David On Finance

Well, I only thought that going back to school was a major lifestyle shift. Little did I know that there are much bigger shifts that can happen, such as, say, losing my job. Yes, I’ve not been posting for the past week because I have been using every spare second searching for a new job. Luckily, I was given plenty of notice, and it isn’t due to poor performance on my part; they are divesting the entire R&D arm of our company and about half of us will be lost in the shuffle.

On a not-so-side note, I finally learned what not having a degree means in terms of job availability. Even though I don’t feel the degree really means you know more (and personally will never hire people as if that were true), a lot of companies weed out potential candidates based on that little piece of paper. Oh, if only this were happening two years from now when I will have finished school.

So, this is a pretty shaky month. I had to start working part-time immediately, which reduces my cash flow quite a bit. I’ve made some big cutbacks already, and have more to make. If by next week I do not have a job, I’m going to have to call creditors and see if they’re willing to give me a break while I find a job. I do have a few prospects, and if worse comes to worst I’ll have to move back home and work fast food or something. So I’m not sweating it too much; worrying about it will not get me anywhere. I am, however, allowing it to motivate me to keep looking for jobs. Unfortunately, out of about 500 jobs I’ve looked over, only 2 seemed appropriate for me.

I’m also at a disadvantage because I won’t be able to make what I’m currently making at a lot of places, without that degree. In a small business, I provide a lot of value. In a large business, I’m just another programmer, and the pay scales accordingly. I’m hoping I can transition into a position that pays what I’m making now, and also pay for school still (or put school on hold for the immediate future).

So, some lessons well learned about life and how it throws you all sorts of curveballs. Don’t worry, I’ll come out of this stronger. I now see even higher levels of importance in being debt free and having plenty of savings stockpiled. That will motivate me to try even harder.

On a side note, I’m not allowed to talk about it in detail yet, but let’s just say that Mint.com is going to be an incredibly awesome tool, and will blow every other finance tool out of the water easily.

This has been a nice weekend, full of doing things for free. Well, I bought a haircut, but as far as entertainment goes, I did well! Friday night I was able to see The Bourne Ultimatum for free because I had a free pass (those little rewards cards may add up from time to time). Saturday I was able to catch a high school band camp performance, relive my old band days, and hear some free music. That night I had free pizza from being a 777 contest winner at Papa John’s a month ago. Sunday I did some freelance work and rewatched old DVDs (they’re only economical if you watch them many times).

Then, I had to go screw up the whole weekend by buying a watch. I’ve been looking for a nice watch for about two years now, determined not to buy one until I found one I’d absolutely love. I hate wearing jewelry of any kind, so I’ve been able to resist buying one until I found a good price on this one. So, it’s another small setback, but I think I’m going to list things on Craigslist to counter what I paid. I still have an old dorm fridge and some textbooks that will cover it. I don’t feel bad, because I’ve been monitoring prices forever, and got a pretty stylish watch for under $100. But I should try to defray that expense with sacrificing something else. It’s my goal to stay neutral with the things I buy.

My article about credit unions and consolidation was also included in this week’s Carnival of Debt Reduction over at Finance Psychology. For a slower week, there are some decent articles included, so check it out if you haven’t already!

Wow. Make one post about religious instructions regarding personal finance, and get a slew of personal attacks, unsubscribe notices, and general ignorant vitriol. How bitter are some of these people who commented? The post never said “these are things you should believe”, it simply stated these were some of the reasons the guest blogger handles finances the way he does. After all, personal finance is, well, personal. Why, then, are people making such a big fuss over things? As a Christian, I’m used to this sort of thing all the time. Mention Jesus around people who don’t know him, and the world implodes around you. I love America, this land of free speech. And all the people who wish to censor it.

Should posts like this receive this type of attention? No. We’re supposed to be a society based upon the free exchange of ideas. While you are quite welcome to choose not to hear others’ ideas, and quite welcome to contribute your own ideas, it’s about time you stopped calling for censorship of the ideas you don’t agree with. Like the mafia, some have used the blogger’s version of extortion — cancelling an RSS subscription — to show how much they hate the very idea of talking about God. This is incredible. When I was an atheist, I didn’t go around shoving religious people around; I simply didn’t care what they had to say. The only thing that can cause the bitter comments attached to that post is a hatred for God, and to hate God you must believe he exists. It’s such a backwards world. After all, I don’t get offended when people talk about the Easter Bunny; I’m simply content to sit back and know he doesn’t exist. Why should atheism be any different; it wasn’t to me.

Now, I won’t wax Christian all the time on this blog. To me, I’m here to write primarily about money. However, I am a Christian, won’t deny it, and won’t be silenced by people who would try to bully me into not talking about it. This is a personal finance blog, and I plan to make it personal; when religion plays a role, I will mention it. And since I tend to follow biblical laws on money, or try to, religion does belong here. However, I will not be giving altar calls at the end of each post, contrary to what some of these people feel is going on. I only hope J.D. won’t stand for being extorted, and will at least claim that all ideas surrounding personal finance belong on his blog, even if those ideas happen to be religious in nature (especially in just 1 out of many hundred posts).

Calling for censorship of any kind is becoming the downfall of our society. Freedom is a strange word; there is no grey area. Either we have freedom, or we do not. There is no such thing as “slightly-censored freedom”. People are getting more thinly-skinned by the day. Al Sharpton gets offended every time a webmaster mentions “#000000″. I have a homosexual friend who gets offended when a rainbow appears in the biblical story of Noah’s Ark (guess what, you were four millennia late on that one). Radical Muslims get offended when infidels even talk about Muhammad, much less try to draw him (here’s a sideways picture of him: 0+< (don’t kill me, please)). Our society, so delicately crafted on the principles of freedom, has arrived at a point where we must either choose freedom, or choose to allow the biggest bullies to keep us from taking part in all of our inherent freedoms, even if what we say offends those bullies.

For personal finance blogs everywhere, here’s hoping J.D. doesn’t capitulate to the bullies on that blog. Censorship of any kind is a very slippery slope, and it takes us all saying “no” before we can end this culture of censorship, thin skin, and victim mentalities. Hopefully, if we stand our ground even a little bit, their delicate skin might start getting a little thicker.

Edit: As I imagined might happen, I’ve been getting a lot of hate mail over this post for whatever reason, most of which miss the irony in calling for me to censor this post. Just to clarify things, if I sound harsh or bitter it’s likely intended to be tongue-in-cheek (i.e. the bit about the rainbow). My goal here is not to convert you to Christianity, it’s to call for an end for this whole censorship thing, and let all viewpoints be heard, even in the personal finance community. I’d love to hear the perspective of a Hindu on personal finance, as well as a Buddhist, or any person with a slightly different perspective on it. The whole point of blogging is that all views are welcome, even when they don’t match yours. How will we ever learn new ways to think about things if all we do is call for opposing viewpoints to be censored? How will I know if I’m wrong about something if I never hear the other way to do it? Even more than being Christians and Atheists or whatever, we’re all human beings, and our primary concern should always be treating others as human beings, rather than dismissing people with labels we don’t like. So please, don’t ask me to censor my own blog, because it’s not happening. And I hope nobody else will censor theirs, either.

June has come and gone, and it’s been an exciting month, a month of experimentation. For the first time, I’ve kept good track of all my money and where it has gone. I have made a solid effort to decrease spending in my major categories. I have kept a budget and stuck to it. Most of all, I’ve explored the areas where I have psychologically been deficient and made an effort to correct those. I think the main problem most people have with finances comes down to problems in mindset. I have made frugality a game. However, I’ve also failed already. I bought a few things that, while useful, I did not need. I didn’t exceed my budget, but that is money I could be using this month to pay off some major debt.

So, let’s look at my current state. I began June with $8,486.40 in credit card debt, and ended with $8,680.16! What?! It really surprised me that since I have made all my payments on time, my balance would be higher. Totally unintuitive. However, I reviewed all my statements, did some math, and determined that there are 4-5 late fees from May that did not post until June’s statement, increasing my balance more than the minimums I payed off. Plus, I made no “extra” payments this month, choosing to get into a better payment routine over making more payments.

However, my biggest goal for June was to pay no bank fees, no overdrafts, no NSF fees. In this goal, I did wonderful, except for May’s credit card late fees seeping through to my balances. I had no overdrafts, even at the expense of digging deep into my pantry to avoid overspending. Not only that, but I have ended the month with $200 in my bank account to put towards July. It is my goal to carry a revolving balance of $500 before I make considerable extra payments to debt, because I need an extra $200 for the first half of the month anyway, and this can double as both a cushion to keep overdraft away, as well as an “extreme emergency” fund. Once I pay off some higher debt, I want to get a legitimate emergency fund going with a few thousand dollars, but until then I just need something in case my car’s water pump goes out, or something.

Overall, I think June was satisfactory, but I admit I was expecting that CC balance to start dropping. It makes me a bit disappointed I didn’t catch the late fees ahead of time. I am happy with my mental progress, as well as making better spending habits. And I am realizing this is going to be difficult work, not as easy as I expected initially.

My goals for July are simple. First and foremost, I am to maintain the lack of overdrafts and avoid all late fees from CCs too. I will be setting up automatic payment plans either with the CC or my bank. I hope to end the month with at least $500 in my account. Anything over that amount will be used in August to pay off more debt. In addition, I have a goal to do at least one or two side jobs for extra money. I will decrease yet again the amount of times I eat out (currently dropped 50%, plan to drop another 50% from last month). And most of all, I will continue to explore the areas in my mind that have a messed up view of money, and try to correct them. To top it off, I will encourage my friends who are also trying to become debt free and help them along the journey. July’s going to be a great month!

Looking at other people my age, I consider myself lucky to have already made the failures in finance that I have. While they are starting their first jobs, I have already learned how to function properly in the workplace. While they are only starting to come to terms with how to spend a lot of new income, I have already misspent enough to learn the lesson of budgeting correctly. While they are saying no to a 3% matching retirement plan to slightly increase their monthly budget, I made the calculations long ago to see the benefit of saving for retirement early on. While they are buying huge purchases on credit since they can obviously pay them off with the $36k they are making, well, I wouldn’t be doing this blog if I hadn’t made that mistake already and learned from it.

Don’t get me wrong, I don’t have all the answers either. But watching them go down the same roads I have already travelled gives me the opportunity to alert most of them to decisions I know are definitely bad, and hopefully save them from a pile of debt when they are 30. Knowing other 30 year olds that are worse in debt than myself makes me even happier that I’ve started now. When I am 30, I will be debt free and well on my way to a comfortable retirement.

There is no college course, or high school course, for real money management and personal finance. I find it appalling that most graduates can at least draw a supply-demand curve, yet cannot calculate how much they can be hurt by credit card misuse and calculate amortization tables to see how long it takes to pay off that new TV. Granted, the easiest way to learn is by experience, but I think we can all agree that there is far too much “experience” going on these days. Thanks to the internet, however, people have the opportunity to learn these things ahead of time. If just one young person comes across this blog, or one of the other finance blogs, and decides to be proactive about finance, it’s worth the whole thing. In that spirit, here are some lessons I’ve had to learn the hard way.

1. Money will bring happiness.
It is often said that money does not bring happiness, but I think we secretly believe money will indeed make us happy. At least, we act and spend like it. We look at drunken celebrities and say, “If I had that life I would never act like that,” ignoring the obvious fact that so many celebrities do act that way, meaning it may not be as glamorous as we think. We buy new things and trendy clothes since the companies say that we too can be happy, like the people in the advertisements. Look at them all smiling! They’re not worried about debt and budgets! Also, we think the right car or house or clothes will make other people like us more. The truth is that material goods can make for a more comfortable life, but only the intangible things of life can bring any sense of true happiness. I have seen happy poor people, happy rich people, discouraged poor people, and discouraged rich people. Money clearly plays no role in happiness, only the types of problems that detract from it.

2. Credit is an easy way to get that happiness now.
If you need proof we actually believe money brings happiness, then look straight to the credit industry. I would love to know the ratio of legitimate credit spending to “feel good” purchases; I bet it’s astronomical. In fact, the truth on this one is so twisted that the entire credit industry shouldn’t even exist. People think credit will make for a more comfortable life, when in reality the mounting debts causes more stress, fatigue, and depression than having nothing at all does. Yet the credit card companies insist that yes, you too can have a great life, and oh yeah, they also care about you as a person, and in fact, you happen to be an awesome person! They say you can flash that plastic and make friends. In reality, every time that card goes out of your wallet you’re building a higher wall to imprison you. The creditors are your wardens.

3. It takes a large income increase to make drastic financial changes.
While more income certainly isn’t a bad thing, the reality of personal finance is that time, not income, is the major component of change. I was shocked to see that adding only $40-50 extra per month to my debt cut the entire payoff time almost in half! In the same way, it only takes a little extra money to save each month to retire with an extra million. While doubling my salary would be nice, I think finding an extra $40 in my budget is a little more realistic right now. Yes, you sacrifice a little bit now on the front-end, but the return is always worth it!

4. Rebates, coupons, and sales are great ways to save money!
This is only true if you are buying something you would have bought anyway. Yes, you may have bought a $200 pair of shoes for $20, but you didn’t save $180, you lost $20! I would estimate that about 80% of the time I have seen a friend (or myself) buy something on sale, it was not something I would have bought anyway. Really, in any situation there is a winner and loser, and I can guarantee the stores aren’t losing. Otherwise, they wouldn’t put on sales! Sure, if you can replenish your wardrobe within your budget on sales, great for you! But do not get into the habit of finding deals on things you were not planning to buy anyway!

5. If you’re renting, you’re throwing away money.
I used to believe this as gospel. After all, if I were putting that money into a mortgage, I would own a house earlier, or at least build equity for later. The truth is, if I would have bought a house when I was thinking about it, I would be far much worse off right now. The simple fact is that owning a home costs way more than renting, in terms of both money and stress. It also makes life decisions more difficult to make; it’s no longer just breaking a lease to take a new job, you have to sell a house. If you are certain you can pay the mortgage, and certain you are willing to live there almost a decade, then buying is a smart decision. However, the cost-friendliness of renting an apartment (no unexpected maintenance costs!) almost always wins for young unmarried people, and likely a lot of young married couples too. A home purchase is a serious decision, and should be well calculated out beforehand. And with the market as it is now, it is clear that you are not guaranteed to make money on the sale of your home as the advice has been for a decade now.

6. You can save money by rolling debts into a mortgage or home equity loan.
If you spend $350 on credit card per month, you can indeed save $100 per month by paying them off with a longer loan with smaller interest. However, without calculating it out, you may very well be spending more in the long run by letting the debt ride for 30 years than if you had paid it off at the higher interest rate. If you really need the extra $100 per month (if your financial situation changes or something), it may be an acceptable loss. However, long-term consolidation loans are rarely the great deal they seem in such a situation, unless the interest rate is dirt cheap. A much better way is to negotiate for lower interest rates for the credit cards and try to pay more than the minimums consistently. Drop that magazine subscription if you have to.

7. All credit is bad.
Now, everyone is entitled to their opinion on this, but I personally believe that not all credit is inherently bad. If you have student loans at 3.5%, it is sometimes better to put any extra money into a 4.5% interest savings account and earn a little extra on it. Sometimes, peace of mind is more important and you might want to pay everything off first. Credit, when used wisely, is not always bad. The unfortunate reality is that credit, as used by the majority of people today, is indeed a bad thing. But if you have control of your finances and a stable income, and are paying rent anyway, taking out a mortgage is not a bad thing, as long as you’re purchasing within your means. Be pessimistic about your financial situation whenever credit comes into the picture (i.e. assume you will be making less next year, not more).

8. Having a very detailed budget is necessary to control spending.
I’ve seen a lot of support for this view out there, with hundreds of Quicken categories and microanalyzing every small subcategory of a budget. However, as a mid-twenties guy who procrastinates, I can say with confidence that normal people will give up if the budget is too difficult to handle. I personally use a 5-category budget, and am trying to figure out a way to get it down to four. Realistically, there are only a few things that change from month to month, and only a few things you’re flexible in. Why bother microanalyzing every little thing? It’s much easier to sit down and sort into 5 categories than 50, and takes less time. At first, consistency, not detail, is the key. Work on being consistent with 5 categories first, and then start getting creative with how you analyze. This is why I love systems like Wesabe or hopefully Mint will be, as they allow for tagging expenses to whatever you want (giving you organizational flexibility).

These are just the major lessons I’ve learned thus far. What are some major financial lessons you learned, that you wish you would have been taught in high school?

It has only been two weeks or so blogging here, but I’ve already received a great honor! I posted my last article, Finding the Joy in Frugality, to this week’s Carnival of Debt Reduction. Not only was it accepted, but the host, NCN Podcast, gave some excellent comments and additions to it. If you do not have NCN (both the podcast and blog) on your RSS feed reader, it’s a great read/listen, and I highly recommended it.

One thing the host mentioned is something I alluded to, but never explicitly stated. There is something true about sacrifice in the present creating success in the future. Spiritually, this is along the lines of “store up your treasure in heaven” or “he who is last will become first”. Emotionally, this is along the lines of my article. A few years of sacrifice right now will help my marriage in the future, and living below our means then will help my future children begin their lives as well as making our future retirement pain-free. There is simply something true to the notion that temporary sacrifice almost always leads to a better situation years down the road. And that is where the joy comes in, really.

And, to clear one thing up from the podcast, this is indeed a new blog, but I’m a long time blogger. I have a software related blog that I’m starting back up again, as well as a few personal blogs I maintain for family and friends. However, I’ve never really had something great to say or a reason to say it until I decided to take charge of my finances. I do hope my experience, and walking it out online, will be a help to someone along the way.