Archives For June 2012

Budgets are one of the most important components of taking control of your money. Without a budget, you’re at risk of driving off a financial cliff… and I know because I’ve been there and done that!

When I started budgeting, I realized I was spending more than I made every month. You can read the full story of how I paid off $50,000 of consumer debt in two years, but I came to realize I was spending $3,078 per month while I was only making $3,000 per month. Not only did I have $50k in debt, but I was also going deeper into debt each month! Just call me congress!

At that point, I needed to clamp down and live off of a tight budget. Instead of spending money like the big timer I thought I was, I needed to realize exactly how much income I received each month and figure out where it was going. At this point, I started following the Dave Ramsey plan and using the cash budget.

I know it’s not always easy to get in the budget mindset. When most of us hear the term “budget”, we imagine a world of pain where we have to give up everything we love. No more going out to eat, no more traveling, and no more fun! Yes, when you budget you’ll now live in a world of Ramen noodles and reading rented library books.

That would be enough to make me not want to budget, but fortunately it’s not always true.

Budgets are usually painful when you’re first getting your money under control. It’s similar to exercising for the first time in a long time. Your muscles and joints are sore for days as your body punishes you for working out. However, next time it won’t be as bad and the workouts will eventually start to feel good. Budgets are the same way (ok, you may never love them, but…).

The very first budget will be the hardest, but it will get easier from there. Once you finally get a budget and purposefully spend your money each month, you’ll feel like you got a raise. You’ll be able to use the extra money to save or knock out your debt.

We still live off of a budget today, but it isn’t nearly as strict as it used to be. We have set amounts for major areas (grocery, entertainment, clothes), but if we happen to go over budget one month, we won’t stop spending money in that area like we used to.

Now, the budget acts more like “guardrails” to keep us aligned to our future goals and keep us safely away from the cliff. We may bump into the guardrails every once in a while, but as long as we don’t crash through one, we’ll be just fine. In fact, we don’t consider it a budget anymore – it’s more like a Spending Plan.

One other thing, if you combine your finances, make sure you both get on the same page with your financial goals while you’re going through this. It will be nearly impossible to get on a budget and stick to it if you don’t.

If you’re ready to create your budget/spending plan, check out “How to take control of your money” and download the free budget templates. Good luck!

One of the biggest debates in personal finance is whether or not to use a credit card. One of the biggest opponents of using a credit card is Dave Ramsey. He advocates not to even own one because it opens you up to overuse it and generate debt. Instead, he says you should use a debit card which gives you the same privileges as a credit card.

Dave Ramsey has a great point as the average debt per household with credit card debt is $15,799, meaning the people who go into debt are doing it in large amounts. One easy way to eliminate this problem is to cut up the card, right?

For some, cutting up the card might work because it removes the easy access to extra spending. However, the credit card debt is the symptom rather than the problem. The real problem is that people who accrue debt don’t have control of their money and fall behind on their bills. Trust me, I racked up over $50,000 in debt ($4,000 in credit card) so I know the problem, and I’m not judging anyone!

When I finally started to pay attention to my spending, I got control of my money; here’s what I did:

1. Complete a current assessment

2. Track your spending

3. Create a spending plan

4. Monitor plan and adjust as necessary

5. Save some money

6. Attack your debt

I also transitioned to using a cash budget which helped enormously because it helped me figure out where my money was going each month. It also made me spend wiser because it was hard to drop a Benjamin on a stupid purchase… much harder than making a simple swipe!

Even though we switched to a cash budget, we still use credit cards now. The main reason I never ‘cut them up’ was because I needed them for work. Sure, Dave says you shouldn’t work for a company that makes you use a corporate credit card, but I really didn’t have the guts to stand up to the large corporation when I was desperate to work for them. Plus, I like the perks.

When I graduated college and all of the way until 2011, I traveled for work and gained an affinity for credit card points and hotel points. Since I traveled every week and charged the expenses on my card, I amassed points very quickly. Someday I’ll talk about my points and how I used them to pay for flights and hotels, but for now just trust that I like them a lot!

The key is to only own credit cards if you can control your spending. If you’re using them to finance a lifestyle you couldn’t normally afford, then cut them up! Here are the three types of people who shouldn’t have credit cards:

1. The Supplementer – You don’t pay off your balance in full each month

2. The Impulser – You spend more at the store using a credit card than you would using cash

3. The Big Timer – You like to impress your friends by picking up the tab

Unfortunately, I’ve been all three!! However, I’m now under control, and we are able to control our credit card spending while benefiting from the points. We still use our cash budget each month for things like “Entertainment”, “Groceries”, and “Clothes”. However, most other expenses go on the card.

If you’re trying to get out of debt and want to take control of your money, I recommend switching to the cash budget. However, if you’re in control of your money and feel you don’t spend extra using a credit card, then I say go for it.

 

June 18, 2012

The heat bearing down on you in the middle of an Oklahoma summer day quickly reminds you of the beauty of an air conditioner.  It was a luxury I didn’t experience much that summer as I worked mostly outside for my dad as a maintenance man and janitor at my high school.  However, I was seventeen years old and the extra money was nice to have.

My typical summer day consisted of waking up by 6am so I get to work at 7am.  My school was close, but I had to eat breakfast each morning to keep me going until lunch and through my 8 hour day.  My school wasn’t huge, but the 1,000 students in K-12 required a large enough campus to keep a crew of 5 very busy.  Typically, I was the yard guy and kept very busy mowing the lawns and weed-eating, but I when I was lucky I would get a plush inside job moving furniture or mopping floors.

There was one job I loathed more than most others.  It wasn’t picking up trash, weed-eating, or even cleaning toilets.  It was replacing the bad heat exchangers on the school’s HVAC units. The school had a network of 10 or so buildings that spanned 70 years in age.  Needless to say, there was also a patchwork of HVAC units that loved to fail on the hottest of summer days… just when they were needed most.

Luckily for the school, my dad previously hired a former air conditioner repair man as a maintenance man who knew just how to fix them.  Unlucky for me, he needed an assistant because it wasn’t easy work.  His name was Jimmy, and he was a former bull rider who had the beat up body to prove it.  His injuries were only outnumbered by his stories which he loved to tell.  He was the brains behind the heat exchanger replacement operation, but I was the brawn.

Sometimes I thought he could do the work by himself, but he requested help because he would get too bored up on the roof all by himself.  When it was necessary to change a heat exchanger, we would usually get to work early because we knew it would be a long day.  The only thing worse than being outside on a 100+ degree day or fixing a bad heat exchanger is fixing a bad heat exchanger on a 100 degree day while working on a hot tar roof! The 100 degrees quickly felt like 115+ when you combined the black roof with the direct sun.

My memory of how long it took to replace is somewhat blurred because my mind has since repressed the pain!  However, when I do a quick Google search, the results tell me it takes 5-6 hours for professionals.  We were a professional plus an amateur, so we maybe qualified as semi-professionals, but that time seems about right.

Changing the heat exchange required an especially large amount of patience as you had to practically take apart the entire HVAC unit to get to it.  The puzzle was disassembled by removing 50+ screws, motors, and many sharp metal plates. It always nice to get the heat exchanger in place, until you realized the hard work was just beginning.  Reassembling the unit was usually even harder because you had to get everything aligned perfectly when screwing the plates back in.

Did I mention yet that I was seventeen years old? Do you know any seventeen year olds with patience?

Needless to say, I got very frustrated during this process!   It was so hot, exhausting, and dirty, and I already knew I didn’t want to be an HVAC repairman when I grew up!  There was no benefit for me to go through except to realize I had to succeed in college so I never had to do it again! I thought so anyway.

As the heat of the day set in and the work got the most complicated, I was usually right at the peak of my frustration.  When this happens, it doesn’t take much to put one over the edge.  The climax was usually caused by a single screw that wouldn’t align no matter how much force I’d try to use.  It happened and things began flying through the air (a combination of tools and words).  At this point, Jimmy popped in with a line I still remember to this day.  He’d say, “It’s only metal, you can let it beat your mind.”

Dang.  Why was I allowing myself to get so worked up over an inanimate piece of metal that wouldn’t listen to me?

It was only metal, that already proved it could be assembled.  It would only take the tenacity and patience of a human mind to mend it.

Til this day I still think about that metal every time I walk out of the cool air conditioning and hit the baking heat outside.  However, I also think about it when I start to get frustrated, even though I’ve gone from working on HVAC units to working on spreadsheets and presentations.  The metal wasn’t able to make me frustrated, only my mind could do that.  This was one of my most important lessons in learning to work smart.

 

June 14, 2012

School does a poor job of teaching us patience in life. In fact, one school year equals approximately 7-10 “real life years”. What does this mean?

We’re impatient. We want instant access to everything, and if it’s not instant, it’s not fast enough! We rage on the road because others slow us down, jockey for position in the airport security line in hopes of being the first to be molested by TSA, and try every get rich scheme that’s out there.

I didn’t blame our impatience on school until I talked to my friend’s father. He used to be impatient, but now he’s a millionaire… so I listened to him!

If you see him now, you would never know that he went through the same money and life fulfillment struggles as some of us. He is very successful and has recently made a couple of multi-million dollar donations. We talked about some of his struggles when he was younger and he introduced me to theory about school teaching us impatience.

His theory is that school life does a poor job of preparing us for the real world because it conditions us to believe success can happen very quickly.

Just like when I said early school does a poor job of teaching us some things, the case holds true here even though I don’t believe it’s intentional. It happens because schools are set up with a short duration between “levels” of school, both high school and college.

Life as a freshman in either high school or college can be difficult. You’re at the bottom rung, everything is new, and oftentimes it feels like you’re intentionally stepped on by the upperclassmen. I think I was literally stepped on a few times as I had three older brothers, and it was my mission to pester their friends; in return they made me pay!

Now, look what happens as you move to your sophomore year. You’re no longer at the bottom. Sure, you still have upperclassmen that keep you in check, but now you have freshman that look up to you. Life is better.

One short year later and you’re a junior. At this point, you can see the top and you probably have friends that are seniors – so you’re officially associated with the top rather than the bottom. It might have felt like a long time, but it was only two years!

You get through your junior year and suddenly you’re a senior. You rule the roost and are looked up to (sometimes forcibly) by all of the underclassmen. In a matter of three years you’ve gone from the bottom to the top.

Everyone goes through the progression but some really take advantage of it. In the case of my friend’s father, he started out not knowing anyone at his university as he came from a very small town. He got involved in different organizations on campus and was elected to some leadership roles.

By the time he was a senior, he was at the top of his game and held many leadership positions including student body President of a large university!

I related with this because I followed a similar path and was involved with campus leadership. He went on to tell me that school does a poor job of preparing us for real life because we get conditioned to expect that instant gratification. We expect that we can be at something for a few years and already move up to the very top! It was one of those ‘ah-ha!’ moments for me because I can definitely relate.

Of course, real life isn’t that easy. If you work for almost any business or corporation, there are plenty of people who have been there for 15-25 years that are vying for the leadership positions that you might have your eye on. We always hear about the Zuckerbergs of the world who were able to make it to the top very quickly, but that won’t happen with most of us.

It will be a long road of persistence in toil while knowing that it can someday happen. He is now in his mid-50s and said he feels like the “junior” level equivalent of how he felt in college. This is right according to the math (30/10 = 3 school years, which would put him somewhere between a junior and senior).

It’s amazing to think that because he is very successful and the head of multiple companies, but I heard this was straight from his mouth!

I’ll keep working on my patience and not be upset when my company doesn’t make my CEO right away… besides, I’m not sure I want to! What do you think of his theory?

 

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Taking in the Himalayas in Nepal

You can always tell when I start to get in over my head while writing because I pull a lot from my quote collection.  Life fulfillment is one of those topics. I talk a lot about life fulfillment on my blog, but I’ve never actually written what I think life fulfillment means.  Many times I’ve started writing this post… only to stop when I get stuck.

My personal search for my mission and life fulfillment is what caused me to start reading in 2007, and what’s kept me writing the last year on my blog.  I’m in the process of discovering it and some key elements are already in place.

Where are you in the process?  Your life fulfillment is like your fingerprint in that it’s truly unique.  No one else can determine what it will take for you to be fulfilled, and the minute someone tries to push their belief of what your fulfillment should be, you should run.  Only you can know what fulfills you.

Some view life fulfillment as something they may someday reach when they finally have the perfect family, the perfect job, or a certain amount of money.  Others are already living a fulfilled life and wouldn’t change a thing.  I’m not sure either of them are right or wrong, it all has to do with what you want.

Many of us are driven in life by factors or forces that we’re not even aware of.  I like reading books about what drives people.  One of those is Titan which is written about John D Rockefeller.  The book explains why Rockefeller was driven to become the world’s wealthiest man.  He grew up poor, and his dad left his family when he was fourteen.  It was combination of shame and necessity that drove him to work hard to support his mom and younger siblings.  The family barely scraped by, and he vowed never to be poor again.

This drive for life fulfillment as a result of our familial conditions is explained in The Celestine Prophecy as the following:

“We are not merely the physical creation of our parents; we are also the spiritual creation. You were born to these two people and their lives had an irrevocable effect on who you are. To discover your real self, you must admit that the real you began in a position between their truths. That’s why you were born there: to take a higher perspective on what they stood for. Your path is about discovering a truth that is a higher synthesis of what these two people believed.”

The theory that your life fulfillment is based on familial conditions should be looked at as a storyboard in the tale of your ancestral life.  You wouldn’t be where you are without the actions of many, many previous generations, and what you do in your life will have a great impact on your future generations.  However, your life is still a unique chapter of the full story.

Others find their life fulfillment is driven by religion.  Some of the most successful people in the world feel they’re driven by divine inspiration.  It’s been said that George Bush believed from God that he was meant to be the President of the United States, and in his mind there was nothing that would stop him.

The religious view is explained in the book The Call by Oz Guiness. He said,

“Most human lives are an incomplete story if not a story of incompletion.  As Reinhold Niebuhr wrote, “Nothing that is worth doing can be achieved in our lifetime; therefore we must be saved by hope.  Nothing which is true or beautiful or good makes complete sense in any immediate context of history; therefore we must be saved by faith.  Nothing we do, however virtuous, can be accomplished alone; therefore we are saved by love. No virtuous act is quite as virtuous from the standpoint of our friend or foe as it is from our standpoint.  Therefore we must be saved by the final form of love which is forgiveness.”

This argument is that we may die without feeling like we’ve ever found our purpose, and that’s ok.  It’s ok because the whole time we were playing a part in something much bigger that we may not have even seen.  Nine year old Amber Hagerman was abducted and killed in Arlington, Texas in 1996.  Now, her namesake “Amber Alert” has saved countless lives.

Finally, a simpler view is that we are fulfilled in life by doing what makes us happy.  Once again, this is dependent on you as you’re the only one who can figure out what makes you happy.  As Fryodor Dostoevsky said,

“Without a firm notion of what he is living for, man will not accept life and will rather destroy himself than remain on Earth.”

I’ve listed three ways we are driven to fulfillment, but there are obviously more. The most important thing is to actively seek what fulfills you. Henri Nowon said, “He who thinks that he has finished is finished. Those who think they have arrived have lost their way.”

Even if you are searching, you may feel like you’re walking a random path with no clear destination; I think we’ve all been there. Sometimes, it’s only in hindsight that we figure out why we had to go through what we did.  As Winston Churchill said, “I felt as if I were walking with destiny, and that all my past life had been but a preparation for this hour and for this trial.”

What makes you fulfilled in life?  You may be fulfilled already, or you might be in search of life fulfillment like many of us are. It’s not a bad thing; just don’t forget to enjoy the precious life you have today.

If you would like to read more on this subject, I highly recommend Oz Guinness’ book The Call; it’s where I pulled most of these quotes from.  Please leave your comment on what fulfills you!

 

Recently, J.D Roth at Get Rich Slowly asked his readers how much they spend on housing, and not surprisingly many people weighed in on the subject.  Housing is one of the hardest things to live without – the hardest of course being food!

While reading through the comments, I thought about how many different housing options we have – from sharing flats, to living with parents, to a house in the country.  Through most of the stories, one item remained true – happiness seems to live somewhere within the 20%-30% range of total income spent on housing.  Spend more than that, and the pinch is on.  In fact, I recommend you only spend 2x your annual income on a house.

So, how much does the average American spend on housing?  I found this great information from the US Census Bureau which details our housing expenses.  The average annual income in the survey is $60,753 (2009); which is above the current average household income at $49,445.

Here’s a look at what the average US household spends on housing:

Monthly Housing Expenses

This is a very comprehensive view of housing expenses which includes everything you can imagine; from mortgage payments and maintenance, all of the way down to postage stamps!  I’d hate to be the guy who tracks how much Americans spend on postage stamps…

According to this survey, the average survey respondent spent $1,408 monthly on home expenses in 2009.  The highest category is shelter which includes mortgage, property taxes, and rent while the lowest category is housekeeping supplies. Not surprisingly, utilities is the second highest category.

The other important part of these stats is the ten year change. Overall, housing expenses have increased 40% in the last ten years!  This is very surprising, especially considering the major real estate downturn which brought home values down.  Granted, the data is from 2009 so it might be a little lower now.

Where are the additional increases in expenses coming from?

The main increases have come from items we can’t easily decrease our spending on.  As noted in the chart above, the highest increase came from “Utilities, fuels, and public services”.  Within that category, “Fuel oil and other fuels” increased by 90%, “Natural gas” by 79%, “Water” by 68%, and “Electricity” by 53%.  We can’t easily cut back on these items, and they’ll continue to rise as oil prices rise.

Items that we do have more control over have decreased.  The most obvious example is “Household furnishing and equipment” which increased by only .47%.  Within that category, “Floor coverings” has decreased by 32%! Apparently we’ve learned to cover our floors much cheaper… we have concrete floors in half of our house so that help explains the decrease!  “Furniture” spending is down 6%.

Have you seen similar increases in your housing expenses?  How have been able to reduce some of the categories?

Knee Walker

June 7, 2012

One of the toughest parts of recovering from my torn Achilles is learning to walk again. The original injury happened on April 25. After surgery on April 30, my cast was removed on June 1st – a full month later. As you can imagine, a month of inactivity is not good on the leg. There are some obvious size differences between my calf muscles, and when I hold my leg up, the calf area hangs off the bone like you’d expect with a 90 year old man (no offense to any 90 year old men reading this). Sorry if I grossed you out!

Aside from the visual differences, there were some obvious physical differences. Mainly, I couldn’t put any weight on my left foot. I don’t think it had as much to do with the Achilles tendon as it did with the inability to bare weight on my foot and ankle. They’d been without weight or much movement for over 5 weeks. In the grand scheme of things, that’s not a long time, but when it comes to your body, it must be an eternity. The tendon is very strong now, but it’s also very tight because the way it was sewn back together. To accommodate this, my walking boot has inserts that raise the heel approximately 3/4 of an inch.

As I continue rehabilitating, I’ll work more and more to get gain the original range of motion back in the tendon. However, one of the most important things to do right now is to learn to walk again. When I started out, I didn’t put any weight on my left foot; I just barely put it on the ground. However, as the days have gone by, I’ve started to add some additional weight. When I do this, I experience sharp pains in my foot and stiffness in my ankle thanks to the inactivity of the last 5 weeks.

The doctor told me I could start bearing weight about one week after the cast was removed. After that, he said I could start working my way down to one crutch, and within another week get down to no crutches. As expected, I’m a little ahead of schedule due to my impatience. I’ve started adding weight, and now I’m trying to learn to walk with one crutch. At first, I attempted to use the single crutch on my left side so I could support my body weight as I step. However, this hasn’t proven to work real well, and it’s making me hop a little more to try and get back on my good foot.

Next, I tried using the single crutch on my right side (opposite side of the injury). Believe it or not, this made all of the difference! Now when I step on my left side, I lean to the right and use the crutch to bear some of the weight. This has allowed me to walk in a more fluid motion instead of hopping. There’s gotta me some kind of important life lesson in that idea, but for now I’m just focused on walking ;).

Soon, I’ll once again walk independently, even though I’ll still be in the boot. I can’t tell you how sweet this will be. After six weeks of wheelchairs, knee scooters, and crutches, this will be such a welcome reprieve. Six weeks of limitations that prevent me from enjoying walks around the neighborhood with my wife and our dog Lucy, six weeks of forcing my wife to do everything because getting out of the house is too hard, and six week of fearing walking up the three steps into our kitchen. My wife will welcome it just as much as I will.

Even with my single crutch, I’m already starting to gain some independence. As some of you may know, I work from home which is a double-edged sword. It’s great because it’s allowed me to stay productive with work even through this injury. However, it’s been tough because my wife works and is gone most of the day, and I don’t have anyone to talk to besides my dog! I’m definitely a social creature, and I’ve learned that I need social interaction to stay energized. To celebrate yesterday and break free of my isolation, I drove myself to Wendy’s to get a burger.

I’m glad I’ve gained some valuable perspective from my injury, but I can’t until I can start walking on my own again!

 

The big day has come and you’ve found the person you want to spend the rest of your life with.  You’re moving in together, combining your stuff, and accidentally sharing toothbrushes.  You have it all figured out.

However, what happens when you receive your first electricity bill?  Are you going to pay it yourself or ask your spouse to pony up for half of it?  If you’re on it, you already have this figured out and have discussed it with your spouse but from what I’ve experienced, most people aren’t on it!

Do you combine your finances with your spouse?  Will both of your paychecks go into one shared account to be used by both of you?  What about the bills?  Are you working together to pay off your debt and work towards financial goals?

My wife and I have fully combined our finances from the start.  Luckily, we both had all of our debts paid off when we got married, even though I had previously accumulated $50,000 of debt.  This seems to be the biggest sticking point between couples, and oftentimes the spouse with debt is trying to do the “right thing” by wanting to pay off their debt with their own money.

Why do we combine finances?

I don’t think we’re better than anyone who doesn’t combine their financial lives.  Some of our good friends don’t combine and seem to be ok, but I still don’t agree with it.  When I like to be mean, I ask people if they refuse to combine finances so the divorce won’t be as messy… people always like that!

Below are my top 4 reasons you should combine your finances:

1. You get on the same page with short-term and long-term financial goals

2. It forces you to discuss the hard topics

3. Financial infidelity (hiding purchases) is still infidelity

4. How will you split your finances if you have kids?  Only pay for the one you like most?

How can you start combining your finances?

Many people enjoy living with separated finances because they feel like they deserve to control the money they earn.  If you think combining finances means “giving up power to the other person”, then there’s some other stuff you need to work through that we’ll discuss later. In short, the debt becomes both of your debt, and the income becomes both of your income when you get married.

The first thing you should do when combining finances is get on the same page.  You need to discuss short and long term goals and determine how you’re going to use your money.  Do you want to pay off your debt, start your emergency fund, or save for a big vacation?  After you’re on the same page with goals, I’d recommend following these steps to take control of your  money:

1. Complete a current assessment

2. Track your spending

3. Create a spending plan (budget)

4. Monitor plan and adjust as necessary

5. Save some money

6. Attack your debt

The top authority on the subject of combining finances is Dave Ramsey.  Check out his great article on, “The Truth About Money and Relationships” for more information or read his book, The Total Money Makeover.

The most important part is to have continual discussions about your money with your spouse.  Ramsey recommends a monthly budget discussion, but sometimes it’s hard to stay on top of it.  We also use a cash budget which helps us stay on top of our spending.

My wife and I are mostly on the same page, but that doesn’t stop us from having “disagreements” on money.  If it was up to me, I’d never spend money and would be wearing the same clothes I had in college.  She’s cheap, but she’s wouldn’t live off of Ramen noodles like me.  She does a good job of making sure I enjoy life… and I force her to think about every purchase :).  We’ll see if I can get her to write her opinion on this subject someday…

Do you combine finances with your spouse?  Why or why not?