Friday, May 30, 2008

Blog Direction

I think I want a visible representation of our debt somewhere on this page...  a progress bar showing where we started and how far we have left to go...  Trouble is, I haven't found a widget for blogspot that does that.  Any ideas?

Also, I'm considering a move to 3 columns, but the templates to accomplish that don't seem to actually be in existence...

Anyway - nothing financial today, really...  But the weekend provides a break to the mundane thought of simply working to pay off debt.

Wednesday, May 28, 2008

The Other Side

While I will readily agree that handling expenses is a majority of the equation, making an extra $10-30k a year could improve my financial situation in just a few short months.  The question is, am I prepared for the intensity?

Since there are two of us in this equation, both of our incomes are in consideration.  Right now, my wife is working semi-full-time (there's some downtime, but she's pretty much busy all day), and I'm working full-time with a little overtime here and there (but I'm salaried, so overtime doesn't directly affect my paycheck).

So, right now, the only options for increasing our income are:

  • One or both of us finding additional hours at another place of employment (evenings and weekends)
  • Revenue from our respective blogs (this amounts to nearly nothing, especially since the readership on both blogs is currently limited to a very few readers)
  • A home-based business startup
    • I've taken a few photos to put on some stock photo sites, but that amounts to nothing and doesn't even seem worth the effort.  I don't really know enough about pictures to qualify as an amateur, and my camera isn't but a very entry-level Digital SLR anyway.
    • My wife is a phenomenal organizer and our apartment is a reflection of her skills about 90% of the time, I just don't know how tangible or profitable that business will be.

I'd like the ability to increase the earnings, but I enjoy the free time that I have as well - part of that free time is why I'm able to maintain this blog, as well as read other blogs, but I'm not sure if the encouragement from writing and reading personal finance blogs is as beneficial as making money doing some mundane job.

Perhaps a job at Wal-mart could accomplish several things - allow me to earn extra income as well as help cut expenses through the employee discount.  I hesitate to apply back at Best Buy or some other really cool store, due to the fact that the temptation to take advantage of the discount overpowered my desire to get out of debt last year.

I'm also not aware of very many places that will allow me to work 3 or 4 nights a week, maybe a weekend or two per month, and that's it.  With our weekends consumed with visiting family (or them visiting us), and then our church attendance being of no small importance in my mind, I'd really rather not cut into our weekends too much.

There has to be a solution, but what?  Or do I just need to buckle down, and take the hit to my "personal" or "free" time, and go get 'em?

Tuesday, May 27, 2008

Cancel the Card? Or Be Prudent?

My credit score, or, as Dave Ramsey likes to put it, my "I Love Debt" score is encroaching upon 800.  Banks love me.  I've not really considered every facet of cutting up the cards, so that's what I'm dedicating this post to.

Dave Ramsey has a FICO score of 0.  Nada, zilch.  And he's gotten by very well without having it.  In the past, I've run across people telling me why I need I high FICO score.  Here are some of the reasons I've heard:

  • You want good credit to be able to get the apartment/house you want.
    • While I see some advantage to maintaining my credit score while I'm renting, I know there are lenders out there who do not use FICO as a qualifier for a home loan.  I don't know that this, in itself, it a viable argument for keeping credit cards or destroying them.
  • You get better insurance rates.
    • I honestly don't know of an insurance company that doesn't take FICO into effect, but I also don't know how long it will take me to see a difference in my insurance rates based on an effected FICO.

I'm wondering if I should sign up for one of those deals over at  Apparently they help organize debt (something I've pretty much already done), but they also have a simulator that will give you an approximation of what your FICO score will be if you do something like open a new account, or cancel one.  Looks like I'd spend about $50 for it, but I don't know that its worthwhile.

So the big questions I still have to face are these:

  • What are the ramifications of closing some of my unused credit accounts?
  • Is a $50 investment a worthwhile price to pay for FICO forecasting?

Friday, May 23, 2008

Vehicles: A Necessary Convenience?

I don't do well with cars. My vehicular history has been quite dismal. At least, after the first one. My first car was a 1985 Mazda GLC that I purchased for $750. I put less than $250 in the car for repairs and drove it for 2 years. Then I had a wreck in it that knocked out the passenger headlight and had some cosmetic damage to it. So I decided to go into debt and get a Ford Ranger. I got a Ford Ranger 4x4 Extended Cab. Loved the truck, but after the transmission went south on me twice in less than two years, I decided to go brand new. I could only afford another Ranger, single cab, manual, so that's what I got. Of course, they barely paid off the note on the previous ranger (there may have been up to $500 rollover into the new one), but, at this point, I had a brand new vehicle. Then, a mere 8 months later, I traded for yet another vehicle, going for a brand new Saturn, and rolling over several thousand into that vehicle. Fast forward 3 years and I sold the Saturn for another Ranger, but this time, it wasn't a new Ranger. Of course, after rolling over several debts into this one, my payment was big, and I owed nearly double what the Truck cost me. It was finally, at this point, that I decided that my continuous cycle of vehicular debt was hurting more than helping. I finally sold the Ranger after I was given a company truck, and that kept me out of the vehicle business for another year.

Then time came for me to part ways with the company. I lost the truck, and the income, and ended up buying a $3,500 Honda Accord. I paid cash for the car, but, less than 24 hours after purchasing it, several things went horribly wrong. The clutch went out, along with the master and slave assemblies, the flywheel.... basically everything transmission-related. The alternator and the battery also went out. Every time I turned around, something happened to the car, and needed fixing. By the time all was said and done, less than 2 years later, I had put nearly $8,000 in repairs to the car. I had replaced the axles, the wheels, the tires, the transmission, about half of the electrical system, the brakes, the radiator... the list went on and on. Because of this experience, I decided to buy a brand new car just a couple of months before I got married. In vehicular debt at that point more than I'd ever been before, I was a little concerned, but my job was (and still is) steady and the business is growing, and now, I don't have to worry about the vehicle breaking down, and, if it does, I don't have to worry about getting the shaft due to my lack of knowledge about vehicles.

My wife brought a $400 car to the marriage, and it lasted a year into it. But it finally bit the dust, and the time came to replace it. I didn't go buy a brand new car, partially because I didn't want to spend very much, and partially because I didn't want to be in vehicle debt totaling my yearly income.

So, here we are, just under $27,000 in debt just on our vehicles, and then I read this post over at Get Rich Slowly.

It really got me to thinking about what I've done and where we are. I know what Dave Ramsey would say - he'd tell me to sell at least one of the vehicles, take the hit and get a junker to drive around until we get out of debt. Given my history with vehicles, I'm not sure I'm prepared to make that jump.

So, what would you do? Would you keep both cars, both of which are under warranty (because of the warranty extensions), and continue to pay them down? Or would you sell one (or both)? Why?

Thursday, May 22, 2008

Memorial Day Sale!

Right now, Dave Ramsey is selling all of his books, DVDs, & CDs for only $10, with free shipping on all orders over $65... If you don't have your collection complete, this could be a good opportunity for you to get caught up!

Wednesday, May 21, 2008

The Ultimate Categorical Breakdown of a Budget

I think the title will almost be half the post!   I was doing some reading over at WiseBread, and found a link to this report released by the Bureau of Labor Statistics.  How does the report line up with your own percentages?  Right now, mine is far bent out of proportion due to the amount of money I'm socking away at debt.  But once I get out of debt, I'll refer back to the current report and see how I line up with others...

But for now, it gives many, many different categories that are good to look through when attempting to start a budget.

Tuesday, May 20, 2008

Starting a Budget

In communicating with one particular reader, I discussed the digital envelope system in further detail. One thing that came up during our conversation was how to begin, since all values will theoretically begin at zero. For instance, if July has a six month insurance premium due, and it's already halfway through May, how do you begin a budget when some of life's really big expenses are staring you in the face?

Putting off working off a budget isn't really a good answer, because procrastination will reign, and there will always be a "good reason" to put it off another month. So, if the only answer is acting immediately, what is the best way to go about it?

Here are the steps that I went through when I was beginning the process, and hopefully they can help you as well...

  1. Factor your expenses. Set aside your income for a minute. What you make is actually less important than what you spend. Begin by writing down every expense that you have. Use budget forms to help spur your thoughts, because you want to have a category for every expenditure. (Microsoft offers this one, and has a lot of good categories to help you form a budget. As well, Dave Ramsey offers this one as a quick budget tool.)
  2. Fund your envelopes. Hopefully, you aren't starting at zero, waiting on your paycheck to hit the bank. Balance your checkbook and get to a number. If you don't have enough money to get a month ahead, work on getting up to speed. Perhaps you can cut expenses in some area for a few months while you get your system built up. Perhaps you can work an extra job, or have a garage sale. The key is that you want to operate a little ahead of your bills. If you have $1000 in rent, for example, by the 3rd week of the month, you should plan to have $1000 in the bank. Ideally, you will expand to having a month's expenses (or more)in the bank as surplus, but if you are reading this blog, I'm betting that you are living paycheck to paycheck, or dangerously close to that. The important thing is to have whatever current cash you have injected into your envelope system to give it a head start.
  3. Figure in your income. Now that you have a list of expenses, you should be able to see what you require in the way of income. Hopefully, your current income is higher than your expenses. If it isn't, you have two basic options: you can either raise your income, decrease your expenses. Putting an expense on a credit card will seriously damage any progress you make. Assuming that your income is higher than your expenses, you can take the difference and apply it to your debt reduction plan. It is important for you to have an emergency fund - some money set aside that you don't spend on anything but emergencies, so that you don't end up putting it back on a credit card, losing the ground you'd already covered. Some people go with $1,000 for their emergency fund, some say a month's expenses worth, and some say 3-6 months worth of expenses. For now, I've gone with the $1,000, tucked safely away in a free checking account in a bank that I don't use for my budgeting or debt reduction account.

Once you get your budget worked out, your envelopes funded, and your emergency fund in place, you can begin the process of getting getting out of debt. Whenever these three items weren't in place, I found it very hard to get any traction on reducing my debt, but the process seems to go much smoother when all three of these are up-to-date and taken care of.

Monday, May 19, 2008

The Envelope System for a Digital Age

The Envelope System, if you aren't familiar with it, is a simplistic way of sticking to a budget. Basically, you work out a monthly budget. Then, every time you get paid, you take the appropriate percentage of each budget item and stick the cash in an envelope. Once you've spent all the money in the "Groceries" envelope, you're done until the next payday. I've found this system to work very well, but it involves going to the bank every week, withdrawing my paycheck, dividing everything into envelopes, then going back to the bank every time I pay a bill. With direct deposit and online bill pay, this is an obtuse and time-consuming activity.

There had to be a better way. So I designed a spreadsheet to do the work for me. Just click the link and download the file. It should be pretty self-explanatory. Obviously, some of the values are changed, but if you aren't spreadsheet-savvy, let me know, and I'll help you customize it.

It should be noted that I use this spreadsheet in lieu of financial software or a check register. For one, its cheaper, and I enjoy the simplicity and cost-effectiveness. For another, I don't need a lot of power to pay bills - that's what my online banking does, again, for free.

Anyway, this is a solution that has worked well for me since I've switched to it and has made my life much less complicated, since my trips to the bank are now on an "as-needed" basis, rather than at least a weekly trip.

I am always interested in other tips and tricks, so if you have seen success using a tool, please mention it or let me know...

Thursday, May 15, 2008

Bank Accounts

In my last post, I alluded to the fact that one big factor in making my payments was my bank account.  Because I have a steady job, salaried, my income is dependable.  One thing that I have had trouble with in the past was getting payment to the credit card companies in time.  One time, I went from a 3.9% to somewhere in the range of 30% because I was late in paying one of the cards.  My minimum payment barely covered the interest (at the time, I think the card had a balance over $12,000)!   I called the card company (American Express - Blue) and apologized for the oversight.  They graciously credited back my account, and dropped the interest rate back to the original, but warned me that the next time, they would not be so flexible.

It was then that I began the search for better reminders, or, ideally, an automatic online bill pay service.  There were several out there, but most weren't affiliated with a bank, and I really didn't want a third-party system.

I found an online-only bank that offered the service, but they sold to ING Direct, and ING Direct doesn't offer the same account type.  But I was already hooked, knowing the technology and system existed, so I began my search for another bank that offered the same.  After a few days of searching, I wandered onto Bank of America's website.

They offer free checking, just like most everybody else, but here's the difference:  They also offer E-bills.  E-bills is the term for "electronic billing".  Basically, when you get a bill from just about anybody, instead of (or possibly in addition to) getting a paper statement in the mail, the billing goes to your bank.  And you can set rules for the bill once it arrives.  It is the neatest invention since the Internet - absolutely amazing.  So, now, instead of mailing a bill to the company, my online bill pay receives the bill, and automatically pays it as soon as it gets it.  Because I am depositing money for the next month's bill, there's always enough money to cover in the account.  The process is similar to setting up rules for your inbox, except you are doing it financially.  Of course, I always get a notice e-mailed to me letting me know exactly how much I owe, so I can confirm on my own that the payment will clear.

This allows me to make the minimum payments on my credit cards every month, and at least get those, and most of the rest of my monthly bills, all paid before or when they are due, and I don't miss a payment.  This feature becomes incredibly important in light of some credit card companies' terms of service, which allow them to increase the interest rate on their card if you are late on a payment to anybody.

If you have a bank that offers the E-bill technology, I'd be interested in hearing about it.  Wells Fargo, with whom I've had an account for over 10 years, has it, but charges for the service.  Washington Mutual doesn't have it.  Chase doesn't have it, even though the Chase credit card will issue an e-bill.  (Ironic, no?)

Next up:  The Envelope System goes Digital!

Wednesday, May 14, 2008

Arranging Finances

One of the most important things before beginning any journey is plotting the course of how to get there. The same was true for me in getting out of debt. And you can count on the fact that there will be roadblocks, but the important thing is to not get distracted by these barriers to your goal, but to continue pressing forward.

Dave Ramsey's advice early on has been crucial, but I don't do everything exactly the way he describes. His plan isn't a bad one, in the least, there were just some adjustments that I made in order to fit my lifestyle and thinking. In fact, I heartily recommend reading his "Total Money Makeover", mentioned in the previous post.

One think that Ramsey advocates is the "Debt Snowball". That is, ordering your debts, without regard to interest rate, from smallest to largest. After you have $1,000 in the bank as an emergency fund, you begin attacking the smallest debt, then, once paid off, take the money that you were paying on the smallest one and applying it to the next one in addition to the minimum payment, gradually increasing your payment.

Fortunately for me, my credit score was excellent. I was able to take advantage of low interest rate offers and so I ordered my debts smallest to largest, but I combined several credit cards into one larger one with an transfer offer giving me 3.9% until it was paid off.

It consolidated some of my smaller cards, but it allowed me to pay off some of my other, higher-interest cards first. So I adapted the Debt Snowball to make sense mathematically as well as psychologically.

Although I'm heavily focused on paying off a credit card at this point, that doesn't mean that I ignore my other loans. Since interest rates dropped, I decided to apply for a refinance loan on my truck, which was financed at 7.99% APR. I applied at a different bank than the one who had the loan. Once approved, I was informed that my rate could be 5.94%, but they would charge a one-time fee of $200 for paperwork, etc. It still amounted to about $150 in savings over my current loan, so I went in to the bank to find out my payoff amount. They asked me if I was selling the truck, and I responded that I'd been offered a 2% better rate at the bank down the street. They asked if they could see what they could do and have me keep my loan with them, so I said I'd be willing to do that. I walked out of there, renegotiating my loan to 5.89%, and no $200 transfer fee. That will save me about $350 (a payment and a half) over the life of the loan.

But all of this would be worth far less if I hadn't done what I will be posting on next.... The importance of my checking account.

Tuesday, May 13, 2008

Goliath Debt, David Income

The Federal Reserve releases statistics on how much debt we have, as consumers. This report releases on the 7th of every month, and contains some very interesting information that led me on several trains of thought. As my first post, I thought I would begin to delve into the overall problem, and then boil down into how I am doing to bring it on a more personal level. This is as much for my benefit as anything else, but I hope that you either find the information useful and situation applicable or, happily, not at all applicable nor useful.

Consumer credit (revolving and nonrevolving) reached over 2.5 TRILLION dollars in the 4th quarter last year. In March, it had increased to $2,558,400,000. That's an absolutely STAGGERING number, especially in comparison to the number of people on the planet (roughly 6.7 billion), much less relegated to the United States.

While I couldn't find verifiable statistics on what the average person in debt via credit cards has actually borrowed, I do know from discussions with people and with my own life that there are many who suffer from the title of this blog: They have an absolute overabundance of debt, and a meager income to boot. This is not a foreign concept to me. On January 1, 2007, I decided to turn around. I decided to spend less than I made. Well, actually, we decided. My wife of 2 months agreed that we needed a starting point, and we needed to make progress.

Here was the beginning, and, at the time, I was making a moderate salary, just not in comparison to the debt I'd accrued.

  • I had just over $100,000 in limits on an untold number of credit cards, due to my past history of paying the card companies well for allowing me to make purchases over and above my income. Today, that number has actually increased as I began my quest for balance. That is, no balances. You get the idea. :-)
  • As far as actual debt, we started with about $68,000 in credit card debt, student loans, and a car loan. About halfway into the year, our $400 car bought the farm, and so I added another $10k onto our debt picture getting another car. So, in essence, we began our journey with $78,000 in debt.
  • As to my income, I was making about half that (gross), having started a new job less than 5 months earlier. My wife was working here and there, but nothing paying more than about minimum wage, and not very many hours per week.

So, the beginning was $78k in debt, while making less than $40k a year to attempt to pay that down. Not a very encouraging picture, to be sure.

But, there is hope. I began by reading Dave Ramsey's "Total Money Makeover", and that was the beginning of my journey.