Bucksome Boomer

The Argument for the Power of the Debt Snowball

Melissa — Wed, 16 May 2012 12:44:06 +0000

From a strictly financial viewpoint, the Debt Snowball doesn’t make sense. You target the smallest balances first and gradually move on to the larger ones, regardless of the interest rates on each debt.

However, as I am learning from personal experience, paying down debt is often more of an emotional process. If you can harness your emotions to drive you to pay down the debt faster, a debt snowball may make perfect sense.

Our Debt Load

My husband and I accrued quite a bit of debt the last several years, mainly because we lived on a very small income (averaging $30,000 a year while living in the suburbs of a major city with a high cost of living while raising 3 children). Our income was small because I was just beginning to work as a freelancer and my husband was finishing his Ph.D. Now, we are in a much better financial position, and we are tackling our debt with the goal of having it all paid off in the next year or two.

We started with three credit card balances and four student loans between the two of us. Our plan was to pay down the credit cards first, and then move on to the student loan debt.

However, that plan has recently changed.

The Argument Against Changing Our Plan

We have one credit card paid off, and the second credit card now has a balance of only a few hundred dollars. The third credit card has a whopping $11k balance. We have one behemoth of a student loan with a $17k balance and then three smaller ones at $4k, $5k, and $5.5k. Our plan is now to pay off the smaller student loans first.

Why?

Many people would urge us not to deviate from our plan and to instead work on the $11k credit card balance because it has the highest interest rate (nearly 5% higher than our student loan interest rate).

They would also say that the interest on the student loans is tax deductible, which is another reason why we should save it for last.

Finally, they would argue that we would end up paying more in interest overall because we waited to pay off the higher interest credit card.

These are all good arguments with a solid financial basis. They were in fact what I was thinking when I planned our modified debt snowball to knock out all of the credit card debt.

Why We Changed to a Traditional Debt Snowball

However, I found that when I could see the end in sight, I worked that much harder to pay it off. At the beginning of this month, the smaller credit card had a balance of $1,100. Because I could see that the balance was almost gone, I set about to pay it off this month. I put any extra money I earned or received on that card. I started selling more things around the house. I did what I could to free myself of that balance.

If the balance would have been $11k, I wouldn’t have had the same drive because even though I would be paying it down, the end would be no where in sight. If I instead move to the smallest student loan once this small credit card is paid off, I am still motivated because I know it may only take a few months to pay off the $4k student loan.

My plan is not based on sound financial principles. It is based on my emotions and my drive. For me, that is what will help me pay off the debt more quickly. You may be different. If you get motivated by how much you will be saving in interest, you may want to pay down debt based on highest interest rate first.

If you had debt to pay off (or are doing so know), which method did you use to pay it down?

Why Are You Taking Out Student Loans?

Derek — Wed, 09 May 2012 13:36:10 +0000

All the parents in the world seem to have the same advice, “Go to school, get good grades, and get a safe, secure job.” That is their definition of success, and do you know why? Because it’s what their parents instilled in them! Our parents and grandparents saw how limited their options became later in life, all because they did not have that piece of paper from a college institution.

Any More Advice?

For whatever reason, the parental advice seems to stop there. In my mind, I had plenty of other questions as a teenager leaving the walls of high school and venturing into this unknown called college. For instance, “How do I handle my finances now that I’m out on my own?” Or, “Are my study tactics from high school going to be good enough for college?” Most importantly though, our young high school grads are often asking the question, “Is it ok for me to take out all of these student loans? Will I be able to pay these back easily once I find a job?”

When it comes to student loans, many parents do not have the money to fund their children fully through college, and since their kids don’t hardly make any money and have nothing saved up, the only option available is student loans. Throughout their college career, students are borrowing $10,000, $20,000, and sometimes $50,000 or more to fund their schooling! The average graduate owes $25,000 in student loans and most likely doesn’t have a way to pay for it. After all, there is absolutely no guarantee of a job, even if you do have that magical piece of paper.

The Reality

Did you know that 20% of the bankruptcies today are filed by kids that are under 25 years of age?! More often than not, it’s the same story: they went to college without having any money to pay for it, survived with a few credit cards for a while, but then simply ran out of borrowed money. Before they realized it, they had $40,000 in student loan debt and $30,000 in credit card debt and were forced to start paying it back. Well, a $900 payment each month is pretty tough considering they still only make $12 at their part-time job. Bankruptcy seems like the only way out.

I beg you not to become one these bankruptcy cases. It just doesn’t have to be like this! Believe it or not, college CAN be paid with cash. It takes careful planning, and perhaps you’ll even have to take a few months off from school to save up some more money, but it is possible. Just think about what you could do if you graduated with your degree and found a job that paid $45,000 per year, and you have absolutely no debt! Immediately, you’d begin to fund your retirement accounts, you could make a massive down-payment on a house, and you’d build up your savings to the point where you’d never feel stressed about money ever again! Wouldn’t that be nice? Let me tell you, it is possible!

It’s Never Good to Hear from the Fraud Department

Kay Lynn — Mon, 07 May 2012 13:24:01 +0000

Last night my husband and I were enjoying a wonderful dinner out celebrating our anniversary when I got a call from Chase Bank. It was an automated message from the Fraud Department stating they suspected fraudulent activity on my credit card and to return their call as soon as possible.

My husband wanted me to call them back right away, but I wanted to wait until we were home where I could put my full attention on the matter. An hour wasn’t going to make a big difference if they’d already detected suspicious activity. We had already planned on using another card to pay the bill.

Fraud Department Call

When I called the Fraud Department, an automated process identified me by last four of my card number and social security number. It detailed two declined charges and said to press 1 for valid transactions, 2 for customer service and 3 for fraudulent charges.

No, I was not attempting to transfer over $1,000 via Western Union and didn’t want to buy gas in Illinois!

I was then transferred to a live representative who then went over all the activity on the card that day. Yes, I did make charges to Amazon and RoadRunner Sports but no to the other three transactions. One had gone through, but they removed that charge.

Resolution/Next Steps

My card was immediately cancelled. I was given a choice of rush or standard delivery for the new card. There was no need to rush a card as we will just use our American Express is needed before the new one arrives in 4-5 days.

I was also told my account wouldn’t be accessible online for 3-4 business days during the card number transition. I was asked to carefully check my statement when available for any additional fraudulent charges.

Having your personal financial information stolen is never fun and I have no idea how it happened. I’m thrilled Chase Bank noticed the suspicious activity and took action. They turned a potentially horrible experience into a positive customer service interaction.

Have you ever experienced fraudulent use of your credit card or other financial accounts? How was it resolved?

Lessons I Hope to Teach My Son

Melissa — Wed, 02 May 2012 13:00:01 +0000

What did your parents teach you about money? My mom taught me how to add in my head so I could comparison shop at the store and get the best bargain, how to stretch food to feed a family, and how to set up a budget as well as how to balance a checkbook. These are basic financial lessons, and I am glad that I learned them; many of my peers did not.

However, there was a lot my mom couldn’t teach me, such as how to save for retirement, because she felt that she would never make enough money to save adequately. She did not begin saving for her retirement until her early forties.

What I Hope to Teach My Son

My son is only seven, but I hope to teach him quite a bit about finances, specifically, those things I never learned.

My plan?

Teach him to save for retirement early. When my son is a teenager and gets a job, I plan to teach him about retirement and the power of compounding interest. I plan to open a Roth IRA for him and put some of his earnings there. If we have the money, I may match his retirement savings, up to his $5,000 yearly contribution, assuming he made that much in a year.

Teach him to save for what he wants. This lesson has already begun, and in just a year he has become much better at it. Right now his favorite hobby is reading books. He just went to a book fair that he has been saving for the last few months. He knew I would give him five dollars, but he needed to come up with the rest; he saved $15 on his own.

Teach him to work for what he wants. We bought a Dave Ramsey Financial Peace Junior set for my son, and we have been working through the material. Before the set, my son was notorious for whining and begging for money. Since he has been listening to the CD set, he has now started to ask for extra chores he can do around the house to raise money. Just this change makes buying the Financial Peace kit worthwhile!

Teach him to look for a less expensive alternative. As I mentioned, my son loves to spend his money on books. I am hoping to eventually teach him about less expensive alternatives such as Paperback Swap and using the library. He does use the library extensively, but right now he wants to own the books he loves the best. Still, there are plenty of ways to own books without paying the full price. I want to show him how much further he can stretch his money with smart purchases.

As parents, we often do the best we can. My mom educated me about finances in the way that she knew best. I am grateful for that because I still use some of the frugal strategies she taught me. I hope to teach my son about the benefits of saving and retirement at a young age so he can make smart financial decisions throughout his life, which is the best path to financial security.

4 Reasons Family Vacations Should Be in Your Budget

Guest — Fri, 27 Apr 2012 13:00:09 +0000

This is a guest post written by Jana from Daily Money Shot, a personal finance blog about money at the intersection of life, pop culture and everything in between.

I’m a huge advocate for family vacations. I don’t believe that a family vacation needs to be somewhere elegant or fancy. A simple camping trip is just fine (and often provides more fun and adventure than sitting on a beach. Just ask anyone in my family about the night of the rabid squirrel). Because no matter where the location or the accommodations, family vacations do these:

They provide a chance to unwind as a family. Let’s face it. Day to day life is stressful. Between work, school, activities, doctor appointments, pets, bills and all of the other responsibilities we have, we’re all overextended. That overextension can sometimes provide unwanted or unnecessary friction in a family. Taking a vacation, even if just a few days, can give everyone a chance to relax and escape from those responsibilities. In my experience, those few days of relaxation have a pretty long lasting impact.
They create lasting memories. Some of my most vivid memories are the crazy things that happened to me and my family while we were on vacations. In fact, my parents still like to use my affinity for It’s A Small World as a reminder of…well, I’m not exactly sure but they love to tell me how I tortured them at Disney World by making them go on the ride approximately 800 times. In a row. And it’s fun to relive the experiences via pictures and stories. Because even 25 years down the road, some of the stories will still be funny (even the ones that weren’t funny at the time).
They provide an opportunity to experience new things together. Often, as adults, we gear our vacations towards our interests. We think about the places we want to go, the sights we want to see, the food we want to eat. What’s nice about this is that we get to share those activities with our kids (who probably have some other agenda). On the other side of that, by planning a kid friendly vacation, we get to experience the trip from the kids’ point of view and participate in activities we never thought we would. Either way, we’re experiencing new things together.
They provide an opportunity to teach kids about saving. Most people cannot afford to decide to go on vacation and just pay for it on the spot. Most of us need to decide where we want to go, figure out the approximate expense and start saving in advance. What better opportunity to teach our kids the importance of saving for our wants? Saving for a vacation can even turn into a family event. Explain to your kids why you need to save the money and encourage them to participate. For instance, you can have them do extra chores and offer them the choice of keeping the money or putting it into the family vacation savings account (you can also offer to split the money for each). Whatever you choose, use it as a teachable moment.

Family vacations provide so much more than what’s listed above. They provide topics for family dinner conversations. They instill a sense of adventure. They provide a way to teach our kids about patience and how to read a calendar. But most importantly, the offer a way for a family to enjoy time together.

How do you feel about family vacations? Are they important to your budget?

I’m Getting Rich, How About You?

Derek — Wed, 25 Apr 2012 13:00:04 +0000

I started focusing on my financial position a little over 2 years ago, and I realized that I was in trouble. My wife and I were newlyweds and there was more money going out than what was coming in, plus we had $18,000 worth of school loans to pay back. Rather than wallow in my sorrows, I decided that we were going to increase our income, pay off our debts, and live the way we had always dreamed.

Paying Off The Debt

To increase our income, my wife was able to find work (rather than go into more debt at school), and I started learning how to make some online money in addition to my full-time job at the office. With an extra $1,500 coming in each month, we were able to pay off all of our debts in just over a year.

Buying a House

After paying off all of our debts, it was pretty easy to save up a down-payment for a house. We found a lovely foreclosure that needed some work, but at the cost of only $78,000 we figured that we could make some improvements and still come in at a cost that was less than the actual value of the property. While we are still in the “improvement stage”, we are nearing completion and our house is already worth more than $100k for sure.

Paying Down the Mortgage

It is pretty normal to pay for a house over the course of 30 years these days. Well, my wife and I are far from normal. In order to save $75,000+ on interest payments, we’ve decided to pay off our house in less than 4 years. After all, not much has changed financially in the last couple of years, so instead of making those $1,500 payments toward our debts (which are gone now), we’re putting an extra $1,200 toward our mortgage (and having $300 worth of extra fun)!

After the Mortgage is Gone

Once we get rid of that pesky mortgage, think about how quickly we could increase our savings/investments? If we consistently put $2,000 (our mortgage payment of $711 plus our extra $1,200 + a little extra) a month into some retirement funds for the next 40 years, guess how much our fund would be worth when we’re 70 years old? Drumroll…….. $11,521,743.46!!! If that’s not considered rich, I don’t know what is.

You Can Do It Too!

The crazy thing is that my wife and I are not really that special. We just started by living frugally, increasing our income, and devoting every extra penny toward our debts (and then later our house). Anybody can do this! What’s stopping you? If you need a little kick-start, email me at derek [at] lifeandmyfinances [dot] com. I would absolutely love to help you get started down your “get rich trail”!

Are you heading down the road toward a better financial future? How are you doing it?

4 Ways Your Bicycle Could Help You Earn Extra Income

Guest — Mon, 23 Apr 2012 13:00:18 +0000

This guest post is by Kyle Taylor who is a personal finance blogger that blogs about weird ways to make money at The Penny Hoarder. Connect on Facebook or join the newsletter and get his “5 Wackiest Ways to Make Extra Money.”

Do you have a bicycle? If so, you have not only a mode of transportation but a means to boost your bottom line. Essentially, you can combine a love of fitness with a passion for making money all by pedaling your bike around town!

Here are some easy ways to turn your bicycle into a profit-making machine:

1. Become a bike courier. A perennial favorite in big cities with very minimal barriers to entry, becoming a bike courier could be a very lucrative way to bring in additional income. The key to success in this niche industry is figuring out the inefficiencies that lie within current courier operations, identifying solutions for those problems, and networking with businesses that would benefit from this knowledge. While this is an attractive option to young, urban city-dwellers, it could also become a successful business venture in smaller towns were services are centrally located or within a short distance of each other. Communication and networking is paramount with making this option a success, so be ready to work hard to make your name known!

2. Become a tour leader. Hawaii, the Mexican Riviera, the streets of Paris. Could you see yourself leading a group of tourists through these places as a tour guide? What about if your tour was based on riding bicycles through these areas? If you have knowledge of the regulations, culture, and navigation of various cities and regions, put that knowledge—and your bicycle—to work for you. Not only will you be able to travel to exotic locations for free, but you’ll be able to make an income doing something you love with other people who are excited to see a new land. The key to success with this venture is teaming up with an established bicycle rental shop in order to avoid costly outlays in capital. Woo them with your unique route plans and prepare to take the world by storm.

3. Deliver meals. Make yourself the ultimate delivery person by teaming up with local restaurants to deliver their tasty delights to office workers who can’t get away from their desks for lunch. Once you’ve established yourself in the restaurant arena, branch out to personal contacts who may want to hire you for their lunch delivery five days per week. Potential bonuses could include a free meal! Potential opportunities for expansion include pizza, weekend, and evening deliveries.

4. Be the AAA of bicyclists. Let’s say you were training for your first triathlon. Imagine heading out for a long training ride and remembering—halfway through when you get a flat tire—that you accidentally left your spare tubes at home. What if you could call someone to come out, meet you, and fix your bicycle so you could continue on your way, much like American Automobile Association (AAA) does for stranded motorists? If you have a bicycle, a bit of repair know-how, and a small assortment of tools/products on your back, you could become a hot commodity in your community’s contingency of bicycle enthusiasts.

Is Your Career Aligned with Your Priorities?

Melissa — Sat, 21 Apr 2012 13:00:06 +0000

People frequently say, “You only get one life!” When you are young, this advice is often taken as permission to do something free-spirited and dangerous because you may never get the opportunity again. When you are middle-aged, it can be an invitation to reflect on your life—the time that has gone by and the time still to come.

An interesting crossroads occurs in middle-age. You realize more than ever that you must get your financial house in order. Retirement is no longer a destination so far down the road you can’t see it; instead it is within view, and you know you must intensify your savings. On the other hand, middle-age can find you reflecting on your life, your job, your family. You may be burned out from your work but feel that you have to stay because you can’t give up the money. You may think that someday you will be able to transition from the job with the lucrative salary to something you truly feel passionate about.

However, for many people that transition never occurs. They stay rooted in jobs they no longer enjoy or that require too many hours away from home and family to continue to make more money and secure their future.

Mike Wallace, one of the mainstays of 60 Minutes, recently passed away at the age of 93. His son, Chris Wallace, said before his father’s death:

“He still recognizes me and knows who I am, but he’s uneven. The interesting thing is, he never mentions 60 Minutes. It’s as if it didn’t exist. It’s as if that part of his memory is completely gone. The only thing he really talks about is family—me, my kids, my grandkids, his great-grandchildren. There’s a lesson there. This is a man who had a fabulous career and for who work always came first. Now he can’t even remember it.” (The New York Times)

You only get one life.

While I am by no means advocating financial irresponsibility, I am encouraging you to look at your priorities. What is important to you? If it is your career, that is fine. Continue to work hard and enjoy your work and the legacy you are leaving. Mike Wallace certainly leaves an impressive legacy.

However, if your priorities are family and friends, does your current work situation reflect that? If you want to be there to raise your kids, but instead you are working 60, 70, 80 hours a week, your life is not aligned with your priorities. Are there changes you can make? Can you downsize your lifestyle so that you can take a job that requires fewer working hours? Yes, you may take a pay cut, but is that cut in pay worth it to make your priorities your priorities?

You only get one life. Be wise. Don’t wait too long to make changes. Leaving a secure job that pays well is difficult. It is scary. But once you have made the switch, I don’t think you will regret it.

Last year I quit a stable, secure teaching job. The problem was that I didn’t really enjoy it anymore, and the work load kept me from spending as much time with my kids as I would like. The day I turned in my resignation, I was terrified. Now, a year later, I can see that it was the smartest decision I could have made. I now do work that I enjoy from home, and I have plenty of time with my kids. Our lifestyle has become simpler, but that too is more aligned with our priorities. Our retirement fund may not be as large as it would have been had I stayed at the job, but we are putting away enough for a comfortable retirement, and I hope that changing my lifestyle, while scary, will leave me with fewer regrets when my one life is done.

Alternate Investments for Your 401k/IRA

Guest — Fri, 20 Apr 2012 13:00:40 +0000

Today’s guest post is from Dr. Jason Cabler, a practicing Dentist, Christian personal finance blogger, and Speaker at Celebrating Financial Freedom where he teaches how to become debt free and live a debt free life.

If you’re like me, you’ve realized that over the last 10-12 years, the stock market has gone nowhere. Yes, it’s had its highs and lows (currently going higher), and if you recognized those points in the stock market and made some good trades, you could have made some significant money.

However, most of us don’t do that and really don’t know how to time the market, and we tend to lose our shirts if we try. The vast majority of us are buy and hold investors, and over most of my investing lifetime the buy and hold strategy has not worked because the market hasn’t exceeded the highs reached over a decade ago.

That’s why I began looking into other ways to invest. I had really wanted to get into real estate investing for a long time but didn’t know how I could swing it. I refused to go into debt to do it but didn’t have the free cash available to just go out and buy a house.

After doing some research, I found out about Self Directed IRA’s and 401k’s.

How Does It Work?

A Self Directed IRA/401k is simply a different way of setting up your retirement account that converts your existing account into an LLC (a Limited Liability Company) that allows you to invest in alternative investments such as real estate, businesses, franchises, tax liens, private placement stock, loans, mortgages, and other investments that are usually prohibited under traditional IRA and 401k rules. But the vast majority of people who have these accounts use them to invest in real estate.

However, there are some investments that are prohibited even under the Self Directed account rules, such as collectibles (Art, Beanie Babies, coins, etc.), Life insurance contracts, as well as any investment that would be considered self dealing such as buying a house and renting it to yourself.

Why a Self Directed IRA/401k is an Advantage

Converting your investment account to a Self Directed account can work to your advantage because it allows you to diversify your investments beyond the usual limited choices of stocks, bonds, and mutual funds. You can invest in real estate that will appreciate over time and also be able to collect rental income that will feed directly back into your retirement account to be used for more investing.

But just like a typical retirement account you can’t take money out for your present benefit without paying taxes and penalties (Your tax rate + 10% penalty) and you can’t start taking money out without penalty until age 59 ½.

The biggest advantage though, is that you have more control over your investment destiny, and many more options than just picking from the typical list of stock or bond funds found within your average IRA or 401k account.

Setting Up a Self Directed Account

Of course, to set up and administrate a Self Directed account is a bit complicated, and is probably not the best fit for someone who tends to be disorganized or who is not willing to put in a little time to gain understanding of how it all works.

Setting it up is not cheap, either. The typical fee for setting up a Self Directed account usually comes to a few thousand dollars due to the amount of paperwork and fees involved in setting up the LLC, as well as time spent consulting with the specialists that set everything up for you and guide you through the process to make sure all the I’s are dotted and the t’s are crossed.

Also, there are a lot of rules you have to be aware of with this kind of setup, but once you understand what kinds of transactions you should avoid, it’s not that complicated.

My Self Directed IRA/401k Experience

This type of account is certainly not for everybody, but for those who want more options and more control over their investing destiny, it can be a good alternative to the traditional IRA or 401k.

My own experience with a Self Directed IRA so far has been a positive one, I have recently made my first real estate purchase using my SDIRA and was able to pay cash for a small house which I had fixed up and is currently for sale, hopefully at a decent profit.

In my situation I could not have invested in real estate any other way, because I refuse to take out a mortgage to make an investment, as I believe in being debt free. I didn’t have enough free cash to invest in real estate, but I did have enough in my IRA to pay cash for the small house that I have invested in.

So, in the end, I do believe that an SDIRA has been a great advantage for me overall because I was able to begin taking more control of my own destiny (for better or worse) and start building my future now, one house at a time.

If you’re interested in learning more about Self Directed accounts, just Google “Self Directed IRA” and you will find sites for many specialists that deal specifically with these types of accounts and whom I’ve found are ready and willing to answer any questions you might have.

Happy Investing!

How Many Ladders Do You Have In Your Financial World?

Guest — Mon, 16 Apr 2012 13:00:19 +0000

The following is a guest post from Michael at Money Beagle, who believes that a balanced approach to money management is the key to financial success. He blogs about many personal finance topics, from getting out of debt, to saving for retirement, to tips on staying clutter free around the house, with an emphasis on ‘personal’.

A couple of years ago, I was on a project that was part of a major construction undertaking. I can’t remember the size of the building but it was a few hundred thousand square feet.

My involvement had me going pretty much every which way, top to bottom, front to back, and side to side. Often I was there during off-hours, when there wasn’t a whole lot of construction activity going on, other times I was there during the thick of it. The whole thing was incredibly fun to watch, but one of the things I was struck by was…

…the sheer number of ladders that were around the building.

Almost every room or hallway seemed to have a ladder. Going in the stairwell. There was a ladder. Headed over to this room. A ladder. That room. Another ladder.

I actually started thinking about all those ladders.

I’m sure every individual or company marked their ladders.

Did they count them up before they went into the building? Did they count them all at the end of the project? How many companies ended up with more or less ladders than they started off with?

Whose job was it to deal with any ladders that were left on the site after all the construction workers cleared out? Did they call each company back to get their leftover ladders or did they just stick them in a storage room somewhere? Or are companies that precise that every ladder was cleared out?

It got me thinking, if all those ladders existed in this construction project, how many ladders exist in our financial worlds? Picture your financial world as a building layout. Do you know how many ladders you have lying around?

Can you account for every ladder? Where is it? What is it there for? How many bank accounts do you have? Credit cards? How many checks or automatic payments do you have on a monthly basis?

If you don’t know, then guess what? You’ve lost track of some of your ladders!.

That building has been open for around three years now.

Every once in a while I wonder just what happened to all the ladders in there.

Do you work to simplify your finances? If necessary, would you be able to round up all of your financial ladders?