Financial Freak Show

A couple years ago at the very beginning of my quest to become debt free I read a small little book called Debt Free on $5 a Day (at least I think that’s what it was called, I don’t really remember it was a couple years ago). The idea behind the book was that if you set aside $5 a day, every day before anything else and applied that to your debts you would work yourself out of your money problems. At the time I thought the idea was…well how do I say this best, ”retarded?”

According to my calculations if I would have stuck to the $5 a day plan every stinking day I would be completely debt free in approximately 21,400 days. Not a bad deal…if I wanted to be debt free around my 90th birthday! Actually it’s more likely I’d be debt free well before that because at some point I’d have to kill myself over it. Of course then my wife could bank the insurance $money$. Anyway, where was I? So at the time the thought of removing all my debt at the rate of $150 a month seemed laughable, but the idea behind the book made perfect sense. The idea was to get in the habit of paying your debts before you had the opportunity to spend your money on something else. At the time I took the book at face value I think because I was desperate for a solution. Now that I look back at it the book makes perfect sense even though the numbers don’t jive. In may posts Micro Paymentality & Sick Day Bonus Pay I talk about how this exact idea can work only on a larger scale. The idea is to fight like hell to find extra money each month then apply it to your bills.

If you manage to get a grasp on your finances and put a couple of the basics into place like a household budget and an emergency fund to prevent you from needing more credit to get by, the $5 a day idea could actually work. No matter how much you can manage to eek out of your budget, as long as you can eek out something, if you put it towards your debts before you allow it to wander out of your life, and assuming you don’t rack up any new debt, you’ll eventually become debt free. Though in my case I busted it and used what I affectionately call the Vinny Financio’s Debt Free on $60 a Day Plan and it worked. I guess I was just a little too impatient to wait until I was 90 or dead to live like this.

This post was inspired by a chat about a friend mentioning cutting out the purchase of a (get this) a CD per month to help ease their financial burden. When I say “CD” I mean the music type not the investment vehicle. Apparently she has a habit of purchasing 1 new CD each month with her first paycheck she receives each month. Her thought was that with this sacrifice and her other sacrifice of cutting morning espressos to a couple times a week will lead to the financial freedom her family is seeking.

I will say this, I am proud of her for making some more “grown up” decisions regarding her finances but I honestly think this is a waste of her time…and I let her know that (I know I seriously need a better opinion filter, but whatever). I told her that I doubt a $15 CD is really hurting her finances at all. I then told her that her newer car, her new couch and her new $2600 bull dog she bought with a cash advance with her credit card were her problem. Cutting CD’s out of the budget is cute but you’d have better luck trying to pick up a turd from the clean end! Seriously though if you think squeezing $50 a month out of your budget you haven’t address the actual problem…..YOU! 

The CD’s aren’t your problem girl. Your lack of planning & your lack of discipline are your problem. If you actually want to change the way you spend money then change the way you spend your money…ALL OF IT. Don’t just change the parts that are easy. Change all the parts that are broken, change the parts that hurt, change the parts that are will truly make a difference. Don’t try to nickel and dime your way out of 20k, 50k, 100k in debt cause we all know you sure as hell didn’t get in 20k, 50k or 100 worth of debt buying CD’s so why do you think this will ever get you out (if you did get in debt buying CD’s get your butt on Craigslist tonight and start selling!) Get out there and get mad, break something…break the habits that got you to this place. If you don’t at least try you will have no one to blame but yourself. True, it may not be only your fault you ended up here but will be your fault if you stay here (especially if you don’t want to be here).

So take a lesson from my friend and stop buying those CD’s if that’s what you need to do. Then take a lesson from Vinny Financio’s real financial world and cut deep into your lifestyle to the point it hurts, stop buying all the other garbage too until you have your stupid messes cleaned up. And then we’ll go drop some cash baby!

Debt is not always a bad thing to have. Though for most people and most situations it is either dumb or unnecessary. In Ron Blue’s book The Debt Squeeze he addresses when he feels it is okay to borrow money and carry the debt. He lays this out in four simple rules that I’ll summarize for you:

Rule 1: Common Sense; this rule is pretty straight forward. You need to seriously consider what this debt will do to/for your life. Will the payments stress you family, your business, yourself? Are you making a mistake at some level by bringing this into your life? Will this be a blessing now and in the future of are you signing up for another future financial disaster and just justifying it somehow? Does this purchase fit well into your financial plan and future goals?

Rule 2: A Guaranteed way to repay; this is the rule that caught my attention (it’s a good one so stay with me!)  Can you guarantee repayment for this debt? I’m not talking about promising all of next year’s paychecks, I’m talking about a guaranteed way to repay. What this means to me is not borrowing money towards things that cannot stand good for themselves. Real estate is a great example. A mortgage is secured against the value of the property itself – assuming you had a proper down payment or solid equity when purchased. If you can’t make the payments in theory the value of the asset would stand good for the debt liability. Purchasing a business may also fall into this category assuming you are buying true assets and not just a process or name.  

A car (especially new) almost never falls into the guaranteed repayment category. This is due to the value of vehicles dropping too fast. Cars almost never increase in value (well not the kind you drive anyway). So unless you are borrowing $1,000 on a $12,000 car I doubt a financed vehicle can truly stand good for the purchase on its own. I know this sucks but how many people do you know with a financed car can sell the vehicle and clear the debt with the proceeds from the day they drive it home and through the life of the loan? That’s not a guaranteed way to repay.

Sometimes you can pledge the value of one asset as collateral for another financed asset. If you have the ability to take that route then you may have fulfilled Rule #2 and if you’re okay with that then I’m okay with that!

Obviously there are many variables to consider for Rule #2 but this part of the debt decision deserves some serious consideration and some honest answers to some tricky “what if” questions. Can you remove this debt burden from your life if necessary without being kicked in your financial groin? If you can’t answer yes to that question stop right here and reconsider.

Rule 3: Peace of heart and mind; Rule 3 is a bit more spiritual than the others in my opinion. How is this debt going to make you feel? Are you going to beat yourself up over the next five years for making a quick decision? Are you going to unintentionally going to forgo some big goal in the future for a pick-me-up right now? Will you lock yourself in to a job you don’t really want because you strapped yourself with a house payment you can barely cover? Will you put off your saving for the kiddo’s college to drive a new truck? Will you be able to sleep at night after you sign on the line?

Rule 4: Unity; This rule is easy to explain. This rule relates to married folks or people partnering with someone else in one way or another. Basically what is being said here is if you’re going to be in debt you need to be on the same page with your spouse or partners on what is happening and what is going to happen in the future. That’s really it. The two of you need to have a solid agreement and commitment to carry the burden together as one.

So assuming you can come to terms on these four rules this debt may not be such a bad thing in your life. That said, if for any reason you question don’t have a solid honest answer for any of these rules you may be buying a ticket for a ride you didn’t really plan on taking. Financial decisions should be very deliberate and well thought out no matter what dollar amount is involved. Slow down, take a little time and consider all your options then move forward deliberately and cautiously – every time   

Do you agree with these 4 rules? Have you taken on debt without considering one of these principles? How’d that work out for you? Please share.

Here’s a guest post from my favorite military wife / mom. In this post she talks about her change in mindset around the extra deployment money that’ll be coming in soon from her husband heading off to do what needs to be done for those that can’t do it for themselves. For those of you not familiar with the military pay; “deployment money” is the extra pay they receive when they’re deployed…hence the name “deployment money” and to sweeten the deal many times this money comes to them tax free. Apparently they can earn a noticeable pay increase during the time they are taking on the bad guys – and in my opinion they deserve every damn penny they get!

Enjoy the following guest post – and when you get to the part about “a very wise man” and “single-handedly did something Superman and an army of super heroes couldn’t have done” remember that me she’s talking about- oh yeah!

‘Deployment money” a military wife’s favorite words. Visions of Coach Bags and spa trips dance through her head while trying to fight back the tears as her husband boards the plane. We all do it, yet most of us won’t admit it. This time though I’m taking this deployment to a whole new level. I’m on a mission to go down in the military spouse hall of fame as the one who passed the Coach bags in the Exchange and with a disdainful smirk I head to the children’s section for the half priced shoes. Ever notice they put those gorgeous bags right in the front walkway of the store? I am on the road to paying off all of our debt. All of it, all $125,000 in credit cards, car loans, and the boat. Our awesome boat – yup, the one we can’t afford to put gas in.

Thank you to a very wise man who, in a 20 minute conversation, single-handedly did something Superman and an army of super heroes couldn’t have done. Got me (of my own free will no less) to pull every credit card out of my wallet, wrap them pretty in a rubber band and throw them in a drawer I affectionately call the “junk drawer.” Fitting name huh? I then proceeded to break the news to my husband. We sat down and had what was probably the most open and honest discussion about our finances in almost nine years of marriage. We mapped out a plan TOGETHER, figured out where we could cut back, then celebrated… by eating our first dinner at home in a long time! (a personal apology to all Olive Garden shareholders).

Using my husband’s first “deployment money” that came in from a recent short trip, I paid off the lowest balance debt. Seeing that first zero was almost as exciting as a new pair of shoes. The second zero balance I have achieved almost made me… well you get it.

It’s a game now. I created a sweet little excel spreadsheet staying true to my “excel goddess” nickname that auto-calculates our totals, gives me the percentage paid down on each debt and the total percentage of debt paid off to date. Are you ready for this? 10.24% in 2 weeks. TWO WEEKS!! That’s about $12,000 of worry, stress and interest we’ll never have to pay on again!! He leaves again in a few weeks for 6 months this time. And I will sit in my office every day and secretly curse all of the women telling stories of the money they spent the past weekends on shoes, clothes and manicures, and I think of all the things our family can do with our money when he comes home. Things like a family vacation paid for with actual money. All out of our bank account instead of on credit cards. Amazing.

I have a feeling the next 6 months is going to change the rest of their lives. So do you think she can pull it off? Do you think somebody’s going to get hurt if they stand in her way?

Please take a second and add an encouraging comment.

It’s funny how people will sometimes ask a question of you then argue with the answer you give. This blog has brought out the financial questions from people around me and sometimes people don’t want to actually hear the answer to the question. Yesterday one such question started a discussion with a friend of mine that went around in circles for what seemed like a month. Then we abruptly came to an agreement and this quote sums up the feelings around that moment of truth…

 Nothing sucks more than that moment during an argument when you realize you’re wrong. – unknown

 Luckily I wasn’t the one having this realization, at least not this time anyway. The question that sparked the chat was basically this: “how do you get out and stay out of the cycle of car debt?” For myself I saw a pretty straight forward answer (as most personal finance questions are in my opinion). The idea is to save up enough money to pay cash for your next car…that’s it, it’s that simple. The theory itself is simple but getting it done takes some work. We can discuss endlessly the different techniques of how you might pull that off (and I may sometime just not right now).

 My friend’s realization described above was sparked when I asked him the following question:

If you can afford make the payments why can’t you afford to save for it, especially a purchase you can plan ahead for?

Once this question was posed the conversation slammed to a halt faster than a school bus at the train tracks. He looked at me and said I guess you have a point. Things really are that simple. If you have some time to plan for the expenses all you need to do is plan for the expense. True, it’s not much fun and it sure isn’t very sexy but it works. That’s how most of our grandparents bought stuff like cars. They saved up for things and when they had the money they would make the purchase. So what’s different now? Try: marketing, peer pressure, greed, impatience, a lack of discipline, aside from those roadblocks (especially the lack of discipline one) this idea pretty much works the same as it did before.

I doubt our conversation will change the way he operates his finances moving forward but at least the question was recognized and there may be that little twinge of guilt each time he unnecessarily spends on credit. True this may not ruin his life but at least he can now add one more option to his financial text book in his head.

So I now pose the question to my readers:

If you can afford make the payments why can’t you afford to save for it, especially a purchase you can plan ahead for?

Go ahead you can post your excuses in the comment section.

Honestly I’m stunned at how much money I’ve pissed away over the years on stuff I didn’t really need.  This was brought to my attention recently when the arm broke off of my sunglasses – my sweet pair of sunglasses. Now I had a couple options here.

1. Toss them to the curb and go back to the old standby pair. (makes good sense)
2. Toss them to the curb and replace those bad dogs with a fresh pair. (how I would have done it in the past)
3. Try to track down the world’s smallest screw and attempt to make those NASCAR pit crews jealous with my rockin’ repair work.  (likely not going to work but what the hell I’ll give it a shot, 3 it is!)

So I figured all I needed was the world’s smallest screw. I stopped into a sunglasses store and asked the girl if she could help. And bless her little sales-girl heart, she recommended that I might be interested in a new pair. So I asked her “do they cost the same price as the screw?”Apparently the answer was “No” since she never actually responded while she dug around in a drawer behind the counter. She came up with a small box with atleast 2000+ assorted little screws and several screwdrivers. While she “screwed around” with my glasses she again mentioned that they had 10% off this same particular brand and she pointed to a big hanging sign displaying two hotties wearing some sweet new shades having the time of their lives on the beach. She then told me I should try a couple pairs and see what I liked. So I figured what the heck, lets browse around while I’m waiting for her to do her magic. Sure enough 30 seconds later I began having those “hey, these are pretty nice” thoughts. Luckily before I asked to try them on I heard “looks like I got it here”.  Good timing little sales girl that was seriously a close one! So I thanked her for the free fix up job and hit the door. 

I felt like a new man. I felt like I had single handedly concurred the little sales girl and stared into the face of one the world’s vast marketing machines. At this point I was thinking about how easy it could have been to separate me from my cash if she hadn’t been able to fix my sunglasses.  But since I started my never ending fight towards my domination of personal money matters I’ve noticed the commercials and marketing BS seems much louder and more obscene than I remember. There’s a constant prodding to take action, to conform or to be different depending what wares they’re trying unload on you. You’re too fat, too skinny, too gray, too many wrinkles, your boobs are too small, and that car is sooo last year. The pounding never ends and thank goodness we don’t consciously take in all the sales and marketing that’s presented to us every day. If somehow I was able to pay attention to all if it I’d probably only buy two things…a bottle of Jack Daniels and a handgun and attempt to ease the pain from the overload it’d cause.

It’s an ugly world out there when it comes to your money so keep your guard up. Keep your financial goals in mind. Remember that your money is finite so spend accordingly.

This is a quick shout out to my friend Mark. He, as of today is 8-days clean! He has managed to live the last 8 days of his life without using his credit cards. I know this may sound like no big deal but to him it is. He has been financially retarded (his words) for many years and has now decided to make some adjustments. 

After a lengthy discussion last week explaining how you can function in the world without needing a credit card Mark decided to toss out his 3 near the limit credit cards and instead replace them with cash (well as much cash as he has once he makes his credit card payments). It’s your call as to what will work best for you and your family but for myself I’ve decided that I really saw no benefit from carrying and using credit cards in my everyday consumer life. Apparently this idea sounded pretty appealing to Mark, he called me the day after our discussion and let me know he cleaned out his wallet to make room for some cash instead. 8 days later he’s still on the wagon as he puts it. I told him he sounds like a recovering crack head, he said thats about how he feels.    

 Now I don’t think everybody in the world necessarily needs to do this (I like making money on bank stocks too) but I do think most people should dump their cards. If you ever have a balance, ever pay interest, ever pay any fees or ever pay an annual fee on your card(s) then you should consider your options, otherwise it’s costing you money.

It’s your call how you handle your money but at least think about who’s really benefiting from your use of debt.

Congrats on being 8 Days Clean Mark! You’re still a financial retard (his words) but at least your one stop closer to climbing off the short bus. congrats!