by debt kid on October 15, 2009
Crap Happens.
You know the more colorful phrase.
Bad things happen. Sometimes bad things happen because of our stupidity (guilty!), and sometimes bad things happen and that is just life.
“Nothing bad has happened in my life”
I had lunch with a friend today, in his mid twenties, who said, “Nothing bad has really happened in my life”
This isn’t uncommon for people my age. They had great childhoods. They didn’t see a family member struggle with mental illness. They haven’t faced any real major obstacles in their life.
When I encounter someone like this, my reactions split. Part of me feels envious, and the other feels sorry for them. When stuff hits the fan (and it will eventually), how will they handle it?
When it comes to money, some people make mistakes early in life (me!), others get hit with an illness or job loss and have no control over their circumstances.
Mistakes just make us human right?
It’s how we respond to those mistakes that define our paths in life.
I choose not to give up after I had to confront my massive trading losses. I was very tempted to give in. To just run away, and try to avoid the horrific pain I knew would be coming.
I’m glad I faced the fire. I have learned things in the past 3 years that I never would have had I not screwed up so royally.
It’s funny how sometimes our greatest mistakes can turn into the most opportune learning experiences. I know that’s been true in my life, and I imagine it’s better true of many of you as well.
What lessons have you learned when “Crap Happens”?
by Jessica W on October 14, 2009
Sooo…. It turns out, we spent the money in our envelopes, we paid the bills that the cash-flow plan told us to, and we still have money. That is to say, we haven’t bounced any checks, but we’re far from rich. There is one surprise though.
We’re ahead of where we usually are by this time in the month.
I haven’t stomped my feet and given up on the envelopes and the zero based budgeting yet, but yes, it is still scary. Another check came in this week and from it, I just started paying down the list on our cashflow plan (it’s in priority order, so that makes it easy). When the money ran out, I stopped paying, and it gets us 2/3 of the way through the list. Not too shabby. Another check will come in before the end of the month—and before the due dates on remaining planned items.
Plan ahead before starting this system
I’ll caution folks that this might be hard to start off on if, like us, you start your plan on the 1st but don’t get paid until the later. My husbands’ checks come on the 10th and 25th. I wish we’d stashed ourselves a bit of cash before we started on this. My income is self-employment income, so the timing is more erratic—depends on how current my clients are staying on their bills.
This does mean that I’ll be paying some items out of priority order simply because of due dates, but it’s no big deal if the phone bill gets paid before the grocery cash gets picked up at the bank—since I know we’ve got enough for both.
Time commitment
This is taking some maintenance time each week, but not nearly as much as I expected. I’d say about 10 minutes a week, though our first budget and cash-flow plan took the two of us a couple of hours to figure out.
How is this new?
The difference between my former method of managing the money and this cash-flow method–is that this truly is a plan. I know exactly what is getting paid based on priorities. It’s not a matter of paying great big payments on the credit cards (and patting myself on the back–only to find out I spent the grocery money), but it’s paying with purpose. There’s no panic or wonder, there’s no stress in it at all. There’s no concern about the fact that our income can fluctuate by as much as $3,000 a month. I simply pay down the list and in order of priority. When there is no more money, I just say “no” and that item isn’t getting paid at this time (the last 1/3 of our list is all debts, so while small payments will get paid in “low” months, I won’t be making giant payments).
It is fortunate for us that we don’t have to worry about not being able to pay something at all–but on this plan, if we were in that position, we’d know exactly where to stop and still be able to support our family.
Overall value
I’m a nerd, and my husband is a free spirit. I always want an extra cushion—and struggle with spending down to the last dime—even if the simple math tells me I can do it. I keep a little more than the plan says in the bank just to ease my mind and get used to the program. My husband doesn’t like to feel constrained to a “plan.” But both of us are feeling good about this program—because he doesn’t have to feel too constrained (the item is either in the budget, or must be put into the budget—at which point, sometimes it’s less important than initially thought). Likewise, I don’t feel too “loose” with the money—paying it all out pretty much right away, because I’m getting used to some of it being in cash, versus in the bank account.
I suggest giving it a try. One thing we love is that we can’t go over budget on the envelope system on a cash budget item (groceries, gas, etc.). It’s working great!
by debt kid on October 12, 2009
Update: I took a trip down to Portland to figure out this carpet mess. We ended up getting a SmartStrand nice Karastan (Division of Mohawk) carpet, installation and removal, 6lb pad, for $4800 for 1300 sq. feet. We used a local company, as they had the carpet in stock, vs. Home Depot, which would have to order it. All in all, I think we did well, and I’m excited about the new carpet. Still spendy though!
My mother is moving back into a rental house that she owns, her only real equity as far as her finances goes.
The house badly needs new carpet.
How much does new carpet cost?
Well, what I’m finding out is that it completely depends. It depends on the carpet mostly. Carpet is like cars. You can get a KIA or you can get a Porshe.
My mother had called empire direct, and I immediately told her to go with someone else (after reading some terrible reviews online). Their price was 4.36 a sq. foot, or 39.24 a sq. yard, including pad and install for what sounded like medium grade carpet. That price is high, right?
From what I’ve read, a decent carpet should run around $20-25 per sq. yard installed. My mother needs about 1500 sq. feet of carpet installed.
What’s been your experience with buying carpet?
by Real Estate Kid on October 7, 2009
Lately I’ve been reading a lot about the different ways people put extra payments towards their mortgage principal in order to pay it off faster and cheaper. You can save literally tens of thousands of dollars in interest payments over the life of the loan by doing this. Check this calculator here. In my case, if I pay $50/month more on my rental property payment, I would pay it off in just under 26 years as opposed to the original 30 years and save myself more than $25k in interest payments. This calculation assumes I started adding to my payment from the beginning of the loan. Imagine if I added $100/month extra, or even more!
There are a few very common ways of doing this:
- paying an extra amount in addition to your regular payment every month
- adding lump-sum payments to the principal balance
- setting up a bi-weekly payment plan
Option #1 is the easiest and most effective to implement in my opinion. You already have your mortgage payment automated (right?) so adding a little extra every month is is to “set and forget”. Option #2 could work well as long as you are able to manage your money well enough to consistently pay down your mortgage principal. If you choose this route, have a plan so you will know when you will pay a lump sum to this debt. This could when you reach a certain threshold in your savings account or you work overtime or receive “unplanned” funds some other way. Option #3 is becoming popular as well but some banks require you to use their service to implement this approach. For this you basically pay your mortgage every 2 weeks which adds an additional “monthly” payment over the course of the year. This works because it is biweekly, not bimonthly, meaning you make 26 payments which are half your normal mortgage payment (effectively 13 monthly payments) as opposed to 12 normal monthly payments.
Too Much Too Soon
Now I would love to start paying off any of my two mortgage or two home equity balances faster than planned. Unfortunately, I have credit card debt to handle first before considering where my extra money will go. This got me thinking of some long term questions since I do not really have a plan in place for my debt after paying off my credit cards.
- When will I be free of non-secured (credit card) debt?
- If I pay it off as I have planned, what will I do with the extra money?
- Invest in retirement?
- Pay off secured (housing) debt?
- Some form of both?
- Purchase another apartment to rent?
With that being said I now consider paying off my credit card debt my medium term debt (~3 years) and I’ve begun to think about my long term goals (>5 years) for after that. I’ll discuss my “master plan” in my next article.
by Jessica W on October 5, 2009
Dear readers. You have permission to call me a coward.
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).
by Jessica W on October 4, 2009
Back in December when I was laid off from my regular 9-5 job and decided to pursue self employment in lieu of reliable income, I did some pretty serious bill slashing.
I called every service provider to our household and demanded a better deal. In all but one instance, I got a better deal. Now for ten months, I’ve been resting on my laurels.
We’ve been in our Financial Peace University (FPU) class for three weeks now so we’re in to budgeting and cash flow, and had to create a zero-based budget. More on this later, but ultimately, it makes me really uncomfortable, so I wanted to whack down our fixed expenses even further.
This week I took a look at all of our expenses from largest (house) to smallest (my gas money—at about $35 a month) and made some likely targets for a better deal. Here are my results.
Newspaper
My husband likes to read the NYT on the ferry to work though, but he doesn’t touch it on weekends. Total cost: $65.00/mo It really was always our intentions to read the weekend papers… but, well, you know where good intentions get you. This week I phoned the circulation desk and asked for a deal. Could I drop the weekend papers? They seldom do this for residential addresses, but they agreed. New cost: $30 a month!
Mobile Phone
I have a contract with my provider. Two lines, two phones with data plans. I use my phone for my business, but rely very little on actual minutes—more on the ability to send/receive data on the road. I checked out the competition with www.billshrink.com and saw that my $260/mo bill wasn’t exactly competitive. Mind you, I’m under contract, so I don’t have a lot of leverage here, but I tried anyhow. I called and asked for a plan “that fit the family better.” And they were happy to oblige—reviewing our past use history, and reducing our bill to $120/mo with no change in service. Just fewer “anytime minutes” (though we’ll still have more than we’ve ever used in a month). Total savings: $140/mo!
Food
We’re a family of four, and food is a major expense. I’ve been tackling this with a series of $1/serving dinner recipes, but have also found that meal planning saves a fortune on food. We’ve literally knocked our weekly grocery bill from $150/week a year ago to $90 a week now (and that’s adding one person and disposable diapers to the expenses!) We don’t waste food due to spoilage. We also batch cook a few “convenience” meals for those days when nobody wants to cook. Total monthly savings $120
It’s amazing the difference that such a few little changes could make! The total monthly savings of these easy changes is actually $295!
by debt kid on October 3, 2009
I’m sitting in my office. It’s nearly midnite on a Saturday night.
No, my girlfriend didn’t break up with me. She did however, go home early tonite because she wasn’t feeling well. We’ve both been dealing with a nasty bug this week that seems to have infected half of Seattle.
I already worked about 5 hours earlier today. My full time employee and I were at Ikea picking up a few odds and ends for my office. We hired a few new part-time workers this last week, and needed to setup a few more workstations. I don’t usually work weekends much anymore, but it feels good.
Sometimes I’m amazed at how quickly things have changed for me. I’m not out of the debt woods yet by any means, but I’ve made some really big strides this year. I sleep better. I have a girlfriend I’m going to propose to in the near future. I have a mattress to sleep on!
Gotta love having a mattress!
A mattress to sleep on in an apartment that’s warm. Do you realize it was just two summers ago that I was sleeping on the floor of my office, and sometimes in my car???!!! Holy smokes. It doesn’t actually seem like that long ago. And yet, at times it seems like ages. It’s weird how some events are like that.
New Project: Coming Next Week
I’ve got a new project in the works that I’m pretty excited to share about with you guys, probably next week. It will be the first one that I can actually share about here, since I’ll be working on it as DK.
What are you happy about?
What are you happy about this weekend?
by bigappledebtor on October 3, 2009
I was talking to a friend who is in a similar financial situation as me. The topic strayed to wanting more money. Being that I have been pretty involved in the personal finance realm since the beginning of this year, my thoughts automatically went to creating a secondary income stream. It dawned on me that said friend is a fantastic cook. Not only does she cook well, she loves to cook for others. I said to her “you know, you could make some money with that.” She gave me all the excuses we give ourselves to prevent change.
How would I find people?
No one would pay.
I don’t have the time.
I don’t have enough pots and pans, etc.
After talking a while, I convinced her that it was something she should pursue especially since she specializes in a type of food that is hard to find in our area. Would you believe that by the end of the day, she had her first gig? Catering for her cousins birthday party. Said cousin was willing to pay $300. I’m really excited for her because knowing how these things work, people at the party will definitely ask who made the food. I’ve advised her to have business cards ready to hand out so she can capitalize on that.. Which brings me to my first point.
Figure out what you would do even if no one paid you.
After giving such great advice {:)}, it only made sense that I should think about how to apply it in my own life. I like to write but it’s not something that pays say $300 in a weekend. It’s also a market that I feel is saturated. I took up photography a little while back and that is what I have decided to focus on. Unfortunately, photography is an expensive hobby so I will have to spend a little to make a lot. However, once I’m comfortable charging for my skill, I can start taking pictures of peoples birthdays and weddings. I like doing this anyway, so getting paid for it is just and added bonus.
Hobbies you can capitalize on
I think the main thing is to pick something you actually like doing for others. If you enjoy cooking, but don’t particularly enjoy making food for a large number of people, catering might not be for you. You don’t want to make money but end up viewing your hobby as a chore. That to me defeats the purpose. I know not everyone can cook or has the money to spend on a camera but there are plenty of other things you could do on the side. Do you like experimenting with makeup? You could get paid for doing makeup at weddings or other formal events (think prom). Are you really handy with a blowdryer and curling iron? Why not do hair for events as well. If you enjoy running, you could start a local running class. Those of you that enjoy academic subjects could tutor. The trick is to capitalize on what you love. This doesn’t have to be your full time job but it could bring in an extra $600 a month which is a great thing in my book.
by bigappledebtor on October 1, 2009
As I mentioned earlier, my debt has dropped quite a bit. I’m not sure if it’s because of that or because of something I read on this blog that made me reconsider my approach to paying down debt. I might have talked about this earlier but it’s a topic I keep coming back to. Ever since I started reading pf blogs, I have contributed a huge percentage of my income to paying down my debt. I did not want to pay a single penny more of interest than I had to. Debt was “bad” and something I had to get rid of as quickly as possible so any money that was not going to essentials was sent straight to Visa or Mastercard.
The Moment of Change
I think my aha moment was when I realized that debtkid still has way more debt than I do but he has substantial savings. I think this is mentioned in the post about his mom. He has $177,266 in debt but on the other hand he has $59,130 in savings. If that were me last week, I’d have put at least $50k towards my debt. Think of all the interest that payment would save me! However, reading that made me realize that I had put myself in a precarious situation. Yes my debt is dropping quickly, but if I lost my source of income, not only would I not be able to pay my day to day expenses (like rent!) but I also would not be able to meet my credit card payment for the next month! Just because I pay much higher than my minimum balance and have been for so long does not give me extra time to pay. On the other hand, if DK’s income for some bizarre reason disappeared, I think he’d be able to live for another 2-5 months and meet his debt obligations.
What this all means
I am dramatically slowing down my debt payments and I’m going to focus on building up my savings. I don’t feel comfortable with only $1k in savings. I’m also going to put more money towards doing things i enjoy now such as travel. Yes, I will pay more in interest but I will consider that extra amount the price of having fun and gaining security. First things first, I’m going to sign up for that photography class I’ve been putting off for almost 5months.
What are you thoughts?
by bigappledebtor on September 30, 2009
Real Estate kid brought you all up to speed on his finances and I figured that since I don’t have a progress bar here I might as well do the same. When I started writing here, I had $55,632.60 in debt. 27.6k were credit cards and 28k were loans. Today, about 3 months later, I’m happy to say that my debt is now $45,765.72. That’s right, almost 10K in 3 months. I have about 17.4K in credit cards and still 28k in loans.
My loans stayed the same not because I didn’t pay on them but because I lost my rebate and my principal increased about $600. I’m really satisfied with this. Before you get too impressed, you should know that this was not totally all my doing. I got some money from my parents which I applied to the debt so that’s part of the reason for such a large decrease. Nevertheless, less debt is less debt!
In terms of earnings, I write for ehow and my earnings have been slowly increasing (emphasis on slowly). It’s nothing to write home about yet but I’m going to write more articles and improve that.
At this rate, I’m looking at being debt free in 3-4 years.
