It has been exactly 6 months since my last real post. A lot has happened during that time.
Most recently Linds and I have started to embrace the ideas of minimalists. We are not planning on moving into the woods and living with the wildlife, so no need to worry. I look around the house and see all of the “stuff” and think “Why do I need this?”. I can admit that many purchases I have made over the years have not been out of need or function, but simply out of the desire to impress myself or others. When I started to take stock of a lot of this “stuff”, I was surprised at the emotion that is attached to some of these things. Why should getting rid of a movie, a game, or whatever be so hard? Too often we attach value to something because it reminds us of a good memory. I have wonderful memories and pictures of the trip Linds and I went on to Europe after high school. But why does that make me hold on to a half used bottle of cologne from France (that does not smell that good anyway)? I am learning and accepting that the value added to my life is not the stuff but the experiences.
The plan is to reduce the clutter down to the “stuff” that we use, value, and/or serves a purpose. The second and more challenging part will be to keep the “stuff” to a minimum.
I am hoping that with the house simplified, the other parts of our lives will be easier to manage. It always seems to be easier to stick to a budget, a workout/training plan, or a meal plan when you come home and it is clean and neat.
This weekend will be a yard sale, trip to the dump and goodwill, and then hopefully some re-focusing on the budget, training, and cooking plans.
With focus being the goal, I think that ……………..Oh look a squirrel!
The most wasted of all days is one without laughter. ---e. e. cummings
counter
Tuesday, July 9, 2013
Wednesday, January 16, 2013
Tuesday, January 8, 2013
My Truck kept my key and my wife took my money....No wait, reverse that!
“Sometimes grace comes as a punch in the face”-Mary Elder
This past week has been full of excitement for Lindsey’s marathon and our upcoming Disney trip. I let R watch the Disney promo DVD that we got in the mail last year. R must have watched it 10 times on Sunday! She is pumped. The last few days have also been filled with getting back into some routines that were let go during the holiday season. Workouts, grocery shopping, and meal planning have are getting back on track. I still have not made it back in the pool, but I know that will be coming.
Yesterday, R stated that she was big enough to ride all of the rides at Disney so we decided to test her theory. She is not quite tall enough to make it on all the rides, but she has grown about 2 inches since August! Linds had to get her some new pants to make sure she was not sporting high waters.
In the prep for our trip, I dropped the truck off for scheduled maintenance on Monday Morning. Little did I know that based on my mileage and wear, I needed not only an oil change and tire rotation, but a timing belt, water pump, brake pads, routers, and a battery! $1,675 later I am contemplating selling a kidney on e-bay. This morning got going with another speed bump. I got in my truck this morning to realize that my key was on Lindsey’s key ring since she picked up the truck yesterday! Oh Joy. So, Lindsey being very sweet, drove all the way across town after the school day for her had started to return my key.
Now, this is certainly a test in patience and resilience. It would be very easy to become depressed, but as a VanWilder says: “its like a rocking chair. It gives you something to do, but it does not get you anywhere.” So I am taking this as a wakeup call that I need to tweek my organization and budgeting.
This past week has been full of excitement for Lindsey’s marathon and our upcoming Disney trip. I let R watch the Disney promo DVD that we got in the mail last year. R must have watched it 10 times on Sunday! She is pumped. The last few days have also been filled with getting back into some routines that were let go during the holiday season. Workouts, grocery shopping, and meal planning have are getting back on track. I still have not made it back in the pool, but I know that will be coming.
Yesterday, R stated that she was big enough to ride all of the rides at Disney so we decided to test her theory. She is not quite tall enough to make it on all the rides, but she has grown about 2 inches since August! Linds had to get her some new pants to make sure she was not sporting high waters.
In the prep for our trip, I dropped the truck off for scheduled maintenance on Monday Morning. Little did I know that based on my mileage and wear, I needed not only an oil change and tire rotation, but a timing belt, water pump, brake pads, routers, and a battery! $1,675 later I am contemplating selling a kidney on e-bay. This morning got going with another speed bump. I got in my truck this morning to realize that my key was on Lindsey’s key ring since she picked up the truck yesterday! Oh Joy. So, Lindsey being very sweet, drove all the way across town after the school day for her had started to return my key.
Now, this is certainly a test in patience and resilience. It would be very easy to become depressed, but as a VanWilder says: “its like a rocking chair. It gives you something to do, but it does not get you anywhere.” So I am taking this as a wakeup call that I need to tweek my organization and budgeting.
Tuesday, January 1, 2013
Happy New Year
Happy New Year!
I have a feeling that this is going to be my best year! 13 has always been a good number for me. The year has already started out very exciting. I signed up this morning for the Bone Island ironman distance triathlon on January 4th 2014. This will be my first ironman distance triathlon, which consists of a 2.4 mile swim, 112 mile bike, and a 26.2 mile marathon.
While Bone Island taking my training into the end of the year for 2013, Linds is kicking off 2013 with her own huge goal. In 12 days Linds will be running the Disney Marathon! This will be her first full marathon and I am so incredibly proud and excited.
As many people do on New Year's Day we did a lot up cleaning up and refreshing around the house to start the year off on the best foot. As part of this, we took apart R's toddler bed and set up her first double bed! The monitor is gone, as is the diaper genie. In a way it is sad that she is growing up so fast, but it is also very exciting. R is so happy. I will also be getting back on the training wagon this evening with an easy paced run. I have been slack for the last two months since Beach-2-Battleship, but it is time to get moving again. For one, the spring will be here before I know it. Second, my pants are starting to get a little too tight!
So, for 2013 my goals are to keep life simple, be more consistent with my workouts, and enjoy everyday. 2013 will be better that good!
I have a feeling that this is going to be my best year! 13 has always been a good number for me. The year has already started out very exciting. I signed up this morning for the Bone Island ironman distance triathlon on January 4th 2014. This will be my first ironman distance triathlon, which consists of a 2.4 mile swim, 112 mile bike, and a 26.2 mile marathon.
While Bone Island taking my training into the end of the year for 2013, Linds is kicking off 2013 with her own huge goal. In 12 days Linds will be running the Disney Marathon! This will be her first full marathon and I am so incredibly proud and excited.
As many people do on New Year's Day we did a lot up cleaning up and refreshing around the house to start the year off on the best foot. As part of this, we took apart R's toddler bed and set up her first double bed! The monitor is gone, as is the diaper genie. In a way it is sad that she is growing up so fast, but it is also very exciting. R is so happy. I will also be getting back on the training wagon this evening with an easy paced run. I have been slack for the last two months since Beach-2-Battleship, but it is time to get moving again. For one, the spring will be here before I know it. Second, my pants are starting to get a little too tight!
So, for 2013 my goals are to keep life simple, be more consistent with my workouts, and enjoy everyday. 2013 will be better that good!
Monday, December 31, 2012
New Year's Eve
2013, I am ready!! Why? Because it is 2013 of course.
I am in the process of refreshing the blog for 2013. Starting tomorrow, one of my goals is to keep the blog updated on a weekly basis.
See you next year!
I am in the process of refreshing the blog for 2013. Starting tomorrow, one of my goals is to keep the blog updated on a weekly basis.
See you next year!
Thursday, October 11, 2012
Marlin vs. Dory
I love Finding Nemo. This is one of my new favorite movies! I love the theme of letting go of those fears that hold you back.
We are on the countdown to the last and the biggest race of the year! Beach 2 Battleship is next Saturday. This will be a big milestone race for me and a great way to end the season. Beach 2 Battleship consists of a 1.2 mile swim in the intercostal waterway, a 56 mile bike ride, and a 13.1 mile run. This is known as a “half Ironman” distance race. It is hard to believe that two years ago, my endurance could only take me 25 yards in the pool, around 5 miles on a bike, and about a ½ mile running.
The strange thing that I have learned in my journey to this point is that much of my obstacles are not my endurance, my knees, the discomfort of 3 hours + on a bike, or the navigating in open water. My biggest obstacles are in my head. Over the last two years of triathlons, I have been forced to face one of my greatest fears, water. Growing up, we went to the community pool a few times each summer. I also took swim lessons for several years during the summer in my elementary schools years. I never really gained a comfort or confidence in the water during these experiences. My mom was also out of school during the summers, so as expected she was the one who was at the pool with me. The problem was that my mom has the swimming confidence of a rock! I say swimming confidence and not skill, because I can’t say I have ever seen my mom try to swim. Every so often, she has gotten in the water, but that is about it. I remember the stories that she almost did not graduate college due to having to pass a swim test. I also remember the confidence inspiring phrase; “don’t go too far, because I can’t save you.” To say that I have a healthy fear of the water may be too soft.
I don’t remember swimming again until the summer after 6th grade at Boy Scout camp. During the first few hours you are there, you have to take a swim test to determine your level. In my defense, the water felt sub-zero. In reality it was probably in the low 70s. The test was to jump in the lake, swim down and back beside the dock twice. I jumped in and almost made it down once before having to be pulled out. The next time I tried to swim…..the next summer at a different Boy Scout Camp. That time, I think fear and adrenaline got me to the end.
Flash forward to freshman year at UNCW. We had about 2 weeks of swimming in PE 101 on Monday, Wednesday, and Fridays. This was 6, 1 hour classes. I think I made it to 4 of these and suffered my way through. Four years later, I was in the water again, but this time it was in Mexico snorkeling. I felt that I would be fine since I had a life jacket, but I still remember feeling nervous before I jumped in.
In summary, I would say my lifetime swimming distance prior to two years ago was less than 500 yards. Like many triathletes, my first experience with the sport was watching the Ironman World Championship on tv. I remember thinking how hard and how cool that looked. The one problem, I could not swim. Over the last two years, I have progressed from struggling to enjoying swimming. I am not fast. Compared to most triathletes, I am very slow. But, the speed will come over time. What has been strange is that no matter how many times I am in the water, I still get that voice in my head that thinks back to childhood that says “you are not good in the water”. I was to the point of almost quitting 1 hour before a race this season because of this voice. Thankfully, I did not quit and finished slow, but fine. This was a victory. The next race, the voice was still there, but a little softer because of my prior race success.
My hope is that I will find my confidence and the voice will disappear forever. I greatly enjoy this crazy sport of triathlon and dream of one day racing Ironman in Kona. But for now, in the words of Dory; “Just keep swimming”.
We are on the countdown to the last and the biggest race of the year! Beach 2 Battleship is next Saturday. This will be a big milestone race for me and a great way to end the season. Beach 2 Battleship consists of a 1.2 mile swim in the intercostal waterway, a 56 mile bike ride, and a 13.1 mile run. This is known as a “half Ironman” distance race. It is hard to believe that two years ago, my endurance could only take me 25 yards in the pool, around 5 miles on a bike, and about a ½ mile running.
The strange thing that I have learned in my journey to this point is that much of my obstacles are not my endurance, my knees, the discomfort of 3 hours + on a bike, or the navigating in open water. My biggest obstacles are in my head. Over the last two years of triathlons, I have been forced to face one of my greatest fears, water. Growing up, we went to the community pool a few times each summer. I also took swim lessons for several years during the summer in my elementary schools years. I never really gained a comfort or confidence in the water during these experiences. My mom was also out of school during the summers, so as expected she was the one who was at the pool with me. The problem was that my mom has the swimming confidence of a rock! I say swimming confidence and not skill, because I can’t say I have ever seen my mom try to swim. Every so often, she has gotten in the water, but that is about it. I remember the stories that she almost did not graduate college due to having to pass a swim test. I also remember the confidence inspiring phrase; “don’t go too far, because I can’t save you.” To say that I have a healthy fear of the water may be too soft.
I don’t remember swimming again until the summer after 6th grade at Boy Scout camp. During the first few hours you are there, you have to take a swim test to determine your level. In my defense, the water felt sub-zero. In reality it was probably in the low 70s. The test was to jump in the lake, swim down and back beside the dock twice. I jumped in and almost made it down once before having to be pulled out. The next time I tried to swim…..the next summer at a different Boy Scout Camp. That time, I think fear and adrenaline got me to the end.
Flash forward to freshman year at UNCW. We had about 2 weeks of swimming in PE 101 on Monday, Wednesday, and Fridays. This was 6, 1 hour classes. I think I made it to 4 of these and suffered my way through. Four years later, I was in the water again, but this time it was in Mexico snorkeling. I felt that I would be fine since I had a life jacket, but I still remember feeling nervous before I jumped in.
In summary, I would say my lifetime swimming distance prior to two years ago was less than 500 yards. Like many triathletes, my first experience with the sport was watching the Ironman World Championship on tv. I remember thinking how hard and how cool that looked. The one problem, I could not swim. Over the last two years, I have progressed from struggling to enjoying swimming. I am not fast. Compared to most triathletes, I am very slow. But, the speed will come over time. What has been strange is that no matter how many times I am in the water, I still get that voice in my head that thinks back to childhood that says “you are not good in the water”. I was to the point of almost quitting 1 hour before a race this season because of this voice. Thankfully, I did not quit and finished slow, but fine. This was a victory. The next race, the voice was still there, but a little softer because of my prior race success.
My hope is that I will find my confidence and the voice will disappear forever. I greatly enjoy this crazy sport of triathlon and dream of one day racing Ironman in Kona. But for now, in the words of Dory; “Just keep swimming”.
Thursday, August 9, 2012
A Journey in Personal Finance: part 1
Debt. It is amazing how this one word can start conversations and debates that last forever. There are hundreds of books on the market on personal finance. How to budget, pay off debt, live debt-free, file bankruptcy, gain wealth, become a millionaire by working from home, and the list goes on and on. All of these books and systems are written by smart people. Some are financially educated, there are also the “learn from my mistakes” people, and there are the pure sales and marketing people. The ironic part for me is that all of these books and financial education cost money. So, this industry is making its money on exactly those that don’t have it to spend.
Debt has been around for centuries. But with technology, over the last 30 years in the United States debt has become an epidemic. The two sides of the fence both blame each other. The financial industry argues that personal responsibility should be the focus, where the consumers argue that deceptive lending practices and fees are the cause. As with many topics, there is truth on both sides in addition to false information.
I believe that personal debt is a lifestyle choice. We as people have the choice to go into debt to buy anything, a house, car, education, furniture, vacations, electronics, food, etc. Anything that you can thing of can be purchased on credit. The easy answer to staying out of debt is to only purchase that which you have the cash to pay for. But is that practical or even possible in the United States today?
In order to drive a car on the road as a teen driver in NC, you are required to pass a driver’s education course, a driving test, a sign test, a written test, and prove that you have liability insurance coverage in the event that you cause damage. In order to get a credit card, in some cases you simply need to be 18 years old and be able to sign your name. I like the personal responsibility argument, but I believe that the financial industry does not seem to understand or care that in order to claim personal responsibility, the person needs to have a fundamental understanding of the consequences of their actions.
I have a 3 year old and there are those times as a parent that I have to intervene in order for her to stay safe. If she is running in the driveway and gets too close to the road, I make sure to pull her back. I then try and explain that there are cars in the street and they could hurt her if she got hit. She will now say, “Daddy hold me. There are cars and if we get hit we will get a boo-boo and have to go to the hospital.” Simple, but she gets it. As consumers, why don’t we have the education to know that if we finance something we buy, that there is interest and fees, and interest rate increases if we are late on the payment?
According to jumpstart.org, currently there are only 4 states in the US that require at least one semester in personal finance in order to graduate. These are Utah, Missouri, Tennessee, and Virginia. There are several states that have personal finance worked into other areas or as electives, but there are still 26 states that have no requirement that personal finance is taught as part of the curriculum. Since financial education it not taught in more than half the country’s public schools, how do most people learn about personal finance? Unfortunately so often the case, it is by trail and error.
With no formal unbiased instruction, we as Americans are left to figure out personal finance on our own. Have you ever tried to learn a new sport, craft, or do-it-yourself project without someone to show you the right way to do it? Most of the time you end up developing bad habits or form, or have to complete repairs too early due to poor prep. Our personal finance is the same way. The difference is that a poor golf swing or drywall finishing technique may cost you a few extra hours of labor or strokes. A poor understanding of personal finance can lead to debt collectors, bankruptcy, not being able to retire, foreclosure, divorce, and too often depression and suicide.
The goal in writing this is to provide people with an understanding of how the system works for and against you, and how to live a more informed life. It would be ridiculous to assume that people will stop using credit all together as some famous financial personalities would have you do. The reason is that credit at its core can be good. Think of it as it relates to food. All of the diet fads that have you remove carbs, or fat, or sugar all claim big results. But, nobody ever has long term success because it takes all of these to maintain a healthy nutritional balance. Credit, as part of a healthy financial plan is good.
The first step in this journey is to understand that most people have a motive that does not involve helping you as a individual. If that was their only motivation, either you would not be able to afford their services, or they are doing this on a volunteer basis. The fact is that almost everyone giving out financial advise has someone to answer to. People are accountable to sponsors, producers, corporate quotas, commissions, and their own greed. They are happy to give you advise, but understand they know the hand that feeds them.
Teaching personal finance takes a two sided approach. We need to teach our children and youth about personal finance in order for them to develop good habits and a understanding of the system. In addition, those who already have experience with personal finance need to be educated on what they learned on their own so that bad habits can be corrected.
So, lets get started.
Personal finance at its core is debits (-) and credits (+). Debits being those things that you spend and credit being money you make. To win the game, your goal is to have your credits exceed your debits. The math is the easy part. The hard part is the psychology. When we get the “I wants” we too often find a way for the numbers to “work for us”. This is when we start loosing ground. Lets look at an example.
John starts his first job at Save-A-Lot in the management training program making $25,000 gross. He is single and has a roommate that he can split the rent with. John has no credit established as he does not have a credit card and his car is an older model that his parents bought him in high school. This is what John’s monthly financial statement looks like:
Gross Income: $2,083.33
Taxes: $624.99
Insurance: $150.00
401k $104.16
Net Income: $1,204.18
Expenses:
Rent & utilities:$450.00
Food: $120.00
Gas: $150.00
Savings: $180.00
Personal Hygiene $50.00
Car Insurance: $75.00
Entertainment $100.00
Cell Phone $50.00
Misc. expenses: $29.18
John has a good plan. He is starting to build a savings balance that will serve first as an emergency fund in the event that a large expense comes up or he loses his job. The fund should be 3-6 months worth of expenses. In John’s case his emergency fund needs to be between $3,522.54 and $6,7,045.08. How did I get this number? I used John’s net income of $1,204.18 subtracted his monthly savings and added back his health insurance. If John lost his job, he would still need basic insurance but he would not need to worry about putting money into savings.
Does John need credit? Answer: not yet. Some would say that this is a good time to establish credit with a small credit card. That way when it comes time for a newer car, John will have a good credit score and will be able to get a good rate. The reality is that we tend to buy much earlier than is needed.
The Trap:
John has a good job, is making money, and thinks; “you know, this car has a lot of miles on it and I do not have enough in savings for a big repair if that comes. And besides, the dealership is running some great year end deals with 72 month 0% financing. A new car would have a warranty, so if something went wrong, I would be covered.” So, off to the dealership John goes. The sales person is very nice and makes John feel great that he has a good job that will have an increasing salary since he will be management soon. The sale person shows John a few models and points out all the “new” features. John is amazed because his current car still has an 8 track and towels as seat covers. The salesman then explains that if John buys today that he can get the car with no money down. This is great! John has only been savings for 4 months so he would rather keep his savings of $720.00 in the bank. The finance officer has John fill in the credit application after John has already been drooling over the car for the last hour. The officer then explains that since John does not have any credit he will not qualify for the 0% financing. John is devastated. He has already texted his roommate bragging about his new ride and posted a picture on facebook. The financial officer explains that he can “help John out” and get him financing at for his new car for 72 months at $362 per month on the $19,000 price tag. The payment is a lot higher than John was thinking, but he is expecting a raise in 8 months and the new car gets better gas mileage so he will just cut some things back a little to make it work. So, John signs the paperwork and smiles on the way home with his new car. (I wonder if John noticed the 10.99% rate?)
John soon realizes that 30 mpg vs. his old 17 mpg car only makes a difference of $72 per month in gas. So, John has cut all savings from his budget and he is still $110 short. John decides since he was able to get a car, maybe he should mail in the credit card offer he got in the mail in order to fill the gap until his promotion. The credit card application is approved at 23% interest, and John decides to only put his gas cost on it.
As expected, John’s raise comes in 8 months. John’s salary has increased to $35,000 with his new title of Jr. Manager. John decides to evaluate his budget.
John’s monthly financial statement looks like:
Gross Income: $2,916.66
Taxes: $874.99
Insurance: $150.00
401k $145.83
Net Income: $1,745.84
Expenses:
Rent & utilities:$450.00
Food: $120.00
Gas: $80.00
Car: $362.00
Credit card $30.00 ($20 over the minimum)
Savings: $200.00
Personal Hygiene $50.00
Car Insurance: $75.00
Entertainment $200.00
Cell Phone $50.00
Misc. expenses: $128.84
John decided that it was time to restart his savings after draining it down to help cover expenses after buying the car. John’s balance sheet now looks like this:
Assets:
Car: $16,875 (800 miles per month for 8 months: 6,400 total miles)
Savings: $200.00 (after this months payment)
Total: $17,075
Debts:
Credit Card: $620 (making the minimum payment for the last 8 months, which only paid the interest a little of principal)
Car Loan: $17,450
Net worth: -$995
John is not happy, but he knows that things will start looking up now that he is paying more on the credit card balance. One week later, John gets some great news! His roommate got engaged and the bachelor weekend is going to be in Vegas! John quickly books his fly and hotel on the credit card because he can’t miss his roommate’s party. The credit card that had a limit of $2,000 is now at $1,500 with the addition of the trip. John is concerned that he may go over his limit on the trip, so he calls the bank and since John has been making his minimum payments for the last 8 months, they gladly up the limit to $5,000. John knows that will be more than enough.
John returns from Vegas with a credit card balance of $2,400. He is very glad he had the limit increased. As John is making a plan as to how to begin paying the balance down, it hits him; “If my roommate is getting married, I will need to find a new roommate or my rent will be going up.” John thinks, “I am not in college any more and I don’t want a stranger living with me.” John decides to pay to rent by himself. Now John’s budget looks like this:
Net Income: $1,745.84
Expenses:
Rent & utilities:$900.00
Food: $120.00
Gas: $80.00
Car: $362.00
Credit card $50.00 ( the new minimum payment, balance of $2,400)
Savings: $0.00 (total savings balance $200.00)
Personal Hygiene $50.00
Car Insurance: $75.00
Entertainment $50.00
Cell Phone $50.00
Misc. expenses: $8.84
After one year on the job, John is on the same road as many Americans. Living month to month with little to no savings, credit card balances, an upside down car loan, and stress trying to keep up.
Let’s now look at John’s twin brother Jimmy. Jimmy also being in the management training program driving a 1993 Chevy Corsica has a lot in common with John. Jimmy decided that he was going to live by himself early on due to most people not understanding his hobby of collecting porcelain cats. Jimmy found a small one bedroom apartment in a safe but older area from $500 a month. Jimmy budget looks like this:
Gross Income: $2,083.33
Taxes: $624.99
Insurance: $150.00
401k $104.16
Net Income: $1,204.18
Expenses:
Rent & utilities:$500.00
Food: $120.00
Gas: $150.00
Savings: $125.00
Personal Hygiene $50.00
Car Insurance: $75.00
Cat collection $100.00
Cell Phone $50.00
Misc. expenses: $34.18
Jimmy hears John talk about his new car after they have both been working for 4 months. Jimmy knows that his car is a piece of junk and no ladies will ride in it, but he also understands that based on his current income, his money is best put in savings. As the year goes by, Jimmy continues to save and get mocked in the parking lot by John and John’s roommate from John’s new car for the P.O.S. that Jimmy is driving. Jimmy quickly fires back that if they don’t stop the porcelain “witch” cat that he just got off of craigslist will cast a spell on him.
John decides to make peace with Jimmy after they both get promoted to Jr. Manager by inviting Jimmy to Vegas. Jimmy thanks him for the offer and looks at his financials.
Net Income: $1,745.84 (after raise
Expenses:
Rent & utilities:$500.00
Food: $120.00
Gas: $150.00
Savings: $500.00
Personal Hygiene $50.00
Car Insurance: $75.00
Cat Collection: $100.00
Cell Phone $50.00
Misc. expenses: $200.84
Assets:
Car: $1 (basically worthless)
Savings: $2,000.00 (after this months payment)
Total: $2,001.00
Debts:
Zero
Net worth: $2,001.00
Jimmy knows that his beloved 1993 Chevy will not make it much longer, so he decides to stay at home. This was a hard decision as Jimmy was glad to feel included, but he knew he did not need to spend the money.
………………………………………………………………….
What will happen next to John and Jimmy? Find out with the next post.
Debt has been around for centuries. But with technology, over the last 30 years in the United States debt has become an epidemic. The two sides of the fence both blame each other. The financial industry argues that personal responsibility should be the focus, where the consumers argue that deceptive lending practices and fees are the cause. As with many topics, there is truth on both sides in addition to false information.
I believe that personal debt is a lifestyle choice. We as people have the choice to go into debt to buy anything, a house, car, education, furniture, vacations, electronics, food, etc. Anything that you can thing of can be purchased on credit. The easy answer to staying out of debt is to only purchase that which you have the cash to pay for. But is that practical or even possible in the United States today?
In order to drive a car on the road as a teen driver in NC, you are required to pass a driver’s education course, a driving test, a sign test, a written test, and prove that you have liability insurance coverage in the event that you cause damage. In order to get a credit card, in some cases you simply need to be 18 years old and be able to sign your name. I like the personal responsibility argument, but I believe that the financial industry does not seem to understand or care that in order to claim personal responsibility, the person needs to have a fundamental understanding of the consequences of their actions.
I have a 3 year old and there are those times as a parent that I have to intervene in order for her to stay safe. If she is running in the driveway and gets too close to the road, I make sure to pull her back. I then try and explain that there are cars in the street and they could hurt her if she got hit. She will now say, “Daddy hold me. There are cars and if we get hit we will get a boo-boo and have to go to the hospital.” Simple, but she gets it. As consumers, why don’t we have the education to know that if we finance something we buy, that there is interest and fees, and interest rate increases if we are late on the payment?
According to jumpstart.org, currently there are only 4 states in the US that require at least one semester in personal finance in order to graduate. These are Utah, Missouri, Tennessee, and Virginia. There are several states that have personal finance worked into other areas or as electives, but there are still 26 states that have no requirement that personal finance is taught as part of the curriculum. Since financial education it not taught in more than half the country’s public schools, how do most people learn about personal finance? Unfortunately so often the case, it is by trail and error.
With no formal unbiased instruction, we as Americans are left to figure out personal finance on our own. Have you ever tried to learn a new sport, craft, or do-it-yourself project without someone to show you the right way to do it? Most of the time you end up developing bad habits or form, or have to complete repairs too early due to poor prep. Our personal finance is the same way. The difference is that a poor golf swing or drywall finishing technique may cost you a few extra hours of labor or strokes. A poor understanding of personal finance can lead to debt collectors, bankruptcy, not being able to retire, foreclosure, divorce, and too often depression and suicide.
The goal in writing this is to provide people with an understanding of how the system works for and against you, and how to live a more informed life. It would be ridiculous to assume that people will stop using credit all together as some famous financial personalities would have you do. The reason is that credit at its core can be good. Think of it as it relates to food. All of the diet fads that have you remove carbs, or fat, or sugar all claim big results. But, nobody ever has long term success because it takes all of these to maintain a healthy nutritional balance. Credit, as part of a healthy financial plan is good.
The first step in this journey is to understand that most people have a motive that does not involve helping you as a individual. If that was their only motivation, either you would not be able to afford their services, or they are doing this on a volunteer basis. The fact is that almost everyone giving out financial advise has someone to answer to. People are accountable to sponsors, producers, corporate quotas, commissions, and their own greed. They are happy to give you advise, but understand they know the hand that feeds them.
Teaching personal finance takes a two sided approach. We need to teach our children and youth about personal finance in order for them to develop good habits and a understanding of the system. In addition, those who already have experience with personal finance need to be educated on what they learned on their own so that bad habits can be corrected.
So, lets get started.
Personal finance at its core is debits (-) and credits (+). Debits being those things that you spend and credit being money you make. To win the game, your goal is to have your credits exceed your debits. The math is the easy part. The hard part is the psychology. When we get the “I wants” we too often find a way for the numbers to “work for us”. This is when we start loosing ground. Lets look at an example.
John starts his first job at Save-A-Lot in the management training program making $25,000 gross. He is single and has a roommate that he can split the rent with. John has no credit established as he does not have a credit card and his car is an older model that his parents bought him in high school. This is what John’s monthly financial statement looks like:
Gross Income: $2,083.33
Taxes: $624.99
Insurance: $150.00
401k $104.16
Net Income: $1,204.18
Expenses:
Rent & utilities:$450.00
Food: $120.00
Gas: $150.00
Savings: $180.00
Personal Hygiene $50.00
Car Insurance: $75.00
Entertainment $100.00
Cell Phone $50.00
Misc. expenses: $29.18
John has a good plan. He is starting to build a savings balance that will serve first as an emergency fund in the event that a large expense comes up or he loses his job. The fund should be 3-6 months worth of expenses. In John’s case his emergency fund needs to be between $3,522.54 and $6,7,045.08. How did I get this number? I used John’s net income of $1,204.18 subtracted his monthly savings and added back his health insurance. If John lost his job, he would still need basic insurance but he would not need to worry about putting money into savings.
Does John need credit? Answer: not yet. Some would say that this is a good time to establish credit with a small credit card. That way when it comes time for a newer car, John will have a good credit score and will be able to get a good rate. The reality is that we tend to buy much earlier than is needed.
The Trap:
John has a good job, is making money, and thinks; “you know, this car has a lot of miles on it and I do not have enough in savings for a big repair if that comes. And besides, the dealership is running some great year end deals with 72 month 0% financing. A new car would have a warranty, so if something went wrong, I would be covered.” So, off to the dealership John goes. The sales person is very nice and makes John feel great that he has a good job that will have an increasing salary since he will be management soon. The sale person shows John a few models and points out all the “new” features. John is amazed because his current car still has an 8 track and towels as seat covers. The salesman then explains that if John buys today that he can get the car with no money down. This is great! John has only been savings for 4 months so he would rather keep his savings of $720.00 in the bank. The finance officer has John fill in the credit application after John has already been drooling over the car for the last hour. The officer then explains that since John does not have any credit he will not qualify for the 0% financing. John is devastated. He has already texted his roommate bragging about his new ride and posted a picture on facebook. The financial officer explains that he can “help John out” and get him financing at for his new car for 72 months at $362 per month on the $19,000 price tag. The payment is a lot higher than John was thinking, but he is expecting a raise in 8 months and the new car gets better gas mileage so he will just cut some things back a little to make it work. So, John signs the paperwork and smiles on the way home with his new car. (I wonder if John noticed the 10.99% rate?)
John soon realizes that 30 mpg vs. his old 17 mpg car only makes a difference of $72 per month in gas. So, John has cut all savings from his budget and he is still $110 short. John decides since he was able to get a car, maybe he should mail in the credit card offer he got in the mail in order to fill the gap until his promotion. The credit card application is approved at 23% interest, and John decides to only put his gas cost on it.
As expected, John’s raise comes in 8 months. John’s salary has increased to $35,000 with his new title of Jr. Manager. John decides to evaluate his budget.
John’s monthly financial statement looks like:
Gross Income: $2,916.66
Taxes: $874.99
Insurance: $150.00
401k $145.83
Net Income: $1,745.84
Expenses:
Rent & utilities:$450.00
Food: $120.00
Gas: $80.00
Car: $362.00
Credit card $30.00 ($20 over the minimum)
Savings: $200.00
Personal Hygiene $50.00
Car Insurance: $75.00
Entertainment $200.00
Cell Phone $50.00
Misc. expenses: $128.84
John decided that it was time to restart his savings after draining it down to help cover expenses after buying the car. John’s balance sheet now looks like this:
Assets:
Car: $16,875 (800 miles per month for 8 months: 6,400 total miles)
Savings: $200.00 (after this months payment)
Total: $17,075
Debts:
Credit Card: $620 (making the minimum payment for the last 8 months, which only paid the interest a little of principal)
Car Loan: $17,450
Net worth: -$995
John is not happy, but he knows that things will start looking up now that he is paying more on the credit card balance. One week later, John gets some great news! His roommate got engaged and the bachelor weekend is going to be in Vegas! John quickly books his fly and hotel on the credit card because he can’t miss his roommate’s party. The credit card that had a limit of $2,000 is now at $1,500 with the addition of the trip. John is concerned that he may go over his limit on the trip, so he calls the bank and since John has been making his minimum payments for the last 8 months, they gladly up the limit to $5,000. John knows that will be more than enough.
John returns from Vegas with a credit card balance of $2,400. He is very glad he had the limit increased. As John is making a plan as to how to begin paying the balance down, it hits him; “If my roommate is getting married, I will need to find a new roommate or my rent will be going up.” John thinks, “I am not in college any more and I don’t want a stranger living with me.” John decides to pay to rent by himself. Now John’s budget looks like this:
Net Income: $1,745.84
Expenses:
Rent & utilities:$900.00
Food: $120.00
Gas: $80.00
Car: $362.00
Credit card $50.00 ( the new minimum payment, balance of $2,400)
Savings: $0.00 (total savings balance $200.00)
Personal Hygiene $50.00
Car Insurance: $75.00
Entertainment $50.00
Cell Phone $50.00
Misc. expenses: $8.84
After one year on the job, John is on the same road as many Americans. Living month to month with little to no savings, credit card balances, an upside down car loan, and stress trying to keep up.
Let’s now look at John’s twin brother Jimmy. Jimmy also being in the management training program driving a 1993 Chevy Corsica has a lot in common with John. Jimmy decided that he was going to live by himself early on due to most people not understanding his hobby of collecting porcelain cats. Jimmy found a small one bedroom apartment in a safe but older area from $500 a month. Jimmy budget looks like this:
Gross Income: $2,083.33
Taxes: $624.99
Insurance: $150.00
401k $104.16
Net Income: $1,204.18
Expenses:
Rent & utilities:$500.00
Food: $120.00
Gas: $150.00
Savings: $125.00
Personal Hygiene $50.00
Car Insurance: $75.00
Cat collection $100.00
Cell Phone $50.00
Misc. expenses: $34.18
Jimmy hears John talk about his new car after they have both been working for 4 months. Jimmy knows that his car is a piece of junk and no ladies will ride in it, but he also understands that based on his current income, his money is best put in savings. As the year goes by, Jimmy continues to save and get mocked in the parking lot by John and John’s roommate from John’s new car for the P.O.S. that Jimmy is driving. Jimmy quickly fires back that if they don’t stop the porcelain “witch” cat that he just got off of craigslist will cast a spell on him.
John decides to make peace with Jimmy after they both get promoted to Jr. Manager by inviting Jimmy to Vegas. Jimmy thanks him for the offer and looks at his financials.
Net Income: $1,745.84 (after raise
Expenses:
Rent & utilities:$500.00
Food: $120.00
Gas: $150.00
Savings: $500.00
Personal Hygiene $50.00
Car Insurance: $75.00
Cat Collection: $100.00
Cell Phone $50.00
Misc. expenses: $200.84
Assets:
Car: $1 (basically worthless)
Savings: $2,000.00 (after this months payment)
Total: $2,001.00
Debts:
Zero
Net worth: $2,001.00
Jimmy knows that his beloved 1993 Chevy will not make it much longer, so he decides to stay at home. This was a hard decision as Jimmy was glad to feel included, but he knew he did not need to spend the money.
………………………………………………………………….
What will happen next to John and Jimmy? Find out with the next post.
Subscribe to:
Posts (Atom)