May 2011 – Beyond Dave

Chasing a Dream

I am blown away by people who set outlandish and unconventional goals for themselves and then proceed actually to accomplish what they set out to do.

Recently I read a story of just that kind of person on one my favorite blogs – Get Rich Slowly. Here, Ian told his story of how he built his own house without a mortgage.

After deciding a normal career and suburban life was not for him, Ian made a plan to live on a big chunk of land in a home built off the grid house. Ian was able to buy 40 acres for less than $500 an acre in a place he would love living. He used a small inheritance from his great grandparents to buy the land.

After purchasing the land, Ian returned to college to finish his degree. When he graduated, he had $35,000 in student loan debt and no real assets other than the land. As much as he wanted to live in the boonies, he knew he could make more money in the city. Ian took a bar-tending job and paid off the $35,000 student loan in 53 weeks.

Editorial Comment: Did you catch that? He lived where he didn’t want to, doing what he didn’t long to, so that later, he could live his dream.

Ian then calculated that with two more years of living lean he would have enough money to build his house. He worked those two years and then returned to his land and started building. As most house projects go, Ian ran short of money before finishing.

Ian’s off the grid experience lead him to a job in the solar power industry. He now has saved enough to finish the interior and is currently saving to build a well-equipped workshop. Partially because Ian does not have to work, he does not mind working; but he still plans to retire by 30. Given what he has accomplished so far, I am sure he will be able to.

Ian consciously decided how he wanted to live his life and then he set out with great perseverance and determination to make it happen.

How about you? Are you chasing your dream with great perseverance and determination or just drifting along?

Sinking Funds to the Rescue

Things seem to be going according to your budget when along comes the bill for your homeowner’s insurance or the kids checkups or new tires and in one transaction your carefully conceived budget is blown. These expected but irregular expenses can be difficult to handle unless you do a little advance planning.

A well-managed sinking fund is an often forgotten but crucial component of your financial plan.

In our household, nearly 40% of our expenses are non-monthly. Insurance and taxes are reasonably predictable but we pay them quarterly or annually. Car repair and medical bills are unpredictable in both the amount and frequency. We also use our sinking fund for luxury items like vacations, gifts and home improvements where we have the flexibility to set the amount and the due date ourselves.

Here’s how we manage our sinking fund:

We have a spreadsheet listing each non-monthly expense its due date and a predicted amount due. Divide the amount due by the number of months until the due date to find out how much your monthly contribution needs to be.

Each month when we lay out our budget, the necessary monthly amount for each of our sinking funds goes in the second column of our budget form while expenses that we pay this month go in the first column.

For example, in the category, Housing, property taxes, repairs and insurance are all sinking fund accounts while pool supplies and propane are regular monthly expenses. The green background notates that Property Taxes and Insurance have required fixed amounts while we do have some flexibility on what we contribute to Repairs & Upkeep.

We complete the budget for the month making sure we allocate all income. Income can pay expenses, pay debt, go toward retirement saving, emergency fund saving, sinking fund saving or investment, but we must plan in advance what to do with all of it.

When we are done with the budget, it looks like this:

Income	Current Month	Sinking Funds

Net Monthly Income	$3,498.00
Expense
Giving	$200.00
EMERGENCY SAVINGS	done
DEBT REDUCTION	done
Housing	$-
Saving Property Taxes		$267.00
Saving Homeowners Insurance		$292.00
Repairs/Upkeep		$75.00
Pool& Propane	$75.00
Utilities
Electricity	$250.00
Internet	Business
Cell Phone	$68.00
Trash (Dec, March, June, Sept)	$32.00
Water/Sewer (Dec, March, June, Sept)	$80.00
Food
Groceries/Household	$700.00
Eating Out	$150.00
Transportation
Gas	$220.00
Repairs, Oil, Tires		$45.00
Car Tags/Registration		$12.50
Car Insurance		$143.00
Bike Parts
Personal Care
Clothing
Hair Care
Medical
Dental/Vision/Medical		$100.00
Pet Care – Food/Meds/Vet		$15.00
Insurance
Life Insurance		$34.00
Disability Insurance		$166.67
Health Insurance	$173.00
Boat Insurance		$23.00
Entertainment
Netflix, MLB, Hulu	$31.58
Blow Money	$100.00
Other Entertainment	$145.25
Vacation		$50.00
Gifts		$50.00
TOTAL Expense	$2,224.83	$1,273.17

The monthly total for sinking funds is transferred to our high interest checking account.

Sinking Fund	Months till due	Date Due	Amount Due	Monthly	Balance	Spent	New Balance
Budget for 6/1/2011
Property Taxes	6	11/29/2011	3,700.00	267.00	2,115.80	–	2,382.80
Homeowners Insurance	9	3/4/2012	3,795.00	292.00	1,137.80	–	1,429.80
Home Repairs/Upkeep		as needed		75.00	5,556.76	–	5,631.76
Repairs, Oil, Tires, Car replacement		as needed		45.00	5,892.76	–	5,937.76
Car Tags/Registration	9	3/1/2012	150.00	12.50	37.50	–	50.00
Car Insurance	3	9/1/2011	860.00	143.33	430.01	–	573.34
Dental/Vision/Medical		as needed		100.00	3,676.97	–	3,776.97
Pet Care – Grooming/Meds/Vet		as needed		15.00	116.46	–	131.46
Life Insurance	1	7/1/2011	827.00	34.00	793.00	–	827.00
Disability Insurance	2	8/11/2011	552.00	166.67	163.10	–	329.77
Boat Insurance	6	12/1/2011	529.00	23.00	391.00	–	414.00
Vacation		as desired		50.00	50.00		50.00
Gifts		as needed		50.00	968.00	–	1,018.00
TOTAL Sinking Funds				1,273.50	21,329.16		22,502.66

Any planned or necessary sinking fund expense is then paid out of that account and deducted from the correct category to give us our new balance for the next month.

Everyone needs a sinking fund. Even if you are still paying off debt, you must account for irregular expenses. The car needing tires is not an emergency. With experience, you can learn to predict what car and household repairs to expect and about how much they will cost.

If you are just starting out, there may be times when there is not enough money in your sinking fund to cover a necessary expense. Now what? If the starter is out on the car and you need the car to get to work this may be an emergency. Dip into the emergency fund to take care of the problem and then make rebuilding that emergency fund your top priority.

Borrowing between sinking funds is allowable in my house as long as:

1) The account to be borrowed from is not one setup to pay a required expense with a definite due date.

2) We both agree.

A well managed sinking fund protects your emergency fund and makes large expenses much more manageable.

The Journey

In this get out and build wealth thing – yet another unwelcome discovery: The journey is at least as important as the destination. Like every other endeavor that requires behavior change, merely arriving at the destination is not enough.

If you could go to bed fat and wake up thin, I guarantee it would not be long before you were fat again. Similarly, many of those that benefit from a financial windfall find themselves right back where they started in a short time.

We all want the quickest easiest path from where we are, to where we want to be. We don’t want to think or consider how we got here or even where here really is.

In our heads, we know the quick fix or magic pill doesn’t exist, but in our hearts we want to believe it does. This feeling in our heart is real and powerful and often overcomes our head knowledge. People trying to get out of debt almost always want to borrow their way out. These are smart people. They would readily advise a stranger that you cannot borrow your way out of debt but, when it comes to their own situation that logic seems to vaporize.

Spenders that force themselves into spend-free fasting, do save money and do pay down debt.

IF, while on this fast, we take the opportunity to explore our mindless pursuit of stuff, we CAN change forever our relationship with money.

However, without considered thought as to what need we are trying to fill with the endless pursuit of possessions; we spenders are destined to bounce right back to the old behavior and continue to spend more than we make, accrue debt and fail to save.

Newsflash! This is your life. You spend a huge chunk of it making your money. Take the time to discover what makes you truly happy before you spend.

Preparing a budget each month before the month begins is one concrete way to be intentional with your money. You look at every budget category and decide how much it should be. Don’t care about TV but desperately want to go out with your friends on Friday night? Fine, cut out cable and increase going out. Hate, hate, hate that old couch? Make adjustments in your budget that allow you to start saving for a new one.

Buying something because it catches your eye is NOT being intentional. That unneeded, unplanned new pair of shoes just set the purchase date of your new couch back a whole month. If you tend to buy things that you think you really want, only to get home and a) discover you already have one or b) you’ll never really use it, you need to spend some time thinking about ways to change this behavior.

Choosing not to be fully present when making financial decisions is how we got here. If we can’t learn to be present and untangle our decision-making we will revisit this place again and again.

Cutting the Cable

The challenge is to eliminate the cable and cut costs by at least $100 a month without sacrificing entertainment.

Saturday I packed up our DVR’s and returned them to the Bright House Cable office. The last time I remember being without cable was the summer of 1991, when we were wonderfully and completely TV free. I have been paying these people for 20 years since our last break.

I don’t hate Bright House. They provided us with good service over the years; but like every other cable company they fall way short on the original promise of cable-better programming with fewer commercials.

The price of getting commercial TV over the cable keeps ticking up. Last summer we added a second TV in the guest bedroom and the additional seldom used outlet with a DVR added $25 a month (plus all those ridiculous taxes).

Cost of Cable TV:

HBO $18.00

Combo (cable/phone) $76.99

HD Pack $ 6.00

DVR Service $ 9.95

Add’l Outlet $ .95

HD DVR $ 8.00

+Netflix Blu-ray $11.99

That totals $149.83 or $1,797.96 a year or $ 8989.80 over 5 years!

New Hardware:

Antenna, Radio Shack $30 This is to pickup networks, CBS, NBC, FOX and PBS. All of these come in fine in high def.

Roku XD Streaming Player 1080p – (Cool tiny box). I bought the $80 XD model for 1080 high def and Wireless N. This connects wirelessly to our internet (we already had a wireless router) and allows us to stream TV, Movies, Sports and Music.

OBI110-$49.99 This little box lets me replace the cable phone line with a free Google voice number while using our existing cordless phones. No computers need to stay on. So far, I love this thing. It installed very easily and works as promised.

Subscriptions:

Amazon

No monthly charge, some content free for prime members, movies rental 3.99 for new releases, TV episodes about $1

Netflix

Watch Instantly Unlimited TV and Movies $7.99 a month (streaming movie selection is not as any where near as good as DVD selection)

HuluPlus

Tons of TV old and new, lots of movies, very limited ads $7.99 a month

MLB

I paid $109 for the subscription that allows us to watch any almost game any time. Be very careful that you are not in a blackout area for your home team.

Cost without Cable:

HuluPlus $ 7.99

Netflix $ 7.99 (changed to streaming only)

MLB $15.60 (total cost divided by 7 months. I guess I may have to do something similar after baseball season for NFL or college basketball)

Total new cost $31.58 MONTHLY SAVINGS $118.25 Hardware Costs $160.00

Challenges:

I bought the new hardware and hooked everything up in the guest room where we have a flat screen HDTV. Once I had it figured out, I moved the Roku and antenna downstairs. There I discovered our older non- flat screen HDTV was really a HDTV monitor. Because it has no tuner it cannot be connected directly to an antenna.

The solution was to sell it and its cabinet and move the flat screen downstairs. It’s bigger, better and worlds easier to connect.

Antenna-So far, we’ve watched nothing on this as almost all the network stuff we like is available on HuluPlus with very limited commercials. With cable, we used the DVR’s and never watched anything live -including sports. By recording a game and watching 30 minutes after the start time we could fast forward through the commercials.

Sports- Not at all sure how will we get NFL or College Basketball. Some we can get off the antenna but then we have commercials and no DVR.

Suggestions:

I am a newbie at this and would love to hear your suggestions on how we can remain happily cable free.