The Money Beast

My Biggest Financial Struggle

2013-02-04T14:39:00.000-05:00

Have you ever had the thought, “Man, it’d be nice to have “X”? It’s funny how with me, “Man, it’d be nice to have “X” becomes “Man, I have to have “X”! That thought change happens with me when the benefits of having X enter my mind. For example, about 10 years ago we were so unorganized that I really wanted a desk to help straighten things up. It made so much sense that it went from something that would be nice to have to something that we “needed” to have. How much more organized, and therefore easier, our life would be! These thought changes have cost me so much money over the years. In fact, it’s something I’m still working through.

Here is another example: We wanted to switch our dining room with our kids play room because the play room was so big and the dining room was too small to entertain. If we switched, dinner parties (e.g. – Christmas Eve Dinner, Easter Dinner, etc.) would be so much more comfortable and the kids could still have a playroom. To make it better, we thought giving them a TV would be even better! The kids could watch a show on their TV while we watched one on ours. We just needed a TV. Instead of using the old tube TV we had in the basement, we bought ourselves a nice 47 inch flat screen and gave the kids the 37 inch from the family room. A great idea, right? Maybe, but not a high priority. I got the idea of a new TV in my head and that was it. I couldn’t get it out and I had to have it. Why?

Right now, with it being so cold out, I really want to insulate our ducts to make the heating (and cooling in the summer) of our house more efficient. It’s a great idea, right? Insulate the ductwork and save money! Why wouldn’t I want to do that? It’s a good idea that has become something I need to do. Why?

I’ve realized that when I have a good idea, and it makes sense to do, I make them “need to do’s”! To quote Jeremy Foley, "What should be done eventually, must be done immediately." True! So true! If the priority fits! What I have to do is sit back and really think about what is necessary and what is not. Right now we’re in debt. Our first order of business needs to be getting out of debt. I need to learn to quell those thoughts and keep things on track. Yes, it would be nice to insulate the ducts right now. It would help us save money by efficiently keeping the house warmer/cooler. But we’re fine for right now! It can be done at a later date. It doesn’t need to be done right now! I’m going to rephrase the quote from above...

“What should be done eventually, must be done as priorities allow!”

Time to get priorities straight...and keep em straight!

Get Busy Living or Get Busy Dying

2012-12-27T20:48:00.001-05:00

A weird title for a financial blog post. I know. However, I just finished watching "Shawshank Redemption" and at the end of the movie when Morgan Freeman says “Get busy living, or get busy dying.” strikes a chord with me. Get busy living or get busy dying. Put into personal finance terms, get busy fixing your financial situation or get used to being broke and all that goes with it (e.g. – frustration, worry, anxiety).

It doesn’t matter if you’re just starting out, retired or somewhere in between. You should be in control of your financial life regardless of age. It’s never too early and it’s never too late! If you’re younger, you’ll have an easier time setting good habits and sticking to them. The older you are the harder it may be; lifestyle, expectations, and old habits could make it difficult for you to make those difficult decisions you’ll be facing.

The hard choices you’ll face and the decisions you’ll make will ultimately decide your financial future. Do you have too much car? Will you trade down? Do you have too much house/apartment? Will you downsize? Do you live like you make more money than you do? Will you cut your lifestyle? These are the questions you’ll have to ask yourself and the hard choices that will undoubtedly follow. Will you make that tough decision that will relieve the anxiety causing your sleepless nights? Will you make that tough decision that will remove the worry from your life? Will you make that tough decision that ultimately gives you control and not frustration? You can do this, it is not complicated! It’s hard but it’s not complicated.

Getting your finances in order is not rocket science! It takes time but it’s not rocket science! Take a look through the posts on this blog. Visit other blogs like GetRichSlowly.org. Read “The Total Money Makeover” by Dave Ramsey. Feed yourself the information that you’ll need to formulate a plan. Then execute that plan! Anyone can make a plan; it takes guts to step out of your comfort zone and execute that plan.

If you need a reason, it’s the perfect time of year to call it a New Year’s resolution! I don’t care what you call it; get busy doing something about it! Make the choice! Get busy living or get busy dying...

Update:

So a few months ago I mentioned that I was gonna take a shot at the market. Well, I did and I did pretty well. I made about just over 20% by not fighting the fed. It was a forgone conclusion that the Fed was going to initiate another QE so I jumped in a few gold stocks and rode them up and jumped out when I had made enough. I’m on the sidelines now until after the fiscal cliff gets figured out.

Also, our mold is gone! The basement and attic are clean! The kitchen has been installed! The work is done, except for some painting. Now the fun part, paying off the debt! We’re not worried because we have a plan. Thanks to those who dropped notes of support! They were very much appreciated!

Is It Ever OK To Go Into Debt?

2012-10-12T22:17:00.003-04:00

Is it ever OK to go into debt? I know what I'm about to write is contrary to everything I’ve pretty much ever posted but, as much as it pains me to say, we'll be taking on a substantial amount of debt soon. I’ve realized that there are emergencies and then there are EMERGENCIES! We recently learned that we have mold in our home (fortunately, non-toxic mold). It’s in our basement, our attic and in our kitchen cabinets. While every home has some mold, our house has levels that require remediation. Do we have enough money in our emergency fund to handle mold remediation and to replace the cabinets in our kitchen? NOPE! So what are we supposed to do?

Fortunately, we recently refinanced our home so our bank had a recent appraisal and all of the documentation needed for us to take out a Home Equity Line of Credit. Because of our low debt levels and great credit scores, our bank was more than willing to lend us the money, and quickly. 5 business days after applying for the loan we were signing the paper work. The home equity line will allow us to remediate the mold and repair the attic so the mold will not grow back.

So now that the mold issue was “paid for” how were we to pay for a new kitchen? We shopped around for the right kitchen AND the right financing options. We asked friends and family about their experiences with certain companies and we decided that Lowes was the best option for us. We would be able to have a new kitchen installed and finance it at a low rate. We were even able to save close to 20% because we used their financing options. Little do they know we’ll have this paid off quickly! Sometime after Thanksgiving, we’ll have a brand new kitchen and our house will be mold free.

Wow, we’re going to be in debt up to our eyeballs! How the heck are we supposed get back to being debt free? Simple, with a plan! Andrea and I sat down and looked at our budget and started cutting. We pretty much cut anything that wasn’t necessary. For example, our whole family took Tae Kwon Do twice a week. Now, only the boys will take Tae Kwon Do and only once a week at that (we didn’t want to pull them completely out because we feel the martial arts are very important for our kids). We determined our monthly payments, the exact amount we would have payoff and figured we could pay off this mountain of debt we’ve just gotten ourselves into as pretty quickly, relatively speaking. In a year and a half, we plan to be exactly where we were before we found out we had mold. Considering the obstacle in front of us, not too bad.

This has been an overwhelming experience from the beginning when you consider the possible health ramification and our financial philosophy. We have a nice chunk of change in the bank but not nearly enough to pay for all of the work we need to have done. After taking it all in, and it took some time, I’ve come to the conclusion that this is a blessing in disguise. How so you ask? Well, we got lax; we became comfortable; we became unwilling to cut because, well, we could afford it. We didn’t have any debt other than the house, so why not take Tae Kwon Do? Why not re-arrange the house and buy a new TV? Why not inflate the budget categories a little? We lost focus! This situation has helped us refocus our financial life and we’ll be better off, in the long run, for it! It’s helped me to learn to be flexible. Yes, it’s good to be debt free, but as I said at the beginning, there are emergencies and then there are EMERGENCIES! I had to learn to not take it as a personal failure; that I let my family down. It’s been overwhelming, but we’ll come out stronger on the other side!

So, is it ever ok to go into debt? Right now, we have no choice.

College Savings

2012-08-23T21:39:00.002-04:00

So you’re saving 15% of your annual income towards retirement. Now what? If you have children, now is the time to start saving for their college education. There are two main options to consider; the 529 and the Coverdell Education Savings Account. Which one is right for you? Below is a brief description of each plan along with the major pros and cons.

The Coverdell ESA

According to the IRS,”A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the designated beneficiary of the account.” That is a long winded way of saying it’s a college savings account. It is named after Senator Paul Coverdell (now deceased) who sponsored the legislation creating the Education Savings Account.

Coverdell ESA Pros and Cons:

Pros:

The earnings in the account grow tax-free and withdrawals are always tax free as long as they are used for eligible education expenses.
Available investments in ESA are the same as those for an IRA (almost anything) making the ESA more flexible than a 529.
The money is not considered an asset of the child when applying for financial aid.
A new beneficiary can be designated without incurring any tax penalty as long it’s transferred to an eligible family member(which is almost anyone remotely related to you. Check out the IRS website here for the list).

Cons:

Contributions are limited to $2,000 a year for each child.
The beneficiary will eventually take control of the money at the age of the majority (18 or 21 depending on the state you live in).
Income limits prevent single tax filers earning more than $110,000 and married tax filers earning more than $220,000 from contributing to a Coverdell ESA. However, a nice little loophole exists. You can gift the $2,000 to your child who can then open an ESA for themselves.
The funds must be used by the time the beneficiary is 30 to any tax penalties.

The 529

According to the IRS, a 529 plan is “a plan operated by a state or educational institution, with tax advantages and potentially other incentives to make it easier to save for college and other post-secondary training for a designated beneficiary, such as a child or grandchild.”

There are two types of 529 plans:

Prepaid Tuition:

According to the SEC, “Pre-paid tuition plans generally allow college savers to purchase units or credits at participating college and universities for future tuition and, in some cases, room and board. Most prepaid tuition plans are sponsored by state governments and have residency requirements.” Since there is no guarantee where a child will go to school, this strategy can be risky. Also, the fees of these plans can be very high since someone (i.e. – you) has to pay for the risk of rising tuition costs.

Savings Plan:

Simply put, the 529 Savings plan is an investment account for the purpose of paying eligible expenses.

529 Pros and Cons:

Pros:

Like the Coverdell ESA, the earnings in the account grow tax-free and withdrawals are always tax free as long as they are used for eligible education expenses.
Also like the Coverdell ESA, a new beneficiary can be designated without incurring any tax penalty as long it’s transferred to an eligible family member.
Contribution limits are loosely defined by the IRS in the following way; “Contributions cannot exceed the amount necessary to provide for the qualified education expenses of the beneficiary.” This essentially means you can contribute as much as you like but be mindful of the $13,000 gifting rule.
At no time does control transfer to the beneficiary as it does with in ESA. The account owner maintains control of the money.
There are no income restrictions; everyone is eligible to take advantage of a 529 plan.
The money is not considered an asset of the child when applying for financial aid.
Most state 529 plans do not have residency requirements. You are free to shop for the 529 that best suits you.

Cons:

The money must be used for college, university, vocational school, or other postsecondary educational institution or you will pay ordinary income tax as well as a 10% tax on the earnings.
529 fees can be high. Checking the fees should definitely be on your checklist prior to choosing a plan.
Investment options can be limited as compared to the Coverdell ESA and you are only able to move investments once every 12 months.

We are saving for our children’s college educations by saving $2,000 into a Coverdell ESA and then anything above that into a 529. I like the ability to invest in whatever I choose as great benefit of the ESA while the lack of contribution limits of the 529 allow for college savings above and beyond $2,000. How are you saving for college?

Extended Warranty? Bad Idea!

2012-07-18T14:09:00.004-04:00

I recommend that you never purchase an extended warranty. They could be one of the biggest rip offs in the retail industry! The probability you’ll ever use the warranty is pretty small. They’re also really expensive so I create my own warranty by saving into a sinking fund for repairs and replacements.

The odds a product you purchase an extended warranty for will break within the warranty period are pretty low. According to Josh Clark at HowStuffWorks.com, “Statistically speaking, a product is likeliest to break either early on, within the free manufacturer's warranty, or years down the road, after an extended warranty has expired.” Consumer reports even states that “Products seldom break within the extended-warranty window.”

Extended warranties are also very expensive! Approximately 80% of the cost of the extended warranty is commission paid back to the seller of the warranty. Often times, the cost of the repair is either less than or equal to the cost of the extended itself and many repairs are covered by the manufacturer’s warranty! If you do use credit cards, some of them automatically double the manufacturer’s warranty. Purchase the item on the credit card (then pay it off right away, of course) and you have peace of mind for a couple of years.

Instead of buying an extended warranty, create a sinking fund! A sinking fund is a way to save now for something you know you’re going to have to replace. So when it’s time to replace that item, you have the money to pay cash! Let’s take a TV for example. If I’m offered a 2 year extended warranty on a new TV for $100, what I’ll do is save that $100 every year, or $8 a month, into a sinking fund so that in 4-5 years, if the TV breaks or needs to be replaced, I can pay for it, no worries, in cash without having purchased the extended warranty.

So, I hope the next time you are offered an extended warranty, you say no, no matter how hard the sell! You probably won't use the warranty, and it is way too expensive. You can create your own warranty plan by saving a few extra dollars a month into a sinking fund!

Schmorgesborg

2012-06-20T21:20:00.001-04:00

It’s been a while since I last posted. It’s been a wild and crazy beginning to our summer! We’ve had weddings, parties, emergency room visits (everyone is fine), and a crazy work schedule. Over the past few weeks I’ve had a few thoughts I’ve wanted to write about but they’re not incredibly long topics. So, I thought I might throw a few of them together here.

The Change Bin

We have one of those Beefeater Gin change bin piggy bank type things that we continually throw change in. It’s a nice little monetary surprise when you decide to sit down and count it. I actually count the change when we’re ready because I can’t stand giving 9.8% to Coinstar. Well, I’ll let Coinstar count the pennies; they can have 9.8% of them. If your bank has a change counter they may let you use it for free. Anyway, that change really adds up. If you really want to let the money pile up in there, throw in a random dollar bill every now and then!

Rounding up

When I budget, I round up. What do I mean by that? If, my transportation monthly budget is $367, I might actually budget $370 or $375. Over the course of the year over many budgeting categories, I’ve saved an extra few hundred dollars without realizing it!

Working out

Andrea and I work out. We don’t belong to a gym because I’ve found it to be a money drain. However, I’ve invested in adjustable weights, a pair of good running shoes and some home workout videos. With a little discipline, working out at home saves us both time and money. I don’t have to drive to a gym, get changed, get my workout in, change back into street clothes and drive home. Before the kids get up or after they go to bed, we either go for a run, bang out a p90x workout or get in a quick 10 minute trainer workout. It works for us! Ya know...saving time and money as well as staying in shape!

Investing

Over the course of the last year or so I’ve been reading about, listening to podcasts and researching the topic of investing; so much so that I’m trying my hand at it outside of mutual funds. I’ve actually done pretty well so far and I’ll keep you posted as to how I’m doing from time to time. However, the market is not for everyone so I don’t suggest entering into this form of investing lightly and it should not be done before you are out of debt, have an emergency fund and saving for retirement.

The Wagon

Everyone falls off the proverbial wagon! The trick is getting back on. For example, I wrote about how we were hit with car trouble and medical expenses in an earlier post. Shit happens! That’s why we have an emergency fund. If you have to dip into the emergency fund, replenish it as quickly as possible and get back to the budget! Don’t use the fact that you had to dip into the emergency fund as a reason to buy an “emergency” wardrobe!

Time To Refinance The Mortgage?

2012-06-01T21:13:00.002-04:00

Have you checked out mortgage rates lately? Wells Fargo has a 30 year fixed rate mortgage at 3.75% and a 15 year fixed rate mortgage at 2.875%! 2.875%!!!! Are you kidding me? I’m not saying you should run out and refinance right now but it is worth thinking about. There are some factors you should consider first. How long have you had your current mortgage? How long do you plan to stay in the house? How long will it take you to recoup the money you spend to refinance the mortgage? Do you have a prepayment penalty?

There used to be a rule of thumb that said you shouldn’t refinance your home unless you could reduce the interest rate by at least 2%. Then the rule of thumb changed to a reduction of at least 1%. Now, the rule of thumb is you should consider refinancing if you will you stay in your home longer than it will take for you to recoup the cost of refinancing.

If you took out a mortgage in May of 2006 for $200,000 at a rate of 5.5% you would owe $180,766.53 as of July 1^st, 2012. If you were to refinance the balance of that mortgage today at 3.75% for 30 years your payment would go down $280 (from $1135 to $855). It would take you approximately 14 months to pay off that refinance.

Even better, if you took that same mortgage originally taken out in 2006 and refinanced it to a 15 year at 2.875%, your payment would go up $129, up to $1,264. However, in those 14 months you would have paid $6,016 in interest as opposed to the $12,298!!! That’s a savings of $6,282, making this refinance well worth the time, effort and initial cost!

It doesn’t always make sense to refinance. It may not make sense to refinance if:

You plan to move within the next few years; a monthly savings of $100 at a cost of $4500 to refinance would not be justified.

You are on the backside of your current mortgage. The majority of the interest paid on your mortgage is paid on the front end.

You current mortgage has a prepayment penalty. Most prepayment penalties hit you with a penalty of 80% of six months interest (ouch!). However, most expire after 5 years so check your documents!!

It may make sense to refinance if:

You can reduce the term of your loan without increasing your payment beyond your means. For example, you refinance to a 15 year mortgage from a mortgage with 23 years left.

You could reduce your monthly payment substantially!

If you are in an Adjustable Rate Mortgage (in that case, stop reading and call your bank to refinance to a fixed rate mortgage right now!)

You might consider going to an extra payment calculator like the one at http://www.bankrate.com/calculators/mortgages/mortgage-calculator.aspx to determine if you could save yourself interest AND the cost of refinancing by just adding extra money to your payment. A Do It Yourself refinance without the hassle of refinancing!

I’ve taken the liberty of running some numbers to quickly illustrate how much interest you could save by refinancing:

Interest paid on 30 year $200,000 mortgage at 6.00% is $231,676

Interest paid on 30 year $200,000 mortgage at 5.00% is $186,511

Interest paid on 30 year $200,000 mortgage at 3.75% is $133,443

Interest paid on a 15 year $200,000 mortgage at 2.875% is $46,450

With interest rates as low as they may ever get, take an hour or so to run some numbers. It may save you tens of thousands of, even hundreds of thousands of dollars!

Investing For the Kids

2012-05-23T21:18:00.000-04:00

For many of us, we struggled with student loans, car payments and credit card debt because we didn’t know any better. I want to change that for my kids. I’m teaching them how money can work for them and how it can work against them. Another thing we’re going to be doing for our kids is investing for them. I’m not talking about saving for their college educations. I’m talking about investing their money so that in 15-20 years, when they get these accounts, they will have a substantial amount of money.

We’re going to open an UTMA (Uniform Transfers to Minors Act) accounts for each of our kids. An UTMA is a type of account where a person can gift and invest for minors. The investment is automatically transferred to the minor upon reaching 18 or 21 (the age of majority) depending on the state you live in. The UTMA age of majority in NY, where I live, is 21.

One of the most common reasons people do not open an UTMA is a fear their child may not handle a substantial amount of money maturely. I say to you, most adults can’t handle a substantial amount of money maturely. We’ve already started to teach our children about money and how it works; they get paid for chores, they go to their bank and deposit their money into their savings accounts and they have piggy banks in their rooms so they can see the money accumulate. I feel very confident that by the time our kids are in their early-twenties they will have had 15-18 years of financial education not taught in high school or college.

Another reason people choose not to open an UTMA for their children is because it may affect their children’s ability to attain financial aid for college. Assets in your child’s name can be counted against them since financial aid is awarded based on need. If you were to put the money given to your child in a savings account that money would be counted as an asset as well. Would you rather have money in a savings account earning less than 1% or would you rather use the power of dividends and compounding interest in their favor? We will be safely investing our children’s money.

Since this is their money they should be able to give and spend some of it as they like. This is part of teaching them about how money works. However, we will invest a portion of their money to take advantage of the long term gains of stocks, bonds and commodities. Can you imagine how different your life would have been if your parents taught you the value of hard work, gave you a financial education of how money could work for or against you, and gave you nest egg to start with? How different would your life be? Would that, as Dave Ramsey says, change your family tree?

I’d like show you a portion of how Dave Ramsey explains the importance of investing early:

A Millionaire’s Best Friend

One awesome thing that you can take advantage of is compound interest. It may sound like an intimidating term, but it really isn’t once you know what it means. Here’s a little secret: compound interest is a millionaire’s best friend. It's really free money. Seriously. But don’t take our word for it. Just check out this story of Ben and Arthur to understand the power of compound interest.

Ben and Arthur were friends who grew up together. They both knew that they needed to start thinking about the future. At age 19, Ben decided to invest $2,000 every year for eight years. He picked investment funds that averaged a 12% interest rate. Then, at age 26, Ben stopped putting money into his investments. So he put a total of $16,000 into his investment funds.

Now Arthur didn’t start investing until age 27. Just like Ben, he put $2,000 into his investment funds every year until he turned 65. He got the same 12% interest rate as Ben, but he invested 23 more years than Ben did. So Arthur invested a total of $78,000 over 39 years.

When both Ben and Arthur turned 65, they decided to compare their investment accounts. Who do you think had more? Ben, with his total of $16,000 invested over eight years, or Arthur, who invested $78,000 over 39 years?

Believe it or not, Ben came out ahead … $700,000 ahead! Arthur had a total of $1,532,166, while Ben had a total of $2,288,996. How did he do it? Starting early is the key. He put in less money but started eight years earlier. That’s compound interest for you! It turns $16,000 into almost $2.3 million! Since Ben invested earlier, the interest kicked in sooner.

What are you going to do for your kids? I know what we’re going to do for ours...

The Beauty of the Emergency Fund!

2012-05-16T21:53:00.006-04:00

Sorry for the delay in posting this blog post. These past two weeks have been somewhat of a whirlwind. We’ve had a broken toilet, sick kids and major car problems. I’m not sure I can explain to you how thankful we are to have an Emergency Fund as well as a savings account for medical expenses!

A few weeks ago, I installed two new toilets in our house. Both installations went very smoothly, or so I thought. I’m assuming I tightened one of the floor bolts too tightly and cracked the “ear” of the flange (the flange is the pipe fitting that mounts the toilet to the floor as well as connects the toilet to the drain pipe). So, basically, only one side of the toilet was bolted to the floor. I attempted to replace the flange myself but it was glued in place. I watched a video online and the one thing the guy in the video kept repeating was not to break the pipe the flange connects to. It made me sufficiently nervous so I called in my plumber, Mike. Mike came over and said that I didn’t need to replace the flange. Instead of having the bolt come up through the floor, he put toilet in place and put a lag screw from the top down into the floor. Easy enough! I wish I thought of that but for 70 bucks I got a lesson in how to think outside the box.

Next up, sick kids! The week leading up to my 20 year high school reunion, our youngest came down with a virus that went from his nose to his lungs. A doctor visit and 3 prescriptions later, he was on his was to health. Then this past week, our oldest came down with a sinus infection that crept into his lungs. Again, a doctor visit and 3 prescriptions later he’s on his way back to health. Kids get sick, I get that! This is why we have an account specifically dedicated to doctor visits and prescription costs.

I saved the best story, which happened first, for last. On our way down to the reunion we got stuck in traffic. All of a sudden, right before we got to the Whitestone Bridge, which connects The Bronx and Queens, the heat on the car shot through the roof! It was as high as it could go and we were standing still. I blasted the heat to try get some heat away from the engine and all that came out was cool air. At that point, I knew the coolant level was practically zero. Fortunately, right before the bridge, there was a gas station. We pulled over, and thanks to the attendant at the station, we poured the coolant safely and were on our way.

After an amazing time at the reunion, we headed back home the next morning. Aside from a few fill the coolant and check the gas stops, the ride was relatively smooth. If you know anything about cars, you have probably diagnosed the problem; a blown head gasket. Head gaskets aren’t cheap but having the second car has become as close to a necessity as you can come. Fortunately, we have the emergency fund so we paid cash. Hopefully the car will last long enough for us to save up for new ‘gently used’ car.

Now, I hate parting with money and this has been a stressful two weeks, relatively speaking. We’ll adjust our budget to rebuild our emergency fund so that it is fully funded. I don’t want to go any longer than I have to without one. A fully funded emergency fund made what could have been an insanely stressful summer to a stressful two weeks. Is your emergency fund fully funded?

It’s Amazing the Difference 10 Years Can Make!

2012-05-02T20:54:00.002-04:00

My 20 Year High School Reunion is this coming weekend and it brought me back to my 10 year reunion. Well, not really my 10 year reunion, per se, I didn’t attend, but back to my life 10 years ago. Life has changed dramatically over that time!

10 years ago, Andrea and I were on one of our patented “breaks”; I was a mess physically; I was a mess financially; I was about to graduate with my MBA and the job market had turned from great to awful in the 2 years I was in school; and I was in those “tweener” years, as I like to call them, in which I was no longer a college student but I wasn’t a working adult. I felt like I was in “The Waiting Place” Dr. Seuss made popular in his book “Oh the Places You’ll Go!” No truer words have ever been written than those written in this book! I read it to my children, not only because I want them to learn the lessons contained within its pages, but because I, myself, need to be reminded of them every so often.

Today, as I sit and write this post, Andrea and I are married with two amazing boys; we are financially healthy; we are physically healthy; and we are incredibly goal oriented. How did I get here? What changed?

It all started with a conversation I had with my cousin Kevin. To sum up a 2 hour deep conversation, he told me that I could be whatever I wanted but that I had to go and make it happen; he told me that I had to surround myself with people who inspired me; he told me that I was a good person but that I had to find myself again; and he told me that he would be there for me. This conversation had such a profound impact on my life that I named my second child after him.

The weekend after that conversation, I applied for Business School.

In between my first and second year of business school, I saw a picture from a friend’s bachelor party and it was embarrassing! I was fat. I was very fat! I hadn’t realized I had gotten so big, so unhealthy! I decided to go on a diet. I had lost weight before but this was different. I needed to lose a lot of weight. I read about and started the Atkins diet. I lost the weight, and lost it quickly. I realize now how unhealthy a diet I had chosen but that’s another story. I was feeling good but there were other aspects of my life I needed to improve.

The next obstacle, the pack a day cigarette habit I developed in college. I had quit many times before without success so I decided to make a change in how I quit. I used a medication to help with the cravings but the big change to how I finally quit was to train for a marathon. Andrea and I quit smoking around the same time and she suggested we train for a marathon. How could I smoke while training for a marathon?!?! 8 months after quitting, I completed my first marathon. To be honest, I’ve yet to complete my second but I think it’s time to run one again. Unfortunately, Andrea’s bum knee kept her from training for, and running in, the marathon.

After I quit smoking and decided to train for a marathon, Andrea and I had conversation about getting serious. For years we had floated in this thing we called a relationship, stuck in a break up get back together cycle that we hadn’t broken. Not until we decided to break that cycle and actually commit to each other did our relationship take off. Shortly thereafter, we got engaged!

After Andrea and I had gotten married, she kept insisting that we needed to get out of credit card debt. I knew she was right so I finally started my quest to find the perfect book to guide us. As I mentioned in my “About Me” on the left side of this page, I found “The Total Money Makeover” by Dave Ramsey and found my passion!

I figured out that I am here today because I made the decisions to not be fat anymore; to quit smoking; to commit to my wife; and to get out of debt! I became accountable for my actions. I owned my shit! No one was going to fix my life for me; not my family, not my friends, nor the government. I had to start making good decisions and be accountable for my actions! I can’t remember where I first heard this but it fits, “Life isn’t complicated! It may be hard but it’s not complicated!" Make good, thoughtful decisions, surround yourself with people who inspire you and more often than not, you’ll be making good decisions! If continue to make good decisions , and constantly improve, you’ll look back over 10 years and be amazed how far you’ve come.

Do It Yourself

2012-04-24T10:14:00.003-04:00

I flushed the toilet the other morning and the handle came off in my hand. I thought to myself, “Huh, that’s interesting!” I knew we needed a new toilet but I didn’t realize it was going to be that morning! In fact, we needed two. The toilet in the kid’s/guest bathroom needed to be replaced as well. I could have made a call to my plumber and said, “Hey, Mike, I need you to install 2 new toilets.” Mike would have come over and installed 2 new toilets for about $600. Instead, I decided to save some money and do it myself.

Now I understand installing a toilet is not the most difficult thing but I’ve never considered myself the handiest person in the world. So I did what any amateur does, I looked up “How to install a toilet” on YouTube. After a few ‘how to’ videos and a visit to consumerreports.org to find the best toilet for the money I was on my way to The Home Depot. It took me about 3 hours but two toilets are now successfully installed in our house. Total money spent... $328. Money saved...$272!

About a year ago we needed to replace the door from our garage to our living room. We had a local company, which we trusted, come in to give us a quote. We knew the company because they had put in our sliding glass door and we liked their work. Their quote...$1300! A friend suggested that he and I do it together. We made a trip to The Home Depot and priced out doors. For just over $300 I could put in a fire rated door myself. In just 4 man hours we had our door installed. Total money spent...$310. Money Saved...$990.

If you’re not handy, like me, how do you become handy? I suggest starting with a small job: painting, replacing an old thermostat or an electrical outlet. After you’ve completed some simple jobs tackle a tougher one or help a handy friend take on a bigger job.

If you decide to go it alone, there are plenty of videos online, books you can borrow at the library or classes that you can attend at The Home Deport or Lowes that will help you through any task. And if worse comes to worst, and you completely mess things up, call in a professional. For example, Andrea had a ring fall down the sink drain and I went into the trap to get it. Taking off the trap was no problem. Ring retrieved and all was well. Well, not quite. Our trap was metal pipe, not PVC, which increased my chances of screwing things up. And I did! I stripped the threads. I called my plumber Mike to fix that one.

Attempting to home improvement projects yourself not only saves you money, a huge incentive, but you also get to learn something new. I love learning. I’m constantly asking my friends who do their own home improvements if I can help. I’ve helped my father-in-law put in hardwood floors, a buddy lay concrete for a fire pit, and another buddy put up a deck. It’s humbling to realize what you don’t know but it’s exciting to learn something new.

As you gain experience, you’ll be able to take on larger jobs. I have two friends who have each finished their own basements. One friend did practically everything: electrical, plumbing, framing, sheet rocking, taping, stair bannister and painting. He did everything except install the carpet! Another friend of mine also did most of the work finishing his basement except he paid someone to do the taping and carpeting. I won’t say what they spent but I can tell you they each saved well over $15,000 finishing their basements themselves.

As you can see, you can save hundreds, even thousands, of dollars by doing home improvement projects yourself. Not only will you save some cash, you’ll also get to learn something new and maybe even spend some quality time with friends or family (my kids are always watching when I’m attempting to fix something). Give it a shot. The worst thing that can happen is you call in the professional to clean up the mess.

Traditional IRA vs. Roth IRA

2012-04-17T21:42:00.000-04:00

If you earn taxable income, you’re eligible to open an IRA (Individual Retirement Arrangement, also known as an Individual Retirement Account). The two types of IRA’s I’m going to discuss here are the Traditional IRA and the Roth IRA. A Traditional IRA is typically tax-deductible. When you withdraw at retirement age the money will be taxed at the current rate of ordinary income. With a Roth IRA, you contribute after-tax dollars so when you withdraw at retirement age, you don’t have to pay taxes on those withdrawals as long as you’ve had the Roth for over 5 years (known as the seasoning period)!!

While there isn’t and income limitation to contribute to a Traditional IRA, there are limits to what you can take as a tax deduction. According to IRS Publication 590, you can take a deduction for contributions to a Traditional IRA if your modified Adjusted Gross Income (AGI) is:

More than $92,000 but less than $112,000 for a married couple filing a joint return or a qualifying widow(er),
More than $58,000 but less than $68,000 for a single individual or head of household, or
Less than $10,000 for a married individual filing a separate return.

If you either live with your spouse or file a joint return, and your spouse is covered by a retirement plan at work, but you are not, your deduction is phased out if your modified AGI is more than $173,000 but less than $183,000. If your modified AGI is $183,000 or more, you cannot take a deduction for contributions to a traditional IRA.

There is an income limitation on whom can contribute to a Roth IRA. According to IRS Publication 590, you can contribute to a Roth IRA if:

Your filing status is married filing jointly or qualifying widow(er) and your modified AGI is at least $173,000. You cannot make a Roth IRA contribution if your modified AGI is $183,000 or more.
Your filing status is single, head of household, or married filing separately and you did not live with your spouse at any time in 2012 and your modified AGI is at least $110,000. You cannot make a Roth IRA contribution if your modified AGI is $125,000 or more.
Your filing status is married filing separately, you lived with your spouse at any time during the year, and your modified AGI is more than -0-. You cannot make a Roth IRA contribution if your modified AGI is $10,000 or more.

Contribution Limits

The government sets a limit on how much you can contribute to an IRA. That limit is $5,000 ($6,000 if you are age 50 or older)

Distributions

When you turn 70 ½, you have to take distributions from your Traditional IRA. Roth IRA’s, however, have no such requirement.

Which to choose?

Generally speaking, if your tax rate is expected to be greater than or equal to your current tax rate, you should invest using a Roth IRA. However, if you have more than 5 years until retirement, I would suggest that you open a Roth IRA regardless of the anticipated future tax rate. The rule of thumb is good a guideline but the nature of government is unpredictable. Who is to say what tax rates will be 10, 20, or 30 years from now? I can guarantee this, when you retire and are taking tax free distributions, you won’t remember, or care, what the tax rate is or was.

How to contribute to retirement accounts

If $5,000 is greater than or equal 15% of your income, then you should contribute your 15% to a Roth IRA and call it a day!

On the other hand, if $5,000 is less than 15% of your income, max out a Roth IRA and then contribute to the remaining percentage to an employer sponsored plan if available (401k, 403b, or 457b).

If you do not have an employer sponsored plan to contribute to you may want to consider a regular investment account since long term capital gains are currently taxed at 15%. Remember, to take advantage of that 15% capital gains rate, you will have to hold on to those investments for more than a year.

One last thing

An IRA is more flexible than an employer sponsored plan because you can invest it in whatever you like (stocks, bonds, mutual funds, real estate, etc). Many employer sponsored plans are limited in their investment options.

How We Invest

2012-04-10T22:06:00.000-04:00

Investing is such a broad subject. How does one invest? In what? When? I asked all of these questions. Then my brother suggested I read “The Intelligent Investor” by Benjamin Graham. This is the quintessential book on investing. The amazing thing, it was written in 1949 and applies as much today as it did then! I learned a lot from this book; the most important being that I don’t have the time to invest in individual stocks! Unless you have time to study balance sheets, management, accounting rules, as well as other market factors, then you shouldn’t be investing in a company. That’s why mutual funds were invented!

Loosely following the teachings of Benjamin Graham, I’ve invested in index funds. While Graham teaches a portfolio of stocks and bonds, I substitute gold for bonds. Here is a sample, depending on market conditions, of what my portfolio might look like:

Vanguard Dividend Appreciation Index Fund (30%)
Vanguard 500 Index Fund (20%)
Vanguard Small-Cap Growth Index Fund (10%)
Vanguard Mid-Cap Index Fund (10%)
Vanguard International Growth Fund (10%)
Precious metals (e.g. gold, silver, etc) (10-20%)

I love dividend funds! Any company that will pay me a dividend to own their stock, and increase that dividendis a company I like to own! There is a great stat about dividend stocks: If you invested $1 in US stocks in 1900 and kept the dividends for yourself, 100 years later that stock would be worth $198. That’s not too bad for a buck. However, if you invested that same dollar in US stocks and reinvested your dividends, that stock would be worth over $16,000! The moral of the story is to invest in dividend paying stocks, and reinvest those dividends!

I invest in the 500 index fund because it follows the S&P 500 (aka – the broader market). It’s instant diversification! I get to invest in companies that span all sectors (health care, energy, financial, etc).

Small and mid-cap index funds allow me to gain exposure to smaller to mid-size companies that have the ability to grow quickly. I can pick out the IBM’s, the McDonald’s, the ExxonMobile’s but I’m not familiar with smaller companies at all. These funds allow me to invest in those smaller companies.

The International fund allows me to invest in those emerging markets that I’m not aware of as well as those companies in developed countries outside of the US.

Except for the International fund, these are all index funds; Funds that are put together to match the components of a market index such as the S&P 500, the Dow Jones Industrials, the Dow Jones Utilities, the Russell 2000, etc. Investopedia explains index funds this way: "Indexing" is a passive form of fund management that has been successful in outperforming most actively managed mutual funds.

A huge benefit of investing in index funds is that they tend to be the benchmark with which fund managers are judged; whether or not the fund manager was able to beat the S&P, for example. Another benefit is the low expense ratio of index funds. Mutual funds cost money to run: the cost of research, the cost of trading, the fund manager’s salary, etc. Because the index defines what stocks the fund can hold, fees are kept to a minimum.

Aside from the funds listed above, I think it’s also a good idea to have some money in precious metals such as gold. Gold helps you hedge against inflation. If you listen to the podcasts and radio shows I listen to, we could be in for some serious inflation over the next few years. While an argument could be made that that inflation will stay in check, the fact that gold can help you hedge against inflation cannot. I used to believe that gold was a horrible investment but considering the money printing policy of governments today, we’re considering adjusting our portfolio so that we have between 10-20% of our money in gold.

While this investment style works for me, it may not for you. I don’t know your risk tolerance, your investment style, or your suitability to invest so this is not a personal financial advice. I’m simply explaining how we invest and that it might be something you’d like to familiarize yourself with.

How do you invest?

Questions

2012-04-05T20:43:00.001-04:00

I’ve been asked a few questions since starting this blog that I’d like to take the time to answer.

The first question I received was, “Why shouldn’t I start with the highest interest rate when paying off my debt? I’m having a hard time understanding why you’d want to start with the lowest balance, the math doesn’t work.”

Math isn’t the problem! Behavior is! If the math worked, people wouldn’t be in debt. Behavior got them into this mess and a change in their behavior is what is needed to get them out. To change that behavior, you need an early success. It gives you confidence that you can fix the mess. Also, an early win can be built upon; it gives you traction. So I suggest listing your debts smallest to largest and paying them off in that order.

The next question asked was, “Why would I want to pay off my mortgage? I’d lose the tax write off, wouldn’t I?”

Yes, you would lose that write off! However, are you willing to trade $10,000 for $2,800? That is, essentially, what you doing. The numbers may be a little different depending on your tax bracket but the premise is the same. For round number purposes, if you earned $100,000, with $10,000 in mortgage interest, you would reduce your taxable income and instead be paying taxes on $90,000. So you’re paying less in taxes!! That’s awesome! Right? WRONG!

If you didn’t pay the $10,000 in mortgage interest you would be paying taxes on $100,000. If you earned $100,000 you’re either in the 25% or 28% tax bracket, depending on your marital status. If you had to pay 28% on that $10,000, you’d pay an extra $2,800 in taxes.

I understand that this is a simplified scenario but the principle is the same, you’re trading $10,000 for $2,800! The math doesn’t work. Keeping your mortgage for the tax deduction doesn’t make mathematical sense.

The last question I was asked was regarding my opinion of cashcrate.com.

I think if you have the patience, and a spare email address that you don’t mind getting spammed, then cashcrate.com might be a good place for you to make some extra cash. I suggest reading www.cashcratesecrets.com if you’re interested in cashcrate.com and the money you can earn.

Do you have personal finance questions you’d like answered? Feel free to comment below or to contact me at themoneybeast.blogspot@gmail.com.

Let's Do The Numbers!

2012-04-02T21:51:00.002-04:00

If you’re having a hard time seeing the value of getting out of debt; if the numbers seem abstract still, let me try to clarify it with this post. In the post, Why Be Debt Free?, I detailed the debt of the average American (the average American has a home with a mortgage balance of $240,000, a car with a loan balance of $30,700 (two thirds of American households have 2 cars), 4 credit cards with a combined balance of $10,600, and an education with a student loan balance of $20,000).

Below I will show you a projection of how much you could earn if you invested the interest in the average American’s debt. I will also show you how much the average American would have in 30 years if their payments were invested instead of being paid to the banks.

All calculations were made assuming an 8% return and, for ease of calculation, evenly distributing the interest over the course of the loan.

House

Mortgage $240,000

Payment $1,216

Interest paid $197,776

Term 30 Years

Interest Rate 4.5%

The value of the interest, in 30 years, would be $823,662

Car

Loan Amount $30,700

Payment $536

Interest paid $1,505

Term 5 Years

Interest Rate 1.9%

The value of the interest, in 30 years, would be $13,617

Student Loan

Loan Amount $20,000

Payment $212

Interest paid $5,455

Term 10 Years

Interest Rate 5%

The value of the interest, in 30 years, would be $20,624

Credit Card (Assuming a 2% minimum payment)

Loan Amount $10,600

Payment $212

Interest paid $4,163

Term 70 months

Interest Rate 11.99%

The value of the interest, in 30 years, would be $37,339

The value, after 30 years, of the interest alone would be $895,242!!! That’s just if you invested the interest you paid! If you invested the monthly payments you make, you would have over $3,264,000!!! Can you see the value in getting rid of your debt payments now?!?!? Would your retirement be comfortable with over $3,000,000? Would you ever have to worry about money again? Would you be able to reach your financial dreams?

When Andrea and I saw these numbers, it was a no brainer for us! It was time to get out of debt! I hope you make that decision too! It’ll be well worth it!

Get Started!

2012-03-28T21:09:00.004-04:00

You’re reading this blog, so I'm guessing that you want to get out of debt; that you want to take control your finances. Let me ask you, what are you doing about it? Are you reading this blog, other personal finance blogs or books but you’re unable to take that first step? Are you tired after a long day at work? Do the kids have you running around to the point of exhaustion? Are you just not up for sitting down and hammering out a budget?

I get that! In fact, I get all of that! There comes a point, and I’ve been there, when enough is enough; realizing that making the minimum payment on your credit cards is getting you nowhere, hoping you have enough money to get you to the next paycheck, hoping you have the money to pay the bills at the end of the month or dwelling or the fact that you’re not saving for retirement. The stress this causes is unbearable! Would you rather spend an hour a night over a few nights, organizing your finances, taking control in an effort to reduce that stress?

If so, try this:

Tonight, we’ll call it Night 1: Sit down and write down what your financial goals are. Where do you want to be in 5 years? 10 years? 30 years? Then ask, “Is this attainable doing what I’m/we’re doing?”
Night 2: Write down all of your debt! All of it! List it ALL out and be honest! Any of those secret credit cards you’re hiding from your spouse, get ‘em out! List them smallest to largest!
Night 3: Look at your bank and credit card statements and write down what you spent last month.
Night 4: Using the information you gathered on Night 3, attempt a budget. Be realistic! If you need a form check out Dave Ramsey’s budgeting form’s here. Try the quickie budget first, and then go from there. We use these forms and it’s worked for us, however, Mint.com or Quicken might work for you.
Night 4: Figure out what you can do to save more money or how you can increase your cash flow. Check out my Snowflaking post for some ideas.

Get started! This stuff isn’t complicated! It may be hard but it’s not complicated! It’s hard to have the discipline to stick to a budget! It’s hard to have the maturity to delay gratification; only purchasing something when you really need it. It’s hard to sacrifice!

Is it worth it? Hell yeah! When Andrea and I got on the plan, we knew where every dollar was going and it we finally felt like we were in control. The stress started to melt away. Was it hard? Yeah! Did it take time to finally figure out how to get our budget straight? Yeah! Was passing on the new flat screen hard? Yeah! However, the feeling we had when we finally paid off that last debt was UNREAL! To know that the only thing we had left to pay off was the house, was a feeling of freedom that I can’t describe. While I can’t describe the feeling, I really want you to know it first hand! Take that first step! Take it tonight and take control of your money!

Frugal Is Not Cheap

2012-03-25T20:50:00.005-04:00

There are very few things that I’m willing to go “cheap” on. For example, I’ll go cheap on dishwasher detergent, dryer sheets and coffee filters (maybe even the coffee maker itself). However, I consider myself to be frugal. Merriam-webster.com defines the two words as follows:

Frugal - characterized by or reflecting economy in the use of resources

Cheap – at minimum expense

I believe in buying quality. I don’t believe in paying for fashion or over paying for quality but I do believe in buying quality. I subscribe to Consumer Reports to find the best performing item that I’m considering buying. Consumer Reports also has a best value feature. Once I find the particular item I’ve decided to buy, I find the least expensive price. I’m not buying cheap product, I’m buying a good product at the place I can find it for less. Economy in the use of resources!

A good example is t-shirts. On one shopping trip, Andrea decided she would try to save some money (I love her!). She thought she’d save some money by purchasing cheaper t-shirts ($9.99). Unfortunately, these t-shirts started wearing thin within 6 months. After those 6 months, she had to buy new t-shirts, another $9.99. For a year’s worth of t-shirts she paid roughly $20. A good t-shirt runs $25-$30 bucks and lasts her 2 years after which she uses that t-shirt forever as a workout shirt. $10 ever 6 months for a t-shirt ($40 bucks over 2 years) or buying a $30 t-shirt that lasts forever! While Andrea was trying to save money, it actually cost us more money to buy the cheap t-shirt! We learned and incredibly valuable lesson and it has really paid dividends.

You can apply this logic to almost, ALMOST, anything you buy.

Cheap is not leaving a tip. Cheap is buying an inferior product because it costs less. Cheap is sneaking into a movie.

Frugal is hitting up a buffet. Frugal is buying a used, reliable car for less than a new car of the same model. Frugal is watching movie and making popcorn at home.

So Frugal isn’t buying the least expensive product, it’s buying a quality product at a lower price. Frugal is being cost conscious.

Are you cheap or frugal? What are you frugal about? What do you go “cheap” on?

Work Together!

2012-03-22T21:57:00.002-04:00

When it comes to your family’s finances, it’s incredibly important to work together, communicate, to not force the other person into doing it “your way” and to be honest. The responsibility of managing the finances should not fall on one person alone, even if both people in the relationship want it that way. In order to be financial healthy and have a healthy relationship, the responsibility should be shared. And if anything should happen to you, the other person knows exactly exactly the status of the finances and where to find all of the financial documents.

Communication is key. If you’re fighting to get out of debt while your significant other is spending away, tension over the finances is either a part of your life or will be soon. One of the leading causes of divorce in America is financial trouble. Both people should be aware of the money situation and have a say. Andrea and I communicate constantly throughout the month as well as at our scheduled monthly budget meeting… over a bottle of wine. It’s funny, not only do we talk about the budget but we have a couple of glasses of wine and talk! Just talk! It’s great! You may need to start with weekly budget meetings to help define your goals, establish a budget and get into a routine but the main takeaway here is to sit down, on a schedule, and talk about your finances.

Don’t force your position! If you are not on the same page it’s time to get on the same page but do it constructively. If you feel you are being financially responsible but the other person is not, it’s important not to accuse, blame or demean but to say what you are feeling in a positive way! No one likes to be put on the defensive or to have an idea forced down their throat. Explain that your goal is to have your family be financially healthy and prosperous. I would suggest asking the other person to start by reading Dave Ramsey’s “The Total Money Makeover”; that you’d like to work as a team when it comes to the finances and that this book could help you reach your goals.

Be honest! If you make a mistake (e.g. – made a purchase you shouldn’t have or neglected to pay a bill on time) own it! You’ll prove that you are open and honest; that your spouse can trust you to tell the truth when you make a mistake. The consequences of not being honest could be a fight or, if there is a history of dishonesty, divorce.

If you share the responsibility, communicate effectively and are both honest about your finances you’ll be on your way to financial health as well as a healthy relationship. Work together!

TAXES: To withhold or not to withhold?

2012-03-19T22:17:00.001-04:00

It’s tax time and when it comes to my taxes, I’m on the fence about how to adjust my withholding's. Do I increase my allowances so that I get a nice fat check come March or do I do I decrease my allowances so that I break even at the end of the year? I understand the arguments on both sides, yet with today’s savings rates, here I sit…on the fence.

If I claim Married 2 (as opposed to the Married 4 I claim now), I’ll be giving the government an interest free loan over the course of the year. At what cost? I would be giving the government extra $60 dollars a pay period and at current interest rates (0.84% available at Ally Bank) compounded daily, I would earn a grand total of $12.10 for the year.

If I were to invest that $60 a month in a mutual fund, say one following the S&P 500 Index, last year I would have earned $0(I may have even lost money considering the big downturn in August!). However, the same money, with a return of 8% would yield a $63.95 return. A return of $12 makes me to want to lend it to the government so that come March and receive a large check.

The ever popular, and helpful, pro/con list(or pro/pro list as the case is here):

Break even Pros:

Bigger paycheck and therefore more monthly cash flow.
Earn interest by saving on my own.

Big Refund Pros:

Nice windfall once a year.
Forced savings.

I think for the time being we’re going to try to get a big tax refund. Since interest rates aren’t enticing me at all and we save 15% for retirement as it is, a nice little windfall to increase our emergency fund, pay down or mortgage, splurge a little or even all three is worth it right now. If monthly cash flow seems to get tight and I can’t squeeze anything else out of the budget, I can always adjust my withholding's later.

How do you manage your withholding's?

Snowflaking

2012-03-17T13:35:00.005-04:00

Snowflaking is something I came across while trying to figure out how to get out of debt. I’m not sure who coined the term but it’s a take-off of Dave Ramsey’s snowball. You take little bits of money you find, earn, frugally save and apply it to your debt. This would be in addition to anything you’re currently paying on your debt snowball. These little “flakes” are paid to the debt you are currently working on. Don’t wait for the bill to be due, start making little payments once or twice a week. There may be limits your particular institution has on the number of payments you can make per month so check that before you start.

How do you come up with these little snowflakes? It could be anything:

Side jobs such as:

Mowing lawns – do you have an elderly neighbor who can no long mow their lawn or a neighbor who just doesn’t have the time? Offer to mow their lawn for a reasonable fee!

Babysitting – if you have a flexible schedule and you’re good

with kids, start babysitting.

Online Surveys – you can make an extra few bucks by taking

online surveys. I take surveys on cashcrate.com. For 10

minutes of time I can make a few bucks.

You can also Sell your crap! or Negotiate with the companies you do business with to lower your fees or rates.

Donate! Did you know you can donate plasma, sperm or eggs? I know that it seems kind of radical but you can get paid for these donations!

I went to college with a guy who did drug studies. He would sacrifice a weekend night, stay at a facility and they would test anything from the rate at which a pill dissolves to how a medication affects a healthy individual. He got paid pretty handsomely for being a human guinea pig…and he’s still alive(I know because we just became friends on Facebook).

Apply the proceeds or savings towards your debt. Every little bit counts. If you come into money, find money, or make extra money apply it towards your debt right away instead of spending it on something frivolous. No amount is too small! If you find $10 on the ground, pay down $10 on your debt. Keep track of your snowflakes; you’ll be amazed how much you will have paid at the end of the month! Very motivational!

I keep saying how these little snowflakes can be applied to your debt. In reality, it can be applied to anything: debt, emergency fund, holiday fund, mortgage, etc.! Just be sure to apply it in the order you would the debt snowball.

If you’re willing to get radical, you’ll have radical results. Wow, that was straight out of an 80’s movie!

Gas Saving Tips

2012-03-14T21:56:00.001-04:00

As I was driving into work this morning I heard a lady on NPR giving tips on how to improve gas mileage. The three tips she gave were to keep your cars tire pressure at the recommended level, change your air filter and remove things from your trunk that may be weighing your car down. This got me thinking, with the summer driving season coming up quickly, what are some gas saving tips you wouldn’t normally think of. It also made me think about what recommendations are just not true.

After some research I found these quick and easy tips:

Drive more smoothly. Speeding up, hitting the brakes, only to speed up again uses a lot more gas than keeping a smooth ride. Getting up to speed is where you use the most gas; maintaining that speed uses significantly less gas.
Reduce drag: Remove the ski/luggage rack and drop the tailgate on those pickup trucks. If you’re willing to do it yourself, wash and wax your car! Every little bit helps, right?
Replace your spark plugs. Older spark plugs misfire more frequently wasting gas.
Don’t fill up until you are empty! It goes along with reducing drag.
Park in the shade to reduce fuel evaporation.
Keep it at or under 65 MPH. Speeding increases drag.
Avoid idling for long periods. According to consumerreports.org, if you plan on idling for more than 30 seconds, turn off your car.
Keep you tire pressure at recommended levels BUT do not over-inflate! Over inflation may cause less friction by having less of the tire on the road but this can be very dangerous. Consider filling your tires with nitrogen. Nitrogen is less likely to migrate through the rubber of the tire and it does not change pressure with temperature changes. This creates a more stable tire pressure over the long run.

ConsumerReports.org offered the following myths:

A common tip is to buy gasoline in the morning, when the air is cool, rather than in the heat of the day. The theory is that the cooler gasoline will be denser, so you will get more for your money. But the temperature of the gasoline coming out of the fuel nozzle changes very little, if at all, during any 24-hour stretch. Any extra gas you get will be negligible.
Some people advise you not to run the air conditioner because it puts more of a load on the engine, which can decrease fuel economy. But others say that opening the windows at highway speeds can affect gas mileage even more by disrupting the vehicle's aerodynamics. In our tests in a Honda Accord, using air conditioning while driving at 65 mph reduced the vehicle's gas mileage by over 3 mpg. The effect of opening the windows at 65 mph was not measurable.
Our tests show that driving with a dirty air filter no longer has any impact on fuel economy, as it did with older engines. That's because modern engines use computers to precisely control the air/fuel ratio, depending on the amount of air coming in through the filter. Reducing airflow causes the engine to automatically reduce the amount of fuel being used. Fuel economy didn't change, but the Camry accelerated much more slowly with a dirty filter.

Employing some of these tips may help you improve your gas mileage by up to 30%. Are there other tips you use?

My Honda

2012-03-12T21:22:00.004-04:00

I drive a 2004 Honda Civic that has 104,000 miles on it and I plan to drive it for another 150,000. I wouldn’t classify it as a beater but by the time I’m done with it, it will be! My Honda has a few qualities that I really like in a car, it’s a standard, it gets good gas mileage and it’s completely paid for.

One reason I continue to drive my Honda, as opposed to buying a new car, is because I have absolutely no desire to keep up with the Jones’! Why should I care what my neighbor thinks about my car? I don’t have a car payment! When I see people driving in around in fancy cars my first thought isn’t, “Wow, that’s a beautiful car!” My first thought is, “Huh, I wonder if they can afford that car?” If they can, good for them! I’m not against anyone owning a nice car at all. I just think you should have a car that you can afford; that you can pay for in cash. It reminds of the commercial where a guy lists off all of the awesome things he has and then says, “I’m in debt up to my eyeballs. Can somebody help me?” This guy was obviously too worried about impressing his neighbors instead of building wealth for his retirement or funding his kids college.

What could you do with that car payment? If you were to invest the average American’s car payment, $378/month according to Final Call News, over the next 20 years at an average rate of return of 10%, you would have $289,433.33!!! Not too shabby!!

Do you have too much car? Dave Ramsey’s rule of thumb is “all of your vehicles—cars, trucks, boats and their Sea-Doo sisters, motorcycles, and anything else like this—should not total more than half your annual income.” If you can’t pay off your car in 18-24 months and if that cars value is more than half of your yearly salary, you should consider selling it for a less expensive, reliable car. That may be $1000 beater at this point in your snowball but at least you won’t have a car payment and you can apply that payment to the rest of your debt.

If you do sell your car, please go to kbb.com and find out the value of your car, regardless of how old it is. I have a friend who asked me how much I thought his older car was worth. I suggested looking it up on kbb.com. That person assumed they knew what the car was worth but didn't and $1000 dollar mistake was avoided. Know the value of your car before you trade it in!

So now you’ve either finished paying off your car loan or you sold a car and purchased a less expensive one. Once you’ve paid off your debt and have built your emergency fund, it’s time to start saving for your next car; a used car. Why do I suggest a used car? A new car loses value very quickly over the first year of ownership and continues to lose value, albeit more slowly, over the next several years. You can purchase a slightly used, and reliable, car for significantly less than if you went and purchased that same car’s current year model. If you start saving now, by the time you're ready to purchase another car, you'll be able to move up in car and pay cash.

A friend of mine was in a car accident (he and his son are fine) and his car was totaled. He told me how upset he was because he didn’t want another car payment (the car that was totaled was completely paid for). I asked him how much his car was worth and he estimated about $6,000. I told him to go buy a $6,000 car!! He was very adamant that he was not going to drive around in a $6,000 car! With 2 kids, he wasn’t about to put them in danger by putting them in a cheap car. I explained to him that I drive my two kids around in a Honda Civic, I don’t fear for their safety and I was pretty sure he could buy a 2004 Honda Civic for less than $6,000. After a few conversations, when all was said and done, he ended up getting $8,500 for his totaled car and paying cash for a used SUV. I was very happy for him and he ended up thanking me for talking him out of buying a new car.

Please consider your car situation. Please don't think of a car as an investment; Cars are not investments! You don’t want your investments going down in value, do you?! Cars are depreciating assets. Treat them as such.

I’d like to finish off with a few quotes from the Money Quotes page that I feel are very appropriate here:

“Act your wage!” - Dave

“Car sickness is the feeling you get when the monthly payment is due.” -Author Unknown

“We buy things we don't need with money we don't have to impress people we don't like." - Dave Ramsey

Sell Your Crap!

2012-03-09T21:12:00.000-05:00

Do you have a lot of debt? Do you need a little windfall to help you get started paying down debt or to start building an emergency fund? Take a look around your house. How much stuff do you have that you don’t need? Do you have a basement full of crap? Do you have children who have outgrown clothes, cribs, or toys? There are plenty of places you can sell your second hand items.

When we moved into our house we teamed up with my parent’s and had a garage sale. For a week’s worth of work you can get rid of a lot of stuff you don’t need or use and walk away with a little chunk of change.

A few great tips we heard during our garage sale were:

1. Advertise your garage sale on the web (e.g. - Craigslist) in addition to the advertising you do around your neighborhood.

2. Friday was the big selling day, especially the morning.

3. Sell drinks and finger food to the shoppers. They may have been shopping all day and would love a drink or snack.

Next, take a look at your jewelry box. Do you have jewelry that you haven’t worn in years? Gold and silver are selling at near all-time highs. Andrea and I looked through our jewelry and sold a few pieces for a nice little windfall! I think we may scour our house to see what other jewelry we can come up with to unload.

Sell used books, DVD’s, clothes, or furniture! Sell the stuff you don’t use or need. Take pictures; post it on Craigslist, eBay or any other site you feel comfortable with. If you’re not comfortable selling things online, look for consignment shops in your area. You’ll be surprised how much money you have sitting around your house in the form of crap you’re not using.

People have become extreme sellers just to get out of debt: selling their home and moving into an apartment; selling a car (going from a 2 car household to a 1 car household); selling Grandma’s silverware; even selling most of what they own. Of course, if you have children you may choose not to get too extreme or you may just refuse to live without certain amenities. How extreme can you be? What are you willing to give up to be debt free?

Shopping with a plan

2012-03-08T21:30:00.000-05:00

Have you ever walked out of a store and wondered, "How did I spend so much?"
Did you have a plan? Did you know exactly what you needed when you walked into that store?
In terms of groceries, every Saturday night or Sunday morning, Andrea sits down and plans out the week's menu, writes out the list of groceries we need and posts the menu on the white board on our fridge. Sunday morning, after breakfast, we all head to the grocery store. At the store, Andrea hands me my list. My youngest and I go one way and Andrea and our oldest go the other. After we're done we meet in the produce aisle then head to checkout. 25 minutes…in and out!
Creating a menu every week helps us in a few ways:

It helps us create a healthy and kid friendly menu.
Andrea and I are borderline health nuts. We are trying to teach the kids to eat the same, yet kid friendly, way.
It helps us to stay on budget because we buy only what's on the list.
We don't buy whatever looks good or fall for the end cap pitfall!
We don't waste food.
We eat what we buy so nothing sits on the shelves, unused, waiting to expire. Our fridge is full at the beginning of the week and bare by the end.
It helps our evenings run more smoothly.
Andrea and I both work full-time. Whoever gets home first can look at the white board and know exactly what to make for dinner.

You'll find that this strategy can become very useful when going to any store (clothes store, home improvement store, or any big box store). Having a list helps you avoid impulse buys, saves time and, most importantly, saves money.
What do you do, when shopping, to save money?

Negotiate!

2012-03-05T21:39:00.001-05:00

There isn't a company out there that I won't force into a negotiation! For example, this past weekend I negotiated a reduced rate on my TV, internet and phone with our local cable company. We currently have our phone and internet service with the cable provider but we had our TV through a satellite company. We still had another 13 months left on our contract with the satellite company but the satellite service was poor and the price was about to increase significantly. I called the cable company and the best their first line customer service rep could offer was a 3 in 1 package for $135 a month. That would only have saved us about $10 a month and I still would have been on the hook for a $260 cancellation fee to the satellite company. I said, "Thanks, but if that's the best you can do I'd like to cancel my phone and internet service." For the record, I had no intention of cancelling our phone and internet service. The representative said that she could put me through to their Promotional Department and that they might be able to offer me something better.

The person to whom I was transferred in the Promotional Department offered to lock me in, for a year, to the same 3 in 1 package but this time at $125 a month. I reminded the rep that new customers are being offered $89.99 a month for a year. He said that wasn't available to me because I was a current customer. I said, "Thanks, but if that's the best you can do I'd like to cancel my phone and internet." He said he could transfer me to the Sales Department and that they might be able to help me further.

I explained to the next representative that I was willing to cancel my phone and internet and give my business to their competitor if I wasn't given the $89.99 a month for a year that was being offered to new customers. He also said the new customer offer wasn't available to me but that he might be able to get me into a "win you back" promotion. After waiting patiently for about 2 minutes, listening to the clicking of his keyboard, he said that he could lock me into the 3 in 1 package for $99.99 a month for two years AND that they would pay up to $200 of my cancellation fee from the satellite company. Now that's what I was looking for and then some!

I love negotiations, especially when I can save over a $1000 over the next 2 years!

Perhaps you can call your credit card company and ask them lower your interest rate; you'll be able to attack the principle more quickly. Maybe you can shop your car/home insurance to reduce your rates. While you're busy reducing your rates, you should consider raising your deductible from $500 to $1000 which will save you some cash. Call your cell phone company to see if you can reduce your payment. If you didn't know, Virgin Mobile offers unlimited data, texting and 300 anytime minutes for $35 a month; up that to 1200 min and it's $45 a month; unlimited data, text and phone and it's $55 a month. They're on the Sprint network so make sure they have decent service in your area.

Research! Call other companies or go their websites to see what they can offer you. Then call your current provider and tell them what you've been offered and that you're willing to switch. If the first rep doesn't help you, ask to speak to another. If the second or third rep can't help you, call the "other" company back!

Don't give up, don't be afraid to negotiate and don't be afraid to switch companies. The only loyalty that should exist, in this situation, is the loyalty to your wallet. Use the savings you just negotiated to build your emergency fund, add it to your debt snowball, fund your retirement contribution or throw it at your home payment. Whichever you choose, you'll be saving money just by making a few phone calls!