David On Finance

Ok, so I’ve not been the best blogger the past several months. I will attempt to rectify that! Obviously, my last several posts detailed how I lost my job, was busy at school, doing just ok with finances. I’m sorry for being away, but I simply had no time to either blog or read other posts from the community, between school and my new job. In addition, the one week I could not work between jobs was enough to set me back three weeks with some of my payments, which was a bit disappointing.

However, I recovered and am back in action. I was not able to get financial aid for this semester at school, which is a long story, but it leaves me with at least a tiny bit of free time I should be able to use here. But I suppose I should offer an update, so we know where this year begins.

For the past 3-4 months, I have made at least the minimum credit card payments, on time. This month, for the first time in years, I received a paycheck which I have still not cashed, and don’t need to! I have at least a few hundred dollars buffer zone in my account, and have not overdrafted. My credit score is now no longer in the red zone on myfico.com. While I still have a long way to go, this is major progress to my financial goals.

At the beginning of this year, I listed several goals, each of which will not be easy and will take the whole year. Two of them are eliminating the majority (60% or more) of my credit card debt, and losing 100 pounds. Each will take a lot of work, for the whole year. At first, I thought I could get rid of all my credit card debt by the end of this year, but when I actually mapped out how much I will actually spend (compared to what I “wishful thinking” would have spent), I will not be able to feasibly do that this year. Now, a secondary goal is to do something extra that will make money come in. I hope to release a piece of software at some point that will reap some dividends, and assuming that goes well I may be able to get rid of all debt by December. However, that can’t be my plan.

I feel good about this year. For the first time, I have a good launchpad to start from, and a good plan of how to meet those goals in time. However, I will have some bad circumstances to deal with as well. First, I had a student loan make it all the way to collections without my knowing (long story for a future post, but being a full time student it was supposed to defer, but didn’t). Second, by not being in school I’m effectively opening up all my other student loans for payments. I can probably defer this again though, since I’ll be back in the summer. The worst that can happen with collections is to have my paycheck docked up to 25% each month, which I have a contingency for (work full time hours instead of part time). Hopefully it won’t come to that, however.

So, here’s looking ahead to 2008 and all the crazy stories I’m sure it will bring. I still have a lot of work to do, but I’m excited about the plans I have in place and can’t wait to make a huge chunk in my debt this year!

The past month has taught me some difficult lessons. In the same way working through college made me grow up faster than classmates who had the parental free ride, losing my job 2 months after starting to get my finances in order has taught me a lot, very quickly. In short, I did find another job that seems to be the perfect opportunity, but I will wind up losing a full paycheck because of the transition. This is my first week working full-time in 3 weeks.

First, I learned that even if I think I have things figured out, but don’t account for major shifts from the very onset, I’m doomed for failure before having tried. I started getting my finances in order in June. In August, I lost my job. Two months could have been enough time to get at least a basic strategy ready just in case something happened. Granted, I thought things were stable, but I still should have had at least one exit strategy.

Second, I’ve learned that it’s possible to be extremely frugal given the correct circumstances. I can say no to going out with friends, I can refuse to drive extra miles, and I can even eat off $100 for two weeks (when I normally spend $100 per week or more). I’ve cancelled every little subscription I had, and tried my best to find every spare dollar I had. If the money is simply not there, I cannot do that stuff. Translating this into my path out of debt, my goal will be to make debt payments first, and live off of what’s left. This means I’m forced to be frugal, where thus far I’ve tried to be frugal on the front-end. It’s hard to be frugal when the money is sitting there waiting to be spent, but much easier when you don’t know when the next check comes in.

Third, I’ve learned that some creditors are sympathetic. Within reason, of course. A few credit cards allowed me to not make payments this month, and resume next month. They are still charging me interest this month, but will not charge me for two months later, will impose no late fees, and will not report me to the credit bureaus. While it doesn’t completely save me from the lack of funds, it will be an immense help, and one less thing I have to worry about right now. It took a lot of time and talking to get it done, but a few hours work to save me peace of mind during this transition was well worth it.

Fourth, I’ve learned the real cost of not having my finances in check already. In June, I wanted to do it for peace of mind and looking to the future and marriage/family. I assumed the job was stable, that I would always have an influx of money, etc. By sabotaging my own future self financially, I made this thing much more difficult than it should have been. After all, I’m only missing one paycheck, not even a full month, much less half a year like some people do. I’m extremely happy I was able to quickly find another job, but if missing two weeks worth of pay messes me up this month, I’m in a very bad condition. If I was not motivated before to get out from under this debt, I sure enough am now.

My new job will be paying me a few hundred more per month than I am making now, but will not be paying my school expenses. After thinking long and hard about it, while school is important, I really need to build up some financial muscles. After this semester, I may put school on hold temporarily if I cannot find financial aid to help me out. At this point, I may even take out additional student loans to cover the cost, and use my extra money to get out of debt even faster. With a few hundred extra per month, and living more frugally, I should easily (or rather, difficult-ly) meet my target of next December. Even more, I should have a decent emergency fund by then. While it may put my education in somewhat of a bind or cause me to gather more debt in student loans, I’d much rather trade my credit card debt for student loan debt! And with the increase in salary, once my debt is paid off that gives me that much extra money to either invest or put towards those student loans, which is nice. Once I have my degree, that’s an immediate $10-15k bump in my value as an employee apparently (though personally I feel the caliber of my work is not affected by a piece of paper), and I’m all set.

And while it’s fun to think about the future, it’s taking everything I have to make it through September. I’ll probably be posting very rarely until money starts coming in, but know I’m getting some good life experience that will give me much better perspective on my posts. I hope I learn some more lessons worth sharing, but until then…

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.

Note: If you came here from NCN’s Carnival of Debt Reduction, here is the post he was talking about: Backbone Growth.

Today I start back to school. For those new to my story, I have a full time job and am also going back to school full time to finish my degree. I’ve had the summer off, which has helped greatly in terms of getting back on my feet financially. However, since I’ve had plenty of time to focus on finances thus far, not to mention getting in 40 hours at work every week, going back to school will be a major shift.

The shifts are not inconsequential and many of them are things that got me into trouble in the first place. First, the sheer amount of time school takes up leaves me unable to easily take time out to handle financial matters. Yes, I can still find an hour on weekends, but things like calling creditors, looking through statements, etc. seem like much more of a hassle when the grades start dropping. It shifts my entire daily schedule forward (since class goes until 11:30pm or so), which forces me to do things like eat at fast food places or the campus food court for dinner, and go into work later. I get in fewer hours of work per week on average, usually 35-38. Not to mention I spend about $50 more on gasoline per month. As you can tell, these little things really add up when you combine it with debt reduction.

However, I refused to be caught by surprise this time! Here are some things I did to keep this from being a major burden on my life:

1. I thought ahead. Really, this is the only thing it took, but I sat down and really analyzed what each semester costs me in terms of money, time, and sleep. I then re-budgeted all three of those to make things work. I made a new financial budget incorporating food and gasoline costs. It will be more difficult to get out of debt, but at least I won’t be getting in any deeper!
2. I got supplies on sale. I caught the back-to-school sales along with the high schoolers, and got things like pencils, paper, and printer ink for much cheaper, and tax free! Better yet, I kept it within my budget for July, so it didn’t even hurt me. I may even have enough supplies for Spring semester as well.
3. I didn’t take a vacation this summer. Because of that, I have enough annual leave left to where I can take 4-5 hours off work each week and not have to worry about losing money! Yes, I sacrificed a week off, but when big tests come up I don’t have to worry about finances on top of studying.
4. I arranged my classes to be all in two big blocks on Mondays and Wednesdays, at the expense of taking 4 difficult courses all at once. I will probably have up to 4 tests on some nights, but this saves me money on gasoline, and makes the food problem only apply to two days per week. Not to mention, it makes scheduling work and study time much easier.
5. It is my goal to have a 100 average in every class by October, or at least high A’s. This means that when things get most stressful, I can maintain all my schedules without having to take even more time off. Even if my grades drop a little at the end, I don’t have to worry about it because I’m pretty much guaranteed an A or B by that point. This is so much better than slacking off at the beginning and then having to step up the studying and time later on, when you’re already too tired. This also applies to any area of life; work twice as hard when you still have the energy, and then don’t feel bad about slacking off a bit later.

Most of all, I just had to sit down and think about what was about to happen. The worst mistakes that happen are almost always the result of poor planning, or even no planning at all! I wanted to make sure I had the bases covered. I feel pretty good about it. Not to mention that even though I have 4 difficult classes right now, my final semester will pretty much be History, Music, a math course, and a final computer science course. Like I said, work hard now, slack off later.

Note: This post has been featured in the 100th edition of the Carnival of Debt Reduction, hosted by No Credit Needed. Please check out this carnival, as it includes a ton of good articles!

One of the major things I have noticed during my journey towards a debt-free lifestyle is how little of a backbone I used to have! And sadly, still do in some areas. These are things that even before creating a mindset to become debt free, I knew were signs of weakness and were my own fault. Some come down to laziness and the strange idea I could wake up tomorrow a millionaire and all my problems would go away. However, they all come back to the root issue that when it comes to my wallet, I had no backbone.

Here are some examples of my spineless financial behavior:

1. While activating the credit cards that led to my demise, I would agree to sign up to the so called “Credit Protector” and “Identity Manager” programs these services offered. Many times, these programs would account to $15.00 per month or more! Just to get the people off the phone, I’d agree to the first free month. However, I would let these charges ride for months, even years due to laziness, and guilt that I was already paying hundreds in interest each month, what is $20 more. I estimate I’ve lost several thousand dollars due to this. All it would have taken is a firm “no” and I might be farther along my path to debt freedom.
2. Something I know I will be buying down the road is on sale today, so I flash the plastic and it’s mine. Sounds good, but after a year I’m still paying for that shirt, and have probably already doubled the non-sale price in my interest payments! Yes, it was on sale, and if I had the money in my budget it might have been smart, but I wound up getting a worse deal. Do this with technology, and it not only doubles in total cost, but you also get an inferior model compared to if you had saved and waited. All it would have taken is a little more backbone to say no to my inner desires and bad mathematics. This is the primary reason for 90% of my current debt. I’m still paying off a laptop I bought 4 years ago, and sold last year for almost nothing.
3. When the budget (what little I had) ran dry and my credit payments were going to be late, I ignored the calls from creditors. I racked up tons of late fees, and got myself into a situation where it was almost impossible to get out of the cycle of late payments. If I had answered the phone and been forthcoming that first time it happened, they could have easily helped me out, and it might have been the difference in several thousand dollars of my current debt. Not to mention my credit score might not be in the low 500s right now.
4. For some reason, I always just “expected” to win that lottery (even though I never had tickets for it!) or get that major raise, or have a creditor magically erase my debt. Maybe the creditors would forget about the debt until I finished school and could pay them off. Because of not standing tall and really evaluating my current situation and finding a way to solve my problems, I spiraled down into a situation that actually has become nearly impossible to fix. If I had really evaluated it back then, I could have easily fixed my problems in just a few months, and would be on track right now to perhaps owning a house, or at least being free from debt.
5. For awhile, I let my insecurities play out in terms of me having to buy cool things. I didn’t just get the cheap Ipod, I had to get the best and biggest. I didn’t just get a basic stereo system for my car, I had to get the best audiophile quality out there (ironically, I don’t even have that car anymore, but I do indeed miss that system). By not having confidence in who I am as a person, that little piece of plastic used those insecurities to make me buy more stuff. Right now, I’m finally at a place in myself where I only buy what I need to get by, and occasionally some of my long-term wants.

Of course, there are many more reasons my spine, or lack thereof, has caused a lot of my debt issues now. They always say the first step to anything in life is admitting you have a problem. I think the second step is admitting that problem is likely inside yourself! Most people skip that, and blame creditors, or fancy marketing, or whatever the villain of the day is. For me, the problem was (and still is, to some extent) inside myself. It’s my own lack of backbone that has caused me to spiral down the path of bad financial decisions.

So how do I fix it, and how can you fix it? First, stop blaming circumstances and others. While it may be partially their fault, that doesn’t help your situation. What does help your situation is to accept the blame yourself, and figure out why you do the things you do. Before you even sit down and list your debts, start an emergency fund, etc., you need to evaluate yourself. In fact, I have a weekly ritual where I check my credit report (one service that has been invaluable), check my accounts online for any strange activity, evaluate my spending and budget, and also evaluate my psychological state towards finances.

Each week I try to find one thing I had problems with in the past, write it down (or blog about it), and become determined to not behave that way again. This week is Spine Week. I’m going to call and cancel those services I still have. I’m going to try to sell the things I bought on credit long ago, and hopefully let it help pay themselves off a little bit. Moving forward, I have learned my lesson and will not slip up again.

In fact, you can do this in any area of life of which you’ve had problems! If you are religious, incorporate prayer or meditation into the process if you wish. For the area you are having a problem with, think back to the situations that got you there. Now, inside each situation, ask yourself what internal mechanism caused that to happen, rather than the external circumstances. Then, think of different ways to correct that personal flaw, and resolve to not behave that way moving forward. Find a few concrete things you can do to combat it right now (calling creditors, whatever), and write down a statement of intent that you read every day in that week claiming you have changed as a person. My statement for this week that I will read every day simply reads:

I resolve to stand up for proper financial decisions when faced with insecurity, external manipulation, or laziness, and commit to always look at the long-term picture before making any financial decision.

Just think, spending a few minutes each week meditating about yourself, in 52 weeks you will have corrected 52 internal problems! For me, being out of debt by the end of 2008 is important, but knowing I will have corrected over 75 internal flaws by then is worth even more. It’s the same idea as debt management, small incremental changes to make a very large long-term change. In a year, I will be a completely different person, but this week I only need to worry about a little backbone growth.

I’m lazy. Let’s get that over with.

One of the current things I’ve seen going around the personal finance community is the idea of a “Price Book”. And there are some great tips for building your price book already out there. However, once again I am lazy. I know up-front I’m not going to carry that book into the store, I’m not going to write down prices, and I’m not going to spend a ton of time on something that saves me pennies.

Enter the internet, and the magic of receipts. Spending an hour each weekend the past month, I’ve managed to get a good idea of what deals I should be able to get. I’ve also easily expanded this method to clothing articles like underwear and socks. Of course, the most important thing is finding out what will work for you, but in the interest of increasing the ideas out there, here is how I did it (and am still doing).

1. Write down items that you buy often. For me, things like bread, cereal, milk, fruit, and meats went here, along with canned vegetables and things like laundry detergent and toiletries. However, cross the cheap items like bread off the list. I know that generic bread costs $0.99 or so, and I can spend more if I want. There’s no reason to spend an hour trying to save five cents on bread. The opportunity cost doesn’t add up. List items that are reasonably expensive (detergent) or that you buy many of at one time (canned vegetables).

2. Make sure you visit a different store each week (or each few days if you shop several times per week). Grab the store’s flyer while you’re here, and be sure to either purchase or write down prices for each thing on your list. If you purchase something, the price is on your receipt, so you don’t have to worry about writing them down. If it’s in the flyer, you don’t have to write it down. See, it’s all about being lazy.

3. Check prices online. Many stores put their circular (the sales flyer) online, so you don’t even have to go inside the stores or make a trip. I imagine you can do a decent price book from the comfort of your desk chair. Also check online bulk retailers such as Amazon, especially for things like laundry detergent, toiletries, and diapers. You may find it’s just as cheap to purchase online and get them shipped directly to your door!

4. Break open Excel, make a list of each product on the left, list each store along the top. Fill in the grid with prices. For the lowest price of each item, highlight the cell yellow. For those with experience, you may be able to use conditional formatting and basic functions to automate the highlighting

5.  Pick two stores that seem to have a good mix of prices. For example, if Wal-Mart seems to have good prices on toiletries, and Publix has good prices on food staples, it’s not a bad idea to visit both, especially if they are both nearby your house. Going 7 different places, however, is not a good idea; you spend more in gasoline than you save. If you can get almost everything cheaper at one store, just choose the one store. If you can save money buying online, then do that.

6. Compile and print a list of each item and their respective price. I was able to shrink it down to the size of a business card. This way, if you happen to be at a store and see a cheaper price or sale on one of your products, you can buy it right then, or if the price is permanent you can make a note to update your Excel file. Keep in mind your list is better if it includes things that can sit in the cabinets for awhile, like canned goods.

7. Pay attention to seasonal trends, especially when it comes to fruits and vegetables. You may choose to track the prices of items over time and realize that it may be cheaper to buy strawberries in winter and spring, and switch to bananas for summer and fall, or vice versa. Know and adjust your purchasing trends accordingly. Baking goods may go on sale after Thanksgiving and Christmas due to surplus, so you may stock up on vanilla extract, baking powder, and things like that. Your Thanksgiving turkey may actually be cheaper in spring, so if you have the freezer room, you may purchase early (though this doesn’t mean a deep freezer will pay off).

I have found that things like socks, underwear, toiletries, and such are usually cheaper online. I’ve also found that buying in bulk does not save money for the things I purchase; going to a CostCo makes me spend more by purchasing things I would not normally get. For others, it may save them money on everything. The point is to make no assumptions; you may be able to get everything cheaper at Wal-Mart, someone else may find the local grocer has everything for cheaper. You may have a store nearby that is always cheaper, but is too dirty for you to walk inside. That’s ok. You may love the convenience of online shopping even if it costs a few more dollars. That’s perfectly fine. Know what you’re willing to do, and what you’re willing to sacrifice. I’ve found that just by sitting down and taking a look at the small prices, you can easily save $10 on weekly shopping. It’s the concept of small changes adding up quickly. That’s $40 per month in savings, which is quite worth the few hours it takes to accomplish.