Debt Free Adventure

Debt Reduction and Savings Statement – April, May, June, July 2010

Matt Jabs — Wed, 28 Jul 2010 03:32:57 +0000

Wow. Has it really been 4 months since I last brought you kind people up-to-speed on our debt reduction and savings progress? How sad. I’m sure you have had other things to focus your time and attention on, but let me offer my apologies all the same.

I’m pretty excited about this months update, scratch that, I’m always excited to publish these updates. Why? Chiefly because it means that I have less debt and more savings than I did the previous month. W00t!

Our goal progress for April, May, June, July 2010

Each month I post these Monthly Debt Reduction & Savings Statements so I can continually compare our current debt against our starting debt from back in January, 2009 – when my wife & I began our Debt Free Adventure – and summarize our progress toward debt free living.

Check out our debt reduction charts in the right sidebar. I like graphs.

Based on our financial goals for 2010, what follows below is the progress we made over the past four months.

1. Lending Club debt goal

Paid off. If you’re interested in borrowing through Lending Club, read my advice on debt consolidation and check out my Lending Club review to help you decide if a similar path would benefit your debt situation.

2. 2nd mortgage debt goal

Our 2nd mortgage is the next target in our plan to get out of debt. Alongside debt reduction, I always choose to save money too. We stepped up our payment amounts on this loan by quite a bit, although perhaps not as high as you might expect. Rather than throw all available monies at this loan, we decided to build our Emergency Fund up to cover 2 months worth of expenses. I wanted to do 1 month, my wife wanted to do 3, so we compromised by settling on 2. This means we used a lot of extra cash flow each month to get our Emergency Fund up to $6,000. More on this below. For the last few months we were putting an extra $300 toward the principal each month, but will bump this up to around $800 extra/month come October 2010.

Debt reduction on our 2nd mortgage during this period = $815.67.

3. Emergency fund savings goal

As previously mentioned, we decided to save 2 months worth of expenses in our Emergency Fund. The total goal is now $6,000 and at the time of writing we have $5,575 saved and will reach our goal with our August contribution. Over the last few months we have continued to fund our EF via our ING Direct automatic savings plan to the tune of $700 each month. No, this is not the preferred Dave Ramsey method, but it is the best decision for our current situation. Take advice from experts but never lose light of the fact that personal finance is personal and should be treated as such… as Mr. Ramsey agrees.

EF savings progress during this period = $2,815.70. Interest earned = $15.70. W00t!

4. Side income growth goal

Due to lack of posts, DFA traffic has dipped and earnings have done the same. For April and May DFA covered the mortgage payments, but June and July came up short. This is okay, although I wish I could have kept the momentum going unabated… I just had too many balls in the air. My new job (follow @justasknet on Twitter) has demanded more of my time than my last job, and of course will always come before side projects… until that day when I no longer require a day job.

Income diversification has also been put on hold for the time being; which is also fine for now.

Other savings

Our other savings accounts include:

Vacation Fund is now being funded with $200 each month – this is where we choose to splurge. Interest earned = $1.31.
Next Auto Fund is receiving $500/month going forward, but received $350 for the past few months. A lot of people disagree with our decision to save for our next automobiles while still in debt, but they do not walk in our shoes so let them save their critiques for their own decisions. We plan to build this fund up to $10,000 so we can both purchase our next vehicle for cash – we are capping this at $5,000 each. Both our vehicles are 8 – 10 years old and we choose not to finance ever again… which means we must be prepared. We currently have around $2,500 saved. Interest earned = $5.42.

As mentioned so often in times past here on DFA… we believe in saving while repaying debt.

Thoughts

I love paying off debt and I love saving money, and over the last four months we’ve been doing a hell of a lot of both. It feels good man… it feels really good. I don’t have a whole lot more to say, and I’ve already spent an ample amount of time writing this post so I’ll take this opportunity to close.

Cheers, and please leave your thoughts in the comments.

Best of Money Carnival #57

Matt Jabs — Tue, 29 Jun 2010 10:00:24 +0000

Welcome Best of Money Carnival readers!

Welcome to Debt Free Adventure and the 57th edition of the Best of Money Carnival… where carnival hosts strive to serve up the very best in Personal Finance each and every week.

This week the carnival saw over 60 article submissions so it took me an extra day to narrow things down to the top 10. Apologies for publishing a day late, but as promised… here is your top 10 America. Read, learn, and act!

Number 10

Madison DuPaix brings us Bill Includes New Student Loan Forgiveness Program on My Dollar Plan

After 20 years of consistent, on-time payments, a student’s loans will be forgiven. Furthermore, public service workers (teachers, nurses, military service) will have debt forgiveness after 10 years.

This article looks at key points of the student loan reform included in the new health care bill.

Number 9

Mr. Money Smarts brings us How Much Money Are You Saving In Your Emergency Fund? Have You Ever Had To Use It? on Smart on Money

We’re currently sitting on a nice 10 month cash reserve in our online savings account, and we’re building it to 12 months. With the economy as it is, and with one spouse staying home to be with our son, we just feel more comfortable having a bigger cushion in case something were to happen. And something WILL happen. What about you?

Mr. Money Smarts is smart indeed! Currently my wife and I have a 2 month cushion. We plan on making it 3 before resuming our super aggressive debt repayment. (We are saving $650/month and paying an $400 toward debt on top of regular payments. Once that 3 month cushion is reached we will likely put it all toward debt again.)

Number 8

The Oblivious Investor and Neal Frankel bring us IRA Beneficiary Rules: The “Stretch” IRA on The Oblivious Investor and IRA Beneficiary Rules You Need To Know But Don’t on The Wealth Pilgrim.

In short, the longer a beneficiary’s remaining life expectancy, the smaller percentage of the IRA he has to withdraw each year, and the more he can take advantage of the power of tax deferral. As a result, to the extent practical, it often makes sense to choose your younger loved ones as the beneficiaries for your IRA. ~ Mike
There are a few IRA beneficiary rules you need to know that can save your family money and grief. ~ Neal

I decided to feature both these articles because I wanted to highlight the topic as well as the writers. Both Mike and Neal are knowledgeable, helpful, and most importantly their writing takes confusing topics and makes them easy to understand. Check out both their sites and subscribe.

Number 7

Antonia brings us Why I’m going to stop saving money on A Nomads Lot.

I have to admit, saving money does feels good occasionally. However, the feeling is short-lived. Most importantly, saving comes to a natural end. Once I’ve cut all the corners I can, there’s no forward movement. It’s like setting up a line of dominoes and knocking them down. Once the last domino hits the ground, it’s over.

I love the point. It is one of those things that can only be understood by those who have already walked in budget crunching shoes.

Number 6

Vered Deleeuw brings us Learning to Say “No” to Your Kids on MoneyNing

It’s tough to raise kids in such a materialistic environment. The United States has always been a heaven for innovators, inventors and savvy businesspeople, and this has been part of its strength and amazing growth. But money is not, cannot be the only value, and this is something that grownups and children alike must realize.

I LOVE the tone of this article. Adults are always complaining about, “Kids these days.” But as adults we need to step up to the plate and teach our children proper values… even (and especially) when they’re unpopular!

Number 5

Jason brings us Do You Know About Crown Financial Ministries? on One Money Design

Crown Finanical Ministries offers a wide variety of tools to help you on your financial journey and grow as a financial steward.

I dig Crown’s product offering and think many people can benefit from it, not only financially… but also spiritually – and we all need that!

Number 4

Joe Plemon brings us What is the Difference Between Saving and Investing? on Personal Finance By The Book

Most of us innately know that saving and investing are not the same, but do we understand the difference? Because clarity in this distinction can greatly impact one’s financial well being, realizing these difference is vital. The key is in two words: risk and liquidity.

Although a simple subject to some, it is a haze of confusion to others. I love how Joe lays it out there in layman’s terms… for all to easily understand. Make sure you are saving and investing! (PS… debt reduction can be one of the best investments.)

Number 3

Ella Moss brings us Shrinking Dollars on Zodiac Times

I am no longer a middle class girl, I am a working poor one, and my future looks pretty bleak. I have no extra dollar to save, I have no pension coming, and as an entrepreneur I have no other safety nets like unemployment benefits. Instead, I am working 3 times as much as I used to, and spend so much more just to get the same shrinking dollar.

While a lot of what Ella says is true, there are still many reasons for American’s to count their blessings. That said, listen to Ella… BUY AMERICAN and BUY LOCAL!

Number 2

Ace of Wealth brings us Facing the Truth about my Debt on Ace of Wealth

Do well in school. Go to college. Get a good job. As a kid I heard those phrases all the time. One thing they didn’t tell me was how much debt I would have. When I graduated, I accumulated nearly $60,000 in debt.

Amen! People need to rethink everything now-a-days… especially diving headfirst into humongous loans. Many times I am unpopular for advising people against taking student loans, but I’m sticking to my guns and I like the way Ace brings home the point in this article. Sure, student loans aren’t inherently evil, but explore all other possible options before partaking, and many simply don’t because loans are the norm. Ace, check out the how much debt costs spreadsheet… you and others should find it useful.

Number 1

Peter brings us Can You Go To Jail If You Don’t Pay A Debt? on Bible Money Matters

…to stay out of jail, follow up on your debts, and if you are being sued or given a court date – show up! If you don’t you could end up losing by default, and have a warrant sworn out for your arrest.

This article was my fave this week because it addresses a basic element of personal responsibility we all need to be reminded of. Thanks to the advice column offered on Debt Free Adventure, I have been privy to many-a-reader who is in dire financial straits. There are a lot of hard cases out there, and they need sound advice to help them do the right thing… and Peter delivers nicely.

What do you think?

Which one is your favorite? Be sure to visit the blogs of the authors you enjoy to read, subscribe, and leave them some encouraging comments.

Cheers and Godspeed!

Business Debt in a Sole Proprietorship

Robert Espe — Fri, 04 Jun 2010 05:08:33 +0000

Have a question of your own? Ask DFA writers for free!

Business debt mixed with our personal finances

DFA Reader Micki asked:

How should we begin to address this financial debt? How do we untangle our personal/business debt and does it even matter since our business is a sole proprietorship? (I have worked outside the business to earn extra money, but my absence cripples the business even more.)

Here is an explanation of their detailed situation:

I have been married for 20 years and have 3 teenage children. My husband, Ron and I own a small wholesale business and have done so for about 15 years. My husband initially started the business, and I took care of bookkeeping. As Ron discussed the venture with his father, Bill, he was encouraged to allow Bill to “help” him; So, because the two had a strong relationship, Ron agreed. Bill took over all finances while Ron was responsible for all sales and customer/vendor relationships and activities. I had entered all invoices and bills into the computer. Bill had never used a computer and refused to do so, therefore, all financial records were kept in his home and all bills and payments sent there as well. My mother-in-law entered all receipts, bills, and taxes. Any time questions arose about the finances, we were assured things were handled and that was Bill’s job. We eventually conceded control. We knew the sales numbers and monthly expenditures and felt confident in our business stability. The business grew quickly and was very profitable. At this point, Bill encouraged Ron to take on a partner who agreed to invest capital in return for a percentage of profits. Trusting his father’s advice, Ron agreed. Terms were agreed upon including a set draw for Bill and commissions for Ron. We spent months developing relationships with vendors that resulted in a preliminary agreement for importation and exclusive rights to inventory. After a short time, Bill realized that Ron’s income was increasing and became dissatisfied with the plan, so, instead of renegotiating the agreement, Bill began paying himself bonuses and selling merchandise to his “friends” under the table and pocketing the money. Our business began losing inventory by the thousands each quarter. The financial partner discovered the inconsistencies and insisted on immediate full return of his investment or face legal action. We paid this from our personal accounts, since Bill insisted there was no other way. Then Ron entered the office one afternoon to hear his father berating our importer for his lack of English skills and culture. He insulted the vendor’s daughter to whom we were personally close and whose wedding my husband had attended and explained that our company had no need of their involvement. The relationship was irreparably severed. Gradually, Ron’s time at the office was increasingly spent arriving late, taking long lunches, napping at his desk, then leaving early. Soon thereafter, I was involved in a severe automobile accident and was unable to work for a couple of months. When I returned, I found things even more unsettling. I overheard my father-in-law on the phone discussing business credit card payments to our vendors, and when I inquired as to the details, I was told it was not my business. Bill was handling the finances. This was the “final straw”. After many years of his promises to retire and leave the company to us, he again gave a date of his departure, and, on that day, we held him to it. He was enraged. He threatened to bankrupt us and said personal things I never imagined a father could say to his son. Upon his leaving he brought bills that we were now responsible for assuring us he would bankrupt our business if we held him responsible for any debt. We were hundreds of thousands in credit card debt. He had apparently forged Ron’s name on some documentation and, on others, had simply claimed full decision-making ability. Ron refused to hold Bill legally responsible or to claim bankruptcy on moral grounds, and we have since been tortured month after month with the magnitude of the debt with which we have been saddled. We continue to pay the bills on time, even those that are in Bill’s name, and his credit has been bolstered as a result. We struggle daily to “rob Peter to pay Paul”. The situation has, over three years time, broken us and nearly our marriage. Initially we were able to begin recovery and advanced repayment of the debts. Then the economy failed. Our business was in the direct line of losses, and customer bankruptcies hit us hard. I am responsible for all finances now, and it is overwhelming. Ron cannot reason with the situation and refuses to talk it through. He did make the decision to use all our available personal credit to shore up the business. We had previously made the decision not to carry any revolving debt. He has cut off all friendships and relationships and looks to me to be his strength. I am at the end. We take full responsibility for our failure to adamantly address the financial questions with his father. We are now paying the price for that mistake. We have forgiven Bill. It remains difficult, however, each month as we see Ron’s parents brandishing new purchases as we struggle to meet minimal obligations and upcoming college expenses. So I guess we are in the process of continual forgiveness.

Business debt, personal finance, and family partnerships

Unfortunately, there is no way to “untangle” your debt from the business. You say it is a sole-proprietorship, although to me it appears to be a partnership, both of which leave the proprietors/partners personally liable for business debt, unless they are incorporated. How to address this debt is more complicated. It is one thing to acknowledge that money is owed, in this case, it will be figuring out what to do about it that will be tricky.

The first thing that strikes me about this situation is how far back the problem goes. You say you have had this business (and these financial problems) for 15 years. Any situation that long in the making will not be fixed quickly. However, decisions must be made and a course set to correct the situation, or you may eventually find yourself in bankruptcy. You say that until recently the two of you did not carry revolving debt, so you know how to handle money, but there may be no realistic way for you to support your business and finance your father-in-laws debts.

Your story is the perfect example of why people should be careful with whom and how they conduct business. Reluctance to confront family members when they do something wrong often makes a bad situation worse. This appears to have been the case here, and I think the first step to dealing with your situation is to be honest with yourself about your father-in-law’s actions. He robbed you and your husband when he paid himself more than was agreed upon and stole the merchandise he sold off the books.

It is one thing to admit that your father-in-law stole from you, quite another to decide what to do about it. I understand your husband’s reluctance to take legal action against his father, however I believe it is misguided. While the Bible does say we are not to take Christian brothers to court, in context that is an injunction against civil disputes. You are dealing with criminal actions, and I see nothing immoral about pursuing legal action in this case, especially if your father will not do right by you after speaking with church leadership about the situation.

I would recommend meeting with an attorney to discuss options. Once you have a good idea of what is open to you, you will be able to decide what you want to do. It sounds to me like your-father-in-law was a full partner in the business, which would make him equally liable for business debt. Even if you pursue no other legal action, at the very least, I would not make any more payments on anything in your father-in-law’s name, what would be the point? If they are his debts, he should pay them, and you gain nothing by paying them for him. Let the collectors come knocking on his door. His threat to bankrupt you if you send him his bills rings hollow.

Finally, I would recommend that the two of you reconnect with your church, other family, and friends. Meet with your pastor to discuss your struggles, especially where you are concerned about legal action against family, and how these business troubles are affecting your marriage. This type of situation is not the kind of thing you two can afford to handle on your own. You need the prayers of others, you need fellowship, and you need counsel. You need to face this challenge as a team, communicate with each other, and make decisions together. Remember that your marriage is more important than the business.

Do You Have Any Other Advice for Micki?

Something you think I missed? Drop a line in the comments below.

Have a question of your own? Ask DFA writers for free!

*Disclaimer*
We accept no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this material. Our comments are an expression of opinion. While we believe our statements to be true, they always depend on the reliability of our own credible sources. Any advice taken from this site does not in any way establish a client/adviser relationship. We always recommend that you consult with a licensed, qualified professional before making any financial or investment decisions.

Get Out Of Debt: Start Acting Wealthy

Matt Jabs — Thu, 03 Jun 2010 05:49:52 +0000

Act wealthy to get out of debt

What? Act wealthy to get out of debt? Yes, precisely – and if you’ve misconstrued what I’ve said then you’re probably in debt for a very good reason, so read on.

How will acting wealthy get you out of debt? Studies and experience in personal finance have learned me a very valuable lesson – if you want to get out of debt, you must put an end to frivolous spending – which is our basic definition of acting wealthy. Remember, most wealthy people are well-to-do for a very good reason… Acting wealthy = no frivolous spending.

Consider the following example by JD Roth, my friend and author of Your Money: The Missing Manual:

In a recent article JD judges a friend who, despite a recent bankruptcy, continues to swim in the pool of bad financial choices. Although JD’s frustration toward his friend was spot on, it was actually a side note of the article that caught my attention.

While pointing out the mote in his friends eye, JD does not fail to recognize the beam in his own – and the details of the beam was the inspiration for this article.

Get of out debt by acting like John M.

John M. is JD’s millionaire next door neighbor, and on a recent 10 day cruise to Alaska… well here, JD tells it best:

As I began to silently judge Michael’s choices (JD’s friend,) I thought of my recent trip to Alaska. I spent ten days on the boat with my neighbor, the “real millionaire next door“, and in those ten days I often felt like I was being judged.
Before the trip, I bought a $120 backpack at REI. My goal is to use this for much of my travel during the coming years. It fits in an overhead compartment, and is a great way to limit what I carry. John frowned when he saw the new pack and asked, “What’s wrong with a duffel bag from Goodwill?”
On the first day, Mac and I tore a paper towel in half, and we each used our half as a napkin for several days. Eventually my napkin became grimy and gross, so I went to tear off another half a paper towel. When John saw me, he scolded me and told me I ought to use a cloth towel instead.
Near the end of the trip, I threw a molding orange overboard. “I wish you hadn’t done that,” John said. “I could have cut out the bad part and eaten the rest.”
On the last day, I went to the bookstore in Sitka and bought a copy of Bruce Chatwin’s In Patagonia, which I’ve been wanting to read for a long time. (After our trip to France and Italy this year, Kris and I hope to save for a trip to Argentina and Chile in 2012 or 2013.) When John saw I’d bought a new book, he shook his head. “I’ve got a lot of perfectly good books here on board,” he said, indicating his library of old paperbacks.
Throughout the trip, I felt like I was under pressure to, well, be more frugal, to make the same choices John would make. And you know what? That pressure sucked. It felt awful. I didn’t like the feeling of being judged, especially by somebody I look up to.

Get out of debt by curtailing your spending

Can you tell what inspired me? What did you think of JD’s neighbor? He’s a millionaire yet he shops at Goodwill and eats the good parts of bad fruit. That’s why he’s wealthy. The majority of wealthy people spend far less frivolously than the majority of those enslaved by debt, and John is no exception. Sure, as JD mentions, too much of a good thing can drive a patient man mad; but regardless, what John preaches is correct – and even if you don’t like it, it makes you think – and thinking is good.

Stop spending, cut your standard of living, start saving

Being wealthy is simple. All you have to do is spend less than you earn and give generously. As long as you sail that ship, how much you earn becomes nothing more than a variable in a personal finance equation that always ends up in the black.

Need some help? Follow JD’s lead and surround yourself with people who motivate you to succeed… even if they do annoy you every once in awhile.

DFA Link Rally: Gardening Saves Money

Matt Jabs — Tue, 01 Jun 2010 01:29:01 +0000

Jabs family garden plans 2010

You may remember that we fancy ourselves amateur gardeners, and while we never grow a lot, we do like to grow at least some of the things we love to eat. When you grow your own… you know how it was grown, how it was fertilized, and where it comes from – and we love that. We also rather enjoy paying $2.00 for a plant that grows to produce 10x its cost in delicious bounty, and we love walking 30 feet to get it… we think it’s a darn good ROI.

This week we weeded the garden and readied the homemade organic fertilizer from our diy vermicompost bin. Now all we have left to do is plant, which will only take about an hour. In the photo you can see our new plants on the left, both our garden beds in the middle (with the herbs already present in the small bed,) and our rain barrel on the right.

One other thing worth mentioning is that our Thyme and Sage plants are apparently perennial… we did not know that and seeing them come up on their own was a pleasant surprise. Another thing that came up on it own was the Cilantro from the Coriander seeds I planted last summer. I had forgotten about them because they never came up last year, but they sprouted all over the place so far this year. Cool stuff.

This year we have:

Sage
Cilantro
Thyme
Basil
Tomato (Rutgers, Primtimes, and Sungold cherries)
Zucchini
Lettuce (Green leaf and Oak leaf)
Cayenne Peppers

Although we are yet undecided, we may supplement what we are growing with a local CSA membership. Either way, we cannot wait to taste our homegrown veggies, and cannot wait to break in our pressure canner to preserve whatever we cannot eat or turn into salsa. What about you, are you growing a garden this year?

Link rally for this week

Saving Money Tip: Open Source Software by Jeff
Buying a House? Is it an investment or a home? by Craig Ford
Roth IRA Rules and Information by Mike Piper
How to Become a Financial Planner by Wealth Pilgrim
The Good News and Bad News of Recessionary Wages by Coupon Sherpa
YNAB iPhone Review by Paul @ FiscalGeek
Facing Our Financial Problems by Gary Foreman
Credit Card Limit: Are You Getting What You Deserve? by PT
Traditional And Roth IRA Contribution Limits And Phase Outs by Money Smarts
Paying For Self-Employed Health Insurance by Jeff Rose, CFP®
Life Insurance Comparison by Consumer Boomer
Bloggers and Their Relationship with Money by The Financial Blogger
Survival Guide to Recession by Panda Mike
How to Overcome Pitfalls of Zero Based Budget Planning Process by Wealth Pilgrim
How College Graduates Should Build Credit by PT
Things To Know About Roth IRA Rules For 2010 by Money Smarts
Term Life Insurance Rates by Jeff Rose, CFP®
Things that broke people do by FinancialBondage.org

How Much Our Debt Costs – March, April, May 2010

Matt Jabs — Tue, 25 May 2010 10:00:50 +0000

February 2010 Update – How much our debt cost

“He that hath no rule over his own spirit is like a city that is broken down, and without walls.” – Proverbs 25:28

Over the course of March, April, and May 2010 our debt cost us $37.08/day, down from 42.46/day back in February. This is just the cost of the interest on our debt, and does not include the principal amounts. That said, when we started our debt free adventure back in January of 2009 we were paying $1,328 – which was $47.43/day. Our debt reduction efforts over the course of the last 17 months are saving us nearly $10 every single day… money we now to funnel into our orange savings account to pay us rather than fat cat bankers!

I love thinking about how much more we can save because of how much less we owe. Hopefully this motivates you as much as it does me! Let’s take a look at the individual interest breakdown then talk about the progress in greater detail.

Here is the comparison between the last two months:

February 2009 Interest Paid	March 2010 Interest Paid	April 2010 Interest Paid	May 2010 Interest Paid
Mortgage 1 – $584	Mortgage 1 – $583 = +1	Mortgage 1 – $582 = +1	Mortgage 1 – $0 (refi – free month)
Mortgage 2 – $292	Mortgage 2 – $292 = 0	Mortgage 2 – $291 = +1	Mortgage 2 – $291 = 0
Student Loan 1 – $160	Student Loan 1 – $144 = +14	Student Loan 1 – $199 = -55	Student Loan 1 – $112 = +87
Student Loan 2 – $120	Student Loan 2 – $120 = 0	Student Loan 2 – $105 = +15	Student Loan 2 – $111 = -6
Lending Club – $33	Lending Club – $0 = +33	Lending Club – $0	Lending Club – $0

Total Interest Paid – $1,189	Total Interest Paid – $1,139 = +50	Total Interest Paid – $1,177 = -38	Total Interest Paid – $514 = +81

A few notes about the details of the numbers…

We’re down to just four debts. Back in March we paid our Lending Club loan off and are left with four debts. 1st mortgage, 2nd mortgage, my student loan, and her student loan.
Somebody screwed up. Although student loan interest varies each month, mine varied much more than expected over the last 2 months. Why? Either my student loan company, ING Direct, or I myself screwed up. I have auto payments set up for all of our remaining debts, including my student loan. Regardless of this, and despite the fact that I have $1,000 worth of overdraft protection on our my bank account, ING Direct reported insufficient funds to my student loan company when they attempted to auto-draft the payment. The result? A spiked interest payment for the month of April. Although I know I should have, I never called ING Direct about this. The draft would have overdrawn my account by just a few dollars, but instead failed to go through… not sure why. I normally carry a $1,000 checking cushion but let that dwindle too far down and ended up paying for it in higher interest costs, along with a $15 late payment penalty from my student loan company. *sigh*
Side hustle earnings still growing but could be higher. Thanks to continued earnings across the board and bloated TurboTax affiliate numbers through tax season our side hustle earnings reached nearly $2,000 in April, and were closer to $1,500 for March and May. Although these earnings are great, my decrease in posting frequency has hurt my income growth potential and I really need to bust my butt to get back on track here.
Home loan refinance allows skipped 1st mortgage payment. Because we refinanced our home loan back in April our 1st mortgage lender allowed us the opportunity to skip our mortgage payment for the month of May while they paid off the old mortgage loan and opened the new mortgage loan. While this did free up a good amount of money, we were not able to save it all or put it all toward debt repayment because of a few unplanned expenses. Our budget has since been updated to compensate for similar future budget mishaps.
Lapse in discipline. Although it isn’t easy to admit, we have had a few lapses in self-discipline over the last few months. These lapses have resulted in less scrutiny toward spending and less attention paid to my blogging. I am angry that I let either transpire and while our lapses were minute and affect our bottom line very little… they need to be acknowledged now and avoided in the future.
Overall outgoing interest is way down. The average amount of monthly interest on debt we are paying now is $200 less than when we started out debt free adventure! That is music to my ears and just the motivation I needed to kick things into high gear again.

The “How Much Your Debt Costs” Spreadsheet & Graph

Don’t forget to check out the spreadsheet I created to calculate how much our debt costs complete with the nifty little graph allowing you to visualize your progress. I call it the How Much Your Debt Costs Spreadsheet… check it out.

The spreadsheet also highlights monthly interest amounts paid in BIG BOLD numbers so you can print and stick them on your fridge.

401(k) Contributions With Outstanding Debt

Robert Espe — Fri, 21 May 2010 10:00:38 +0000

Have a question of your own? Ask DFA writers for free!

Stop 401(k) contributions to speed debt reduction?

DFA Reader James P. asked:

Should I stop 401(k) contributions of $546 a month to pay off the car loan faster??? This will bring my monthly excess for debt payments to $1100. I use the 50/50 plan (50% of excess income goes to pay down debt, 50% is saved).

Matt, I would like to say your blog is one of the first websites I check in the morning for inspiration and knowledge. My family of six embarked on the Dave Ramsey journey in June 2008. Since then, we’ve paid off $47,000. $34k of that was credit card debt (ALL GONE!!!!) My wife and I are 34 and our sons are 14, 13, 10, and 10 so we are very proud of ourselves and the amount we’ve paid off considering the responsibilities we have.

I am currently putting 7% in my 401(k) (receiving a 2.5% match). My wife is currently putting 4% (receiving a 1% match). Our remaining debts include a mortgage, a car loan ($32,000 @ 6.9%) on an ‘08 Toyota Sienna (worth $26,000) and two student loans (totaling $23,000 @ 6%). The Dave Ramsey plan would pay the smallest debt (a student loan) first, but I’m conflicted as to what to do next. My thought is pay off the car next because it is my biggest payment, but I would have to stop my (not my wife’s) 401(k) contributions to make it happen in 1 year. My fear is, if I stop the 401(k) contributions I will miss out on a significant rise in 2010. I will keep the student loans for now because they are tax deductible. Getting the car payment off me would lift an emotional burden but my 401(k) contributions are making me have second thoughts.

Congratulations!

Anyone who has paid off nearly $50,000 in debt in two years deserves a pat on the back. You have been doing a great job, let’s have a look at your situation and see if we can help speed you toward debt free living.

Your Plan or Dave’s Plan?

You want to pay off your car because it carries a higher interest loan, but Dave says you should pay off a student loan, because it is smaller and he wants you to have fewer debts regardless of the numbers. Well, I agree with you. Dave’s debt snowball makes sense for people who lack motivation, have a multitude of smaller debts (3 credit cards, 4 store charge cards, and a couple major appliances) and can benefit from the visible progress of paying off individual debts. However, the amount you paid off this past year shows you are VERY motivated, and down to three big debts. The other reason I agree with you, is that the student loans are unsecured, your education cannot be repossessed, and while the tax deduction isn’t a great reason for keeping the loan around, when combined with the lower interest rate, it isn’t costing anywhere near as much as the car loan. You already owe more on the van than it’s worth, which is not a desirable situation.

A Better Rate of Return

Having established that your plan to pay off your vehicle before the student loans is sound, we will now look at how to do it. A 1-year timetable is a good goal; dragging debts out is never good and the amount is only slightly higher that what you paid off the last two years. You tell us the money you need to pay off your car in one year is currently being contributed to your 401(k). The way to do it then is obvious, your 401(k) contributions must be adjusted, and I am going to address how and why.

You are currently contributing 7% of your salary, and 4% of your wife’s into 401(k)’s although you are only being matched for 3.5% of those contributions. That means you have 7.5% of your salaries that I would consider “extra” contributions. I always recommend that people in debt (including a mortgage) not contribute any more to a retirement plan than is matched by an employer. When contributions are matched, you get a 100% return on investment with zero risk. There is no better investment than that, but for unmatched contributions to net a profit, they must produce returns in excess of what you pay in debt interest. On average, the stock market returns 8% over 30 years. While that is higher than the interest you pay on your debts, ask your self if a volatile investment with a 20-30 year timetable is worth 1%-2%. Paying off your debts offers an immediate guaranteed return of 6%-7% in your case. That is a much better deal.

Planning For an Uncertain Future

You mention your concern that next year may be a good year for the market, and you want to get in on it. Since none of us can know the future and because different “experts” are all just guessing anyway… I would counsel that your investment decisions should be based on where you are financially, not what the markets are doing. Get out of debt, save money, avoid future debt, then invest your surplus.

I would recommend reducing your and your wife’s 401(k) contributions to the amount that will be matched. You will then have the necessary money to pay off your car, then shift your attention to the student loans. Once they are gone, bring your emergency fund up to at least $10,000 if you have not already, and then turn the hoses on the mortgage. Once you are completely debt free, you will have the excess income necessary to max out your 401(k) contributions (as well as a Roth IRA if you are eligible) and your retirement savings can grow steadily without interference from debt.

Do You Have Any Other Advice for James?

Something you think I missed? Drop a line in the comments below.

Have a question of your own? Ask DFA writers for free!

Save Money on Gas – Buy a Scooter

Matt Jabs — Tue, 18 May 2010 10:00:00 +0000

Buy a scooter… don’t be afraid

While I’m fully aware that a lot of people think driving a scooter is wimpy or dorky or what have you, I’ll also assume those people entirely too concerned with what others think. That said, let’s give ‘em the benefit of the doubt by supposing their ability to think outside the box has been beaten out of them by our consumerism based culture obsessed with constant advertising.

Despite numerous benefits and few draw backs – unless you’re a college student – owning a scooter is relatively uncommon in most parts of the United States – not so in other parts of the world. When considering the pro et contra, buying a scooter can stack up quickly into an economically wise purchase.

Scooters, moped, and motorcycles

In the interest of this article, scooters are synonymous with mopeds and defined as follows: a 2-wheeled vehicle with a saddlelike seat mounted on the footboard and being propelled by a motor – and for the purpose of economy let’s focus specifically, but not entirely, on scooters of the 50cc motor variety (to be further explained later in the article.)

A scooter ≤ 50cc and a motorcycle ≥ 51cc. CC = cubic centimeters and refers to engine size (volume of air and fuel mixture intake in a cylinder bore.)

Although some states differ, most states consider any motorized bike 50cc or less to be a scooter and any bike 51cc or higher to be a motorcycle… a very important distinction because many of the benefits below do not apply to motorcycles.

Since scooter/moped laws differ from state to state be sure to check your applicable state laws pertaining to helmets, insurance, registration, etc.

Let’s take a look at some benefits, along with a few buying tips, as seen through the eyes of this fledgling scooter owner; but first, some helpful details about my scooter.

My scooter

My scooter is a 2009 JCL model MP50B. I purchased it in mid April 2010 for $600 despite a KBB value of $710 at the time of purchase – I love a good deal. The bike had been driven only 385 miles, was in pristine condition, and ran like a top. One month and 450 miles later… everything is on the up and up and I couldn’t be more pleased with my purchase.

Save money on gas

Driving a scooter will save you a boat-load of cash on gas. Let’s look at the specifics of how much I have saved in just one month.

Since purchasing my scooter one month ago (at time of writing) I have driven 450 miles on 4 tanks of gas. The tank is 1.32 gallons and the scooter gets 100 mpg, using an average gas price of $3.00/gallon I have spent $13.50 on gas compared to the $90 I would have spent driving my 2000 Jeep Cherokee Sport, which gets a mere 15 miles to the gallon.

Conclusion? My scooter gets 6.667x better gas mileage than my Jeep and should pay for itself in one driving season in gas savings alone.

Save money on vehicle maintenance

Every mile I drive the scooter means one less mile on my Jeep. Maintenance and parts for my Jeep are much more expensive than for my scooter. I can perform maintenance on the scooter myself and replacement parts are much less costly.

Save money on insurance and registration

Again, although some states may differ, in Michigan a 50cc scooter does not require insurance coverage. The only cost associated with driving my scooter, other than gas, maintenance, and repairs… is the registration tag. Michigan charges $15 for a 3 year registration sticker. That’s it folks, $5/year.

Save money on a helmet

In many states a 50cc scooter rider is not required to wear a helmet. While many choose to wear a helmet anyway, they are not required to by law. This could obviously draw a lot of comments, but putting aside all that debate, the fact remains… many state laws do not require a helmet on a 50cc scooter.

Buy a scooter used

Just as purchasing a slightly used vehicle is often a better decision than buying new, the same is true for scooters. Here are my tips for those looking to buy a scooter used:

Do not buy a scooter from a college student. No offense young’ens… but I was a in college a few years back, which is precisely why I’m telling people not to buy a scooter used from a college student. Sure, there are always exceptions to the rule but there is a reason their insurance premiums are high, so use common sense.
Buy a scooter from older folks. Many RV’ing retirees buy scooters for buzzing around RV parks and campgrounds while traveling. The truth of the matter? They don’t usually end up using them much and tend to take great care of their possessions. This means low miles, routine maintenance, fewer wipe outs, and no beating on the scooter. Find a good price and you have yourself a recipe for a good buy.
Use KBB to estimate buying price. Before you go test drive a scooter, be sure to check out the Kelly Blue Book Motorcycle Retail page to determine a solid buying price. Simply pick your year, make, model and size to reveal what a low-mile bike in excellent condition is worth. Print the page and take it with you as a bargaining chip (unless they’re asking less than the bike is worth of course.)
Use Craigslist. Beyond the obvious benefit of using Craigslist, I recommend using a CraigsList search/notification app. Said application will allow you to input a search term – like “scooter” – and set up alerts for all newly placed relevant ads so you can be the first to contact the seller. That is precisely how I found my, virtually brand new scooter for such a great price. I was the first to call, first to visit, first to make an offer, and it paid off.
DO NOT FINANCE. If you don’t have the money saved and previously budgeted… don’t buy anything. Period.

Wear a helmet

Yes, even if you don’t have to, and yes, even though I listed it as a possible money saving benefit above. If you’re not going to wear a helmet, consider purchasing a windshield, and a the very least be sure to wear some type of eye protection like eye glasses, sunglasses, or Dumb and Dumber scooter goggles.

Perform regular maintenance

To ensure optimal operation and to extend the life of your scooter be sure to follow the maintenance schedule supplied by the manufacturer. Most everything is routine like checking/replacing engine oil, gear oil, air filters, tire pressure, etc. You will not need to hire a mechanic unless you’re diametrically opposed to elementary mechanical maintenance.

Dress warm and carry extra clothing

Even in a northern state of Michigan, I can easily get 7 months of ride time each year, but not without proper winter gear. If you choose not to wear a helmet, when it’s chilly out you’re well advised to wear a winter cap; while you’re at it… don’t forget the gloves. Be sure to wear a jacket that seals off your neck and wrists, since failure to do so can turn a cool ride into a freezing cold ride really quick.

Scooters are cool

Don’t let anyone fool you. When you drive a scooter you save money hand over fist, you get to ride down the open road, and of course… chicks dig guys on scooters. Just ask my wife.

What are you waiting for? Go open an ING Direct savings account, label it “Sweet Scooter Fund,” and start saving for your soon purchase!

DFA Link Rally: Watching The Kids

Matt Jabs — Sat, 15 May 2010 16:36:28 +0000

This weekend me and my wife have the pleasure of watching our 5 year old niece and 2 year old nephew… what a blessing they are. Their parents are away on a week long cruise simply to get away for awhile and have some time alone together… we’re glad to help.

Last night we watched the first half of The Emperor’s New Groove, had some ice cream, went over Saturday’s schedule, then headed off to bed.

First thing this morning we feasted on a yummy batch of homemade baked French toast, finished our movie, then played outside for awhile. Now we are having “nap time” then traveling to Uncle Josh’s graduation open house… it should be good fun. These kids are just a delight to watch, and even though I’ve been coming down with a nasty throat infection all day and am having to keep my distance, they are very well behaved.

To all you parents out there, congratulations on being blessed with children of your own… me and Mrs. Jabs are still working on it!

And now for this weeks link rally.

Link rally for this week

14 Essential First Time Home Buyer Tips by Panda Mike
Why I Blog by The Financial Blogger
How to Generate Income During Retirement by Wealth Pilgrim
Credit Card Benefits by Craig/FFB
8 Tips to Effective Coupon Stacking by Coupon Sherpa
Cut Cable TV and Still Watch TV on the Cheap by Craig Ford
How to Calculate Your Mortgage Payment for a Refinance or Purchase by PT
Dave Ramsey’s 7 Baby Steps To Getting Out Of Debt by Mr. Money Smarts
Energy Saving Home Improvement Rebates: The Homestar Program – Cash For Caulkers by Peter
Withdraw IRA With No Penalty by Jeff Rose
How to Get a Good Credit Score by Junior Boomer

Car Repairs – Scrap it, Park it, or Fix it?

Robert Espe — Tue, 11 May 2010 16:14:45 +0000

Have a question of your own? Ask DFA writers for free!

Job loss – prepare by saving or debt reduction?

DFA reader Benedictus asked:

Should I spend another $6,000 to fix a vehicle that is only worth $4,800?
Should we just park the vehicle until we can save enough money to fix it and continue to make $291 monthly car payments and $75 monthly insurance payments until we can save up $6,000 (which would certainly be a year or more)
Should I sell the minivan for parts/needed repair and use that money to buy another older used car with unknown problems and high mileage?
Should I borrow the money to do the repairs, spending more to repair it than the vehicle is even worth, and having to pay both a car note and repair note?
What is the best angle, financially, to deal with this situation?

We have a 2006 Dodge Caravan Minivan with 52,000 miles that we purchased new in 2006. It has a 3-year/36,000 mile warranty. We had the van in the repair shop and found out yesterday that the entire engine will have to be replaced at a cost of +/- $6,000. We owe about $5,800 on the vehicle. Trade-in is around $3,200 and private party value is about $4,800. However, neither of those two figures matters because it would have to be repaired first before we sold it or traded it in. WE DO NOT HAVE $6,000 TO REPAIR THE VEHICLE. My husband just recently had to take a second job delivering pizza just to make ends meet and we just started working on re-building an emergency fund after our previous $15,000+ emergency fund was depleted from him being out of work for 5 months before he got the supplemental pizza delivery job. I don’t want to borrow money to fix the car because I would be paying a car note and a repair note. We could almost buy two older used vehicles for what it is going to cost to repair our minivan and I would have to have a vehicle large enough for a family with three children. Then I would be getting an older car with someone else’s problems. Even if we purchased two older vehicles instead of repairing my minivan, then I have a useless 3 1/2 year old vehicle sitting in my driveway. The only solution I could come up with was for us to park the vehicle and be a one-vehicle family until we could save the money to fix it, but I hate to keep making $291 monthly car payments and $75 monthly insurance payments on a vehicle we can’t even drive.

~Thank you, Benedictus

What Makes The Most Financial Sense?

There are many variables here, so naturally you have questions. I will try to answer all of them beginning with your last, “What makes the most sense financially? The answer to this question is usually, “Do not go further into debt.” In fact, owing money on this vehicle is a big part of your dilemma. Adding more debt will only compound the problem. Therefore, I would say the one thing you absolutely should not do is borrow money for the repairs (this is Debt Free Adventure after all.) With that option off the table, we will look at the pro’s and con’s of the other possibilities you listed.

Scrap It?

In situations like this, we tend to feel let down by the vehicle we have. This makes us want to junk what we have, and try for anything different. Caution is warranted, as disappointing as it is, solid vehicles break down sometimes, and recklessly jumping to another vehicle may not alleviate the problem. As you noted, few people sell perfectly good cars, so anything we buy will have problems of their own. That being said, if you have to have another vehicle now, a used car that you can afford may be the only option.

Park It?

Unfortunately, the payments will have to be made no matter what you decide. Since you owe more than the vehicle is worth in its present condition, whether you scrap it, park it, or fix it, you will have to keep paying on the car note. More unfortunately, it is likely that you will have to maintain full insurance coverage as a condition of the car loan even if you park the vehicle. Check your loan documentation to find out for sure. If the option is available, you could save money by parking the van, and only maintaining the comprehensive coverage.

Fix It?

You may not have the money now, but once you save up the money, this is still a good option. While the vehicle may not be “worth” that much, that is not an important consideration. Vehicles are an expense, not an investment. We spend money on vehicles for transportation, and eventually they end up being worth $0. What that means is you are asking the wrong question. The question is not whether it is worth $6,000 to fix your van, it is whether $6,000 would buy a better vehicle. The answer depends upon your local used car market, but consider that because you bought this van new, you know if it has been maintained. That is worth something and should be factored into your calculation. If a better vehicle is available, buy it, if not, fix the one you have. Finally, before you make a decision on this point, I would get a second estimate on the engine. $6,000 sounds a little steep to replace the engine in a domestic vehicle; I would have expected it to be closer to $4,000.

In Summary – What is the best way to deal with this situation?

Should I borrow the money to do the repairs? No.
Should we continue to make payments while we save? Yes, the payments must be made no matter what you decide as the van is worth less than you owe.
Should I spend $6,000 to fix a vehicle that is only worth $4,800? Yes, if a better vehicle cannot be bought for the same amount.
Should I sell the minivan? No, better to still have the van after making payments, than to sell it and make payments on nothing.

I think you were on the right track before you wrote to us. If I were in your situation, I would live for a time as a one-car family. Your financial situation makes this necessary. While it is no fun paying for a broken car, a contract is a contract. Learn from the experience; buy your next car in cash. Save your money for the repair; next year you will be a two-car family again; your low-mileage van will have a brand-new engine, and you will be one step closer to being debt-free.

Do you have any other advice for Benedictus?

Have something to add? Please share your wisdom and experience and help point Benedictus in the right direction. Thanks!

Have a question of your own? Ask DFA writers for free!

DFA Link Rally: I Have a Week Off

Matt Jabs — Sat, 08 May 2010 17:31:42 +0000

So… one chapter in my life has come to a close and another is about to begin. As of yesterday, May 7th, my days as the IT Manager at WDA are over, and my days as a Technical Consultant (and future Technical Sales Rep) for ASK are set to begin on May 17th. What will I do during the 10 day interim? Good question.

I will start by celebrating Mother’s Day with all four of my mom’s. That’s right, both my and my wife’s parents are divorced and remarried – so we have been blessed with double parents.

Next I will start my garden. We have a lot of weeding and clean up to do and I need to replace one of our rain barrels that froze and broke over the winter – yeah, I know… I should’ve disconnected them last Autumn – live and learn. I need to install one more garden box, and I’m excited to use the vermicompost from my worm farm to fertilize this Spring.

Another thing I have to do is aerate my lawn. If you have never bought a new home that needed a lawn installed… I do not recommend it. Do whatever you can to avoid having to put one in yourself, it is much more work and trouble than you might first suppose. That said, it is nice to look at it and know that we were the ones who installed it. After aerating I’ll toss down a bit more seed and wait for the May showers to do their work.

Oh, and I almost forgot… I will also be putting our home up for sale FSBO style and greatly downsizing my wardrobe – stay tuned for detailed posts forthcoming.

There are some other things I will do too, one of them will be to relax, enjoy my time off, and get caught up on writing articles for Debt Free Adventure! And now… on to this week’s link rally.

Link rally for this week

Do It Yourself Debt Settlement by Garrett Driscoll
14 DIY Ways to Make Mom’s Day Memorable by Mr. Free Stuff
Disposable Diapers Vs. Cloth Diapers by Craig Ford @ Money Help For Christians
The Essential Guide to First Time Home Buyer Loans by Jason @ Redeeming Riches
Different Types of Insurance: Do You Have What You Need? by PT @ PT Money
Suburban Garden Experiment – May ‘10 Update by Kyle @ Suburban Dollar
Stop the Spiral of Debt Part 1 by Jeff @ Deliver Away Debt
Stop the Spiral of Debt Part 2 by Jeff @ Deliver Away Debt
iPad 3G vs iPad WiFi – An Extensive Comparison Including Battery Life by TopiPadResource
Vanguard Mutual Funds vs. ETFs: Which Are Better? by Jim @ Bargaineering
Seven Easy Steps to Your Dream Job by Trent @ The Simple Dollar
When Will the Housing Market Recover? by Nickel @ Five Cent Nickel
Doing A Zero Based Budget Will Lead To Found Money by Peter @ Bible Money Matters
The One-Year Wardrobe Project by JD Roth @ Get Rich Slowly
Dave Ramsey Gives Bad Investment Advice by Mike @ Oblivious Investor
Installing Spray Foam Insulation Video by Fred @ One Project Closer
Insurance Companies Work for Shareholders, Not Customers by Flexo @ Consumerism Commentary

photo by SashaW

Start Living on One Income!

Matt Jabs — Thu, 06 May 2010 20:00:26 +0000

I strongly urge you to do everything in your power to start living on one income, however and whenever possible. If you are single, concentrate on living well below your means, paying off any debt you have, saving money, and giving generously. If you are a two income family, please read on with a hopeful and open mind.

Why live on one income?

Living on one income does not necessarily mean you’re only earning one income. Whether both spouses work, or only one works and the other stays home… there are many benefits to living on one income only.

When both spouses work

As it sits right now, my wife and I have no children and are both employed full-time. While we can see huge benefits to having her stay home (she would rather stay home,) at this point in our lives it makes more sense for both of us to continue working to speed our debt free adventure.

Here are a few noteworthy benefits of a two income family living on one income:

A hedge against job loss. If both spouses work, yet they only require one income for their living expenses, then the other spouses job can be lost without an enormous family crisis taking place.
Pay off debt faster. Use the second income to get you out of debt in record time.
Save more money. Once you are out of debt, start packing away boatloads of cash.
Give more. Because you can, because it will make you happy, and because “…God loveth a cheerful giver.” II Cor 9:7
Retire earlier. Once your emergency fund is established, begin fully funding your IRAs, 401(k)s, and other investments so you can retire earlier and spend more time doing what you love.

When only one spouse works

If you have been blessed with children then most of you will likely be forced to decide between having one spouse stay home and putting the children in some sort of day care. Let’s take a look at some of the benefits of being able to skip the day care and enable mom or dad to stay home with the children while the other spouse brings home the bacon.

No day care. You raise your own kids… full-time. You do not have to pay for day care, and no longer have to worry about whether or not your children are being properly raised 8-10 hours of the day.
Less stress and more quality time. When the working spouse comes home, many of the household duties, cares, and concerns can already be taken care of by the homemaker. This affords the couple much more quality time with much less stress.
Enable one spouse to take care of the home, and everything in it. One spouse goes to work for pay, while the other stays home and works as the support system. A homemaker taking seriously the job of caring for home and family may just be the most honorable and rewarding position there is – and I think we, as a society, are in dire need of more of this type of thing.

I hold to the belief that a woman will feel more fulfilled in the role of staying home and caring for the home and family while the man goes outside the home to earn. I am not a chauvinist, and I do not think “stay-at-home-moms/wives” have it “easy,” that couldn’t be farther from the truth. What I do believe in are the gender differences ordained and given us by God Almighty. Don’t get me wrong… either spouse can provide, and either can stay home… but we are most interested in how intrinsically fulfilled each of us feel in either given role.

In conclusion…

Living on one income while both spouses earn gives you increased security, speedier debt repayment, more capability to save, give, and retire early. Living on one income and raising a family will afford you less costs and outsourcing in regard to raising children, lowered levels of household stress, and more time together as a family!

Whichever route suits your family best… don’t the benefits of living on one income sound appealing? So what are we waiting for? Let’s start tweaking our budget so we can live on one income and start reaping some of these benefits!

Do you (or can you) live on one income?

We want to be there as soon as possible… so we’re working to get rid of all our debt (and a lot of our possessions.) We cut costs drastically, are living far below our means, and would probably be fine if we were forced to trim down and live on one income only.

What about you?

DFA Link Rally: I Bought a Scooter!

Matt Jabs — Sat, 01 May 2010 19:03:25 +0000

For those of you who do not follow me on Twitter… I bought a scooter!

She’s a 2009 JCL MP50B scooter with 49cc of raw power.

Why did I buy it? Many reasons actually… I will not divulge all of them today because I’ll be writing a detailed post on the matter sometime next week. For now, suffice to say that it saves me a lot of money in gas, and I love buzzing around town on two wheels.

*Update* Here is the post I promised – Save Money on Gas, Buy a Scooter!

And now, on to this weeks link rally… which actually includes all the links from the entire month of April (due to my blogging vacation.)

Link rally for this week

Views of Money – Part 2 by Dave Ozment by
Comparing Crown Ministries & Financial Peace by Lakita
Should You Use a Credit Card as an Emergency Fund? by Adam
44 Reasons Why I Want to Become an Entrepreneur by The Financial Blogger
Value Averaging: An Investment Strategy by Craig Ford
How To Get An Expensive College Education For 80% Less by Wealth Pilgrim
Roth IRA vs 401K: Which is Better for You? by PT
Avoiding The Upside Down Car Loan Trap by Kyle
What is Financial Literacy? The Final Segment by Tom @ Canadian Finance Blog
Lending Club Offers Good Returns If You Invest Wisely by Peter
Why Online Banking is Taking Over for Generation Y by MD
Harsh Reality On Student Loans + Some Valuable Help by MD
Tips For Selling a Home In a Down Market by Frugal Dad
Can Kids Open A Roth IRA? by Craig Ford
Debt Reduction Strategy Guide by Elle
Inherited IRAs – Please Avoid This Mistake by Wealth Pilgrim
Build Up Your Short-Term Savings: For Real This Time by PT
Index Investing: A Quickstart Guide by Kyle
Which Car is Right For Us? by Tom @ Canadian Finance Blog
Credit Card Cash Advance: Bad Financial Move or Good Emergency Plan? by PT
How to Hire a Lawyer by Ryan
Career Advice from Conan O’Brien by Elle
How to Declare Bankruptcy and Not Lose Your Home Equity by Wealth Pilgrim
Buying Health Insurance as a Self Employed Individual by PT
Virtual Credit Card: Use One to Shop Safely Online by PT
How Priceline Saved Us Money on Our Vacations by Elle
eHealthInsurance Review: Health Insurance for the Self-Employed by Junior Boomer
Don’t Be Scared: Get Started Improving Your Financial Life by Jeff Rose
Stop Identity Theft with a Security Freeze by Paul @ FiscalGeek
Finding The Balance Between a Sideline and a Day Job by Panda Mike
Home Security System Deal: Shopping for the Best Home Security System Reliance Protection by The Finance Blogger

Debt Plan – Facing Bankruptcy & Foreclosure

Robert Espe — Fri, 30 Apr 2010 14:10:18 +0000

Have a question of your own? Ask Matt Jabs for free!

Should Julianna let her homes go into foreclosure?

DFA Reader Julianna asked:

We are guilt-ridden and full of shame that we have allowed ourselves to get caught up in this lethal debt trap. Unwise use of credit cards when income diminished due to income drop. This month we had $1900 income with $7K in debt payments:

$300K unsecured debt, 2 mortgages (one rented) while waiting to sell, 2 auto loans $5K remaining on one and $20K on the other; $24K student loans. Income drastically reduced due to medical crisis for me; husband employed in real estate, 100% commission based. RE market is dreadful here.

Against our better judgment, met with bankruptcy attorney and were advised we make too much money to file. He said only way is to let both homes get foreclosed, give up one vehicle, and find a rental house $700/mo (IRS allowable guideline) As strong Christians, we do not believe bankruptcy is the way. We want to pay our debts, and have now contacted Consumer Credit. The repayment plan would reduce interest rates and lock fees, but we aren’t certain if we can meet the minimum payments. I’m scared of being homeless! I’ve been reading everything I can — and realize we need an emergency fund right away — but with what? We are in survival mode. Please pray for us and give any advice God lays on your heart. Thank you in advance. God bless.

Debt and shame

This is an extraordinarily difficult situation, but there is hope. Release your feelings of guilt and shame. They will not help you; a firm commitment to paying back what you borrowed will. That being said, the task ahead of you is neither small nor easy. You will need to live far below your means in payment for living above. The process will be all the harder if well intentioned people foolishly say you “deserve to live a little.” Ignore them, and continue to do what you know is right… and you can do this.

Although this situation is difficult, the way out is no secret. The principles of sound financial management are the same no matter what amount you are working with:

Spend less than you earn and save the surplus.

Here is my recommendation for how to deal with your situation.

Create a Written Budget

This MUST be your first step, your budget is your map. Without a written budget, it is impossible to know what you have or where you are going. This is especially crucial because of the variable nature of your husband’s income. To calculate your monthly income, use his net income from last year (be conservative) and divide by 12. Never spend more than that in a month, even when you have more. When creating your budget, follow this simple rule:

Give 10% – Save 10% – Live on 80%

Realize that somewhere out there a family is living off 80% of your income. It is important, as a Christian, that you not neglect your giving when in financial difficulty. The 10% you save will be used to start building a $1,000 emergency fund (a larger cash reserve only makes your creditors more likely to sue for payment.) With every check that comes in, before you do anything else, write a check for 10% for giving, and place 10% into a savings account. When setting up the rest of your budget, eliminate every monthly bill you can: cable, magazines, cell plans etc. Small bills add up. Assess the difference between wants and needs and get down to the basics of food, transportation for employment, and shelter. The excess will go towards freedom from debt.

Debt Reduction

Once your budget is in place, you need to eliminate all the debt you can. First step is to cut up all the cards. This prevents you from going deeper into debt slavery. Next, eliminate as many debts as possible. Return anything you still can that was bought with credit. Those that you cannot return try to sell for enough to pay it off. Try Craig’sList, a garage sale, and friends/church/family. Finally, do not limit yourself to things you still owe on. Anything of value you can do without should be sold. Your goal is to reduce the amount of debt you will have to pay off with earned income.

Downsize Your Vehicles

The car you still owe $20,000 on needs to go. Try to sell it for enough to eliminate the debt, and adjust your lifestyle to having one vehicle. The one you owe $5,000 on is another matter. If you can sell it for enough to cover the debt, you should, but you may already owe twice as much as it is still worth. If this is the case, make paying off the vehicle your priority. If your husband’s job allows, consider going car-less for some time and using bicycles or public transportation.

Evaluate Your Housing Situation

You say you have one house rented pending sale. I hope that it will sell soon. Add up the total ownership cost of your current home (mortgage, PMI, insurance, utilities, maintenance, etc.). If the total is more than 35% of your husband’s net income, or more than 40% of gross, the house is more than can be afforded. Place the home on the market, and begin the search for an apartment that meets the above guidelines. It may be smaller, but you will feel better knowing that all the bills can be paid.

Final Details

Remember when paying your bills to take care of the important stuff first. Give, save, pay for your housing, buy food, and spend the money needed to keep your husband working. Do not spend the money for these things on unsecured debts. If you are late paying an unsecured debt, the worst-case scenario is a line on your credit report. That is ok as long as you have a place to live. Meet your needs, and as you are able, begin paying on the highest interest debt first. If a consumer credit agency can work out a payment plan, that is a good option. Stay focused, stay the course, and one day sooner than you think, you can be debt-free without having to go through bankruptcy.

Do you have any advice for Julianna?

Have something to add? Please share your wisdom and experience and help point Julianna in the right direction. Thanks!

Have a question of your own? Ask Matt Jabs for free!

I’m Back! Vacation – New Job – Back on Track

Matt Jabs — Mon, 26 Apr 2010 16:39:54 +0000

Hello all, it certainly has been awhile. The last article published before today was the arguably lame April Fool’s Day post about Google going out of business. All in good fun.

Where have I been?

Vacation. Ahhh, and boy was it nice.

We went to Conroe, TX to visit with my step-sister and her family. We traveled in my step-step-grandpa’s motor home and were accompanied by my dad, my step-mom, and her step-dad (my step-step grandpa.) Although it may seem an unlikely group… the trip was awesome. We set off on Thursday night, April 1st and returned home on Sunday evening, April 11th. The vacation from our day jobs lasted 2 weeks, but I chose to take a bit more time away from writing on DFA. Why? Well, simply because I needed to. Writing articles about personal finance every single day is great, but not giving myself a decent break now and again would result in burnout. Since I am not interested in “burning out,” I took the necessary break.

What’s new with me?

I landed a new job. I gave my current employer my 2 week notice last Friday. I will start with my new employer on Monday, May 17th and am looking forward to it.

I made the move because the opportunity with my new company is more attractive. I am hiring on as a Technical Consultant, with the understanding that I will move into Technical Sales after some time. I have been working in Tech Support for 10 years now and recently came to the realization that my career path will serve my family much better with a move into sales. I have no sales experience, but definitely have the personality for it. Beyond that, having some type of direct control over my earnings is the other motivation behind the career path move. Being directly compensated for my level of effort just plain makes sense. It is something I have never had in my career and it is high time I started moving in that direction.

I did not take a complete break from writing

Most of you know that aside from running Debt Free Adventure, I am also a regular staff writer at Five Cent Nickel. Here are the articles I wrote for FCN while on hiatus from Debt Free Adventure:

Are You In a Dead End Job? – Warning signs to help you recognize a dead end job, along with useful strategies to help you move on.
The Debt Free Vacation - A brief synopsis of our recent vacation, how we saved the money before we left, and how you can enjoy the your own debt free vacations.
Thoughts on Lending Money – Do I lend money, how I handle it when approached, and some great strategies to help you through the process.
Don’t Take a Vacation From Your Budget – The reality of how a vacation spending mindset can easily spill over into every day life, and how to avoid it.

Back on track

And now friends… I am back on track.

Starting today I will resume the regular posting schedule on DFA whenever possible… a daily article Monday – Friday with a round up article every Saturday. Please understand that I do not let my writing interfere with my day job, so if my day job requires some extra time, I may miss a posting day here and there… but not often.

Also, remember that I am always looking for solid guest articles, so if you would be interested… shoot me an email (Matt [at] Debt Free Adventure [dot] com.)

Thank you for sticking around!

A big thank you for all of you who reached out to make sure I was not dead, or did not quit… I appreciate it. Rest assured that we are still very passionate about our Debt Free Adventure and will not stop until the day we reach that sweet land of freedom from debt! Heck, I’m sure I won’t even stop there, I’ll simply move onto the next phase of personal finance.

Cheers and Godspeed!

Google Going Out of Biz – What Happened?

Matt Jabs — Thu, 01 Apr 2010 04:07:22 +0000

Why is the Internet giant closing its doors? Come find out…

APRIL FOOLS DAY!

I can’t believe you fell for it.

You deserve it – c’mon… you know better than that!

Google going out of business… LOL

Job Loss – Save Money or Get Out of Debt?

Matt Jabs — Wed, 31 Mar 2010 15:55:18 +0000

Have a question of your own? Ask Matt Jabs for free!

Job loss – prepare by saving or debt reduction?

DFA reader Tiffany asked:

My husband just came home from work and told me he may be laid off at the end of the semester (he’s an adjunct professor at a small liberal arts college). He doesn’t seem panicked, but I know he is worried and I am VERY worried. He has never managed the household finances, we’ve agreed that’s my responsibility because I am so much more careful with our money than him. I run a small business from home and we have a daughter in day care full-time. We have a very small mortgage (10K), credit cards ($300/mo), and a household expense budget of about $3000/mo. plus $1000/mo for day-care. We have NO emergency fund. I bring in about $2500/mo. We had been using his income to pay for full-time care for our daughter, but that will end if he’s not working.

So here’s my question: Since we have advance knowledge that we may end up in a financial train wreck, how should we best prepare? Do we work on building the emergency fund, pay off the credit cards, pay off the last of the mortgage? Thanks for your advice. I am trying to be pro-active and not wait for the “crash.”

How to best prepare for job loss

Great question Tiffany. First thing is first: make sure your husband has his resume updated and is searching out and applying for every available and relevant positions.

Focus on trimming the fat. You mention having a $3,000 household expense budget… I guarantee that can be lowered if you put your mind to it. Cancel your cable, cut back phone plans, apply my grocery hacks, make your own diy household cleaners. Be creative… you will be amazed how much cash flow you can free up for savings.

Consider pulling your daughter out of day care to increase your cash flow. You mentioned working from home, and I know this would be tough, but if it is doable it will instantly free up $1,000 every month to help you prepare.

How much credit card debt do you have? When is the semester over (so we know how many months you have to prepare?) Without knowing the answers to those two questions, this is what I would do if I were in your situation.

1. Save $1,000 in a high yield savings account.

The first thing you need to do is give yourself some semblance of monetary security. You mentioned having no money saved in your emergency fund, and that needs to change right away. Save some money… at least $1,000 for now.

2. Forget about paying off the mortgage for now

Unless you have some unique circumstance surrounding your mortgage it is probably your lowest rate debt and is also secured by the home, so put mortgage repayment on the far back burner.

3. Pay off your credit card debt

If your credit card debt is minimal, go ahead and pay it off. By minimal I mean minimal compared to your monthly cash flow. If you can pay this debt off within a month or two… go ahead and do it. If you owe multiple thousands and it would take you longer to pay off, then just increase your monthly payments while saving simultaneously. With job loss looming, I would encourage you to save 75% of your available cash flow and put the remaining 25% toward your credit card debt.

4. Save money

Continue saving money up until the day your husbands employment ends. Depending on how much time you have, if you can save $1,000 each month on day care and get that credit card debt out of the way, you should be able to build up quite a bit of cash. No liquid cash means no security.

In closing

Update his resume and start the job hunt. Reduce your household expenses wherever possible. Seriously consider pulling your daughter out of day care (even if just for a few months – it will be hard but the pay off will help your situation immensely.) Save at least $1,000 to get your emergency fund started. Pay off your credit cards. Save more money.

Remember to bring your situation before the Lord in prayer. He cares for you more than you could ever imagine and is always waiting to help you… you just have to ask.

“Consider the lilies how they grow: they toil not, they spin not; and yet I say unto you, that Solomon in all his glory was not arrayed like one of these. If then God so clothe the grass, which is to day in the field, and to morrow is cast into the oven; how much more will he clothe you, O ye of little faith? And seek not ye what ye shall eat, or what ye shall drink, neither be ye of doubtful mind. For all these things do the nations of the world seek after: and your Father knoweth that ye have need of these things. But rather seek ye the kingdom of God; and all these things shall be added unto you.” – Luke 12:27-31

Do you have any other advice for Tiffany?

Have something to add? Please share your wisdom and experience and help point Tiffany in the right direction. Thanks!

Have a question of your own? Ask Matt Jabs for free!

Debt Reduction and Savings Statement – March 2010

Matt Jabs — Tue, 30 Mar 2010 06:52:19 +0000

Our goal progress for March 2010

Check out our debt reduction charts in the right sidebar. I like graphs.

Based on our financial goals for 2010, what follows below is the progress we made during March of 2010.

1. Lending Club debt goal

PAID OFF! As previously mentioned, earlier this month we paid off our Lending Club loan. It was a consolidation of credit card and auto loan debt, totaling $11,080 that we were able to pay off in just 7 short months. Woo hoo!

If you’re interested in borrowing through Lending Club, read my advice on debt consolidation and check out my Lending Club review to help you decide if a similar path would benefit your debt situation.

March debt reduction progress = $1,933.47.

2. 2nd mortgage debt goal

After paying off our Lending Club loan we are now left with an average excess of around $1,500 each month. We debated whether to use the excess to repay our 2nd mortgage or my student loan debt first, but after much deliberation decided to save most of the money.

Although we will be saving around 67% of the money as a hedge against job loss, we will also be putting $500/month toward extra principal reduction of both our 2nd mortgage and my student loan.

Essentially we are changing this goal, and beginning next month (April 2010) we will put $400 toward extra principal payments on our 2nd mortgage and $100 toward extra principal payments on my student loan. Her student loan and our first mortgage will continue to receive regular monthly payments only.

March debt reduction progress = $72.23.

If you find the content on Debt Free Adventure helpful and would like to contribute to our debt reduction, check out the SmartyPig savings account widget in the bottom of my right sidebar. Any help is greatly appreciated.

3. Emergency fund savings goal

While repaying Lending Club we were contributing $100/month to our Emergency Fund via our ING Direct automatic savings plan but will bump this amount up to $850 come April. This is not the preferred Dave Ramsey $1,000 plan, but is the best decision for our current situation (threat of job loss.)

March savings progress = $100.00. Interest earned on this account for March 2010 = $2.56.

4. Side income growth goal

For the 2nd month in a row, DFA earned us enough to cover the cost of our 1st and 2nd mortgage payments. Woo hoo!

I am also still working on ways to diversify my income. The more sources I have, the more monetary security we have.

Other savings

Our other savings accounts include:

Vacation Fund = $100 added – interest earned for March 2010 = $0.84
Next Auto Fund = $100 added – interest earned for March 2010 =$0.79

Oh yeah… if you did the math you probably noticed that of our extra $1,500 each month we only accounted for $1,250 so far. The remaining $250 will go into our Next Auto Fund. Why? Because both our vehicles are at least 9 years old and we want to have a good amount of cash saved if one were to die. The next vehicle we buy will be purchased using whatever cash amount we have saved in this fund, which is currently just above $1,000 and growing at only $100/month. Bumping that amount up to $350/month will greatly improve our chances of being able to afford a reliable replacement when the time comes.

Thoughts

Don’t agree with all the money we are saving as a hedge against job loss? Think we should be putting it all toward our 2nd mortgage instead? Well… don’t forget that my wife’s position will likely be eliminated next year due to state budget cuts. Beyond that, my company has recently changed its business model and while we are hopeful, there is no guarantee the changes will generate enough revenue to keep the company afloat. In light of all the uncertainty, we are focused on building our savings.

In the event that our jobs remain stable over the next year or so, we will then have enormous amounts of money that can then be used to make lump sum debt payments accordingly.

Oh yeah… our vacation fund has also grown to $1,000 and will be used toward a much needed spring break vacation next week. We are incredibly excited about the trip and are so happy to be paying cash for the entire thing. Like I always say… pay off your debt, but don’t forget to stop and smell the roses along the way!

DFA Link Rally: Living in America Still Ain’t Half Bad Folks

Matt Jabs — Sat, 27 Mar 2010 17:23:37 +0000

Government

Many American’s feel their governments (possibly local and state, but particularly federal) are traveling distasteful paths of partisan corruption. According to a recent Gallup poll, over the past 10 years American satisfaction with their elected officials has been on a downward spiral. There are a few short lived spikes in approval adjacent historic events, but those spikes level out quickly after emotions settle. Despite their many differences, American’s seem united under a weariness of partisan politics and hunger for truth politics.

Corporate greed

The recent government bailouts of many superpowers of the banking, insurance, and other industries drive the dissatisfaction causing many citizens to question the soundness of both government and corporate leadership. What sticks in the craw of most is the immense corruption rotting away the powerful political and economic fabric of our great nation.

Bright hope

The good news is that the sun still shines, the plants still grow, families still love, and God is still in control. As American’s we can still take family vacations. We can still marry, parent, pray, hope, and love. We can still worship the God of our choice. We can still speak our minds, vote our beliefs, and pursue our dreams.

Have you been focusing too heavily on the ills of society while the joy of life and freedom pass you by? Remember to be thankful today. Thankful for your family, your friends, and your freedom. Celebrate the joys you do have and set aside the worry and frustration of what you do not. And as always, pursue debt freedom… but never forget to smell the roses along the way.

Thank you for reading… please enjoy this weeks link rally.

Link rally for this week

Dave Ozment delivers Views of Money – Part 1
Todd Crawford delivers A Child’s Education in Money
PT delivers Cheap Car Insurance: Women Have the Advantage
Tom @ Canadian Finance Blog delivers A Simple Recipe
Frugal Dad delivers Should I Use Savings to Pay Off Credit Card Debt?
Paul @ FiscalGeek delivers PocketSmith Personal Finance Software Review
Mike delivers Rules for converting an RRSP to RRIF
Elle delivers Easy Way to Add Up Expenses in Your Spreadsheets
Junior Boomer delivers What Are Your Options With Your 401k if You Lose Your Job?
Jeff Rose delivers Long Term Care Insurance Quotes: How Much Do You Need?
Peter delivers How To File Your Federal Taxes For Free
MD delivers Investing Tips For Young People– What You Should Consider
Wealth Pilgrim delivers Best Small Business Ideas 2010 And Beyond

photo by panther1619

Considering ETF Investing and Mutual Funds

Guest Author — Thu, 25 Mar 2010 14:14:04 +0000

This is a guest post by Neal Frankle. He blogs over at Wealth Pilgrim about how to find balance in your financial life. When you finish reading, please consider signing up for his daily posts?

ETFs – better than mutual funds?

Mike Piper recently wrote a great piece on ETF investing right here at Debt Free Adventure. In it, he did a super job explaining how they work and how they differ from index funds. If you’re like me, you’ve been reading quite a bit lately about ETFs and why they are or are not better than mutual funds.

Mike makes the argument that since most mutual funds fail to outperform the index, you should buy the index – and the way for you to buy the index is to buy an ETF that matches the index as closely as possible. Mike’s argument is very strong. Having said that, I think there is a very important issue that often gets lost in this discussion. As I see it, the “ETFs versus mutual funds” is a tactical issue. An important tactical issue… but a tactical issue none-the-less.

What concerns me is that folks sometimes make dogmatic decisions about this (and other issues) and fail to consider strategy – and all the alternatives. Here’s what I mean. If your strategy is “buy and hold” – the argument to buy the least cost/better performing vehicle makes all the sense in the world; but what if you aren’t content to “buy and hold”? What if you use a investment strategy like market timing? (Oh, I said it… “market timing”. Bad Pilgrim… very bad Pilgrim!) Believe it or not there are market timing strategies that work.

A case for mutual funds over ETFs

There are millions of people who make money buying stocks – some of which are not buying and holding. There are huge numbers of people who buy funds that are in (what they identify as) stronger areas of the market and refrain from investing in other areas that are weak. There is evidence to support that this strategy can make sense for the right investor. It doesn’t work perfectly, nothing does… but it may be a better fit for investors who want to try to avoid some of the risk and are willing to give up some of the gains. It would be silly for those using this strategy to ignore mutual funds and only use ETFs. Why? Let me give you an example…

One strategy ranks all the funds according to their short-term performance (1 year.) This strategy doesn’t care about expenses, but is actually focused on performance. Since performance is net of fees, it doesn’t really matter what the funds charge investors so long as, at the end of the day the performance is good.

You can see how using this strategy can make ignoring mutual funds outright a silly decision.

It’s sort of like the people who ran baseball in the 30′s and 40′s. They ignored an entire population because of race considerations. As soon as the sport welcomed African Americans on to the field, the performance sky rocketed.

What is your investment strategy?

Well… are you ignoring an entire population of funds at your own expense? Do you struggle with the decision? Do you dismiss mutual funds outright because of the expense and tax issue? Let us know…

Debt Free Adventure

Debt Reduction and Savings Statement – April, May, June, July 2010

Our goal progress for April, May, June, July 2010

Check out our debt reduction charts in the right sidebar. I like graphs.

1. Lending Club debt goal

2. 2nd mortgage debt goal

3. Emergency fund savings goal

4. Side income growth goal

Other savings

Thoughts

Related Posts

Best of Money Carnival #57

Welcome Best of Money Carnival readers!

Number 10

Number 9

Number 8

Number 7

Number 6

Number 5

Number 4

Number 3

Number 2

Number 1

What do you think?

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Here is the comparison between the last two months:

A few notes about the details of the numbers…

The “How Much Your Debt Costs” Spreadsheet & Graph

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My scooter

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Save money on insurance and registration

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Buy a scooter used

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Scooters are cool

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Scrap It?