personal Finance Story

Maybe Not…

The credit markets are still in turmoil.  The headlines just don’t seem to stop these days.  After all that we have gone through thus far it is odd to imagine that we are still not out of the woods yet.  And yet, that is our reality.

Just yesterday Target gave warnings about earning citing losses in their credit card revenues.  Apparently there are more than a few people out there who are unable to pay their exploding credit card debt.  Fannie and Freddie continue to be headline material as they struggle to raise capital to avoid being nationalized.

Sometimes, a headline is just a headline.  You would think that with the rest of the world in financial turmoil there would be a marked decline in the availability of credit.  This is after all, exactly what we would expect in our current situation.

Somehow, my mailbox is always full of credit card offers every day when I come home from work.  Without fail, each day I will have two or more special offers I don’t need.

But Then it Gets Worse

What would be worse than spam?  I’ll tell you.

I went to the bank yesterday during my lunch break in order to get quarters for laundry.  Pretty standard request at my local and seemingly standard bank.

I ask for my quarters and swipe my atm card and then out of the blue the person behind the counter asks me if I’d like a new credit card.

I am floored.  All I wanted was quarters.

She continues to tell me that her screen has notified her that I have quite a bit of credit available to me and at a very low introductory rate.

After an awkward moment or so while my brain registers what is happening, I politely decline the offer and continue on with my day.

Old Habits Die Hard

When you have gotten away with overextending your customers for so long, it must be hard to see any other solution to a credit crunch besides attempting to over extend more customers.  When you have a hammer, all you see are nails.

Perhaps it is time to get a new tool out of the bag.

As the title suggests, I paid off my car recently. The last payment of $1,852.00 has cleared through the system and is in the hands of Toyota Financial. It took them a bit longer to process than my ussual payments but I guess that can be expected.

I’m feeling great. Getting rid of debt once and for all is an invigorating event. I feel very proud that I have made it this far and stuck to my frugal guns to make this day happen. Lets make a rundown of how this affects my financial life from here on out.

One Less Bill to Pay

I’m going to type that again, because it feels so good. One less bill to pay. I can officially delete two rows out of my budget spreadsheet (The payment in my expenses worksheet and the total in the liability sheet). One less bill to pay means less stress and more peace of mind. It is the unlocking of money that can now build my net worth month in and month out. That is financial power.

Lower Emergency Fund

While I do not have my emergency fund fully funded yet, the requirement of that fund is now lower and easier to reach. If I aim for three months savings, then the goal just dropped by $750. If I wanted six months, then the total savings would be double that or $1,500. That is significant change that can be put to better use elsewhere, like debt reduction or wealth building.

More Fuel for the Debt Snowball

I now have $250 extra each month to put towards other debts. First in line would be my wife’s car payment. The best part is that if we commit to it, we can easily pay off her car by next month. Within two months of our getting married, we will have paid off both of our cars.

And after that we can start making a few choices. For me, it may make sense to start sending $500 payments to my student loans just until the balance comes down to where the interest is not killing me as much each month. After that, the house fund gets priority. We are adamant about owning our own home in the near future and need to be sure we will have a 20% down payment to buy one.

A Promise for the Future

I will never have another car payment so long as I live. I like my little Corrola. I often joke in my monthly reviews about my Corvette fund. If I ever do get another car or that coveted Corvette it will be paid in full before leaving the dealership. I don’t want to ever have to make a payment for a car again. That is a promise to myself that am happy to keep.

Getting married is a very special event in any couple’s lives. My new wife and I wanted nothing less than to drive off into the sunset after getting married, leaving our troubles and stress behind as we embark on our honeymoon.

That vivid fantasy aside, we needed a plan. Our wedding cost us over $10,000 and we wanted a honeymoon that would not shortchange our future. A future where having a 20% down payment on a house featured prominently.

Together, we put our ideas on the table and looked at each for the alternatives

DO Nothing

This one definitely wins in the cost category. We thought about this one long and hard for about two seconds. We are not going to be absolute cheapskates. Completely cutting out any semblance of a honeymoon would have saved us money but it would have robbed us of an opportunity to build our new memories together as wife and husband.

Remember that line between being frugal and being cheap? Yep, this one crosses it I think.

Take a Cruise

We have done this before and loved our trip. We estimated the cost to be around $4,000 for a week long cruise to some tropical destination.

But we really had already done it. We had a collective been there done that feeling about taking another cruise. So we thought about other destinations.

Road Trip to Nova Scotia/French Canada

This idea was all the wife’s. I have to confess that I didn’t see too much into going to Canada for a week and a half. This was the one we eventually chose and I am glad we did. It was a very fun vacation!  It had all the feel of some far off European destination, without all the pain of actually going to Europe.

The budget for the trip broke out into three broad categories.

• Hotel ($200.00 / night)
• Food ($100.00 / day)
• Misc ($100.00 / day)

For a ten day total trip, that made out to roughly $4,000.00, same as the cruise.

Hitting the Road and Saving Some Money

Our destination set, we jumped in our car and headed off. Here are a few tips to save some dough on an international trip.

• Don’t exchange money at the tourist centers! They will gouge you on fees. Use a local bank which will have much more reasonable fees. You need cash for a lot of things so you might as well get the best deal possible when exchanging.
• Use a no-fee credit card whenever possible! My wife’s Capital One card has no international exchange fees. You simply pay the current exchange rate and viola! This saved us big bucks by paying with credit card for things like eating out and souvenirs.

The best part of our honeymoon above all else was the fact that our guest’s gifts more than covered the full expense.  It was a pleasant surprise to have so many loving people in our lives who together gave us an amazing honeymoon without us having to dip into our house savings.

The moral hazard. An ever so fine line between good fiscal policy and encouraging poor financial decisions.

I’m not talking about anything the Feds are doing right now with Fannie and Freddy. I’ve got a personal twist that I am willing to share with you all. Perhaps you can shed some light to my actions. Am I really a bad person or am I simply a victim of my own rampant curiosity?

It all began one Saturday at work. I was working because my supervisor had a special job for me to do and I needed to make up some time anyways due to my vacation plans for the year.

While taking a trip to the water cooler for a much needed drink I saw, out of the corner of my eye, a stack of papers on a co-worker’s desk that looked, familiar. Upon a closer inspection, my suspicions were confirmed. It was a credit report.

Now who among you would have, given the opportunity, NOT have peeked through? The temptation was too much for this soul. Not only did I steal a glance, I took notes!

Not to do anything nefarious mind you. I was just curious. Deathly curious. It was if I believed it my right to rife through another man’s financial details. I knew I would not be caught and my actions speak volumes of my character. I couldn’t help myself. Not then and certainly not now.

The Dirt

It seems as though my co-worker, who I have mentioned before is in a pickle. I had heard inklings of it in the past but looking through his records was a confirmation of my worst suspicions.

He has over $45,000 in student loans. While he does have a Master’s degree to show for all of that debt, I will very soon be making as much as he does now. He has a combined $80,000 on credit cards. I’m sure that most of them are at horrible interest rates. The final icing on the debt cake is a house bought during the peak of the housing boom financed by a combined $420,000 of debt.

A Terminal Case

Even with an engineers income, I am sad to say that that sort of debt level is a non-recoverable case. How can you bounce back when you are over half a million dollars in debt in your mid thirties? Even if he turns his life around tomorrow I can guarantee that he will never have more money in the bank than my wife and I will since we started our lives without credit card debt and with clear financial goals.

The moral hazard thickens. Should I do something? Try to help? Or is it none of my damn business. Should I let him sink or swim in his current fiscal quagmire?

I wish everyone in life simply followed the same set of rules when it came to money. While not everyone will be a multi-millionaire living the high life, we can all afford to live comfortably and not have to deal with a financial disaster in our thirties.

The AP offered a sour bit of news yesterday. Ed McMahon is facing foreclosure on his $4.8 million mortgage.

While I am not old enough to remember the Johnny Carson days, I have fond memories of his spots for American Family Publishing and of course the legendary Star Search.

At the ripe age of 85, Ed is behind on his mortgage by around $644,000. The question that is racking me is why, at age 85, after several decades of being a paid TV celebrity, does someone like Ed McMahon have a mortgage to begin with? Why doesn’t he just have the $644,000 lying around for a rainy day.

The AP states that after an accident 18 months ago, Ed could no longer work. That means even at age 84, Ed still needed to work in order to sustain his lifestyle. He began his TV career in 1957. After such a long and successful career, it makes me just a little sad to know that a TV icon like him is on financially shaky ground.

Why is this happening?

Didn’t Ed know that you should save for a retirement along the way, investing some of your hard earned dollars so that past the age of 67 at the latest, you should be able to pursue whatever it is your heart desired and not have to worry about foreclosure of your primary residence?

Didn’t Ed know that it taking out home equity lines of credit was not a sustainable way to get money?

We should all take this as a lesson on financial management. As hard as it is to learn from the mistakes of the apparently wealthy. Had the AP news article not pasted my RSS, I would never have even dreamed that someone like Ed McMahon could ever be in financial trouble at his age.

You need to save for retirement and save smartly, targeting your the lifestyle you expect to live. You need to leave the equity in your house alone. Tapping house equity is a bad idea and is counter to conventional wisdom of paying your mortgage off. No house payments means more money for other things, like travel, and expensive hobbies, and not getting foreclosed on.

Need to manage your debts? Easy, become a deadbeat. It seems to be picking up in popularity now a days. The awful and horrible recession that the US is in right now is the latest excuse du jour for people unwilling to be responsible for their actions. The S&P 500 is up over 9% since the lows set in March and the GDP posted a better than excepted 0.9% growth, but seriously it has to be a recession because everyday folks just can’t seem to make ends meet.

Case and point, I was watching the news the other day. That alone is a bit odd for me because I usually do not watch television. I get most of my news online. However, for whatever reason, I was compelled to watch that evening and I was lucky I did, because I caught a very interesting piece on debt consolidation/settlement in and around my neck of the woods.

The featured local resident was around $20,000 in debt. Instead of diligently paying off her bills, she turned to a debt settlement firm. She is paying them $3,000 for the privilege of them “negotiating” with her creditors to possibly reduce her debt burden by up to 60%. She may end up paying 40 cents on the dollar. Maybe. In her own words, and this is an approximate quote;

If I go bankrupt, they get nothing.

The trouble with standing your ground and saying shoot, is eventually, someone pulls the trigger.

Depending on the type of debt involved, the particular variation of bankruptcy available to debtors may be less than pleasant and all the while music to creditors ears. I am in no way an expert on bankruptcy laws but I have heard that Chapter 13 can be very brutal.

Bankruptcy laws aside, there should be outrage in the streets at individuals like this who flaunt their ability to walk away from their debts. It’s stealing. Period.

I’ve got a novel idea. Use the $3,000 debt settlement fee to, I don’t know, pay down your debt! $3,000 comes out to 15% of her total balance. That would be at least $60 off of her monthly minimum payment. She could use that extra $60 every month to start paying down her balance. Sure it would take a while, but I wonder how long it took her to rack up $20,000 in credit card debt?

Some people have no shame, and that costs everyone in the end. I doubt that VISA, MasterCard, and American Express run charities when it comes to their business. They are in the game to make money. When a bum wanders off with $20,000 of their money, they have to make up for it and then some. That price is paid by all the responsible credit card users like you and I. We pay it in the form of excessive fees, high interest rates, and merchant fees that increase the sticker price of everything we buy regardless of our method of payment. The extra cost is passed onto you even if you use cash for all of your purchases.

I work in a cubicle, similar to most engineers I know. I have three direct neighbors. While I am sure that we all try to be as polite as possible, it is hard not to overhear each others conversations now and then. Each of them are aware of my work projects as I am theirs. That is why I practice a good bit of discretion when making personal calls at work. Most of the time, I will make a trip out to the parking lot by my car before making a call to my fiancé or to home or what have you.

However, my disciplined approach to discretion is not universally shared by my co-workers. I am alluding to one in particular who somehow manages to treat the thin cubicle walls separating our desks as if they were a fortress of solitude. He will from time to time, take calls on his speaker phone and that includes personal calls.

Suffice to say, if I were a bad man, I would have everything I needed right now to commit some form of massive fraud. There have been numerous occasions where I could have casually jotted down his social security number, credit card numbers, home address, and other security question related information.

I know about his problems at home and the crippling amount of debt he shoulders.

• He has at least a dozen credit cards, some of which are maxed out.
• He overextended himself near the real estate top expecting a future raise to help him pay the mortgage.
• He has some of his debt in a debt management service.
• Collections agents are calling his work.

You would think such an existence would trigger some emotional response. I would have expected a backlash of some sort to flush all of his troubles away in a massive wave of change. But it never happens. He goes to work each day and trudges along for the paycheck so he can give it to creditors at the end of the month.

To make matters worse, he keeps on buying things. He recently bought a Nintendo Wii for his kids, had a bit of gardening done, and several other miscellaneous home related purchases. Some of those, I overheard him having to split the purchase onto two or more credit cards.

I feel bad for him sometimes. It is not my place to come to his rescue with whatever personal finance wisdom I have. He made his bed over the years and now he will sleep in it for better or worse, mostly worse. At this point I am just waiting for the other shoe to drop. I am expecting that eventually I will begin overhearing the details of his bankruptcy.

Sometimes I cringe when I go over budget one month or the next. I try to save my pennies and be as frugal as I can with the tools I am given. At the end of the day, it could be worse. For all the griping I do, there are others who would kill to be in my position. I have no high interest debt, my student loans are manageable. I am living well below my means and I plan on keeping it that way.

I promise myself I will never be in the position my co-worker is in right now. That is no way to live. Success is not an option. It is the only way.

I got the mail this afternoon and just had to share.

It looks official and has the Chase logo on it, it must be something important. That and I like money, who doesn’t? The temptation and lure of an easy pay day hits you immediately. Check Enclosed? I don’t remember anything that would lead me to expect a check in the mail from Chase but gosh darn it, I deserve some extra dough! Lets see whats inside.

It’s a check alright. A measly $8.25. Thats not even three gallons of gas at todays prices. But it is a real check. That money should be mine, right?

But wait, lets read on. Turns out that by cashing in I’ll be signing up to their Hot-Line everyday savings service. And from what I see in BIG BOLD LETTERS is that I can save even more money! Fantastic! In these troubling times, all I need is gracious opportunities like this one. Hey, whats all of this fine print say?

And now the nitty gritty comes to light. It states that by signing up for their program, they will refund me 2% of my credit card purchases up to $100 each and every year. The cost of the program is $59.99. At firts glance, this is an easy decision. All I have to do is make sure I spend $5,000 on my card in the next year, and I make out like a bandit.

It is this kind of greed combined with careless reading that I am afraid will lead many into this trap. The cost is actually bi-annual. You are paying twice a year. That works out to you paying $119.98 to get $100 back at the very end of the year.  And that is if you spend a full $5,000 and if you actually remember to submit your Chase credit card receipts during the appointed rebate period.

This is shameful. The entire purpose of this mailer is to fool the unwary into paying into a subscription program they don’t need. I get this kind of crap at least once a month, maybe more.

Leave a comment if you have had a similar experience.

Lowes and J.C. Penny want your economic stimulus rebate check. So much so, you may be able to cash your check directly in the store in order to pay for your purchases.

Neither store has officially confirmed the plan, but if history is any bit of a guide, I wouldn’t bet against them giving it a try.

Temptations are everywhere these days to spend. The era of the credit card has made it easier than ever to overextend yourself. That may very well be coming to an end. The evening news tells the story rather bluntly that consumer spending is pulling back as the economy weakens.

Take a moment and prioritize your financial goals and put your rebate check where it will do the most good. I will more than likely use the funds to help payoff my car loan. Doing so will give me an instant $250 a month raise. No car payment also means a slightly lower emergency fund since I won’t have to replace that income in the event of a financial need.

This raises the question, how many of us really are going to blow the money at retail outlets like the government wants? Conscidering you are a reader of personal finance blogs, I’m guessing your money is going to be saved and or invested. Will the stimulus plan work?

Yes, but not as was originally intended. I’d like to add at this point that I think there are many better ways the government could spend $152 Billion, but I don’t think it will be a total waste either. Regardless, check is (practically) in the mail.

My check is not going to end up in the coffers of some department store. I’ll be paying off debt. I expect to pay off that debt completely within this year. With that extra money in my pocket at the end of each month, I’ll be able to invest more. And more investment is ultimately good for the economy as a whole.

I doubt that my tiny contribution would do much, but en masse, the results could be more pronounced. There is a proverbial army of personal finance bloggers and readers who I expect see things the same way I do. We are not all going to pay off debt at the same time, but $600 or so will certainly advance each cause significantly. It may take longer to see the effects, but in the end the economy would benefit greatly and more importantly, it would be sustainable. That is far better a result than a good quarter of retail sales could ever provide.

My fiance and I were watching the news today and major headlines were being made concerning the state of the economy. There is a lot of scary stuff going on. Investment banks are collapsing. Gold and oil are reaching new highs. My fiance started thinking about what would happen if one of us lost our job.

I feel very fortunate that my job is very secure. Assuming I don’t punch my boss in the face sometime in the near future, there is little to no chance of me losing my job. It is a strange situation to be sure, but one I am glad to be in.

My finace is not that lucky. Although I think she is a highly valuable employee, she feels that a sudden downturn in business could lead to layoffs.

So we sat together and pulled up our budget. Assuming her income goes to zero, could we survive?

The final answer was yes, but barely. My income could shoulder her share of the apartment expenses as well as her student loans, car payment and insurance. We would have to cut back on eating out and entertainment as well as forgo saving for a house, but we would keep all the bills paid.

I think we could do better though and here is how.

Pay Off the Cars

By paying off our cars, we would save $500 a month together. This is a very achievable goal. I only have a little over $3,500 left on my own car loan while my fiance has around $5,000. With a little bit of intensity, we could knock off both of those debts in a few short months.

Pay Down the Student Loans

Student loan debt eats another $400 from us each and every month. This would be a challenge though. We owe almost $40,000 together. But somehow, I just don’t see myself still paying for our student loans the same time we are starting a family.

Combine our Emergency Funds and Build it Up

Losing a job is just the kind of tragedy an emergency fund is designed to handle. History tells us that most economic downturns last less than 8 months on average. Stashing more money away in a dedicated do-not-touch account will provide ample cushion in the event of an unforeseen financial downturn.

By reducing our bills we would be better able to make it through a tough time unscathed. We have been very blessed so far in life but we have to be prepared for whatever life throws at us. As Dave Ramsey would say, “I’m positive, it’s going to rain.”.