Archives For August 2012

Hurricane Isaac

August 27, 2012

We can quickly lose money when we’re scared, and I’m not even talking about the kind of scared that would happen if someone held you up! Instead, I’m talking about the kind of scared that can happen when the stock market is plunging, when someone is sick, or when we feel we’re in some other emergency situation.

Our fight or flight instinct can cause us to make bad decisions, but it can also cause us to make the correct, but expensive decision.

What would happen if your loved one was sick (parents, spouse, children, etc)? Would you delay the life-saving surgery because you wanted to find a better deal by shopping around? Heck no! There are times in life when overspending will happen because it’s necessary and/or we’re scared.

We’re going through one of those situations right now since we live in New Orleans… just in case you haven’t heard, we’re currently in the direct path of Tropical Stormicane Isaac. If you watch the national media, you’d think it’s pure chaos down here with “Katrina-like” conditions already ensuing. Well, it’s not really that bad.

Most of my neighbors are looking forward to the event with grills prepared and alcohol purchased. Apparently, “hurricane parties” are all the rage. This is our first one to go through so I’ll let you know!

When we went to the store to buy supplies yesterday, things weren’t so calm and we definitely saw some anxiety related overspending. In fact, we even saw it in our own cart and yours truly was the culprit! My first overspend came at Ace Hardware because it was “convenient” and spending twice as much as I needed to on batteries seemed smart. It didn’t help when the guy in front of me bought the last two 8-packs of the same “D” batteries I needed! Oh yes, the power of scarcity.

My wife wasn’t thrilled with my purchase, but she was in the car so she couldn’t stop me. My next overspend came at Wal-Mart when I loaded up three bottles of butane for my lantern when I probably already had enough at home! This put my wife on alert. As we were walking down the main aisle they had a whole crate of giant boxes of Gold Fish and she said let’s get some… and I agreed… and then she put me in my place and told me to get my spending under control! I didn’t realize I was being tested!

It’s very easy to get caught up in the moment and suddenly realize we “need” all of these things to get us through. At least I wasn’t like the guy behind me who spent a couple of hundred dollars on a new rifle – which I’m sure he had in his budget this month!

Gun in shopping cart at walmart

What’s the point of this whole post? Sometimes even the most budgeted-minded individuals can’t control their wallets when they’re put in an emergency situation. The best way to deal with this is to have an emergency fund. The last thing you want is for all of your bad decisions to stick around for years because you overspent on your credit card.

Your initial emergency fund should be $1,000 in an accessible savings account. After you have this and you pay off all of your consumer debt, you should then fund 3-6 months worth of expenses in another savings account. Read more about this and how to Nuture Your Money Tree.

The latest update while writing this (Monday night) shows Isaac staying pretty weak when it hits New Orleans, so hopefully all of our extra spending will be in vain. However, we’re ok with it because as Benjamin Franklin said, “An ounce of prevention is worth a pound of cure”! Also, this was the water aisle a couple of hours after we bought ours (thanks Deepak):

Empty water aisle at Walmart

Have you overspent on an emergency? If so, let me know about it in the comments. Also, I’ll try to keep my Twitter and Facebook accounts updated during the storm, so check them out!

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It’s clear that most Americans have embraced the concept of always having debt, and understandably so.  Who doesn’t love to stress about things such as how you’ll make your next car payment or if you’ll be able to eat next week.  Instead of setting ourselves up for success, let’s live a reckless financial life full of things we can’t afford and hope we get lucky with the lottery!

Confession:  I watched 2 hours of “How the Lottery Changed my Life” this weekend on TLC since my wife was out of town, and it got me fired up.  I hate seeing people struggle financially, and I hate it even more when people get the opportunity of a lifetime and blow it.

So, to ease my mind, I’m going to give ten easy to follow tips to stay in debt forever.  Follow these  if you never want to get ahead financially.

1.  Buy more house than you can afford

This is one of the best ways to stay broke.  First, spend as much as you’re approved for by your lender.  Lending limits have tightened up in the last five years, but they still remain much higher than you should actually spend.  I definitely would spend more than my recommended 2X income on a house purchase.  Hint:  I recommend only spending 2X household income.

Also, just as you get closer to retirement, make sure you upgrade your house so that you can keep paying a mortgage the rest of your life.  There’s no greater peace of mind than having the stability of a monthly mortgage payment the rest of your life!

2.  Always have a car payment (How much car can you afford)

I love, Love, LOVE car payments for people who want to remain in debt.  Not only can you get the false sense of satisfaction from driving around in a car you can’t really afford, but you also get to spend your potential retirement nest egg now.  Wouldn’t you rather pay a $500 monthly car payment for the rest of your life than potentially build a $2.9 million retirement nest egg???  To do this, definitely spend more on a car than the 20% of your annual income I recommend.

3.  Think about “how much per month” rather than total price

The more you can get in the mindset of “how much per month” rather than total price, the better chance you’ll have to remain in debt the rest of your life.  Want a new TV – how much per month?  Ready to buy some new furniture – how much per month?

Things seems a lot cheaper when you’re only paying by the month so you’ll spend more than you should and you’ll be guaranteed to stay in debt.

4.  Don’t keep track of your spending

One of the methods I used to build up $50,000 of debt and remain in it was to have no idea where my  money was going.  Sure, I did some other things like buy a new car and charge up a credit card, but not keeping track of my spending definitely helped me stay in debt.  Tracking your spending is for suckers who want to control their money and someday get rich.

5.  Live paycheck to paycheck

Have some money leftover from last week’s paycheck?  You better spend it before you get your next paycheck!  It really doesn’t matter what you spend it on, just make sure you don’t have any excess money left before the next check.

6.  Don’t have an emergency fund

You really don’t need an emergency if you have a credit card.  Instead of $1,000 or 3-6 months worth of savings, follow step five and spend every dime of your paycheck while waiting for the next one to come through.  If you do this, you’ll be like the other 1/3rd of Americans who would be homeless within in a month if they lost their job.

7.  Don’t save for retirement

This one is pretty easy to do if you’ve followed all of the steps above – because you’ll guarantee that you don’t have any money to save for retirement.  Also, if you don’t know how to now, never learn how to start investing.

8.  Keep up with the Joneses

Did Jim Jones (not a good name choice) down the street buy a new boat?  Then you should buy a new boat; don’t let a guy named Jim Jones look like he’s richer than you.  Ever wonder how people have so much money or why everyone seems rich but you?  It’s because they’re spending money they don’t have… they’re masters at following step 3 (think about how much per month).

9.  Have the attitude that you deserve stuff because you work hard

You work really hard at your job so you deserve a splurge; just like I worked really hard in college so I deserved a new car!  Maybe you don’t even work that hard… but you still deserve to buy things you want!  Fulfill that inner-princess and let MasterCard help make all of your dreams come true!

10.  Don’t be on the same page financially as your significant other

If you’re married, one great way to remain in debt is to be on a different page financially than your significant other.  You should also take out credit cards under your name (or their name), not tell them about it, and then rack up loads of debt.  This will not only keep you in debt, but it might also end the relationship!  You should keep your finances separate and treat your money like your money (instead of combining finances and making it the family’s money).

One last bonus tip to staying in debt forever, read the 12 things I do to stay frugal and don’t do any of them!

I hope these tips help everyone who want to remain in debt do so for the rest of their life.  What about you?  Do you have any tips for people who want to remain in debt forever?  If so, leave them below!

The following is a public service announcement. You probably won’t care about it unless you’ve ruptured your Achilles, you plan to rupture your Achilles in the future, or you like seeing me in pain (sicko).

Here’s the story of the recovery period of an Achilles tendon – your results may vary.

April 25, 2012: D Day

It was a mild New Orleans evening as we looked to keep our winning kickball season going; I was excited to get back on the field to participate in a sport that requires little talent. Little did I know this would be my last time to walk normally for a long time… ok, I already walk with a swagger, but you know that. Pre-injury picture:

How long does it take to recover from an Achilles tendon rupture?

If you haven’t read the story before, here’s how I ruptured my Achilles tendon. Oh ya, I broke my hand five weeks previously as well so I had my hand in a splint. Things were going well.

April 30, 2012 (5 days post ATR): Surgery

To make a long story longer, here I go. The ATR surgery requires a five inch incision on the back of your leg from your heel up your calf in about a one hour procedure. It was a complete rupture (tear) so the doctor literally found both ends, overlapped them, and stitched them back together. I’ll spare you the nasty post-surgery picture; if you really want to see it, email me and I can send it to you (but just know I’ll think you’re weird).

I came out of surgery around 10:30am and felt no pain because of the “block” and anesthesia. At that point, I thought I could get myself into the wheelchair and proceeded to flash everyone in the waiting room. I’m not used to wearing gowns.

The pain didn’t hit until about 8pm that night. I didn’t start taking the pain pills because I wanted to see what it felt like before I took them. Worst idea ever. It hit me like a giant purple My Little Pony and the Percocet took quite a while to catch up. The horrible pain lasted for 1.5 days.

About a week after the surgery, my friends thought it’d be fun to take me to Whole Foods in a chair with wheels (it wasn’t a wheelchair).

Achilles Tendor Rupture ATR

May 11, 2012 (16 days post ATR)

The doctor removed my splint so he could check the wound and then put on a cast, all was healing as expected so far. This is when I saw the incision for the first time; it required 16 staples and looked as bad as you can imagine.

The next two weeks were terrible. I struggled to get around our house to do even the smallest of things. I have to go up three steps to even get to the kitchen, this was the worst! Sometimes I would lift my butt up on each step and then twist around when I got to the top.

May 27, 2012 (32 days post ATR)

My brother-in-law got married and was nice enough to ask me to be in the wedding party. You can read the full story on my guest post at Susan Cooper’s blog, but long story short, I still danced:

Dancing with a knee walker after Achilles Tendor Rupture ATR

I opted for the “knee walker” because it was a heck of a lot better than crutches. It was actually kinda fun to ride on once I got over the whole “pride” thing.

June 1, 2012 (5 weeks post ATR)

The cast was removed, and I could finally start working on recovering from the ruptured tendon. They put me in a boot which allowed some movement, but for the first week I was on crutches while I learned to put weight on my foot again. Then it was time to learn to walk again.

June 8, 2012 (6 weeks post ATR)

Time for physical therapy! The first few sessions were mostly to start gaining movement in the ankle. Since I hadn’t used it much in the last 8 weeks, the pain from the ankle tightness was only beat by the pain in the tendon. It’s weird how tight the tendon felt since they literally shortened it.

June 22, 2012 (8 weeks post ATR)

Off with the boot! I was so excited to finally be out of the cast, crutches, and boots… time to really start recovering! No more shower seat or anything… although it was kind of nice to sit down in the shower.

July 18, 2012 (12 weeks post ATR)

The moment of truth was here … could I run on my own again outside? My PT session included “anti-gravity” runs at this point where you dress up in stretch pants with a tutu like thing (see below) so you could run without all of your weight, but I hadn’t explored the great outdoors yet.

Zero gravity treadmill for ATR

I made it about 30 feet… and couldn’t have been more excited! No more fearing getting around the house, no more trapped inside all day… I could finally continue on with life.

August 1, 2012 (14 weeks post ATR)

The day we all dream of, physical therapy graduation. In total, I did about 8 weeks of physical therapy with two sessions per week. The staff was great and they helped to push me just fast enough to continue recovering without getting discouraged. I was also pretty motivated to get back to normal so that helped.

Physical Therapy Graduation

August 17, 2012 (16 weeks post ATR)

At this point, I’m one week away from the four month mark of when I ruptured my Achilles tendon. I can’t tell you how many times I asked the doctor or physical therapist what I could have done to prevent this. The only answer was… nothing, it was just bad luck.

Yesterday I ran 1.6 miles. I’m working my distance up each week and hope to run a 5k with my wife at the end of September. They say a full recovery takes 6-12 months, and I think I’m fully on my way to hitting the early end of that. Yay.

In the end, some things are out of our control, and the most important thing is how we react to them. I definitely got down at times, but overall I think I maintained a positive outlook which helped me recover faster. If you’re going through an ATR injury or something similar, know there’s a light at the end of the tunnel. This concludes the public service announcement.

UPDATE:  Exactly one year after my Achilles tendon rupture, my wife and I hiked 11 km around Uluru (Ayer’s Rock) in Australia.  Even more exciting, three weeks before that, we trekked 18km in New Zealand on the Tongariro Alpine Crossing.  It was a little sore at times, but I’m happy to report that overall it felt great!

With access to a global customer base through the internet and social media, kids are getting rich at a younger and younger age. Haven’t you heard of Matthew Zuckerberg (Mark’s brother) who invented Toddler Wall – a new social media platform for babies?  He was 3 when he got his first round of funding which made him a millionaire.  So how do you raise kids with this kind of money?

Wait, that title threw me off.  I actually wanted to talk about how to introduce the concept of saving money to kids – and I’m obviously an expert because my wife and I don’t have kids.  Maybe I should go back and delete the first two paragraphs and start over….

Teaching kids how to handle money is important.  Otherwise, they might grow up like Vince Young who had to take a $1.9 million dollar loan because he didn’t receive a paycheck during last year’s NFL lockout. The kids and money topic came to my mind because I was hanging out with my family last weekend and chilling with my nieces and nephews (two girls – 5 & 4, and two boys – 3 & 2). They asked me about my blog and how they could start saving and investing for the long term – ok, that’s not true either.

While I was there, the 4 year old girl brought me her My Little Pony doll. I told her how awesome it was and that was that.  Only later did I find out that she bought the doll on her own with money she saved up by doing chores!  After I learned that, I wish I paid more attention to her bringing it in! I asked my brother how they taught her about money and that’s the main point of this post.

She receives a base weekly commission for doing her chores, and then she can make additional money each week by doing extra tasks. Notice how I use the term “commission” and not allowance. I picked this up from Dave Ramsey because he emphasizes the point that you shouldn’t just give kids money (too much like welfare) but they should earn it even at a young age. Kids allegedly cost $250k to raise anyway, so you don’t need to provide welfare to them!

When she receives her commission or any other income, they have her divide it into 1/3rds, with equal amounts going to spending, long term savings, and college. The spending category goes for short-term items she wants to buy, such as the My Little Pony doll. The long term savings is for bigger items like a car, and college savings category is for… well, college.

Here’s the cutest part of the story, they let her pick what she wanted to save up for and she’s currently into My Little Ponies so she decided on a large pony. Every time they were in the store, she’d ask to walk buy the toy aisle to make sure her my little pony was still there! My brother and his wife decided it’d be best to go ahead and buy the toy just to assure it’d be available when she went to buy it.

After she saved up her $40 after numerous months, it was time to go buy the pony and reap the benefit of her savings (I guess they took the other pony back). The toy now means even more to her because of what she went through to get it. There’s even evidence that adults need this to be happy. The evidence states that ultra-rich people aren’t happy with purchases because they don’t get the positive feelings that come with saving up and buying something. They can buy whatever they want and it means nothing to them. Add one point to the “better to not grow up rich” side.

They’re starting her off with a great methodology that work equals money, which equals savings, which equals buying what you want with cash. She doesn’t use the kiddo credit card; she walks in with a roll of Benjamins and delivers (or maybe George Washingtons). As she gets older they’ll evolve the process and add in addition element such as giving.

For all of you parents, do you do something similar to teach kids about money? For you non parents, were you raised in a way that has helped you financially now?  Enlighten us in the comments section!

 

August 9, 2012

Ever wish you could have given your teenage self tips? Here’s the good news: you can’t and your path is already chosen! Oh well, I can still pretend… here’s what I’d tell myself about career selection:

Current me: Wow, great to see you young me! That’s crazy, I’ve hardly aged at all!

16 year old me: Ha, ya right, you look like an old man now. Are those real gray hairs?

Current me: Screw you, why don’t you quit living off mom and dad and stop being so awkward around girls at school.

16 year old me: Ouch, that hurt. Good to see I haven’t matured much.

Current me: Sorry, that was below the belt. Anyway, let’s talk about career selection. The good news is we’ve done well so far and have made some money. The bad news is we’re still trying to figure out what we want to do with our life.

16 year old me: Really, you’re this old and not a millionaire yet?

Current me: No, not yet. However, we’ve been investing for the long term and we will be some day.

16 year old me: Sounds boring… is my future wife hot at least?

Current me: Yes, but quit being so shallow. I want to give you some advice on how to select your career as you get older and graduate college. The good news is I don’t regret the career path I’ve gone down so far, but that doesn’t mean it can’t be improved. Write these 5 things down on your iPad – oh wait, you don’t know what that is. Anyway, here are my 8 tips for choosing your career:

1. When you select the university you want to attend and your degree, remember to do a cost analysis to see if it’s worth it. For example, if you decide you want to be an art history major who won’t ever make money, don’t go to Harvard. Stay at a cheap university and don’t rack up a bunch of debt.

2. Don’t try to be the best at everything. Instead, figure out what you’re better than everyone else at and continue to get even better. As Charlie Munger said, “You will have to figure out where your talents lie, and you will have to use your advantages. But if you try to succeed in what you’re worst at, you’re going to have a very lousy career.”

Current me: Dude wake up, are you even paying attention?

16 year old me: Yes of course, you said don’t waste your money or do things you suck at.

Current me: Ok, close enough. Here are a few more:

3. It may take you a long time to figure out what exactly you want to do in life, but remember to always learn as much as you can from your jobs. Ideally, you should select jobs that allow you to build a network, improve skills, and make good money – this is what I call using your job as a tool.

4. Don’t go into debt! I know you probably will anyway because that’s what I did when I went $50,000 into debt, but if you do, make sure you do your best to fight out of it. If you go deeply into debt, then you will be stuck at your job because you’ll have to remain there so you can pay your bills. Debt removes a lot of freedom from your life.

Current me: You ok to keep going and rally through this?

16 year old me: Sure, but can you at least tell me you drive a Ferrari or something cool?

Current me: I don’t and you shouldn’t either because new cars suck if you can’t afford them. Listen up on this last one because it’s very important.

5. When you’re in college, you’ll be forced to pick your career path by way of choosing a major. This is very intimidating because you feel like you’re determining the outcome of your entire life right now. However, it’s not really like that. Our generation will switch jobs every 2.3 years or so and most people don’t even work in the areas their degrees would suggest.

16 year old me: Interesting, I guess that takes some of the pressure off

Current me: Yes, it should. Now I’m going to give you two more bonus pieces of information. First, read up on how to work smart and how to adjust to the new way of work by becoming a consultant. Next, try to do as much as you can to find things you love doing – volunteer, intern, and explore. You may not see a benefit now, but it will definitely benefit you later in life.

16 year old me: That’s what you call “bonus” information? You know my future, and that’s the “bonus” information you’re giving me?

Current me: Sorry, I can’t give away any secrets because it might change our life trajectory – think Back to the Future. I will tell you one thing though – actually I’ll just whisper it to you….

16 year old me: Yikes.

Current me: It’s not that bad, just be careful next time you play kickball!