorted out my financial issues. I have a few final months of payments to eradicate my remaining debt. Work has gotten better, and I’m up to about 80% salary, where I’ll be until I change jobs. I am now married and have moved to another state. In fact, I plan to come back to David On Finance now that I am married, to write a small series about how money matters work inside a marriage and some good steps we’re taking as we learn how to manage our finances. I hope to have the first one up tomorrow, and perhaps I can stick around this time!

Weathering the Tough Times


We got bad news at work last week. There’s an issue with cash flow, and our pay has to be cut in half for the next month, maybe two at most. While the economy is finally improving and we have work coming in, we’re simply out of money. Perils of a small business, I suppose. But since it’s small, we can adjust and make it out, instead of losing our jobs!

I’m just happy that half pay is not going to kill me! I’m down to my last 2 grand or so in debt repayment, and my monthly expenses are noticeably less than they used to be. While I won’t have any extra money and my debt repayment will be on hold, I’m not freaking out. I have an emergency fund in the bank, my expenses are down, and by using coupon shopping the past month, I am well-stocked on enough groceries to supplement me for a month!

So in light of many people having to adjust to similar situations, or possibly having to adjust in the future, here are the things I’ve done to help me weather what would otherwise be a dark time in my financial life:

1) Build an emergency fund. A month’s income is about right. That is enough to fix a car, pay for small medical bills, keep you afloat for a month in case of job loss, etc. Since I’m at half salary, I could easily live at my current means for two months before I felt an impact. That’s a long time, and enough time to find a small side job or take on small projects.

2) Reduce expenses. It goes without saying, but the best way to reduce debt is by spending less. Now that my budget is way below the money I make, making less is not going to kill me! I won’t be able to put as much extra money towards my remaining debt, but I can survive on half salary, possibly without even dipping into my emergency fund! The money is there if I need it, but now that my expenses are low, I won’t need much of it. Now, this isn’t easy to do. You’ll have to become frugal…

3) Become frugal. There is a “cheap” person, and there is a frugal person. The latter is pretty much the same, just less annoying. Don’t go to a restaurant with people and bring grapes and crackers to eat – that’s being cheap; just pick something that doesn’t cost much, or don’t go at all. Frugality is a mindset in which you don’t spend more than you have to on the things you need, and don’t buy the things you don’t need. Chances are, you don’t need a lot of things. You probably don’t need digital cable or satellite, a netflix subscription, and internet. Most TV is available for free online. Use the library for books, which can provide hours of entertainment per week. Borrow DVDs from a friend instead of buying them all the time. Use coupons when you shop (google The Grocery Game). Check for better prices on phone, insurance, and utilities. Research online ways to get those services even cheaper.

4) Calm down. Stress is evil. If you freak out about losing pay, then you will not sleep, your productivity will be down, and you might even lose your job! Just keep calm, and plan for these situations ahead of time. If you are well-planned, you have nothing to fear. Calculate a worst-case scenario, and find a way to live through it. My worst case scenario was temporarily moving back home, and lately it is moving up to get married earlier. Yes, it would be terrible to have to do things that way, but it is the worst case.

5) Build relationships. We’re in a new era, and people are starting to go back to relationships. In the end, the government won’t be able to help you, your boss won’t be able to help you. The people you can trust to keep you afloat are your family and friends. Build a network of close friends that can support you. Then, the worst case becomes bunking on someone’s couch for a few weeks. I have volunteered at a lot of soup kitchens, and the common thread among the poorest among us is that they didn’t have family or friends to fall back on. When you’re building a career, it’s easy to sacrifice other people along the way. The problem is that careers are fickle. People will stand by you forever.

I hope this helps some people. A year or two ago, this would have nearly done me in. I likely would have had to move back home. I probably wouldn’t have met my fiancee, and things wouldn’t be going this well at all. Get rid of your debt today! You’ll gain peace of mind, financial freedom, and the ability to weather small storms in life, like this one. It’s tough, but if you persevere, there’s nothing that will be able to take you down!

Losing Weight (On a Budget)


After reading the blog 344 Pounds, I noticed many similarities to myself. I am very obese, at 320 pounds, but thus far have been healthy, had good self-esteem, and generally had no good reason to lose weight. I have great blood pressure, cholesterol, and have no risk of diabetes or heart/liver condition. However, I have recently wanted to be more active. I have a wedding in June, this spring looks like it will be beautiful, and I want to be able to get outside and get active. However, at 320 pounds, this becomes a bit difficult at best. So, I need to lose weight. However, if I am going to succeed in getting rid of my debt before I marry, I can’t afford a gym membership, super healthy foods, surgeries, etc. But I’ve learned a few tips to hopefully shed a hundred pounds without spending much extra money. Here are some tips in case you’re trying to do the same!

1. Build a Home Gym. It might be a new concept, but you don’t need fancy machines to lose weight. Buy a set of dumbbells, which should cost less than $50 easily, and you might be able to pick up some for less than $10 on Craigslist or a yard sale. You can do pretty much anything with a dumbbell you can do on weightlifting equipment, with modified exercises. Don’t worry too much with leg exercises for now; when you are overweight you get enough workout on the legs by simply using them. You may also choose to buy a floor mat, a weight bench, an exercise ball, resistance bands, etc. If you really want to spend nothing, fill some gallon jugs with water to use as weights, and use a towel for resistance exercises. It might not work long-term, but it should definitely get you started!

2. Use Nature. Want a truly free way to lose weight? Get outside. Seriously. Throw a frisbee, ride a bike, walk, jog, run. It doesn’t matter. These things all work to benefit both your muscles and your heart, you get fresh air while working out, and it is truly fun. Embrace getting sweaty and playing hard, like you did when you were a kid. You don’t need a treadmill or elliptical (though they certainly do the job great), if you have the great outdoors to play in.

3. Eat Smart. You don’t need to go all-organic premium foods to eat more healthy. Yes, fast food is cheap, but should be avoided at all costs. Use whatever vegetables are on sale that week. If you are busy, then you may have to eat out a few times per week. Don’t sabotage yourself though; look in advance what types of foods are best to eat at the places you like the most. Usually salads are the best, but not always. I was surprised that Chick-fil-a’s chicken sandwich was fewer calories than their wraps! Go for grilled over fried (trust me, after a few weeks you won’t miss it). Substitute the fries for something else, or get a small fry and eat only half of it. It is possible to eat fast food and still eat healthy, you just have to be smart and informed before you go.

4. Drink Water. Water is free. Don’t buy bottled water. Use tap water, a good filtration system or pitcher, and invest in a good water bottle that you can carry with you and doesn’t sweat. Fill your bottle every morning, and at work if the water is good. Bottled water is too expensive anyway, for something you can get for free (or really cheap if you use a filter). You know what costs you a lot of money? Sodas and other drinks. Give up alcohol too, or cut back. If you have to have coffee, learn to drink it black (it is healthy for you, and you’ll spend less on sugar and cream). If you have to have tea, cut back on the sugar or honey. Both coffee and tea are cheap to drink, if you drink them correctly. You should not have to drink a lot of milk, but if you can’t give it up, then use store-brand lowfat milk. But your calories should be invested in food, not drink. Water is free, both monetarily and calorically.

5. Shop Creatively. Use coupons, or use The Grocery Game (google it) to maximize your food budget. Don’t feel like you can’t use canned vegetables if they are cheaper. But if you see fresh vegetables on sale (or have a good farmer’s market nearby), then load up. Incorporate whatever meat is on sale that week into your menu. In general, it is easy to tell what foods are healthy or not. If you tend to eat a lot of TV dinners, buy some Lean Cuisines when they go on a good sale, and stock up. Whatever your strategy, stick to it and you’ll be fine. I actually spent $25 less over the past week on foods that were very healthy. Use fresh herbs and spices to add flavor to your food, and you won’t feel like you are sacrificing anything!

6. Adjust. As you lose weight, you should be eating even less and exercising at a higher intensity. While jogging might help you drop initial weight, you may notice a plateau. At some point, you may have to get a gym membership in order to get the higher intensity you need. But by this time, a gym membership is a good investment; you are dedicated to the process, so you don’t have to worry about not getting good use out of it. The biggest mistake is to buy one and not use it at all. By starting at home, for cheap, you build a habit that can carry over to the gym. Look for gyms that are local or privately owned, and you may save even more money. For foods, you should be buying less, since you should be eating less.

In general, though you may be spending more on quality foods, gym and recreational memberships, and adventures you will be able to go on, once you lose weight you should theoretically be spending less on volume of food, medical care, clothing, etc. Lack of money is no reason not to start losing weight today! You can make a few small changes right now and gradually keep adding changes in, until one day you have changed your whole lifestyle. And all that, without spending any extra money!

A Macroeconomic Look at Credit Cards


Ok, if you’re reading this, you probably agree that credit cards are bad. After all, we’re in debt more than ever, and only now that our economy has tanked are we starting to realize that it’s imperative to get rid of our debt. Personally, I’m down to slightly more than $2k. I’ve found there is no easy way. No amount of snowballing, snowflaking, etc. can replace the simple idea that you have to either make more money or reduce your lifestyle in order to pay off debt quickly. It has humbled me. However, I propose that credit cards are actually mathematically dangerous at their core, not just due to bad behavioral patterns.

The primary reason that credit cards are evil is simply that they are a gamble at best. If you do not have money to pay for something today, then you are betting that five years from now, you will have the money. And in the meantime, you reduce your monthly spending power by a minimum payment. The combination of these two is dastardly; you will simply never be able to save enough money to pay the cards off while paying the minimum payment every month. This is a simple concept to understand, because how else would creditors make money? They prefer you to keep a balance, making those minimum payments until you die. Even with the new laws requiring principal to be paid off each month, it still takes years to recover from a single purchase. Yes, you might have bought that laptop on sale, but you spend eight years paying it off? Not smart. And it’s not only your fault; it’s how the very industry is set up.

So, what’s wrong with thinking you’ll have more money tomorrow than today? Well, for starters, check out our economy. You might not even have a job tomorrow! A close second is that mathematically, we simply don’t make more money, despite raises. Here’s a look at it using college macroeconomics…

United States GDP (per capita) only increases an average of 2% each year [source]. Now, that is actual economic growth per living person, adjusted for inflation. This means that unless you are in an industry of uncommonly high growth, you can expect to have an income increase of a maximum of 2% each year. In actuality, that percentage trickles down from the CEO, so you might be left with 1% growth at best. Unless you do something like get a degree, change careers, or get a promotion, you simply won’t have more money next year than this year. And thanks to the trillions of dollars in bailouts (inflation fodder), you will probably make less money this year than you did last year!

On the other hand, credit cards charge an average interest rate of 14%. This means that over the course of a year, you get charged 14% to use that credit card. Meanwhile, you make 1% more money. You’re doing 1% better, but paying at a rate of 14% extra! That speaks for itself. Now, if you only have a few hundred dollars on the card, that 14% may work out to equal the 1%, and you might be able to pay it off. But for many people, they hold half their annual salary on those cards, meaning it’s still seven times greater than what you gained in income. Add in the factor that people with that much debt typically have greater than 14% interest, and the situation clearly worsens.

Thus, credit cards are not a sustainable system. And this is part of why we’re in this economic mess today. Some people are able to not get trapped; either they don’t get too far in debt, wind up changing careers or making more money, or happen to be in a lucky field that makes more than the average GDP growth. But, for every industry growing faster with respect to GDP, there is an industry or two that is growing slower than the average GDP. This means that some people aren’t even getting that 1% increase each year. Some people don’t even get an increase equal to inflation!

If you still carry credit card debt, get started today on eradicating that junk! You will have to decrease your lifestyle, pick up second jobs, find things to sell, etc., but the freedom is worth it! It has been incredible to see those dollars gradually roll away, and actually have more discretionary income to use once those cards get paid off! That sense of freedom is totally better than the coolness of having a new TV paid for with a credit card. 

Look, we all want cool things, but seriously, save for them. If you can’t afford it by saving for it, you definitely cannot afford it by using a credit card. I hope I showed you how mathematically unsound they are in terms of economics. Yes, you might be one of the lucky ones who are able to use them without getting trapped, but it’s a gamble. Like a casino, the house always wins.

Niche-Industry and Internationalism


There is a lot of talk today about how bad of a state the US is in right now. Of course, gas prices are high, unemployment is high, wages are low, and all signs point to economic recession. However, I have more work to do in my office than I’ve ever had before, and our business is booming. It may not be “personal finance”, but as someone entrepreneurial-minded and always looking at what does and doesn’t work in business, the past several months have really taught me some valuable business lessons that will keep me from making terrible mistakes when I do own my own business.

The economy started floundering around this time last year, even before that. The government was in major deficit due to war spending, and contractors that weren’t for war production started losing money. At the time, I was in a small business whose primary source of income was subcontracting on scientific/engineering government projects with the Department of Energy. However, with more deficit comes less spending, meaning less work for us, even though we bid low. Our problem is that we replaced human labor with automated computer labor, and even though we were low bidders, the government’s role when the economy is dipping is to keep its citizens in jobs. So due to the lack of work, and the inability to quickly navigate to foreign markets, half of us were let go and the other half turned to consulting.

Now, then I found my current job, and even though the economy is dipping even more, we seem to have a lot of work. We even have government work that isn’t war related. The contrast is very simple to make in this case–this company made strides more than a year ago to find partners all over the country and world that would sell our products. Now that the US dollar is so low against foreign currency, those partners can’t get enough of us; we’re now both the lowest bidder and the best equipment for the job. Money from those jobs have allowed us to R&D new technologies that the government (Army COE) is interested in. So by diversifying into foreign markets, we were able to retain the US market to some extent, even in the midst of a recession.

Most people, myself included, are afraid to make the jump into foreign markets, especially small businesses of less than 5 people. However, the way my boss did it was a great idea. First, he found partners that would do all the networking and selling. Then, we would heavily train those partners in our equipment and methods and split any profits. The upside is that we only interface with a handful of people, who in turn interface with the end users. Really, the only inconvenience is having to ship internationally, and since a lot of it is freight it’s really no different than shipping to California. It allows us to focus on building and improving technology, and our partners handle the selling and the first tier of technical support.

It’s not like our stuff is in a massive number of places now either; we’re a niche market and always will be. However, by putting ourselves out there internationally, we’re keeping ourselves at the front of that niche market. If we do decide to grow, it will be much easier, because we already have the partners in place to get our stuff out there even more. Plus, with partners/resellers comes additional feedback to allow us to make improvements.

So, when I start my own business, one thing I’ll be looking to do is make sure it has an international focus. When the dollar goes weak, I will get more international business, and when it strengthens I will have had enough improvements to be more than competitive in the national market too. I’m not an advocate of mashing every country’s governments together into one happy family, and am not even a supporter of the UN. But from a purely business perspective, internationalism makes a lot of sense.