Financial Freak Show

I was talking to Mark (the proudly self proclaimed Financial Retard) about how he was getting by without using his credit cards over the past few weeks.  He said a funny thing happened when he pulled the cards out of his wallet, for the first time in many years he had the feeling that he needed to save more. As it turns out he was pretty freaked out by the fact that he didn’t have his “debt safety net” to fall back on. Mark was used to always having a $1,000 or so in available credit just in case something popped up. Now that he was no longer carting those cards he was only relying only on the money in his bank account.

Having a credit card to fall back on can dissuade you from building a proper emergency fund. I think this happens for a couple reasons. First, with credit you already have a safety net in place. That’s actually one of the reasons many people get credit cards in the first place. Though this can quickly blow up in your face because you could be taking on debt at the exact time it gets most difficult to pay it back. It amazes me how many people grab their credit cards right after a job loss and began using high interest cash advances for everyday life at the exact worse time to be borrowing money. I think having the cards as a safety net allows people to feel like they’re covered so the urgency to save really isn’t there.

Second, I think another reason people don’t build emergency savings when they use cards is because they’re constantly working to clear the debts. Instead of making savings a priority they make keeping up with the card balances a priority. The more debt they have on their cards the less they have available to save and the more likely they’ll need the cards to cover their butts again and so the cycle continues.  

At some point if you want to go with out credit cards you need to break the cycle of spending instead of saving. I personally stashed away a little dough to use for future “emergencies” then stopped using the cards. Once I stopped using the cards and had some real money in the bank to fall back on all I really had to do was eliminate the balances and at that point I was done with the credit card cycle. I had no use for them anymore. I now have an emergency fund with more money available to me than I ever had available on my credit cards…oh and it’s earning interest too.

The good news is Mark has decided, for the first time ever, to start saving. He’s now quickly building an emergency fund since this’ll be his only safety net going forward. It looks like with a little encouragement and some discipline our buddy Mark won’t be “financially retarded” too much longer…at least that’s the plan.

So what’s your plan for dealing with credit cards, do you want them gone, do you really need them around? Let me know how you feel about this.

In my post Money Creates Options I jokingly talked about how I hope to always have enough money that I never need to rent a PT Cruiser again. Well once again having little cash in the bank opened up an unexpected option for us. Last week someone very important to me passed away.

Once I received the news that evening my wife and I decided we needed to travel three states away and we needed to leave that night (and I’m not talking about crossing three of those little East Coast states, I’m talking about crossing three big fat West Coast states). When we were discussing our options about flying, driving, going or not going, a funny thing happened that was sort of new to us…not once during our discussion did my wife or myself ask the question “Do we have enough money” or “How much will it cost?”  We knew stuffed away in a local credit union was had everything we needed to do whatever we needed to do.

At 2am, within couple hours of receiving the emotional news Mrs. Financio, Mrs. Financio JR, and myself found ourselves in the SUV, making a quick stop at the ATM to grab some cash then we made a break for the border(s).

18 months ago this whole scheme would have played out a bit differently. It likely would have involved some unpleasant discussions about money and credit cards and bills and gas money, all are the last things I want to talk about when things complicated. After all was said and done there was no debt incurred, there was no discussion about the money involved in making the trip. We were free to do what we felt we needed to do without any concern for the dollars involved. This unexpected trip that came about by a huge loss in my life was in a way also huge success for me financially and, proof that some sacrifice and good decision making can pay off in big ways that can’t be explained in terms of dollars. The crazy part was that this came right on the heels of our Serious Budget Busting Week I think somebody out there is testing me to see if I’m really serious about this whole debt free thing!

Emergency money was a key in my strategy to remove the debts from my life. In my posts To Whom the Accidents Happen and So the Accidents Don’t Happen to You, I talked about the importance of saving some money to help cushion you from some of the lumps you take just by living your life.  After reading up on the subject a bit (actually quite a bit – I knew nothing about having money in the bank) My conclusion was if I was going to lower my debt I first needed to put some money in place to prevent me from using debt to live my life every day. Now my only financial safety net is my bank account where before I used credit lines – I sleep much better now.

How long could you cover your household living expenses with your current liquid savings? This survey of 2,318 adults 18 & older asked how long people could survive on the liquid money they had available. It proves how unprepared many Americans are with less emergency money available than the professional financial nerds out there recommend.

• Less than one week 17%
• One week - one month 14%
• One month - 90 days 24%
• Three - six months 10%
• Six months or more 19%
• Declined to answer 17%

The scary numbers are the first two. 31% don’t think they could make it a month. That’s a scary state of affairs for a lot of people out there. Most advisers recommend 3-6 months in liquid money. According to this survey only a third of Americans measure up to those recommendations though it sounds like from recent reports the current economy may have scared some more money into savings accounts over the last year or so. From my experience lately though people have been spending more time whining about being broke than actually doing something about it…I guess we’ll see the next time “it rains!”

So how does  your family measure up? Post a comment and lets us know (don’t worry you can even use a fakie name if that makes you feel better about yourself)

*Survey source: LexisNexis Martindale-Hubbell’s Lawyers.com survey of 2,318 adults 18 and older.

My budget last week took the gloves off and gave me a serious punch in the mouth. I’m bleeding and a bit dazed, but I know there is still some fight left in me….I hope. Ohh, where to start? It amazes how the saying “when it rains…it sucks!” seems so true at times. Well here you go,I’m gonna to lay the boys on the table for public judgement!  

1. The third week of October is apparently our week for eating dinners out. Sunday we took my wife’s mother out just to enjoy her company and thank her for watching our daughter five days a week for free (I figure that’s worth tossing some Thai food her way every once in a while). Monday we I needed to pick up my vehicle (I’ll get to that one in a minute!) so that lead to another dinner out. Though this time we were hooked up with a $10 off online coupon so that covered the beer. Tuesday, my favorite aunt was in town for a business conference so once again we headed downtown to catch up over some chow. Friday we find ourselves at a rehearsal dinner for a friend’s wedding – true, the dinner is free but the baby’s new outfit necessary for flower girl duty…well that’s not so free! I consider this a dinner related expense.
2. Saturday gets pricey downtown again even with our crazy hookups! Due to the above mentioned wedding we spent the weekend in a downtown hotel suite. True we only live 30 minutes from downtown but with the baby and a lot to do we decided to get a place to stay in the city. With my wife’s crazy hotel hookups (she works in sales in the hotel business so she knows everybody that matters) we got the room for less than a third of the regular price. And since I worked my crappy second “get out of debt” job as a valet at this same high-end hotel the $38 per night parking fee only cost me a smile and a couple fist-bumps with the ex-coworkers.
3. The crazy hookups continued to ease the pain through the weekend but we still dropped some dough.  Saturday my hot little sales-lady wife pulls some more strings and we find ourselves at the Zoo with $30 worth of free passes. Well free that is if you exclude the $5.00 parking, the $12.00 snack and the $7.00 Starbuck’s drive-by on the way there. I guess that’s the cost of some beautiful moments with my little girl. And you can’t buy that at your local Wal-Mart!
4. The wedding Saturday night had no official cover charge. Dinner was provided by our hosts but there was a gift purchase involved so in a way there was a cover charge. No big deal though, dinner was good and it was all so terribly romantic that it probably would have induced vomiting if any outsiders were watching. (take a moment here and wipe your eyes – I know, I’m a little choked up as well).
5. Here was our big budget killer this week! I had the pleasure of forking over the money to replace the engine in my SUV.  This expense stung like hell but the good news is since I got such a sweet deal on the car (once again Viny Financio and his fist full $100’s talked louder than the seller’s asking price) I was still right at Blue Book value even after we dropped in the new engine. Of course this was due to me having a very good friend that does this sort of stuff for a living so instead of laying out the estimated $6,800 I was in it less than $4k I’m glad we were able to cover all this with cash from our emergency fund because they don’t accept credit cards for homie-hookups! And thanks to another good friend I also managed to get by without needing to rent another PT Cruiser/death Trap.

So all-in-all this week cost us right around $4,500 not including our regular living expenses! Things did work out though, and it helped that October is double a Magic Month for us. In a way though I still feel sort of like I was accidentally kicked it in the groin by my own friends and my own possessions but we’re still rolling FinancialFreakShow debt free and we’ll keep fighting but I promise you Vinny Financio will keep fighting dirty!

It’s pretty easy to pick some goals  then get off your butt and begin working towards them. It’s also just as easy to focus on too many goals at once. In a previous post Take Aim & Kill It I talk about focusing all your financial resources at your smallest debt and working to eliminate it as rapidly as possible. Here I want to talk about why focusing on your debts now is important to reaching those larger goals further in the distance.

A contractor friend once told me this quote:

When you come across an electrical problem and a plumbing problem…don’t try to fix them both at the same time!

In other words don’t try to do too many things at once. I decided I would be better served by focusing on debts now which has allowed me to focus more on financing my retirement and reaching those larger goals. I once heard a story about a apartment maintenance man that bought his employer’s apartment complex with cash and managed to retire with over $3 million in the bank years later (that story could be  total B.S. but I did hear it). Well the story goes like this…He saved his butt off and even though he wasn’t making a ton of money over time he managed to save up enough dough to buy the small apartment complex he worked at and began creating some wealth. That’s pretty much the story. Instead of spending his money he saved his money and as the story goes eventually had enough dough to make a big fat real estate purchase. My guess is this person was a pretty simple dude and probably kept himself out of debt (I don’ see any other way he could really save up a ton of money like this). The obvious advantage though is that he was able to use his income to build something instead of paying for crap he bought in the past + interest.

Even if the story I heard was total B.S. the theory’s still valid. Freeing up your income by clearing your debts will allow you to stash away more money and collect interest instead of paying interest. Do that long enough and large enough and you could eventually turn that stack of money into investments to replace your income and build some wealth.  In my post I Call a Do-over I talk about some other advantages to freeing yourself from your everyday debts. As long as your income keeps going towards interest payments on credit cards and cars its going to be hard to use this money for much of anything else (it’s hard to save it if you don’t really get to keep it). So by wiping out my debts I’m now able to save and invest money much more aggressively because I actually have more available money now. 

I’m a long way from paying cash for my an apartment building but I’m a whole lot closer now that my money stays with me at the end of the month.  Freeing up my income has now given me access to the one tool I need to begin building some wealth, my income. 

If you were able to free yourself up from monthly debt payments what would you do with all that money?

After speaking with a friend about her money problems I noticed her fear was greater than her actual money troubles (though she had some hearty money troubles too…wow) When I was buried in debt it felt like I was walking around carrying giant Dr. Seuss sized stacks of glass plates above my head. They weighed a ton and I was scared to death that with one stumble everything would come down on top of me (it’s a crappy feeling). The fear itself can be pretty crippling once you let it into your life. With finances it’s usually due to a either the lack of hope or the lack of information & knowledge. Both of these things will empower you to continue on through the fear.

I have no room for fear in my life. Fear is paralyzing. It’s one thing to be scared, but once you allow fear into your life, it is debilitating. I don’t make any claims to not being scared. It’s important and it’s healthy. I’ve been scared enough that I’m comfortable with it. When you experience fear, the next thing out of people’s mouths is ‘I can’t.’ We are in control of our minds. As much as our minds try to control us, it is important not to let your mind run too far. – Kit DesLauriers.

In 2006 Kit was the first person to ski the summits of the highest peaks on each of the seven continents.

A healthy amount of fear is normal it keeps some of us from playing in the freeway. Just make sure it’s a healthy amount and not an overreaction to the emotions and stress you’re carrying. So work to keep control of your mind so you can work to keep control of your finances. If you have fear around your money you could work to get some more information & knowledge about your situation. Read some books, read some blogs, talk to some people who’ve already been there, etc. Get some more information and your fears will likely subside once you have the knowledge to put a good plan in place. Or you could just keep whinning…it’s your call

I dropped my SUV off at a local shop this afternoon to get some work done. This relatively normal part of life reminded me once again why I strive so hard to take good care of my finances. The thought of dropping some money into one of our vehicles was not what triggered these thoughts we’re okay in that department…now. What actually triggered these thoughts was strapping my beautiful 18 month old daughter’s car seat into a rental car that I would never, ever, ever, ever, ever pick to own myself. This lovely little piece of scrap metal would likely get totaled if it hit a curb not to mention what would happen in if I was unfortunate enough to find myself ramming head on into another car with some actual weight behind it.

So what does driving this piece of rented junk have to do with personal finance? Well it reminded me that control of your money gives you options that you might not otherwise have. It showed me that one of the fruits of my hard work is the ability to drive a safe, reliable and not to mention comfortable, PT Cruiser smashing 4×4 SUV. True this option may not be everybody’s preference but after seeing my little girl stare at me through the window of a paper thin rented rear door as we prepared to jump into rush hour traffic I remembered why money and the options it creates are important to me. If I keep working hard and managing my money well, hopefully I will have the option to never, ever, ever, ever have to own this little toy car for more than a day or two and even then it would be still be an option.

Money gives you options for cool things like schools, cars, health care, the option to leave a job, the neighborhood your family lives in, what kind of beer to drink, options how you spend your time, and more options to help those around you (broke people can’t help poor people much). When you’re in debt your choices may be greatly limited do to the burden the debt brings into your life. Sorry but I’m willing to spend some money on things that are truly important to me and I’m glad I now have more of those options. So I’ll continue to work to keep my options open for many reasons. Please excuse me now…I have a rented PT Cruiser to jump

So if you had no debt and a stash of money in the bank what options would you take advantage of? Here’s one of mine.