Financial Freak Show

I’m often asked how does someone function in our current world without the use of a stack of credit cards. Hopefully this page will help clarify why I feel the way I do and how it is possible to function in our society without using or relying on credit cards.

PART 1.

My lack of credit cards (the why)

Living without a credit card is actually not very complicated. In my opinion it’s actually more simple than living with one. I have now been without a credit card for over two years and have not had to change my lifestyle because of it – well atleast not in a negative way.

First I want to discuss the reasons why I don’t use credit cards. For many people who have “credit card problems” the reason is usually self control or a lack of financial knowledge. Credit cards are often used as a financial crutch to help people limp along when they don’t actually have the money to cover a purchase they can’t resist or truly need in the case of an emergency. Many people can manage credit cards without getting into any major trouble. This was the case for me personally, my credit cards and balances they carried were far from the point of blowing up our finances and we had no trouble handling the payments each month. I was even able to enjoy some of the “rewards” these cards offered to me.

So why did I decide to remove the cards from my wallet if they weren’t causing any problems and was reaping some rewards?  Well folks there were a few reasons…

I didn’t like the feeling of paying for last month’s expenses this month. I hated sending off  money I just received to pay for things I didn’t posses any longer. Even though I may have been able to pay the balances down to zero each month I still felt like my finances were a month behind. The weight of any debt no matter how small has a way wearing on me. The truth is carrying debt takes energy from your life even if it’s only the energy needed to check the statement and send the payment.

Overspending; a Dunn and Bradstreet study is often quoted in blogs, and the major media. The study reports on average you’ll spend 12-18% more when making a purchase with a credit card as opposed to cash. And to prove their point they noted the average McDonald’s transaction increased from $4.50 with cash to $7.00 when credit was used. When they looked at vending machines, the average transaction size nearly doubled. Now for me I don’t doubt that I unintentionally spent more using plastic at times (I’ve been guilty of supersizing my life a time or two!) I know for a fact I’ve done this with the thought that I’d be getting more perks by adding to what I charge. So even though this was not the key factor for dumping my cards it was defiantly a consideration.    

Paying interest; this is an easy one in my opinion. Why would you save money at low checking or saving account interest rates while carrying a high interest balance on unsecured debt? It just doesn’t make sense to me – why pay interest when with a bit of planning you could be receiving interest? I never quite understood why people will say “don’t pay off you mortgage because you can make more in the stock market” and then use credit cards with 10%-30% interest rates. But it works for you have at it

I also saw no benefit to using a credit card. I know they offered me points, and insurance, and extended warranties and cash back, but to me I realized I was putting up with the issues above and found myself never getting any real benefit from all the extras they were offering me in exchange for dealing with the negatives. And as far as the convenience factor, well to be honest my credit cards weren’t anymore convenient than my debit card.  This was the big reason I now have no credit cards in my wallet…they do nothing for me, I didn’t see the so called “benefits”

This was my biggest reason….Why spend your time trying to outsmart the credit card companies? This is what they do for a living and they are better at it than I will ever be. True some people can beat them at their own game, charge up the month on credit, pay it off on the 30^th, never pay fees, never pay interest, and collect the rewards points at the end of the month.  If that’s how you roll and how you want to spend your time and energy. I’d much rather spend my time chillaxin and not worrying about trying to outsmart them while they’re trying to outsmart me. I’m not saying you can’t outsmart these folks but I am saying it’s a lot of damn work! 

This was the big reason…. So to briefly summarize why I don’t use credit cards…I don’t like to pay interest, I don’t like to being tempted to over spend, I don’t like the hassle of making the payments on time, and finally I never really received any benefit from the incentives they offered. So basically it came down to multiple negatives and no real positives.

Let’s put it this way….Let’s say you were dating a credit card. She charged high fees when you used her and possibly charged you when you didn’t use her, then tempted you to do things that weren’t in your best interest like overspending, then she drove you crazy by making you pay her a 25 days after the fun was over or risk having to pay her even more, then she offered you restricted “benefits” and “rewards” that you didn’t really care to use and if at any point you fail to keep your promises in the relationship she will call incessantly, threaten you then ultimately drag you into court and win. Then after you and her work out all your monetary issues you realized she never really cared about you in the first place and was only after your money – I don’t think that’s a very healthy relationship. Sorry, no matter how good that hot little number looked being flaunted around town with me I’d have to break it off!

To reinforce my thoughts around credit cards but with a little less Vinny Financio I want to refer back to my post So When is Debt Okay?  In this post I lay out four things to consider when determining if a debt is okay. Rule 1: Common Sense Rule 2: A Guaranteed way to repay Rule 3: Peace of heart and mind Rule 4: Unity;

In my opinion credit cards do not satisfy the four rules outlining when it is okay to borrow. Well it could fit into rules #1, #3 & #4 Common Sense, Peace of Mind & Unity. Though this all depends on your household situation but in my household we came to “Unity” on the fact that we didn’t see the “Common Sense” in borrowing money day to day and coming to that agreement gave us “Peace of Mind” knowing we were always living on what we had. As for Rule #2 Guaranteed Way to Repay; most credit cards I know of don’t have this guarantee built into them. They are only guaranteed by your future income but your future income is only guaranteed to the point that you have sufficient income. Lose your income and you have no guarantee there for it’s not a “Guaranteed Way to Repay.” Credit Cards are not secured by any real property which is why credit cards are referred to as unsecured debt.

I only have one more point to make regarding using any form of debt in your day-to-day life. This one though is intangible and hard to quantify with numbers. The feelings & emotions people feel around having debt in general. In several of my posts I’ve shared the experience others have had with their own personal battles with debt. Here are a few of those quotes:

Being away from my family at night is one of most difficult things I’ve had to do.  When I look into my kids eyes though, I know it will be worth it.  - Jeff, Deliver Away Debt

and I think of all our family can do with our money when he comes home. Things like a family vacation paid for with actual money. Out of our checking account and not on credit cards. Amazing.  - Military Mom, Deployment Money

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 that’s about how he feels.  - Mark, 8-days Clean

Now that I’ve laid all this out there for you I want to finish with the thought that you’re all big boys and you can make your own big boy decisions about your finances but that’s my $.02

Part 2.

Living without credit cards (the how)

Once I decided I was no longer going to depend on credit cards as a way of making purchases I needed to come up with another option that would allow me to make all the purchases I needed to without cramping my style too much.

There were a couple issues I took consideration before I got rid of all my cards. How was I going to have access to my money anytime & anywhere?  Second how can you function without a credit card, especially since I travel a bit and my wife almost is never carrying much cash? Here is what I came up with and so far it has worked flawlessly for us.

The first thing I did was create a place to stash the money. Since I wanted to have access to this money with the same ease as using a credit card I went for an account with a debit card. I opened a high interest free checking account at a local credit union. This is not the same place we have our primary checking account we use for everyday expenses though. I chose a different bank for our emergency savings for two reasons. One, I wanted to make sure the debit cards we were issued were Mastercard card since our primary debit cards were Visa. Two, I wanted to be linked to a different banking system. Both of these reasons were to ensure that I always had access to money if either Mastercard or Visa had problems or if either of the banks were having technical problems for one reason or another. After working with a credit card fraud team for some time and on the back end of a couple e-commerce websites I realized how inconvenient those issues are and how easily they can arise through no actions of your own. So far to date I haven’t had any issues getting access to my money. 

Now that we had a place to stash the money it was time to actually put some money in there. I first opened the account with $1200 we had set aside in our regular savings account. Now that I was going to only rely on this money instead of relying on this money and credit to get by I know I needed to add to this account as quickly as possible. So for a few months any money we could manage to pull out of our budget went directly into that saving account. At the time I was also working a second job to help knock out our debts too, so any money I made there went into this account as soon as we got a hold of it. This all quickly added up to several thousand dollars and now there’s even more. The funny thing is there is more money in there now than I ever had available on my credit cards.   

This new account was only to be used for an emergency and we BOTH had to agree this was an emergency. Since our marriage is based on trust and shared goals there is no issue with us both having easy access to the money. We trusted each other not to let the other down. Plus if either of us was going to screw this up it was probably going to be me.       

So at this point the only thing left to do is stick to our plan. To date we’ve not had any issues that have made me second guess this plan. We’ve traveled, we’ve rented several cars, we’ve bought things over the internet, basically we’ve have done most everything everybody swears they need a credit card but have done it with a debit card. If somebody were to steal my money or I have to disagree with a transaction (both of which I’ve had happen btw) I just grab my other debit card and put gas in the car just like you would with a credit card but without needing to pay it back next month.

To sum it all up….

1. We have more money available; like I said we have more in the account than we ever had available on our cards.
2. We now earn interest, not a lot but it is adding up. True we didn’t set this money aside for growth but it is a nice bonus to the deal.
3. We’re never owe anybody at the end of the month and if something were to self destruct in our financial lives we won’t be borrowing money at the exact time it gets most difficult to pay it back.
4. We have no need to use credit cards and no need to deal with the card companies – I don’t have any personal credit card horror stories but I sure don’t want to start any

People wonder how I can function without a credit card….I wonder why they can’t?

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Members of the Financial Planners Association were asked in survey what monthly expenses are the easiest to cut back on. Not surprising, with 81% of the votes, the answer was “Eating one less dinner out per month.”  True, it does seem pretty easy to cut out only one dinner out over an entire month of spending. To me that barely seems like much of a sacrifice at all. 

The tough part for me was once I sacrificed a dinner, passed up a mocha, or dodged an evening with friends was putting that salvaged dough to good use. Normally the money would stay in our checking account until I managed to blow it on something else and not making any progress financially even though I “sacrificed” my lifestyle in some way. So I came up with a plan to attempt to pick up these scraps and try to take advantage of every little opportunity I could to crawl further out of the gutter.

It was pretty simple. If I “sacrificed” something, no matter how small, I would note how much money I saved from our budget. Once I get back home I would immediately access our checking account online and make a payment to our next debt in the same amount I just saved myself from spending. In some cases this was this was as small as skipping a $4 iced mocha or as large as us passing on the opportunity to spend a $100 night out with friends. No matter how small the sacrifice was I would transfer the money immediately towards the debts. Yes, this was far from a life changing debt elimination plan but when we added this to what we were already putting towards our the debts it all added up to more progress at the end of the month. Not to mention the motivation that came with making progress almost daily. I also recently used my Micro Paymentality habit and wrote about my Sick Day Bonus Pay. I figure I only have to skip those Starbucks mochas 32500 more times and I can afford my new car!

So have you tried this style of making payments? How did it work out for you?

To clean up our financial mess the first big step I took was to come together with my wife and get on the same page regarding our money (now doesn’t that sound like a fun discussion?)  From my experience this is often one of the hardest steps to actually accomplish for most couples. In many cases one person takes on the responsibility of the household finances for one reason or another and the other person is sort of along for the ride. Maybe one person likes to be in control, maybe one person doesn’t want the responsibility or the stress, maybe one thinks they’re smarter, or maybe one’s a nerd and gets off on this stuff, or maybe it was never even talked about previously and this is just the way chips hit the table. Either way unless you’re on the same page with your spouse it’s likely your household finances will not be in good order over the long term. Remember the preacher-man said “and now you are one” remember that line? Note what the preacher-man didn’t say…. “and now you are one except for the money part only one of you will need to pay the bills and carry the stress of the finances until death do you part”  (In other words you take care of it until one of you kills the other!)

Merge your money or separate the accounts – His money & Her money. This takes place, when for one reason or another, when a couple operates their finances separately from each other. In many of the cases where I’ve seen this I’ve noticed it is usually due to one of the people not wanting to bare themselves financially to the other person. They keep their money almost a secret from the other person. According to a USA Today article the FPA’s survey of financial planners nearly 55% of couples hide financial assets from one another. Hmm, I wonder what other secrets they might be keeping. (more…)

In an earlier post titled To Whom the Accidents Happen I wrote about how some people always seem to have something “happening to them.”  The issue I want to discuss here is the money problems that always seem to “happen” to these folks. When I was deeply in debt and had no money except my paychecks it seemed that every week, or at least every month, there was some sort of an emergency in my broke crappy life. Emergencies suck and emergencies when you have no money suck even more.

I also noticed when something went wrong while I was your broke I didn’t have an emergency…I actually had two emergences. The first was the actual emergency itself and the second was the money emergency that arises from the initial emergency. In the one case of a couple I was counseling a recent accident was further compounded by several hundred dollars in overdraft and late fees that were applied by their bank. The additional expense drug the problems into the subsequent months amd magnifying the financial fun they were having. They actually incurred over $400 in late fees and overdraft fees and if I remember correctly this actually required almost as much money to clean up as the initial emergency required in the first place!

The Emergency fund is really the only way to prevent this from happening without going into some sort of debt. The Emergency fund though can only prevent problems from growing to the extent you actually have enough dough to fight the battle. True in most cases you could go into debt to resolve the problem and that’s what most people do – it seems like an easy enough answer. Since they rarely have access to much real money they pull out the plastic crutch and beg for mercy. This does work but you have now stretched this emergency into the subsequent months, and often times years, until the debt is paid. The big problem with this strategy is that now you have weakened your current financial position and will have to fight that much harder to survive the next emergency. This is especially true if the next emergency arises while you are still trying to pay for the last one(s). So now do you not only owe money (plus interest) but you still don’t have any money, I know this because if you did have any money you would have used it in the first place.

I feel building an emergency fund is crucial to any financial plan. To be honest I think it’s more important than paying your debts off completely. Though I think to build a solid financial foundation you need to do both. It’s also much easier to build your emergency fund once you have freed up the cash you were previously paying towards your debts. If you added up all the money you pay out in credit cards, student loans, and car payments how long would it really take you save up 3-6 months worth of expenses in an account? This was a major motivator for me to pay down my debts, I knew that would allow me to build a bigger financial cushion between me and life and paying away my debts would free up the money to accomplish this relatively quickly. 

The first thing I did to build to save for emergencies was create a place to keep the money I knew if I saved this money in the savings account that was tied to my checking it would wander away from me like Seahawks Super Bowl win never to be seen again! So I took steps to “idiot proof” our savings. This post tells how I worked around the issue of having the money available when needed without using debt 29% Interest? Are you Kidding Me?

Another option is a money market account. These are nice because they usually offer a higher interest rate than a typical bank checking or savings account. Many will also allow you the ability to write checks from these accounts (often 4-6 checks per month are allowed). Personally I liked having a back up debit card in my wallet in case something weird went wrong with our regular checking account and I was stranded without gas somewhere.

My plan is to use both a checking account and a money market fund for our emergency money. I know that sounds a little complicated but it gives me the best of both worlds. We can have immediate access to a couple thousand dollars to get us through a pinch which for us should cover most anything that we have to deal with on the spot (a dead car, an exploding septic tank, etc.). All the while we’re earning interest on the remaining balance. If we need access to more we can write a check or do a quick transfer and have access to more within 24 hours or so.

How much money do you feel you need to have access to sleep well at night? If you already have an Emergency fund in place what type of accounts do you use for its safe keeping?

This is not a post about the cool deal my employer offers where I get paid out for not using all my sick days each year. This post is about the small but real pick-me-up that came along with the miserable cold I had the pleasure of enduring.

Recently I was struck down with a pretty hearty cold (actually it kicked my butt pretty bad!). This meant that I missed several days of work as to not infect my fellow employees and to bless them with my chipper attitude I’m sure I had during that time. To get back on my feet I took a total of three sick days off from work plus my entire weekend to get to the point I could be fairly productive again. The interesting side effect of being sick over this 5-day period was that I spent very little money. I because of that was able to make a small step forward toward our financial goals by taking advantage of the miserable situation. This sickness really worked out to my advantage and put a little extra cash between myself and future financial ruin.

I figured I saved approximately $48 during those several day, mostly on gas and food by not driving to work and not feeding myself at the office. That’s $48 saved after you deduct the $11.96 super-jumbo-Costco-sized economy pack of Nyquil I picked up to help me weather my personal storm.

So what did I do with my new found wealth you ask? I took advantage of this financial windfall by transferring the money I saved from out checking account into our six month emergency fund we’re working on (and making great progress I might add!) True this $48 won’t change our lives but it does mean the money will go towards something productive instead of vanishing like it normally would. Even though I was physically miserable for a week I was able to feel a little less financially miserable.

Please let us all know what odd tiny steps you’ve taken toward your financial goals recently? The more odd the better!

I was recently talking with someone about them not wanting to pay the 29% interest rate on a credit card they were carrying. So with my personal compassion filter removed I made the comment:

If you didn’t want to pay 29% why’d you sign the stupid contract then?

Now to my FinancialFreak mind this seemed like a perfectly logical question. If you didn’t want to pay 29% why did you agree to borrow money at 29%? According to this person it wasn’t their fault (can you believe they actually attempted to shift the blame on this one?) Apparently they agreed to a 1.0% interest rate in the beginning. That was all fine and good until a payment was made late and the card company killed her on the rate with no warning. Okay in my opinion that’s not entirely true, they did send a warning, it was in the fine print when she signed up for the stupid deal in the first place. So you’re telling me since the card company raised the rate it was their fault? I’m sure it wasn’t your fault for signing onto a bad deal then not making the required payments so the company adhered to the contract and raised your rate because they think you’re a flake and won’t pay them back in the future?   

When a person signs a contract for a credit card (or anything else for that matter) you agree to the terms of the contract. If you don’t like the terms of the contract then you should probably not sign up.

So that then brought up the question of how one would get by without using credit cards. What do you do if you have an emergency? How do you buy stuff online or travel without a credit card? Actually the answer to this is pretty straight forward. So I told her what I’ve done to avoid needing credit cards.

First I removed all my credit cards from my wallet and cut them up – how are you going to stop using them if you keep using them – seems pretty obvious to me.

Then I worked to pay them all off. Since in my case this took some time to do I proceeded to the next steps while I worked on paying the balance down from buying crap I couldn’t afford to impress people I didn’t even like (that’s with interest added of course!)

Next I opened a second free checking account with another bank that also gave my wife and me a couple debit cards, just like our regular checking account so yes we now had two checking accounts and each carried two debit cards.

The next step was to fund this account. We did this by not spending more than we made for a couple months (I know another tough concept for many to grasp). By doing this for a while we were able to gather up some extra money which we deposited into this second checking account. At the time this was about a $1200 (which is where we tried to keep the balance while we were paying down our debts.)

We called this our emergency fund (well a starter version at least). This was only to be used for an emergency and we BOTH had to agree is was an emergency. Since our marriage was based on trust and shared goals there was no issue with us both having easy access to this money. We trusted each other not to let the other down. Plus if either of us was going to screw this up it was going to be me since I am a spender but I know better than to unleash the wrath of my saver wife….again!      

Now that this was all in place we were left with our “emergency cards” and our normal debit cards. These were not credit cards so we only had access to what we had in the account. True we only had a $1200 safety net between us and the world but that seemed adequate for most issues that may arise. Seriously how often do you spend more than $1200 in one shot? In our case this was not nearly enough to protect us from a job loss or major illness but it covered the occasional car and home repairs that always seem to pop up at the worst possible times. Funny thing was this was ten-times the money than I used to keeping the bank but since it was my only safety net now it scared the pants off of me and motivated me to finish the process.   

Once we climbed out from under or debts we we’re able to quickly increase this fund to several months of living expenses. Now, hopefully, we have the ability to handle much larger emergencies like a really broken car of a really broken job, without going back into debt. I will say we’re still a long way from driving around in a Bentley with $60,000 gold teeth tossing $100 bills out the window…but if we do I can pretty well guarantee we won’t be paying 29% interest to make it happen

Have you ever signed up for stupid deal you had regrets over? Did you learn any lessons?

I started this blog because a couple years ago I decided to take better care of my money and my financial situation as a whole. After I was successful at doing just that people around me began asking how I did it. So I started telling them and helping them to do the same thing for themselves.
Here’s the story that triggered my change (public embarrasment can do that to you)

I was driving my Cadillac from Seattle to CA for my grandmother’s funeral. This was an unexpected trip so I didn’t have time to plan for the expense (not that I would have really planned for it anyway). So on I-5 somewhere in Oregon at 3am in the morning I stopped to fill up on gas and caffeine. Since the state of Oregon won’t let you pump your gas like the big boys in other states I gave my debit card to the attendant and went inside. When I returned from getting coffee and spending down the last $20 bill I had in my pocket the pump attendant handed me my card back and said “Got another? It won’t take it.” That’s when I realized I had handed him my checking account debit card which had no money available until mid-night the next day. Thats also when I realized there was an attractive the girl at the next pump was who was overhearing the conversation (talk about the ultimate “game breaker!”) “No problem,” I said as I apologized and pulled out my Platinum Visa card which easily had a whopping $200 left on it, I know this for a fact because I checked before leaving this was all the money I had until my pay check hit my account the next day. Soon I was heading off in my shiney red Cadillac, with my face the same shade of red as the car, and barely enough money to put gas in it. That uncomfortable realization paired with a ten-hour solo drive through the night set my financial wheels in motion. That sounds so tame because basically I feakin’ lost it! I was so damn pissed at myself I knew I had to change it.

So when I got home I had a talk with my wife (yes, I’m married I wasn’t trying to date the gas pump girl – she just caught my eye and greatly magnified my humliation!) Anyway back to the story…we decided this money situation had to change. I didn’t know how we were going to change it since we barely made enough money to cover the monthly payments so how the H-E-double-hockey-sticks was I going to fix it? So I started reading (because it was cheap!) and began looking for an answer. I read a lot of books; listened to radio shows, watched money programs on TV, talked to a lot of people who were much smarter than I was about money and life and stopped listening to people around me who were broke.   
It worked, we we’re able to turn our balance sheet upside down. In just over two years we paid off over $100,000.00 in debts and saved up a nice emergency fund. We now have more coming in than we have going out each month, everything now has a name on it and a place to go. The funny thing is it becomes more fun everyday.

So when people ask me how we did it or what I think about a money situation this blog is my answer to them. I think most money problems and money successes are a result more of your behaviors around money than an actual numbers game. I think if people learn to exercise good discipline and judgement with their money the numbers part can work out in their favor no matter what the numbers actually are. Many people think it’s a numbers game and a hopeless endless battle….and most people are broke 

So where did the FinancialFreakShow come from? Well after talking to many people about poor financial decisions I have realized most people look at me like I’m crazy when they find out I no longer use credit cards, or make car payments, or use charge accounts and I have a personal goal of a future credit score of ZERO (yes you read that correctly – ZERO!). They don’t quite understand how that can work or how you can survive but so far it has treated me quite well. So since I was treated as a freak by those around me I went with it! I happen to like not being like the broke people around me so I’m going to roll with it! So welcome to my FinancialFreakShow.
Feel free to hang around and pass this stuff onto friends or one that can’t quite get their acts together if you want to. Let’s see where we can go from here. Send me some emails, post some comments, let me know what you think about this crazy out of control yet completely controllable money world. Maybe together we can inspire some common sense.

If you want to read the follow up/dejavu moment to the above funeral roadtrip story please read this post: Emergency Fund Don’t Fail Me Now! to get a better idea of how our life has come full circle and changed for the better. Different Funeral…Different story

FYI, I’m a blogger not an author so I am a horrible speller and rarely use proper grammar so if Spell Check doesn’t catch it I likely won’t catch it either. Enjoy!