In the past ten months, my husband and I have really made great bounds in taming the financial situation of this household. We re-tooled spending, we began budgeting (first time ever) and we’ve so far paid off $34,000 in debt. But we’ve got a ways to go until we reach financial freedom.

Three weeks ago we began taking Dave Ramsey’s Financial Peace University (FPU) and learning Dave’s strategies (also outlined in Total Money Makeover). We’ve got our $1,000 in the bank and now we know what to expect to spend on everything each month.

Until now our “budgeting” has been fairly passive, but it’s still slashed our expenses. We set up a free budget template in Mint and then we get a text message when we go over budget. (It was more like behavior modification training than budgeting—something akin to those no-bark collars people put on dogs).

That said, when we got into the cash-flow plan in FPU, I was all for it until I sat down and started to put it into practice.

You see, the FPU plan calls for zero-based budgeting. That means you figure out how much you’re making each month, and spend it all on paper before the month is over.

Do you know what this means?

At the end of the month there is nothing left.

Quite frankly, this scares the living daylights out of me. Nothing in the bank and just $1,000 in savings between us and the real world? It feels like flying without a net to me in a wildly uncomfortable way. There’s nothing adventurous about this at all.

This is a little extra tricky because both of our incomes vary pretty wildly from one month to the next.

Now on the zero-based budget, the next paycheck will get deposited, the mortgage will be paid, and the rest will be cashed out into the envelopes. Leaving nothing in the bank. ::hyperventilating::

I’ll grant you that this has happened before, but never on purpose!

I’m committed though (figuratively, not literally…yet). This system is tried and true, and my “oh crap we’re outta money” text messages were passive and reactionary. In my mind, I knwo this.  Having a plan is always better. I can do this, right?

Anyone else using zero-based budgeting? Are my fears irrational? Normal beginner’s jitters? Would love to hear your thoughts!

PS: For those wondering what we do with our fluctuating incomes to make a zero-based budget balance, we have a prioritized “wish list” (it begins with our remaining debts, and works up to items like new carpeting for the condo, replacing the kids’ mattresses, and saving for the next car). Months that we earn more than our budgeted incomes, the money is directed to the top item on the wish list. If we earn less than our budgeted amount, then we don’t fund items in our budget from the bottom up (planned debt repayment in excess of the minimum, recreation, “blow money” etc).

My husband and I are attending, and dragging along our oldest daughter–who had to attend the first class on her eleventh birthday (we may be the cruelest parents yet to walk this earth). Surprisingly she loved it! We’ll be carrying scratch paper and a calculator to future classes so she can work “Dave’s Math” alongside the video. Learning lessons like compound interest and savings rates. She walked away saying “you know mom, Dave is pretty funny.”

Homework the first night was to put together our “quickie” budget. (A quick list of all your monthly expenses).

It was in that budget that I noticed the first flaw in what I thought was our perfect plan.

We don’t plan for cash-flow.

Sure enough, our budget lines up to within a few dollars of our income (we already had our budget saved in Mint.com, as a zero-based budget)

I’m taking a look at a few cash-flow solutions like GreenSherpa to get an idea of how better to plan. I’m also hoping that one of Dave’s lessons will enlighten me on other ways to do this.

How do you budget your cash?

In the meantime, I’d love to hear from other DebtKid readers–how do you plan for cash-flow? I have a “bill box” with 31 slots in it. Bills get stuck in there based on their due dates. I’ll bet there are some better ways.

Melat and her "big girl checkbook"

I’m not sure how many readers here at DebtKid have children, but I have two.  In our family we joke that we didn’t have debt before we had kids. I actually believed this until a few days ago when I was clearing some old files and found our financial paperwork from when we were first married—before kids.  I was really surprised about just how much debt we had.  Car loans, small credit cards and, and student loan debt. Oh my! Even worse, we had nothing in savings.  No emergency fund, no vacation fund, nothing.  

Two adoptions later, we actually had about the same amount of debt we did back then before we felt like we were in debt. 

 We didn’t begin to feel the pressure of debt, until we had kids who rely on us, and when we realized that we were modeling unhealthy behavior over a long term. (We definitely don’t want to be supporting fiscally-irresponsible adults later on!)

Kids really do grow you up, don’t they? 

 Tomorrow my youngest daughter is turning four years old.  Last September I brought her to America as an adoptee from Ethiopia. She’s a brainy, precocious little tyke, and extraordinarily responsible.  She’d been socking away money in her purse from her chores for some time (when she wants money, she folds the socks on laundry day for a total of $.50 per load of wash).

 She got some birthday money in the mail and a gift card for a bookstore in the mail today and asked to go shopping, so I shook down her room for all her money (and was surprised to see she’d consolidated it all into her purse!), put her ID  in her bag and told her we’d go to the bookstore and the bank—and get her a proper “grown up” bank account like mine.

 She carefully pulled four dollars and her gift card out to buy her two books at the bookstore, and then we went to the bank. 

She walked up to the teller, plunked down her money, her Green Card and her passport and told the teller “I’m thinkin’ about it and I want a bank.” 

 Boy was I surprised, when she pulled her cash out of her purse, and gave the teller $158.75, and carefully reserved twelve cents “just in case” for her purse.  (She must be knocking over 7-11s after story time or something—I don’t know where she came up with so much cash in eleven months!).

 She’s excited to have her new bank book and was really surprised to learn that more money will come into the bank account just because she has her money there. My husband and I can model health money behaviors, and start teaching fiscal responsibility and stewardship from a young age.

 I’m looking forward to trips to the bank with my little one to deposit her “sock money” complete with her little deposit slips.  In later years, it will make for excellent math lessons but for now, it’s a great way for her to have responsibility for her bank book without the fear of the actual cash being flushed down the potty or meeting some other untimely fate.

These “kiddie accounts” usually take $5 to open and have no annual fee, so there’s no reason not to open one for your kiddo regardless of age.

(Just a side note that the interest rates are incredibly dismal, at 0.02%, so when the sock money accumulates to a little bit more, we’ll move her money into a money market account. Now that she’s got the savings bug, I expect we’ll have the minimum $500 in a little hot-pink purse around her by Christmas).

SmartyPig Provides Plugins and Widgits for a variety of social media apps.

As long as I can recall, I’ve had a savings account. My babysitting money or my birthday money went there and sat.

Later, it became my “Just in case a check bounces” fund.

Now it’s the “major auto repair, tow bill or gigantic medical bill” fund. The sad thing is, I’m not very good at discerning planned but not budgeted expenses from emergency expenses. Well, that is to say, I wasn’t. I’ve gotten much better.

At the beginning of the year I discovered Smarty Pig

Smartypig.com is about the easiest, smartest and cutest savings method I’ve ever seen! Smartypig allows you to set a goal, and save towards it automatically. For instance, we just adopted our daughter, but there was one bill left to pay–the legal fees for her “readoption” in America. I set up a SmartyPig account and told SmartyPig the date that I would like to have saved the money by (August 2008) and it calculated that I needed to save $13 a month.

Opening a SmartyPig account requires an inital balance of $25, so it automatically withdrew $25 and then $13 every month thereafter until my goal was met.

The Account is completely free and offers very high interest rates for a standard savings account. As of this writing it’s at 2.78%, though it was higher when I first started saving. Another thing about SmartyPig is that it’s completely free.

Say you’re saving $1200 for a fancy computer or an entertainment system? You can cash out your goal with a SmartyPig preferred provider and get the money on a gift card with an extra percentage thrown in. Saving up for hunting gear? I noticed that Cabellas’ throws in another 3% towards your purchase. Cool beans!

If you’re still nervous about online banking, you don’t have anything to fear with SmartyPig. They’re tested daily and backed by the 115-year-old institution West Bank (NASDAQ: WTBA).

We’ve saved for and met two goals now with SmartyPig, and just today I began our emergency fund savings account (which we expect to fully-fund by May, but I extended the date out to keep inital deposits low).

SmartyPig is especially smart about it’s customer service. Their telephones are always promptly answered by a live person, with a domestic accent. They’re helpful and patient. SmartyPig has even answered questions via twitter (Follow @Smartypig). Their social media features include Web and Facebook widjits and buttons that you can share. You can even share contributions for a fund (Sally’s ballet lessons and the grandparents want to chip in? You can send an invitation for them to contribute.)

SmartyPig’s message and mission are both fresh and cheerful. The site is easy to use and the company provides excellent customer service, a great product and no fee. If you aren’t saving–here’s the way to start!

Working for a bank we do get the option to meet with advisors from time to time and I have taken advantage and received a financial plan so I know the basics but in no way am I an expert in this field.  This is strictly a review of the websites and as you know each person’s finances are different so what might work best for me won’t be best for the next person.

SimpliFi!

SimpliFi was developed to provide lower and middle income users the access to financial planning that higher income users receive from professional financial advisors.  The company is a registered Investment Advisor with the SEC

As the title suggest it is very basic.  You input your basic finances of the things you own, things you owe, and things that grow.  With this information it formulates a financial “grade” of A+ to F.  It will give you an I if incomplete and N if you spend more than you earn.  I received a C.  Obviously, not a major surprise as I know my finances need some work.

There are 5 areas “Sophie”, the “advisor” grades you on:  Retirement, Goals, Debt, Life Insurance, & Spending Plan.

Retirement – this area tells you how much you are contributing (self + company match) and at what age you plan to retire then what return you would need each year to achieve this retirement goal. It also gives you an asset allocation in order to achieve that percentage.  It does not advise on different types of retirement accounts (Roth or traditional IRA, 401k, etc) that might be best.  But as a general overview of retirement assets it is very good.

Goals – After digging around a bit I found how to add goals to your financial plan. You can add savings for a house, child, marriage, school, vacation, vehicle, etc. For example, you input the annual amount you might need for a vacations then tells you what you will need each month to meet this goal.  However, it does not show you how far along you are towards saving for the vacation or home (at least that I have found). I wish you could input how much you are already putting towards savings for these goals I could see my progress.

Debt – Pretty self explanatory.  You list all your debt balances, payment amount, interest rates then it will give you the estimated number of months it will take to pay off using the “debt snowball”.  You can also see how much that will change by paying more towards your debt each month.  They also give the option of consolidating your debts through a home equity line or personal loan and what savings there might be.

Life Insurance – This area advises you on how much total life insurance is necessary to cover major expenses (motgage, education, funeral, childcare) were something to happen to the major bread winner. One thing I have learned is that you want to make sure your family’s debt obligations are taken care of but also enough insurance to cover the family for years to come since there will be a major loss in income.  As it is just the dog and myself at this point the long term insurance provided through work is sufficient.

Spending Plan – This is your basic income statement which I took directly from Mint.com.  Basically shows you how much extra you have to put towards debt repayment, retirement, savings, etc.  There is nothing fancy here and your budget software programs will be much more helpful.  But in order to give you a financial “grade” this information is necessary.

F.I.T & GET Plans

FIT (Financial Improvement Tasks)

• Credit Card Debt – This area tells you your effective interest rate across all credit cards, monthly interest costs, and how many months until you are debt free.

• Build Emergency Fund – Suggests an emergency fund amount and how much you are over/under and what it would take each month to each this goal over X number of months. It also gives you the interest earned each month.

• There are also reports on Insurance, Retirement, & goals you set for yourself (vacation savings, house savings, etc)

GET plans (Goal Execution Tasks)- Basically a summary of your retirement plan and how long it will take at different dollar amounts being put away.

So What Did I Think???

It is just a basic tool to help you prepare for long term financial planning.  I did not find anything extremely unique about this website but since it is only the beta edition and looking for user feedback, we shall how the website grows.  As I said I would like to be able to submit how much I am saving towards a specific goal and see how far along I am.  Or even how major life changes could affect my total financial picture.  It also does not suggest any specific products which I kind of like.  It is not importing specific items from any of your accounts so security is not as much of a concern as with the budgeting websites and since you are inputting the amounts, you will not need to worry about accounts not linking.  I did really like that it is very user friendly and there are not too many bells and whistles which can often become overwhelming and frustrating.

I will be reviewing Plan With Voyant next which does provide many of the “extras” but will these “extras” just make my financial life more complex??

I’ve felt content.

Contentment is not usually a bad thing. In fact, it can be a very healthy emotion.

But not for me. I need to stay hungry, stay motivated.

Here’s what’s been working for me to stay motivated even when things are going well.

Things That Keep Me Motivated

1. Music

For me, it’s rap music. I’m a middle class raised white kid from the suburbs…but there is something about certain rap songs that really get me going. For others maybe it’s classical or hard metal.

Put on some music that motivates you.

2. Coffee/Red Bull

For better or worse, coffee makes me want to work to take over the world. It really puts a fire in me to keep reaching for higher goals.

It’s also a drug, so be careful and use it wisely.

3. My Family

Think you’re sitting pretty because you have a $1000 emergency fund?

That’s not good enough. What about your kid’s college fund? Or what about that vacation you and your wife really need?

For me…if I think I’m doing good enough and can chill for the day…I think of my mother and how much I still owe her, and how even if I pay her back tomorrow, she will need my support the rest of my life.

4. Bling

A new car. A new house. A new phone. Whatever motivates you to work harder and stash away your cash can be a good motivator. For me it’s the thought, “Could I buy a house for cash right now? No? OK, back to work…”

5. Being Debt Free

Millions of people live under the dark cloud of debt. For me, I can’t wait until the day I have my debt free party. Let the sparkling cider flow!

What do you think?

What motivates you to keep grinding even if things are going well?

If there are any Star Trek fans in the house, you’ll remember from “Generations” that “the nexus” was pretty sweet. So you can only imagine what a great nexus would be, right?

Greatnexus got me thinking: are side projects worth it?

I blog here yes, but that is more of a side project for me. But I’m always coming up with other side project ideas. And I would say only about 1 in 10 of them have worked out for me.

So are side projects worth it?

Oh heck yes.

If you don’t even try, you never have the chance to succeed. So long as a side project doesn’t hinder your main work, I think they are totally worth it.

In fact, I’m working on a side project right now I hope to show off in a couple of weeks. It hasn’t been taking up a ton of my time, but it’s been fun, and I think it has some potential.

They made it seem so stinking easy in that darn class. Take the net present value of future cash flows at a certain discount rate and viola! A nice tidy business valuation.

The reality is that a business, especially a small business, is incredibly difficult to value and that it is really only worth what someone is willing to pay for it.

I’ve been thinking about this a bit lately because at some point, when doing my balance sheet, I need to come up with a valuation for my small business. I’ve really worked hard on working myself out of the business as much as possible the last 6 months and it’s getting to a point where I could really have one person run it and not really be involved at all. Which is great, because one of thing that kills small business valuations the most is that the equity and value in the business is all tied up in the owner.

So, at some point I will add a line on my balance sheet for my business. It just doesn’t seem to make sense not too anymore.

Someday I think I’d love to buy undervalued businesses and try and flip them like houses. I think that could be really a ton of fun. But that is a ways off.

Improve my net worth by 200K

Money Goals

• Max out $12,000 in payback to Mother
• Pay off IRS Debt ($30,000)
• Pay off car ($10,500)
• Settle old business debts (86,000)
• Save $70,000 for house down payment (20% of 350,000)
• Buyout old investors in my corp ($63,000)
• Large emergency fund ($20,000)
• Hire part-time employee to full-time ($55,000/yr)

Personal Goals

• Get Private Pilot’s License
• Develop long term romantic relationship
• Bench Press 225 (1 rep)
• Take (1) 7 day vacation somewhere exotic and relaxing
• Take (5) 3 day mini-frugal getaways

I’m feeling ambitious right now. The last few months of 2008 went well, and I don’t see any reason I can’t continue that success into this year.

I have other personal goals as well not listed, but those are just for me.

What’s your big hairy goal for 2009?

Da-da, duh-da-da-duh…

Even though I haven’t played the original Zelda for at least 5 years, every once in a while a Zelda song pops into my head. Then yesterday, as I was walking out of my apartment, I realized my building layout was very similar to an underground dungeon. It got me thinking about all the lessons I learned in that game that now apply to my small business:

1. Take advantage of technology

Link doesn’t fight with his fists. He uses swords, shields, heck, even magic candles. Do you have a magic candle? You should.

Business takeaway: The web offers a plethora of tools (many free) to grow your business. From openoffice to firefox, there are countless tools available to improve your productivity and increase sales.

2. Explore your world

Link didn’t just sit on his butt while Zelda (aka financial success) was held captive. He got out there, explored dungeons, burned trees, walked across water, pretty much did whatever he could to improve his situation.

Business takeaway: Never be content with where your business is at. Always be exploring new opportunities and customers.

3. Trade up. In other words: save the Lexus for later

Link doesn’t start off with the best sword. He starts with a crappy wooden sword that he gets for free from some crazy Moses like dude flanked by burning bushes. As you gain experience and Rupees in the game you eventually can ditch your wooden sword. You don’t need the best sword to defeat the early dungeons in Legend of Zelda.

Business takeaway: Need business furniture? Go to craigslist. Once you IPO…then you can think about buying new furniture. And if an old crazy dude gives you a sword….always take it.

4. Save up for gadgets

As far as I recall, there were no credit cards in the Legend of Zelda. Everything was paid for in cash (aka Rupees).

Business takaway: There are times when credit is necessary, but if you can earn your Rupees and save up, it’s the best option.

5. Outsource repetitive tasks

In the rocky hills of Hyrule there are bunch of spider guys with loads of blue Rupees inside them. If you were low on the gems you could always hit that spot up for coins. And if you took a tunnel to another part of the map and came back, the Rupee loaded spiders would be there again. Rinse, repeat, get rich. This was a boring task, but it paid off.

Business takeaway: If you can outsource any repetitive or basic tasks (ie, killing the spiders), do it. As you scale your business these small tasks can kill your ability to focus on higher level strategy and more important tasks. Hire freelancers at elance and getafreelancer to kill your spiders, so you can focus on how to get to Ganon.

6. Shop Around

Do you remember where all the cheap stores in Hyrule were? I do. Why would I pay 10 coins for a candle when I could get it for 5 somewhere else? If you don’t know where the cheap shops are, you’ll get ripped off.

Business takeaway: It always pays to shop around. Services and vendors can often be negotiated in the business to business world. It never hurts to ask for a discount.

7. When all else fails…start bombing.

You’ve been stuck in a dungeon for hours. You can’t find the boss. What do you do? Start bombing. Bomb every friggin’ wall you can.

In business: When your stuck on a project, or client, don’t give up. Bring out your best weapons and start going to town. Test every aspect (dungeon wall) of your business with fire. If it’s not working, burn it down and start fresh. You never know what a good burn will reveal.