Since my wife and I are trying to reach some specific financial goals we are kind of strict about any money that we blow. The dollar amount that would trigger my wives fury while we were trying to eliminate our personal debts (I know this may sound insanely low to many of you) was around $25. Do remember though that my wife is a saver by nature and I’m the one that liked to spend. Also remember that I’m talking about spending money that wasn’t in our spending plan – I’m not talking about things like food, gas, needed things around the house, car maintenance etc. – I’m talking about things we hadn’t planned for like a cool $52 sweatshirt, or a $175 replacement for the broken cell phone – you know that sort of stuff.

Now that our debts have been cleared (with help from some learned behaviors like this one) our spending threshold has now been adjusted accordingly. We’re now closer to the $80-$100 range for “free” spending. Now that we’ve worked so hard to always discuss and share our finances we usually talk about most things over $50 anyway (note that we talk about it…not fight about it). Hopefully one day with enough hard work and discipline when I surprise my wife with the new Cadillac she wants and the only discussion we’ll have will be where we’re taking it for dinner that night and who gets to drive – now there’s the spending threshold I’m shooting for!

Agreed upon spending limits is where a couple’s shared finances can really help a couple succeed over the long term due to the unavoidable accountability. How’s the saying go? “At some point he’ll have to come home!”

What dollar amount do you feel you should have agreement with your spouse before buying something as to avoid your home turning into a bad Jerry Springer episode?  If you’re single at what dollar amount do you feel you’ve let yourself down buy spending too much?

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.

Of course to make the Magic Month work for you I advise that like a true FinancialFreak you plan for this well in advance. Work these extra funds into your budget prior to getting that fat fist full of cash and take advantage of this magical windfall instead of letting it wander out of your life. No matter what your present financial situation is you can pay down some debts, shore up your big fat emergency fund, lock it away towards one of your savings goals, and maybe even blow a reasonable amount of it.

*Note I said blow a reasonable amount! As always let’s plan ahead, be responsible, have a little fun and make Mr. Financio proud. Remember we’ll likely have this same talk again in a few months so with a little discipline maybe it will be more talk about fun and less about paying debts!

If you follow my posts you will know that I recently sat my lazy butt  down on the couch and watched the entire 2-hour Cocaine Cowboys documentary. For those of you familiar with this program you’ll know that the people interviewed and discussed in this program worked diligently for years to become the best in the cocaine importers in the world.

So the question that came to my FinancialFreak mind after watching this program was what made these guys so special, how did these guys become the best in the business while others were being mowed down in the streets. Two things come to mind. They showed persistence and they performed with excellence, they paid attention to every last detail. These people never gave up, they were absolutely relentless. When they failed at a drop or a pick up they made corrections and went at it again.

Here is an excellent example of what made them so effective. According to a pilot being interviewed they came up with a plan to drop large bundles of cocaine fitted with radio beacons into the water off the coast of Florida from a plane then retrieve them by speed boat. Apparently they had an issue with the suppliers taking shortcuts while packaging the product so as soon as the first drop hit the water the bundles exploded spreading a couple million dollars with worth of high grade cocaine into the Gulf of Mexico. Here is where the persistence part comes in. Do you think this was their last attempt at this plan? Of course not these guys are grade A hustlers. So after delivering a couple mil’ worth of dope to the fishes they tried again. They readdressed the issue with their Colombian suppliers and demanded new packaging for a second attempt. Again the bundles leaked and the drugs were destroyed. So do you think this was their last attempt at the plan? Nope, again they contacted the suppliers had them fix the issue and after two tries and several million dollars in losses they finally got it right.

So through their persistence they became the first guys to move massive amounts of Colombian coke into Florida. While striving for excellence in their chosen trade they only got better at this. The point here is that they never let up, they never folded, and they never stopped fighting, they kept throwing punches until ”the man” finally took them down.  Most people don’t even begin the fight to create excellence in thier lives let alone stay with it. This brings me to my question for you….

Why are you not the biggest, baldest hustler in your city? Let me know what you should be doing better in your life but haven’t displayed the excellence or persistence these guys have?

 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.

Now, I always have some cash in my pocket, especially since I refuse to use credit cards anymore, but I sure as heck don’t have $3000 in my pocket very often. Since the thought of having my very own fist full of $100’s sounded so exhilerating I figured I’d give this big shot technique a try and see how it worked for me. This sounded like a logical experiment so shortly after meeting Fist-full-of-100’s Guy I withdrew my entire starter emergency fund of just over $1500.00 rolled it up and stuffed it in my front pocket. After leaving the ATM I headed over to Starbucks to meet up with a friend.  I was excited just thinking about the moment I’d get to whip that wad out of my pocket and say “I got this one.” Just like Fist-full-of-100’s Guy had done a few nights before.  So without hesitation as soon as he placed his order BAMM! The fat wad was out of my pocket and a smile was on my face. The only problem was I looked like a complete idiot bustin’ out $1500 to buy two cups of coffee. 

And sure enough the barista saw right through me. With a smirk on her face and a smart little attitude she said “Is that all you have?” Ouch! I was busted by a 17 year old coffee pusher! 

So I did my best to play it off all FinancialFreak cool and said “Why, how much do the other guys usually tip?”

All in all it was a lame experiment to roll like a big-shot but in the end I came out looking more like Al Bundy than Al Capone

How much cash do you usually carry in your pockets?

I got rid of a lot of stuff when I decided to adjust my financial circumstances. A funny thing happened though when I began to do that. I really didn’t care at that point what people thought about the stuff I had anymore. It was good for me in many ways. Now I sort of wear the fact that I haven’t overspent my means as a badge of honor. I love telling people I sold my BMW and bought a Chevy and why we decided to go the National Park instead of Mexico for vacation. Now that we’ve made so much progress in our financial lives the people that are actually important to us and care for us brag about what we’ve done and to that I say “Who really cares about my money anyway?”

So go ahead and mock me (or more likely just think it…wimp) then shut up and get back to work so you make some more money to hopefully cover that ridiculous car payment again next month. I love it when broke people tell I’m wrong about money – thanks for more motivation!

Young people knows how to run fast but old people knows the way   -unknown

A survey of over a of over 1100 people ages 62-75 were posed a retirement question that only they have the experience necessary to answer. No matter how many finance blogs or books you’ve read, and no matter how many classes you’ve taken…nothing you have done to date, unless you‘re retired, will give you the experience and life lessons required to answer the following question:

If you could turn back time how would you have planned differently for retirement?

56% would have started saving earlier  

39% would have allocated more money towards retirement

27% would put money into safer investments

7% would put more into riskier investments

5% would have used a professional advisor

I found the results interesting because the two biggest I shoulda’s were behavior based mistakes and not really what I’d call investment mistakes. The two biggest mulligans they would take had little to nothing to do with investment proficiency and everything to do with the actual task of just getting the retirement savings in place and growing. So I’m thinking no matter what your situation may be right now it’s a good time to get about the business of putting yourself into a position where you can take the advice of these old timers and get things moving for your future. Imagine if you not only were able to run fast but you also knew the way.

So now that you know what the people “living the dream” have to say about their retirement savings what steps are you going to take to heed their advice? Or are you going to look back in a few years and repeat these same survey answers to the next crowd?  

Source: Harris Interactive and Financial Freedom Senior Funding survey of 1,140 seniors age 62-75

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

After a fair amount of un-reliable research on personal Debt to Income ratios here are some numbers I came up with – remember your home mortgage payment is also included in these numbers, no cheating here

45% or higher debt to income – Things are scary (you probably already knew that). You are walking too close to the edge and some drastic measures should be taken to address the issue.

35% to 45% debt to income - You’re still walking close to the edge but not quite as close as above. Don’t slip up here though since you likely have no cash cushion you’re one mis-step away from stumbling into serious trouble. Now is the time to make some changes while you still have a little breathing room.

30% to 35% debt to income - You’re probably feeling like you’re in pretty good control of things compared to your peers and lucky you they’re offering to help you run up debt as fast as they can get the offers into your mailbox. This area is manageable and should allow you to fund retirement at a reasonable level (especially with employer matches in place)

30% of below debt to income – Below 30% you looking solid! This means you pay 30% or less on your debts each year. You could save 15% towards retirement, pay all your debt payments and still have 45% of your money for all your other junk.

So take minute, pull up your little list you created here: No shortcuts here, now let’s calculate you debt to income ratio. For the steps to do this read check out Calculate your Debt to Income Ratio and see where you stand. This should help you plan your next steps accordingly, remember the more information you have to work with the better decisions you can make.

Step 1: Add up all your monthly debts (I know you already did this, but I’m just making sure!) Mortgage payments (including taxes, insurance, PMI, etc.), Car payment(s), Minimum credit card payments, Student loans payments, Child support, Doc bills, etc.

Step 2:Add up all your monthly income.  Add your Salary, any additional bonuses, tips, any additional income you receive through dividends, a side business, embezzlement, theft, or whatever your case may be. Total these all up and you have your monthly income.

Step 3: If you don;t have your calculator out yet you’ll want it for this part. First type in your monthly debt number, press the “divide” key, now enter your monthly income number, press the “equal” button. That will give you a decimal number, now move the decimal point two places to the right and you have your debt to income ratio. For example, if you came up with a $2,800 total debt payment number and monthly income of $4,500, that leaves you with a debt to income ratio of 52%.

There you go thats pretty much it. Now see my post Debt to Income Ratio and see how you measure up.

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.