Personal Finance Update

February 14, 2010 3 Comments

At the beginning of the year I wrote an article titled Attention to Detail: Finances where I discussed my financial situation as being weak.  Having focused almost entirely on debt elimination, I have left myself in a position where my goal of becoming debt free is able to be undermined in an instant.

While I was paying off debt, my savings account was ignored and I emptied my Emergency Fund in order to pay off the last of my Auto Loan.  While all of my effort has been for the greater good, I have been living from week to week as a result.  To find balance in my finances, I made the following declaration:

“I will establish a savings plan to compliment my debt repayment plan.  In doing so, I will create a balance in my finances which will help accomplish both goals simultaneously.”

By the time February arrived I still hadn’t been proactive in finding a balanced approach to my finances.  Instead, I was focusing exclusively on rebuilding my savings account.  I managed to put away $650 in that time, however, my debt repayment plan was pushed aside and largely ignored.  I even procrastinated on personal financial obligations in order to boost my Emergency Fund.

While I succeeded in creating a small financial cushion, my other goals slipped through the cracks and I lost an entire month of repayment.  Instead of further perpetuating this imbalance in my finances, I made a promise to create a budget that would balance my savings goals with my debt repayment goals.  I am happy to say that today, that goal is accomplished.

I have a budget that allows both savings and debt repayment.  The only disappointment in this budget is that working at both goals simultaneously slows down progress on each.  I had hopes of being able to pay off about $15,000 of Student Loan debt in the next year and a half.  This was highly ambitious to begin with and now seems even more unrealistic.  Regardless, I will do all that I can to pay down my debt as quickly as my financial situation allows.

In addition to creating a budget, I have created accounts specifically for the expenses outlined in my budget including Household Expenses (Rent, Utilities), Variable Expenses (Cable, Internet, Cell Phone and Food), Auto Insurance and Emergency Fund.

It is a start, and while there are flaws, it is a beginning towards a more stable and balanced approach to my finances.

Filed under Budgeting, Debt, Savings

Removing Temptation, Eliminating Dependency

February 6, 2010 Leave a comment

Eliminating my credit card debt has always been my top priority.  When I created my list of 100 goals, it was my number one goal.  After years of struggling to get out of debt, I managed to pay off the last of my credit cards.  It was the first time in my adult life that I didn’t owe money to a credit card company.

I decided to keep one credit card account open while I began working towards funding an Emergency Fund.  Doing this allowed access to a line of credit while my savings began to grow.  In addition to the line of credit, keeping the account open provided the benefit of 1% cash back on purchases.  I could use the card to pay for Stuff I would buy anyways and earn a little bit of money in the process.

For a while, things were working out fine.  I was able to pay off the balance when the statement arrived at the end of the month.  Over time I began to let the balance slide and I didn’t pay off the entire balance.  This pattern began to compound and before long I was carrying a balance of a few hundred dollars.  I was headed back towards the same life of credit card debt that I had just worked so hard to get out of.

In my mind, I had thought that I could be able to control my spending and use a credit card responsibly.  I thought I could use the card to earn cash back and play the game to my advantage.  I was wrong.  Dollar by dollar I was digging myself deeper and deeper.  The only positive aspect of the entire situation is that I was able to recognize my predicament before it reached a point where it was out of control.  My balance was small enough that with a little discipline, I could be out of debt in a couple weeks.

So that is what I am doing.  I am once again working to get myself out of credit card debt.

This time, instead of thinking I can use a credit card responsibly, I have removed it from my wallet and will not use it on a daily basis any longer.  The only time I plan on using it is to purchase plane tickets, book hotel reservations and when I travel for the security and fraud benefits it provides.  Outside of these specific uses, the card will stay locked away in my closet.  By doing this I am removing temptation and eliminating dependency.

Instead of focusing on paying for my past, I can use that money to save for the future.  I like that idea much better.

Filed under Credit Cards, Debt

Attention to Detail: Finances

January 19, 2010 1 Comment

In an effort to refocus my attention on areas of my personal life which have been neglected during the past year, my theme for 2010 is A Year of Attention to Detail.

I haven’t spent much time discussing personal finance recently as I have come to the conclusion that I am not the best outlet for complex financial matters.  That doesn’t mean that personal finance has no relevance in accomplishing our goals.  As a matter of fact, having a strong handle on your finances is one of the single most important things a person can do in order to turn their dreams into reality.

Having a healthy relationship with money is an area of my life that I have been working to perfect for the past couple of years.  I still have a long way to go.  The past year I have focused mainly on digging myself out of debt and have left myself in a volatile situation where I find myself relying on my credit card by the end of the week to make it through.  That is exactly the reason I found myself in the mess I was in before.  I was spending my money as soon as I had it in my hand and oftentimes, before it was in my hand.

The difference between now and then is that I am applying my money directly towards debt each week instead of spending it on toys and other Stuff.  It sounds great that I am paying down my debt as fast as I possibly can but in doing so I have been totally ignoring my savings goals.

Having no cushion of money to rely on leaves me feeling vulnerable.  I could request more Student Loans if I needed but that is not a solution.  Doing that would only delay and compound the problem.  Instead, I will establish a savings plan to compliment my debt repayment plan.  In doing so, I will create a balance in my finances which will help accomplish both goals simultaneously.

Debt repayment is crucial in creating a healthy financial relationship but doing so at the expense of your future security is poor strategy.

Filed under Debt, Savings

The Last of My Debt: Student Loans

December 5, 2009 6 Comments

Contractually I am under no obligation to begin repaying my Student Loan debt.  I could care less about contracts.  I want this debt gone and I want it gone as quickly as possible.  That means I must create a plan.

My Student Loan balance is currently at $29,241.94, not including accrued interest which is $1,735.50 for a grand total of $30,977.44.  Owing this much money does not make me feel good and I have a burning need to eliminate this debt.  The good news is that now that I have paid off my car loan, I have an extra $328 a month to apply towards my Student Loans without making any changes to my lifestyle.

The problem with only paying $328 a month means that I won’t be out of debt until 10 years from today.  That is too long.  The thought of paying down debt for the next ten years is overwhelming.  I don’t want to hand my paycheck over to some faceless company for “the rest of my life.”  Instead of feeling overwhelmed, I have decided to focus my attention on the “most important” portion of the loan, the $15,102.94 in Unsubsidized loans at 6.8% interest.  I hope to be able to eliminate this debt by the time I graduate in May 2011.  That gives me 18 months and a challenging, yet possible, goal to work towards for a short period of time.

In order to accomplish this task, I have to come up with $839 a month.  That is going to be hard but I hope it will not be impossible.  The budget that I have drafted up allows $619.50 a month for debt repayment.  My budget currently includes saving 10% of my Gross Income for my Emergency Fund because I drained that account in order to pay off my car.  Now it is time to build that back up to a reasonable amount.  I probably won’t reach my goal of saving $5,000 since I’d rather put my money towards debt repayment.  I’ll boost my EF to an amount that will equal 3 months of living expenses after which I will begin using the money that had been going into savings for debt repayment.

During this period of debt reduction I will adjust my budget on occasion to allow for discretionary spending such as travel expenses and unexpected costs such as clothing.  I know that this is not an ideal situation in terms of “proper” budgeting however, since I rarely buy clothing (I finally broke down and bought a new pair of jeans after the butt on my favorite pair of jeans literally fell apart) and I don’t usually plan very far in the advance for travel, these expenses are too random to plan for effectively in the long term.  Still, by the end of 18 months, I want the Unsubsidized Loans gone and that is my goal.

This begins today and to prove that I’m serious, I sold one of my most prized possessions, my 5-string bass guitar and the amplifier that went with it.  Once I put the check in the bank, that money is going directly to paying off my Student Loans.  I sacrifice today so that I won’t have to sacrifice later.  Selling that guitar was one of the most difficult things I have had to do.  I focused on the emotions attached to it, how hard I worked washing dishes for $5 an hour in order to earn enough money to pay for it and how much I loved playing it back in the day.  The reality of the situation was that I hadn’t played it in years and having it sitting in the closet wasn’t doing me any good.

Debt sucks!

Filed under Budgeting, Debt, Education, Goal Updates, Money, Preparation

Ten Commandments of Goals & Money

November 28, 2009 2 Comments

"Ten" by koDesign @ Flickr

“Accomplish Your Goals While Managing Your Finances.”

At times, the two seem to be at odds with one another.  How can a person manage their finances when goals are oftentimes lofty dreams of indulgence?  A waver in one direction has an immediate impact upon the other.  The secret to is to find balance.

For the past year I have been toeing this line in my own life.  I have managed to pay off the last of my credit card debt and paid my car loan off more than a year early.  At the same time I spent a month traveling North America, spent a night under the stars of a clear California sky and climbed Mount Saint Helens.  This experience has brought me to some conclusions.  I’ve singled out the ten most important things to consider when you begin your journey towards accomplishing your own life goals.

The Ten Commandments of Goals & Money:

1) Know Thyself: Any successful journey in life requires some degree of foresight and planning.  Your future is no different.  Take time to consider what your values are and where your passions lie.  Create a list of goals and search for a common theme.  Use this as a compass to help orient yourself in the direction you want your life to take.

2) Happiness Is NOT “Out There”: Our focus frequently rests upon what we do not have or those things that are not ideal in our lives.  We set goals as a way to better our lives, not realizing that our focus on improvement is the reason we are dissatisfied with our lives today.  We trick ourselves into believing that happiness can be found in a pay raise or that a boob job will make us beautiful.  This isn’t the truth.  Happiness cannot be found “out there”, it comes from within.

3) Follow Your Heart: Too often we ignore what is in our hearts, opting instead to think with our head.  While our brains have great capacity for extraordinary intellectual achievement, sometimes they hinder our spirit.  Listen to your heart.

4) Money IS Important: Money does not equal happiness but money is important.  Without it, our focus would change from accomplishing goals to struggling to survive.  It is important to be fiscally responsible and to find a balance between today and tomorrow.  Seek harmony in your finances.

5) Know Your Priorities & Align Your Actions: There is a difference between saying and doing.  It is easy to say you value something.  It is not so easy to express your values through action.  It is crucial that we align our values with our actions if we hope to live a life which is in harmony with our priorities.  In doing so we are able to live guilt free, knowing that we are doing what we believe is the right thing.  At the end of the day we can rest our head upon our pillow with a clear conscious.

6) Modify Your Internal Dialogue: We are too hard on ourselves.  Instead of building ourselves up, we break ourselves down.  We focus on our flaws, the things that we need to improve upon.  We ignore our talents, our individuality.  Learn to love your imperfections, they are what make you unique.

7) Debt is Slavery: We may not be pulling a plow across the earth like our ancestors but we are no less of a slave to our debts, however, we are our own masters.  Whenever you feel it is time to break free from the binding chains of debt, you are in control to make that decision.  The more debt you accumulate and each dollar you waste is another day of slavery.  It doesn’t need to be that way…break free.

8) Stop Making Excuses: If you think about something long enough or hard enough, you can be certain that you will always find a reason not to do something.  Making excuses is not productive.  Stop.

9) The First Step is Always the Most Difficult: The hardest thing about going for a jog is putting on the shoes.  After that, things tend to fall into place.  The same can be said for most aspects of life.  Overcoming inertia is difficult and may require a leap of faith, a request for assistance or admitting you don’t have all of the answers.  This simple act may be the catalyst to major change in your life.

10) Knowledge is Power: The other day I was reading a blog post and read the following:

Uncertainty is caused by a lack of knowledge.  Hesitation is the product of fear.

This simple thought struck a chord and as I thought more about it, Fear controls so many aspects of our day-to-day lives.  We hesitate out of fear and fear what is unknown.  By educating ourselves we remove the unknown variables.  We eliminate the uncertainty.  The more we know, the more confident we become as an individual.  Knowledge is power.

Filed under Budgeting, Confidence, Debt, Education, Goals, Life, Motivation, Opportunity, Passion, Potential, Preparation, Prioritizing, Savings, Spending, Success

Goal #96) Pay Off My Car

November 17, 2009 7 Comments

Six weeks ago I wrote about my ambitious goal of paying off the remaining $3,670.66 of my car loan.  At the time, I wasn’t sure if I would be able to pay it down to zero.  I rolled some numbers around in my head and figured that if I was able to entirely eliminate my discretionary spending during the next six weeks, I might be able to do it.

Today, after six weeks, I am proud to say that I was able to pay off my car by the deadline I set for myself, plus 8 hours.  There were some times when I wasn’t sure I would be able to do it, when I spent more money than I should have.  I almost wasn’t able to accomplish my goal but I stuck with it and kept my commitment to doing what it took to reach the end.

I had to “sacrifice”.  I had to sell Stuff in order to make up for the money I spent.  I did whatever it took to make this happen.  Now that I am free from my car debt I am looking forward to my next debt; my Student Loans.

When I looked at my Student Loan account, even though I had a mental number that was relatively close to the actual amount I owe, seeing it in black and white gave me a sick feeling in my stomach.  Instead of feeling overwhelmed, I’m feeling fired up!

I’m working to develop a game plan to attack this debt as ambitiously as I can so that I can have all of my Unsubsidized Loans paid off before I complete my Bachelor Degree.  I have a year and a half to make this happen and it is possible but will be a challenge and a lengthy obligation.  If I stick with it, I will have more than 50% of my student loan debt paid off and possibly even more if everything goes well.

Look for an update in the future with numbers and a solid repayment plan!

Filed under Accomplishments, Debt, Goal Updates

The Choices We Make

July 15, 2009 Leave a comment

"The old phone box" by [ jon ] @ Flickr

Not too long ago I wrote an article titled “Ease of Credit, Pain of Cash” where I discussed my transforming relationship with credit cards.  After reaching a state of financial meltdown I began to understand that my method of “managing” money was not working.  Saving myself from total disaster required serious change.

I struggled to reign in my spending almost as if I were addicted to being a consumer.  I was spending like tomorrow would never come.  My paycheck would arrive but I already had it spent.  I did not question the way I was living as I considered it to be normal.  People bought what they wanted & I was no exception.

Eventually things began to catch up with me.  The rent check that was a few days late turned into my becoming a regular patron of the cash advance store so I would have a place to live.  I was behind on my car payments so often that I was receiving phone calls at work.  I had credit cards that were in default & others which I struggled to pay as a result of all of the late fees.

Ironically, all of these problems came at a time when I was making more money than I ever had before in my life.  I was trying to create an image of success.  I had a nice car & nice clothes.  I bought a wide variety of Stuff to decorate my apartment, including a $600 piece of artwork which I then had framed for an additional $300.

I had caviar taste on a tuna budget & the money was running out.

One day while I was walking across the parking lot on my way to work I received a phone call from the company that manages my auto loan.  They informed me that if I didn’t take care of my past due account that they would repossess my car.  After some fast talking & promises I didn’t know whether I’d be able to keep we reached an agreement.  I would bring my account up to date & keep it current.  If I was unable to fulfill these obligations I would lose my car.  This was my wake up call, literally.

I did manage to get my account current & I began making my payments on time.  Things would not be easy for me while I struggled to change my consumer habits.  I cut most of my spending opting instead to pay my creditors and other obligations (as if this had seemed optional before).  Soon things were beginning to look up.  I wasn’t frequenting the cash advance stores as often, though there were still hard times occasionally.  I began to work towards paying down my credit card debt, even paying off accounts that had gone into collections.

Through all of this I’ve come away with a lesson I wish I had been able to learn without the firsthand experience; spend less than you earn.  It seems so simple yet many people struggle to put this knowledge into action.  No matter your income level, this advice applies to everyone.  The more money you make the more you will spend, but even if you are making $100,000 a year you will be just as broke as the person living on minimum wage if you can’t follow this money lesson.

Filed under Debt, Life, Money, Prioritizing

How to Get Out of Debt

May 29, 2009 Leave a comment

Click to Play

Click to Play

Today many of us are looking for a way out of debt but are confused about what we need to do to become debt-free.  Here is a brief video which details everything you need to know in order to begin the path to eliminating your debt.  While living in debt is no laughing matter, our complicated relationship with credit cards is of our own doing.   While we may find ourselves chuckling at the idiocy of the characters, ask yourself if the excuses you are making for yourself are really any better.

Filed under Comedy, Debt, Money Tagged with

Pay Down Debt or Build an Emergency Fund?

May 7, 2009 3 Comments

"Emergency Fund" by newleoforex @ FlickrOne of the most debated topics in personal finance is whether or not to save money for an emergency fund or pay down debt as quickly as possible.  In this article I’d like to analyze the pros and cons of each in order to help determine which option is best for your specific situation.

Build an Emergency Fund First- Many personal finance websites and blogs recommend building an Emergency Fund before paying down debt.  Dave Ramsey suggests having $1,000 in an Emergency Fund before starting to pay off debt.

Pros- By building an Emergency Fund you are creating a cushion between your finances and an emergency.  By having this cushion available, in the event of an emergency you won’t be forced into a situation where you need to charge the expenses to your credit card.

Cons- Saving an adequate amount of money takes time.  When you are in debt, time is money.  Each day that passes is another day of interest charges.  Saving money also requires discipline.  Chances are that if you are in an uncertain financial position, you may lack the discipline to keep your fingers off of your savings.

Pay off Debt Fast- The alternative to building an Emergency Fund is to pay down your debt as fast as possible.

Pros- From a mathematical perspective, it makes more sense to eliminate the debt as quickly as you can in order to save yourself interest charges.  If you do encounter a situation that requires you to spend money it can be done on the card, then you just continue paying down the debt as you were before.

Cons- By paying off debt first you are eliminating the safety cushion of an emergency and are at the mercy of your creditors.  They have the power to raise your interest rates and lower your available credit whenever they chose.  This can leave you in a vulnerable position.

Which Approach is Better?- The answer to this question depends entirely on your tolerance for risk.  If you have a credit card with an available balance sufficient to finance the expenses of an emergency and are willing to put those expenses on your credit card, it may make sense for you to pay off your debt and sacrifice the savings.  If you are more interested in having a cushion between your finances and an emergency, it may be better for you to build an emergency fund before paying off debt.

My Opinion- When I began paying down my debt I felt more comfortable having something in savings.  I didn’t have Dave Ramsey’s suggested $1,000 saved before I began to get intense about paying down my debt.  While paying down my debt I continued to build my emergency fund each week; $20 here, $50 there.  Eventually I was able to build my emergency fund balance beyond $1,000.  Even though I didn’t have to use anything from my emergency fund while paying off debt, shortly after becoming credit card debt free I needed to pay for routine maintenance (tires, breaks, etc.) on my car, which cost me nearly $1,000.  If I hadn’t been saving all along these charges would have found themselves on my credit card.

What is really boils down to is what makes you feel the most comfortable.  You should be able to sleep soundly at night without worrying if you made the best decision.

Filed under Debt, Emergency Fund, Money, Savings

Ease of Credit, Pain of Cash

April 25, 2009 3 Comments

I have been working towards becoming debt free for my entire adult life.  Ever since I was 18 I have had some sort of debt.  It started out small and as time continued to pass my debt accumulated.  Instead of having a credit card with a low limit I managed to add multiple credit cards, store cards, personal loans, auto loans and student loans to my list of debt.  (Click here to read about my journey into debt).

1808119723_a466c70b08Despite all of these liabilities hanging over my head, I continued to spend.  It was easy to whip out the plastic and buy whatever I wanted with no regard to whether or not I could actually afford it.  I had paychecks coming in every week to pay my minimum payment.  I thought this way for many years and it wasn’t until I was on the verge of disaster that I began to realize that things weren’t working.

My financial turnaround has been a complex transformation.  It was hard for me to change my cycle of impulsive buying and accumulation of material possessions.  There were times when I felt as though I would just DIE if I wasn’t able to buy a new pair of jeans.  In time I realized that I didn’t need to be buying so much stuff.  I also began to understand how my spending behavior today would affect my financial future.  If I didn’t stop my self-destructive spending, there would be no financial future, I would be a “work ’til I die” kind of guy.  That didn’t make me feel very comfortable.

I began to scale back on my purchases and cut my spending.  I was able to eliminate all of my debt, with exception  of my car loan and student loans, by February of this year.  The feeling of reaching this milestone was amazing.  Instead of paying for my past I could finally focus on planning for my future.

Without having debt draining money out of my life, money no longer seemed hard to come by.  Payday would roll around and I would actually have money left over.  Now I didn’t need to pay for things on credit, I could afford to pay for them with money I had earned, not money that I was borrowing.

Paying for things with my own money has brought a feeling of conscientiousness about where my money is being spent.  I attach more emotion to my spending now that the money is coming directly from my bank account.  When I was using a credit card, I was focusing on what the monthly payment would be.  I didn’t care if I was spending $1,000 on something I didn’t really need if the payment was only $50 a month.  That didn’t cramp my style.

The purchase of my bicycle was my first major purchase of an item with my own money, and it hurt.  It hurt knowing that the money I had worked to earn and had saved to have would be gone.  I really wanted a bicycle and I went through with making the purchase, but it wasn’t an easy decision to make.  On the other hand, had I been making the purchase with borrowed money, chances are I would have bought a much more expensive bike and there would have been no emotion attached to that money which I just spent.

The more I drift away from using credit (I still use it for convenience, but pay it off immediately), the more emotion I attach to my money.  It is my money, I earned it and I don’t want to toss it around like it is going out of style.  When I was in debt and using credit, it didn’t matter to me because it wasn’t my money and I hadn’t earned it.  Credit cards make access to money you don’t have too easy and it is because of this easy access that we tend to overspend when using them.  It doesn’t matter what the balance on our cards may be, it only matters that we can make the monthly payment.  That is a terrible frame of mind to be in.

Put your credit cards away and work towards building a healthy financial future; one where you can actually afford to pay for something with your own money, not money you borrowed from someone and stole from your future.

Filed under Debt, Money

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