When it Rains…


Well, I only thought that going back to school was a major lifestyle shift. Little did I know that there are much bigger shifts that can happen, such as, say, losing my job. Yes, I’ve not been posting for the past week because I have been using every spare second searching for a new job. Luckily, I was given plenty of notice, and it isn’t due to poor performance on my part; they are divesting the entire R&D arm of our company and about half of us will be lost in the shuffle.

On a not-so-side note, I finally learned what not having a degree means in terms of job availability. Even though I don’t feel the degree really means you know more (and personally will never hire people as if that were true), a lot of companies weed out potential candidates based on that little piece of paper. Oh, if only this were happening two years from now when I will have finished school.

So, this is a pretty shaky month. I had to start working part-time immediately, which reduces my cash flow quite a bit. I’ve made some big cutbacks already, and have more to make. If by next week I do not have a job, I’m going to have to call creditors and see if they’re willing to give me a break while I find a job. I do have a few prospects, and if worse comes to worst I’ll have to move back home and work fast food or something. So I’m not sweating it too much; worrying about it will not get me anywhere. I am, however, allowing it to motivate me to keep looking for jobs. Unfortunately, out of about 500 jobs I’ve looked over, only 2 seemed appropriate for me.

I’m also at a disadvantage because I won’t be able to make what I’m currently making at a lot of places, without that degree. In a small business, I provide a lot of value. In a large business, I’m just another programmer, and the pay scales accordingly. I’m hoping I can transition into a position that pays what I’m making now, and also pay for school still (or put school on hold for the immediate future).

So, some lessons well learned about life and how it throws you all sorts of curveballs. Don’t worry, I’ll come out of this stronger. I now see even higher levels of importance in being debt free and having plenty of savings stockpiled. That will motivate me to try even harder.

On a side note, I’m not allowed to talk about it in detail yet, but let’s just say that Mint.com is going to be an incredibly awesome tool, and will blow every other finance tool out of the water easily.

Navigating Lifestyle Shifts


Note: If you came here from NCN’s Carnival of Debt Reduction, here is the post he was talking about: Backbone Growth.

Today I start back to school. For those new to my story, I have a full time job and am also going back to school full time to finish my degree. I’ve had the summer off, which has helped greatly in terms of getting back on my feet financially. However, since I’ve had plenty of time to focus on finances thus far, not to mention getting in 40 hours at work every week, going back to school will be a major shift.

The shifts are not inconsequential and many of them are things that got me into trouble in the first place. First, the sheer amount of time school takes up leaves me unable to easily take time out to handle financial matters. Yes, I can still find an hour on weekends, but things like calling creditors, looking through statements, etc. seem like much more of a hassle when the grades start dropping. It shifts my entire daily schedule forward (since class goes until 11:30pm or so), which forces me to do things like eat at fast food places or the campus food court for dinner, and go into work later. I get in fewer hours of work per week on average, usually 35-38. Not to mention I spend about $50 more on gasoline per month. As you can tell, these little things really add up when you combine it with debt reduction.

However, I refused to be caught by surprise this time! Here are some things I did to keep this from being a major burden on my life:

  1. I thought ahead. Really, this is the only thing it took, but I sat down and really analyzed what each semester costs me in terms of money, time, and sleep. I then re-budgeted all three of those to make things work. I made a new financial budget incorporating food and gasoline costs. It will be more difficult to get out of debt, but at least I won’t be getting in any deeper!
  2. I got supplies on sale. I caught the back-to-school sales along with the high schoolers, and got things like pencils, paper, and printer ink for much cheaper, and tax free! Better yet, I kept it within my budget for July, so it didn’t even hurt me. I may even have enough supplies for Spring semester as well.
  3. I didn’t take a vacation this summer. Because of that, I have enough annual leave left to where I can take 4-5 hours off work each week and not have to worry about losing money! Yes, I sacrificed a week off, but when big tests come up I don’t have to worry about finances on top of studying.
  4. I arranged my classes to be all in two big blocks on Mondays and Wednesdays, at the expense of taking 4 difficult courses all at once. I will probably have up to 4 tests on some nights, but this saves me money on gasoline, and makes the food problem only apply to two days per week. Not to mention, it makes scheduling work and study time much easier.
  5. It is my goal to have a 100 average in every class by October, or at least high A’s. This means that when things get most stressful, I can maintain all my schedules without having to take even more time off. Even if my grades drop a little at the end, I don’t have to worry about it because I’m pretty much guaranteed an A or B by that point. This is so much better than slacking off at the beginning and then having to step up the studying and time later on, when you’re already too tired. This also applies to any area of life; work twice as hard when you still have the energy, and then don’t feel bad about slacking off a bit later.

Most of all, I just had to sit down and think about what was about to happen. The worst mistakes that happen are almost always the result of poor planning, or even no planning at all! I wanted to make sure I had the bases covered. I feel pretty good about it. Not to mention that even though I have 4 difficult classes right now, my final semester will pretty much be History, Music, a math course, and a final computer science course. Like I said, work hard now, slack off later.

Backbone Growth


Note: This post has been featured in the 100th edition of the Carnival of Debt Reduction, hosted by No Credit Needed. Please check out this carnival, as it includes a ton of good articles!

One of the major things I have noticed during my journey towards a debt-free lifestyle is how little of a backbone I used to have! And sadly, still do in some areas. These are things that even before creating a mindset to become debt free, I knew were signs of weakness and were my own fault. Some come down to laziness and the strange idea I could wake up tomorrow a millionaire and all my problems would go away. However, they all come back to the root issue that when it comes to my wallet, I had no backbone.

Here are some examples of my spineless financial behavior:

  1. While activating the credit cards that led to my demise, I would agree to sign up to the so called “Credit Protector” and “Identity Manager” programs these services offered. Many times, these programs would account to $15.00 per month or more! Just to get the people off the phone, I’d agree to the first free month. However, I would let these charges ride for months, even years due to laziness, and guilt that I was already paying hundreds in interest each month, what is $20 more. I estimate I’ve lost several thousand dollars due to this. All it would have taken is a firm “no” and I might be farther along my path to debt freedom.
  2. Something I know I will be buying down the road is on sale today, so I flash the plastic and it’s mine. Sounds good, but after a year I’m still paying for that shirt, and have probably already doubled the non-sale price in my interest payments! Yes, it was on sale, and if I had the money in my budget it might have been smart, but I wound up getting a worse deal. Do this with technology, and it not only doubles in total cost, but you also get an inferior model compared to if you had saved and waited. All it would have taken is a little more backbone to say no to my inner desires and bad mathematics. This is the primary reason for 90% of my current debt. I’m still paying off a laptop I bought 4 years ago, and sold last year for almost nothing.
  3. When the budget (what little I had) ran dry and my credit payments were going to be late, I ignored the calls from creditors. I racked up tons of late fees, and got myself into a situation where it was almost impossible to get out of the cycle of late payments. If I had answered the phone and been forthcoming that first time it happened, they could have easily helped me out, and it might have been the difference in several thousand dollars of my current debt. Not to mention my credit score might not be in the low 500s right now.
  4. For some reason, I always just “expected” to win that lottery (even though I never had tickets for it!) or get that major raise, or have a creditor magically erase my debt. Maybe the creditors would forget about the debt until I finished school and could pay them off. Because of not standing tall and really evaluating my current situation and finding a way to solve my problems, I spiraled down into a situation that actually has become nearly impossible to fix. If I had really evaluated it back then, I could have easily fixed my problems in just a few months, and would be on track right now to perhaps owning a house, or at least being free from debt.
  5. For awhile, I let my insecurities play out in terms of me having to buy cool things. I didn’t just get the cheap Ipod, I had to get the best and biggest. I didn’t just get a basic stereo system for my car, I had to get the best audiophile quality out there (ironically, I don’t even have that car anymore, but I do indeed miss that system). By not having confidence in who I am as a person, that little piece of plastic used those insecurities to make me buy more stuff. Right now, I’m finally at a place in myself where I only buy what I need to get by, and occasionally some of my long-term wants.

Of course, there are many more reasons my spine, or lack thereof, has caused a lot of my debt issues now. They always say the first step to anything in life is admitting you have a problem. I think the second step is admitting that problem is likely inside yourself! Most people skip that, and blame creditors, or fancy marketing, or whatever the villain of the day is. For me, the problem was (and still is, to some extent) inside myself. It’s my own lack of backbone that has caused me to spiral down the path of bad financial decisions.

So how do I fix it, and how can you fix it? First, stop blaming circumstances and others. While it may be partially their fault, that doesn’t help your situation. What does help your situation is to accept the blame yourself, and figure out why you do the things you do. Before you even sit down and list your debts, start an emergency fund, etc., you need to evaluate yourself. In fact, I have a weekly ritual where I check my credit report (one service that has been invaluable), check my accounts online for any strange activity, evaluate my spending and budget, and also evaluate my psychological state towards finances.

Each week I try to find one thing I had problems with in the past, write it down (or blog about it), and become determined to not behave that way again. This week is Spine Week. I’m going to call and cancel those services I still have. I’m going to try to sell the things I bought on credit long ago, and hopefully let it help pay themselves off a little bit. Moving forward, I have learned my lesson and will not slip up again.

In fact, you can do this in any area of life of which you’ve had problems! If you are religious, incorporate prayer or meditation into the process if you wish. For the area you are having a problem with, think back to the situations that got you there. Now, inside each situation, ask yourself what internal mechanism caused that to happen, rather than the external circumstances. Then, think of different ways to correct that personal flaw, and resolve to not behave that way moving forward. Find a few concrete things you can do to combat it right now (calling creditors, whatever), and write down a statement of intent that you read every day in that week claiming you have changed as a person. My statement for this week that I will read every day simply reads:

I resolve to stand up for proper financial decisions when faced with insecurity, external manipulation, or laziness, and commit to always look at the long-term picture before making any financial decision.

Just think, spending a few minutes each week meditating about yourself, in 52 weeks you will have corrected 52 internal problems! For me, being out of debt by the end of 2008 is important, but knowing I will have corrected over 75 internal flaws by then is worth even more. It’s the same idea as debt management, small incremental changes to make a very large long-term change. In a year, I will be a completely different person, but this week I only need to worry about a little backbone growth.

Price Books for the Digital Age


I’m lazy. Let’s get that over with.

One of the current things I’ve seen going around the personal finance community is the idea of a “Price Book”. And there are some great tips for building your price book already out there. However, once again I am lazy. I know up-front I’m not going to carry that book into the store, I’m not going to write down prices, and I’m not going to spend a ton of time on something that saves me pennies.

Enter the internet, and the magic of receipts. Spending an hour each weekend the past month, I’ve managed to get a good idea of what deals I should be able to get. I’ve also easily expanded this method to clothing articles like underwear and socks. Of course, the most important thing is finding out what will work for you, but in the interest of increasing the ideas out there, here is how I did it (and am still doing).

1. Write down items that you buy often. For me, things like bread, cereal, milk, fruit, and meats went here, along with canned vegetables and things like laundry detergent and toiletries. However, cross the cheap items like bread off the list. I know that generic bread costs $0.99 or so, and I can spend more if I want. There’s no reason to spend an hour trying to save five cents on bread. The opportunity cost doesn’t add up. List items that are reasonably expensive (detergent) or that you buy many of at one time (canned vegetables).

2. Make sure you visit a different store each week (or each few days if you shop several times per week). Grab the store’s flyer while you’re here, and be sure to either purchase or write down prices for each thing on your list. If you purchase something, the price is on your receipt, so you don’t have to worry about writing them down. If it’s in the flyer, you don’t have to write it down. See, it’s all about being lazy.

3. Check prices online. Many stores put their circular (the sales flyer) online, so you don’t even have to go inside the stores or make a trip. I imagine you can do a decent price book from the comfort of your desk chair. Also check online bulk retailers such as Amazon, especially for things like laundry detergent, toiletries, and diapers. You may find it’s just as cheap to purchase online and get them shipped directly to your door!

4. Break open Excel, make a list of each product on the left, list each store along the top. Fill in the grid with prices. For the lowest price of each item, highlight the cell yellow. For those with experience, you may be able to use conditional formatting and basic functions to automate the highlighting

5.  Pick two stores that seem to have a good mix of prices. For example, if Wal-Mart seems to have good prices on toiletries, and Publix has good prices on food staples, it’s not a bad idea to visit both, especially if they are both nearby your house. Going 7 different places, however, is not a good idea; you spend more in gasoline than you save. If you can get almost everything cheaper at one store, just choose the one store. If you can save money buying online, then do that.

6. Compile and print a list of each item and their respective price. I was able to shrink it down to the size of a business card. This way, if you happen to be at a store and see a cheaper price or sale on one of your products, you can buy it right then, or if the price is permanent you can make a note to update your Excel file. Keep in mind your list is better if it includes things that can sit in the cabinets for awhile, like canned goods.

7. Pay attention to seasonal trends, especially when it comes to fruits and vegetables. You may choose to track the prices of items over time and realize that it may be cheaper to buy strawberries in winter and spring, and switch to bananas for summer and fall, or vice versa. Know and adjust your purchasing trends accordingly. Baking goods may go on sale after Thanksgiving and Christmas due to surplus, so you may stock up on vanilla extract, baking powder, and things like that. Your Thanksgiving turkey may actually be cheaper in spring, so if you have the freezer room, you may purchase early (though this doesn’t mean a deep freezer will pay off).

I have found that things like socks, underwear, toiletries, and such are usually cheaper online. I’ve also found that buying in bulk does not save money for the things I purchase; going to a CostCo makes me spend more by purchasing things I would not normally get. For others, it may save them money on everything. The point is to make no assumptions; you may be able to get everything cheaper at Wal-Mart, someone else may find the local grocer has everything for cheaper. You may have a store nearby that is always cheaper, but is too dirty for you to walk inside. That’s ok. You may love the convenience of online shopping even if it costs a few more dollars. That’s perfectly fine. Know what you’re willing to do, and what you’re willing to sacrifice. I’ve found that just by sitting down and taking a look at the small prices, you can easily save $10 on weekly shopping. It’s the concept of small changes adding up quickly. That’s $40 per month in savings, which is quite worth the few hours it takes to accomplish.

Carnival, Weekends, and Mistakes


This has been a nice weekend, full of doing things for free. Well, I bought a haircut, but as far as entertainment goes, I did well! Friday night I was able to see The Bourne Ultimatum for free because I had a free pass (those little rewards cards may add up from time to time). Saturday I was able to catch a high school band camp performance, relive my old band days, and hear some free music. That night I had free pizza from being a 777 contest winner at Papa John’s a month ago. Sunday I did some freelance work and rewatched old DVDs (they’re only economical if you watch them many times).

Then, I had to go screw up the whole weekend by buying a watch. I’ve been looking for a nice watch for about two years now, determined not to buy one until I found one I’d absolutely love. I hate wearing jewelry of any kind, so I’ve been able to resist buying one until I found a good price on this one. So, it’s another small setback, but I think I’m going to list things on Craigslist to counter what I paid. I still have an old dorm fridge and some textbooks that will cover it. I don’t feel bad, because I’ve been monitoring prices forever, and got a pretty stylish watch for under $100. But I should try to defray that expense with sacrificing something else. It’s my goal to stay neutral with the things I buy.

My article about credit unions and consolidation was also included in this week’s Carnival of Debt Reduction over at Finance Psychology. For a slower week, there are some decent articles included, so check it out if you haven’t already!

When it Makes Sense to Consolidate


My roommate is in a similar position to me, but without quite as much credit card debt. He is faced with about $3,000 in credit card debt, and about $14,000 left on a car note. He looked at his situation, and is really not able to put more money each month toward the credit card debt. He has enough for minimums plus maybe a little bit extra. His credit cards are around 22-24% APR, and his car note is around 7-7.5%. He has four years left on his car, and by paying minimums about a century left to pay the credit card debt off.

He has been looking into consolidation lately, and visited Wells Fargo, who denied him a consolidation loan for the credit card debt. They said to come back and refinance the car along with it, and they could probably do something. So after estimating that a 4-year refinanced note for $19,000 (to pay off cards, car, and establish an emergency fund to keep from using cards again) at 10% would be about the same monthly payment he’s already making now. While he’s taking a bit of a hit on the car portion, it enables him to eliminate all credit card debt faster than he can pying minimums. I agreed it might be good to look into, so he went to Wells Fargo again.

It didn’t go well, to make a long story short. The best they could offer is $19,000 at 22% interest for 5-6 years. Obviously he could see it made no sense at all to do this and left right away. However, when I had a chance to use some calculators, I’m actually glad they didn’t give him the deal I’d estimated. Just goes to show your head can be a bit tricky, and you should always verify a scenario using actual math.

Adding the numbers for long term cost, he will have paid $8,000 or so on those credit cards, and about $16,000 on the car, for a total of $24,000. Even if he got the consolidation at 10%, he’d still be paying about $23,500 towards his total debt. In this situation, it might not make sense at all to consolidate. Since the primary portion of his debt is lower interest, it would be better for him to keep finding other ways to pay off the credit card debt sooner. I am going to advise him to try to get his interest rates lowered (he has made good payments for awhile, so that will help his standing). Luckily, in just a month his FICO score improved about 30 points, so that can’t hurt either. I will also advise him to try to pay even $25 per month extra on his cards. If he can even pay just $25 extra per month, he’ll have it paid off in 3 years. If he can pay an extra $55/month, it would shorten it to right over 2 years, and he’ll only pay a total of around $4,200, which is a much better deal than if he were able to consolidate.

I learned a few lessons from this, which I hope will keep me from making the mistake of consolidating when it doesn’t make sense.

1. Never consolidate upwards. The fact that $14,000 at ~7.5% would be moved upwards at all is a pretty good indicator it would never work. You almost always lose money this way. While adding the car enabled him to get a loan at all, even at a low interest rate of 10%, it does not make sense. I imagine raising the rate only works when the low interest debt is a tenth or so of your total debt, or at least less than a quarter.

2. Credit Unions aren’t always the best deal. I find it absurd they didn’t see the opportunity to make interest they would not have been able to make otherwise. The minimums would have stayed the same and his credit score is improving, so there is little risk in defaulting. It would have been an easy $6,000 income for Wells Fargo. While local credit unions usually have a good reputation for really looking at the customer’s needs, it was clear the guy didn’t even have a clue here. I’m pretty sure that’s turned me off of Wells Fargo, if they can’t even understand math any high schooler could do. Granted, if the person is in financial trouble, they may be willing to sacrifice and get a higher rate for a longer term (I imagine most refinance deals are like this), but my roommate was clear that he simply wanted to be able to pay off his debt earlier. It was obvious he got some sort of standard treatment instead of someone paying attention to his debt and giving him a workable solution.

3. The raw power of extra payments. Even $15 extra per month cuts the total credit card payment term in half or more. It is clear that to pay off any debt, you should first try to put extra money into it, then try to get the rates lowered. Only when you find lower interest rates should you move money around. But anyone can come up with an extra $25 per month and be out of debt in three years, and most can find $55 for only two years. Even if you sacrifice something little, it’s totally worth that extra bit. Even $10 extra per month takes years off your repayment schedule.

So, while it’s disappointing he won’t get the easy way out (we single guys love the thought of only having to pay a single bill towards debt), at least there is a more workable solution than the credit union could offer. While it’s certainly not always fun to lower your standard of living to make extra payments to debt (it’s more fun to buy than pay for things you bought a long time ago), it certainly makes mathematical sense. Here’s hoping he can squeeze in some extra payments, and perhaps his creditors will give him a little break on his rates.

July Roundup


July had many surprises in store for me. I had collected almost $200 in an emergency fund, and had a car problem that used most of it (thanks emergency fund, though!), our power bill almost doubled its normal value (luckily it’s split 3 ways), and I had a few computer expenses necessary to do some side work. At the end of the month, my total credit card debt comes to a total of $8,875.09, which is almost $200 more than it was last month. Now, the computer expenses I put on my lowest APR account, so it isn’t going to kill me. Hopefully doing the side work will quickly make up for the initial outlay.

At any rate, I am officially over getting late fees and overdrafts, and think I have a handle on things. It is tempting to not go back to spending a ton of money everywhere, but I’m still motivated. My only real difficulty is eating meals prepared at home, instead of going out. August will be my month to really work on that. I’m also excited because September 1 I’m going to make the call to all my creditors asking if I can have a rate decrease. Hopefully that will jump start my process. I decided to wait a few months to do that so I could make payments on time more often and decrease my balances, to show good faith so they will hopefully be a bit nicer.

I’m not feeling too bad even though I have more debt to deal with. I made some extra payments towards my higher-interest accounts, and I have two side jobs that may be bringing in extra income this time around. I have a solid budget I stick to well, and have really worked on all the psychological aspects of why I got myself into so much trouble. I start back to school in a month, and feel like I’ll have much less stress this time around, since I have a handle on other areas of my life.

So, my plan for August is to really work on eating at home and brown-bagging my lunch. In addition, I hope to collect another $200 in an emergency fund, and put an extra $100 towards my higher interest debt. In addition, I have a few more light bulbs to replace with CFLs, and maybe that will help the power drain. I feel like I’m in a good position, and well suited to finish this by the end of 2008.

My 4 Category Budget


In the article Money Myths for Young Graduates, one of the myths I wrote about was the misconception towards long, detailed budgets. However, I have found that micromanaging every little transaction literally sucks life out of my soul. As I mentioned, I use Wesabe to view my spending, instead of Quicken (as a software developer, I’d rather shoot my eyeballs out than look at Quicken more than a minute). Now, Wesabe is nice because you simply “tag” a transaction. That is, instead of putting a trip to McDonalds into a Food category, you could tag it as “food, fastfood, warning, fat”. At the end of the month, you can then view the Fat category to see how much you pay to gain weight. This really does a great job of eliminating the need to find a tiny category for every expense.

However, despite the agile way Wesabe allows you to view your expenditures, I really needed to find a way to control my spending. Strict categories are good for learning how to spend, because you can easily see “oh, I spent $39 on fast food, when I only budgeted $25”. However, when you create a category list, you can easily get to 30-40 categories without blinking.  My solution was to knock it down to 4, one of them having 2 subcategories. Then, I use Wesabe to view exactly where extra money is going, or where I have done well. Admittedly, these categories may not be appropriate for older married people, because it ignores things you might need to track such as tax-deductable home expenses or such. However, I find it a great tool for those starting out. It keeps things simple, and makes the end-of-the-month sorting process so much quicker. For those of us who are not Type A, it keeps us on our game.

1. Static Expenses. I quickly noticed that if something was going to cost the same amount every month, then why did I need to track it separately? I know my rent is $875, I know my car payment is $250, I know my insurance payment is $100. Why should I track those individually? I found about 7-8 “categories” that fell under this description: required expenses that do not adjust from month to month. Put them all in the Static category.

2. Dynamic Expenses. These are the expenditures that can change from month to month. There are two types of dynamic expenses I saw, Required and Flexible. Required includes the expenses that may differ each month, but you are stuck paying them, such as electricity, gasoline, etc. Flexible includes the expenses that may differ each month, that you can exert some self control to decrease, such as food, entertainment, bank fees, etc. The reason these two go into the same “main category” is to contain in one category the fluid part of your budget, or the part of your budget that has the most activity. For example, if you micro-budget $100/month for gasoline and wind up spending $120, you must “borrow” that money from your Flexible budget. In this way, you can set a main budget for all Dynamic expenses, and if you have to get a second haircut in a month it’s ok; just use money from another sub-category, always prioritizing the Required category. Again, I’m single, so it’s very easy for me to borrow money from my food allowance, I simply eat cheap. This may not work for a family, in which case you can always make food into a Required or Static expense. The whole point is to not follow my format but create your own.

3. Savings. Obviously, this includes any money you put towards any type of savings account. Right now, I am collecting an emergency fund, and have a relatively high Savings budget. When I begin shifting money to debt repayment this may drop to nothing. However, I also use this to track money I use for my retirement account and any money I make in interest or dividends on previous investments.

4. Debt Repayment.  This is the category that takes into account any debts you are actively engaged in paying off. You may keep your mortgage, student loans, or cars under the Static category, since they are stable monthly expenses. However, if you begin paying extra in hopes of being out of debt sooner, you may wish to shift it to this category. My endgame is to eliminate this category entirely.

As a software developer, I pay a lot of attention to design, even reading about architecture and typography. A common theme is that the key to any good design is workable simplicity; that is, the least amount of overhead that allows the same accomplishment. In software, this translates to the fewest clicks it takes to accomplish an action (even if I have to add super advanced logic into the code to “think for the user”). In architecture and photography, this may be the concept of empty space or geometric patterns to gain a desired effect.

In the same way, in order to have a well-designed budget, it should not be any bigger than necessary. You  may find that you still need 30 categories to effectively manage your spending. However, some of you maybe fine with 2-3 categories. I have found that the 4 category system works well for my expenses. However, everyone is different.

My point here is that it’s your responsibility to design a budget, rather than using someone else’s. Take a deep look at what your are spending, and what your common pitfalls were. Design a way to manage things where you will minimize setbacks. Design a budget that allows you to quickly categorize things at the end of the month. If you crack open Quicken, the first thing I recommend is to delete every category and start from scratch. Otherwise, it will always be too complex and unworkable, and the result might be that you give up again. By designing your own budget, you eliminate the chances of failure, because you know yourself better than Quicken knows you. And, like me, if you still wish to track expenses in micro-categories (if you want to know how much you spend to gain weight), try out a tool like Wesabe to help you out. In addition to a small categorized budget, a more flexible tool may work wonders toward your personal financial goals!

Religion in my Wallet?


Wow. Make one post about religious instructions regarding personal finance, and get a slew of personal attacks, unsubscribe notices, and general ignorant vitriol. How bitter are some of these people who commented? The post never said “these are things you should believe”, it simply stated these were some of the reasons the guest blogger handles finances the way he does. After all, personal finance is, well, personal. Why, then, are people making such a big fuss over things? As a Christian, I’m used to this sort of thing all the time. Mention Jesus around people who don’t know him, and the world implodes around you. I love America, this land of free speech. And all the people who wish to censor it.

Should posts like this receive this type of attention? No. We’re supposed to be a society based upon the free exchange of ideas. While you are quite welcome to choose not to hear others’ ideas, and quite welcome to contribute your own ideas, it’s about time you stopped calling for censorship of the ideas you don’t agree with. Like the mafia, some have used the blogger’s version of extortion — cancelling an RSS subscription — to show how much they hate the very idea of talking about God. This is incredible. When I was an atheist, I didn’t go around shoving religious people around; I simply didn’t care what they had to say. The only thing that can cause the bitter comments attached to that post is a hatred for God, and to hate God you must believe he exists. It’s such a backwards world. After all, I don’t get offended when people talk about the Easter Bunny; I’m simply content to sit back and know he doesn’t exist. Why should atheism be any different; it wasn’t to me.

Now, I won’t wax Christian all the time on this blog. To me, I’m here to write primarily about money. However, I am a Christian, won’t deny it, and won’t be silenced by people who would try to bully me into not talking about it. This is a personal finance blog, and I plan to make it personal; when religion plays a role, I will mention it. And since I tend to follow biblical laws on money, or try to, religion does belong here. However, I will not be giving altar calls at the end of each post, contrary to what some of these people feel is going on. I only hope J.D. won’t stand for being extorted, and will at least claim that all ideas surrounding personal finance belong on his blog, even if those ideas happen to be religious in nature (especially in just 1 out of many hundred posts).

Calling for censorship of any kind is becoming the downfall of our society. Freedom is a strange word; there is no grey area. Either we have freedom, or we do not. There is no such thing as “slightly-censored freedom”. People are getting more thinly-skinned by the day. Al Sharpton gets offended every time a webmaster mentions “#000000”. I have a homosexual friend who gets offended when a rainbow appears in the biblical story of Noah’s Ark (guess what, you were four millennia late on that one). Radical Muslims get offended when infidels even talk about Muhammad, much less try to draw him (here’s a sideways picture of him: 0+< (don’t kill me, please)). Our society, so delicately crafted on the principles of freedom, has arrived at a point where we must either choose freedom, or choose to allow the biggest bullies to keep us from taking part in all of our inherent freedoms, even if what we say offends those bullies.

For personal finance blogs everywhere, here’s hoping J.D. doesn’t capitulate to the bullies on that blog. Censorship of any kind is a very slippery slope, and it takes us all saying “no” before we can end this culture of censorship, thin skin, and victim mentalities. Hopefully, if we stand our ground even a little bit, their delicate skin might start getting a little thicker.

Edit: As I imagined might happen, I’ve been getting a lot of hate mail over this post for whatever reason, most of which miss the irony in calling for me to censor this post. Just to clarify things, if I sound harsh or bitter it’s likely intended to be tongue-in-cheek (i.e. the bit about the rainbow). My goal here is not to convert you to Christianity, it’s to call for an end for this whole censorship thing, and let all viewpoints be heard, even in the personal finance community. I’d love to hear the perspective of a Hindu on personal finance, as well as a Buddhist, or any person with a slightly different perspective on it. The whole point of blogging is that all views are welcome, even when they don’t match yours. How will we ever learn new ways to think about things if all we do is call for opposing viewpoints to be censored? How will I know if I’m wrong about something if I never hear the other way to do it? Even more than being Christians and Atheists or whatever, we’re all human beings, and our primary concern should always be treating others as human beings, rather than dismissing people with labels we don’t like. So please, don’t ask me to censor my own blog, because it’s not happening. And I hope nobody else will censor theirs, either.

A Free Car? Not Really…


Today I found this post on Dave Ramsey’s “Drive Free” plan via The Simple Dollar, even though it’s been around awhile. Now, I’m a good INTJ and love thinking through scenarios. It’s what makes getting out of debt fun for me! I loved seeing the math on this one, as I heard about this plan a year ago and immediately thought there was something fishy about the math, and the simple reality that cars depreciate. Fast.

Put simply, Dave Ramsey’s plan fails on several grounds. First, you should plan on saving upwards of $450 per month for it to work remotely. Second, you’ll be buying some incredibly unreliable cars at the beginning, causing potential need for major repairs, ruining any chance of this working. Third, you won’t be in a new car for 6-7 years or more at the rate of upgrading. Fourth, you have to pay taxes/tag/title every year! Fifth, it doesn’t change the fact you’re putting away $450 a month for the next decade or more. For someone who has a lot of good monetary advice, it surprised me how wrong he is on this point.

This inspired me to figure out my own scenario. As a nuclear engineer, I was/am all too familiar with the concept of decay, and the types of models they present. I’m not so hot on calculating the cost benefit scenarios of owning a house (yet), but knew I could come up with something that takes advantage of the depreciative value of a new car.

First, I had some conditions. I do not want to ever spend more than $300 per month on a vehicle, unless my financial situation has a major shift in the next decade. Second, I don’t want to buy used again. Third, I want to trade in the car at that sweet spot of few repairs and maximum trade in value, or the plateau in the depreciation curve. I calculated about 7-8 years on most cars for that to happen, given more than average driving (150k miles in 7-8 years). Fourth, I don’t demand an incredibly nice car each time, but I do want to progressively get nicer cars. Fifth, I don’t mind using credit to buy, as long as the monthly payments are ok.

I came up with this:

Car Buying Scenario

As you can see, I’m taking each car long-term. If you have to have the flashy newest car all the time, this isn’t going to work for you. But until I can afford my Bentley, I don’t mind driving a sub-$20k car for the next decade. I prefer to get a small economical car and then upgrade the heck out of it. It makes it feel more luxurious, rather than getting the standard package on a nicer model. I also use consumer reports regularly, so my trade-in values are maximized and I don’t get a lemon. The trade-in values I used in the chart may be a bit off, but the plan still works; just slower.

My current car is a 2005 Impala I bought in Jan 06, with 30k miles at the time. I expect it to last me seven years total before repairs start mounting (compare this to a $4k junker that Dave wants you to buy). At that time, I will have about $8,000 to put towards a new car. This means I can now finance a cheaper amount on a much nicer car, which means I can then drop to a 3-4 year note, rather than 5. This means, in turn, I can upgrade sooner, I can maximize the trade-in value, and will have more years of savings the next time I upgrade. Eventually, I will be able to get a $25k car on a 1-year note, still paying just $250 per month. If you follow it to its natural conclusion, I will one day be able to purchase a $30k+ car with cash.

I purposefully do not calculate in the interest gained during the savings periods. That extra money can be used for the taxes/tag/title. I also do not include the tax benefits in claiming depreciation on the new cars, which also saves you a little bit. If you look at the chart, you can see how even bumping it up to $300 per month would either get me a much better car, or allow me to upgrade more quickly each time. I simply pay $250 or so for the next few decades, and I’ll eventually be in a BMW. Or a nice mini-van, depending on my family situation then.

The issue here is whether or not you feel comfortable using credit wisely. Currently my car note is only 4.8% interest, which would make it stupid to pay cash ahead of time, considering I can earn more than that over five years in one of many available savings accounts. When you factor inflation into the equation, it makes the scenario even better to use credit for a car purchase rather than paying cash up-front. In fact, if you get a good rate like I did, it almost makes more sense to finance the whole car for 5 years every time, and keep your money in savings to use for the monthly payments. I have not run the calculations on that, but I imagine you would be able to add $1-2k to each new car given the extra returns, and a lot of dealers will give you a better deal if they know you’re financing for 4-5 years. Also, if you’re willing to stick with a cheaper car all the time, you can decrease your monthly payment gradually, making your car less of a monthly burden.

The best thing is if problems happen, such as an engine replacement or something major (worst case scenario), it doesn’t ruin your whole plan. You use your current savings, and the next upgrade, you simply buy less of a car or even finance slightly longer. Also, the major thing in all this is that you don’t have to start some plan right away! You simply start where you are (likely making payments on a car), make a commitment to save about two years after repayment before buying again, and let the cascade begin. The point here is that if you don’t have to have the newest thing all the time, and are confident with using credit to your advantage, you can come out better in the long run, without making major sacrifices in the beginning.