Financial Freak Show

Another financial blog caught my attention recently (the name’s withheld because its a pretty good blog with a only a few questionable posts) The post I’m writing about was regarding the purchase of a new “quality” BBQ vs. buying a less expensive model. As a FinancialFreak that thinks long term this makes obvious sense to me as quality is often worth the extra price if you plan to use the item to its fullest. Buying quality may not be a responsible option though if you’re not in the proper financial situation to pay for it. 

 The blogger posts about how he wanted to buy the Weber E-310 BBQ which sells for close to $800 – a pretty sweet BBQ which he’d been saving for. He then goes on to say he made a better purchase and settled for a Char-Broil BBQ for a little less than $400 – again good job, you did some homework and saved some cash.

Here is what made me say what you were thinking…

The next post on the blog was titled “Housing Update: Short Sale, Foreclosure, etc.” I assumed this was a post about his opinions about the complicated housing market. Turns out this blogger has been trying to sell his house for more than 16 months and is currently on the verge of a foreclosure. Here’s a quote from his post:

Our savings is gone, our emergency fund is nil and I have cashed in about half of what little retirement we had put away. I am earning as much side income as I have time for and my wife babysits anywhere from one to five children (beside our own) everyday in order to make ends meet. At the moment, our credit is good and God has provided for our needs, but we are at the point where we are starting to incur major debt on behalf of this house.

So let me summarize here. He’s earning as much side income as he can, his wife is babysitting extra kids for money, he used his emergency and retirement funds to help weather the storm. If I were counseling this couple on their finances my advice to them would unquestionably be to spend the money they saved and invest in a new $400 BBQ. This is really the only option they have left to help prevent their family from being foreclosed on. If we were on the verge of foreclosure and I came home with a new $400 BBQ it would not be a pleasant conversation over freshly grilled steaks with my wife – who knows it might even be the last convesation we have as a couple!

My thoughts do go out to this family as nobody wants to go through a foreclosure….then my FinancialFreak mind kicked in and my thoughts quickly changed to “I wonder what sort of deal this guy will give me next month on his almost brand new $400 BBQ?” I better go back and bookmark that post!

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!