Year: 2011

It sucks when you are fighting and scraping to get out of debt and your company cuts everyone back to 35 hours. It sucks when you have finally gotten back to a balanced budget and your share of the health insurance premium goes up. It sucks when you are trying to make your 401K last and it loses 8% just since the beginning of the year.

The path to financial freedom has not changed direction; we still must spend less than we make, but for a great number of people that path has become much steeper. If you are one of these, it is very discouraging to hear the candy coated lies that many are dispensing as advice.

Skipping your morning Starbucks when your pay has been cut 20% is NOT going to solve the problem. In a better economy, a focused, determined energetic adult found it easy to pick up some side work. Today in many locations, this is simply not the case. Finding a part time job can be very hard and if you can find one, it’s often at minimum wage.

Lately I have seen a rash of honest hard working people who have not received what they were promised. The home that they struggled to afford has become worth half what they paid for it. The job that they’ve given their all to has cut their pay (in actual dollars or in reduced benefits) or their hours. Their college education, often financed, does not get them a high paying job. Their investments fail to provide peace of mind, bouncing wildly on an almost daily basis.

The luckiest of these people will be those that are the quickest to recognize the fundamental shift in their personal economy and react accordingly. It is natural to grieve a job, home or income loss. Acknowledge that grief, find someone to confide in and get to work on accepting your new reality.

Like kudzu on a hill side, lifestyle can silently grow, stealing resources and killing dreams.

Think back to your last raise or windfall – what do you have to show for the money?

You used to pay 6.2% of your pay in social security taxes, this year you are only paying 4.2%. What have you done with that 2%?

If you have recently paid off all your debt, good for you! Now, what will you do with that new “found” income?

Chances are if you don’t make a conscious decision about what to do with it, it will just slip away. It’s not that you are weak or stupid or irresponsible. The reason it will slip away is because there is a whole world of really smart marketers working day and night to conceive ways to separate you from your money.

In 1950, the average size of an American home was 963 sq ft. In 2004 that average size had grown to 2349 sq ft. while the size of average family decreased from 3.0 to 2.6.

How is it we could once be happy with so much less?

For most people housing is their biggest expense. That expense includes many line items that increase as the size of the home increases including; rent or mortgage, utilities, maintenance, taxes, insurance.

When you have more square footage, you tend to fill it up with furniture, toys and appliances. What would your life look like if you lived smaller? Could you travel more, work less or stay home with the kids?

Maybe your kudzu is not your home; maybe it’s eating out or the car you drive or the toys you buy. The point is: you need to re-examine the ways your money slips away instead of helping you move closer to your dreams.

They were your normal middle aged America couple; the ones that asked if they could share our table at Glacier Point. She was clean, dressed in typical vacation attire and about 25 lbs overweight. He was pale, and had long ago traded playing a sport for watching sports on TV. As they sat down, I glanced at their trays. They both had a Now with 25% more bag of neon orange Cheetos and jumbo sodas. She had a deli meat-stuffed sub and he had a well-dressed hot dog.

Across from me sat my sister; her hair was windblown except that bit in the front that was sweat plastered to her forehead. She looked and probably smelled, not so fresh. I’m sure I was not any better. We were taking a moment to have a coffee and collect our courage to head back down the mountain the same way we got up – on our feet.

Glacier point is listed as a strenuous hike in the Yosemite literature because of the length and the gain in altitude. Our hike was 11 miles round trip with a gain (and then loss) of 3000 ft. As real hikers go it’s probably more intermediate than strenuous. But we’re not real hikers yet. The summit of Glacier Point is unique because it is possible to get there via car, tour bus or on foot. On the day we climbed we saw maybe 30 hikers and 300 that arrived by motor vehicle. A good portion of the hikers ride up and hike down.

Not us. We left open the possibility if we made it up and felt we couldn’t get down we would hitch a ride but we were determined “not to cheat” if at all possible.

Which leads us back to our coffee (and their lunch) with the “Cheetos Lovers”. In a moment of altitude-induced clarity I realized, I have been them. Standing on the sidelines watching others live. Having my entertainment delivered with a hotdog and a coke. The sad thing is I never really decided on this less active lifestyle, I just kind of slipped into what everyone else was doing. I would bet this is the way most people end up on the bus.

In recent years, I’ve tried to do more and watch less and sometimes I’ve even succeeded. I am currently not a tour bus riding Cheetos lover, but neither am I one of the slim and fit athletes (some old, some young) we watched glide up the trail. Nope, for sure. I stopped a more than a few times to allow my heart rate to slow to something short of the imminent heart attack zone. But I’m working on it.

I’m going to hold on to the moment of clarity and re-ask myself frequently to commit. It’s all about deciding who you want to be. For me, right now I want to be an active participant. How about you?

Spending more than you can personally afford on “good” things like education, food and housing is no better for your bank account than overspending on entertainment, fashion or cars.

Lately it seems I have been talking to many people that are enduring financial hardship but are not necessarily overspending on luxuries. They are not getting their morning caffeine fix at Starbucks nor do they have 30 pair of shoes in their closet. Many of them have not taken a real vacation in years or even forever. Still they struggle to meet their monthly obligations.

Most of the time, I find people in this position are suffering from an unrealistic view of where they are.

Comparing our lifestyle to others does not provide an accurate measure of the reasonableness of our spending. Your rent may be cheap when compared to other housing options; but how about when it’s compared to your income?

If almost everyone in your community owns a car, it does not mean you can afford to own a car right now. Your income and your other obligations determine what you can truly afford.

If you are not paying your bills on time, do not have an emergency fund equal to six months expenses, cannot form a plan that gets you out of debt except for the house in 24 months; you are broke.

You need to take moment to be where you are.

Broke is not a lifetime thing. It is recoverable, but it may well take spending less, even much less on necessities for a while.

While working with clients that are financially out of control, I have oft times observed the magical moment when hope re-enters their lives. This occurs way before any significant financial progress is made.

In our new cable free life, we have enjoyed watching some different TV series on Netflix. We’ve both  enjoyed some pretty good shows that we never would have found on cable, like BBC’s “Luther“. One show that I watch alone is “Heavy“. Jim just doesn’t get how I could possibly enjoy watching these extremely obese people struggle to lose their weight.

It’s not about the weight, it’s about that moment. You can see it happen right before your eyes. These people have been without hope for years. Most of them are carrying not only hundreds of extra pounds but also, tons of emotional baggage. Many can trace the beginnings of their spiraling weight problems to the death of a loved one or abuse they suffered or some other traumatic event. They show up at this residential weight loss resort; either hoping for a miracle or expecting to fail.

The fact that they are both the Problem and the Solution never occurs to them. Some are modern-day princesses; they have never done anything hard in their whole life (at least not on purpose). They whine, they shirk, they rationalize and they blame others. But the trainers just keep pushing, pulling, encouraging and demanding of them. There is a constant effort to re-focus the client on their ultimate goal. The trainers absolutely refuse to listen to the “I can’t, it won’t work, I am trying” whining.

And then it happens. Sometimes you see the start of it at the first weigh in, sometimes it takes several weeks but you can see it the day the switch flips. They suddenly find hope and take ownership. The trainer isn’t eating 1200 calories or working out 4 hours a day; the client is. When the client figures out that they are doing this and that maybe they can achieve that goal; their whole attitude and outlook changes. What once was a downward spiral reverses and every day they get more hopeful, more confident, and more determined.

This same scenario plays out every time we re-learn self-control in any area of our lives. We find, much to our surprise, that we do have choices, we can control our lives, and there is reason for hope.

We don’t have to finish to find this place; we only have to start.

As with most things, it is a lot easier to talk the intentional living talk than to walk the walk. Each of us has our long ingrained financial decision-making weaknesses.

For some, including myself, letting go of stuff you no longer need is really hard. I got my first sailboat when I was 13. My parents gave it to me as a kind of bribe to get over the heartbreak of moving. It was probably really for all of us kids but I’m the one that wanted it and the one that used it. I loved that boat and it did have its intended consequence. Getting that boat changed my life, after spending 13 years landlocked; I developed a deep love for the water. And, that love affected every aspect of my son’s life.

Even though I sailed that boat a bunch when I was young; in recent years it was seldom used. This past weekend it was one of several boats that were sold (actually I gave this one away) in my long-postponed Fleet Reduction Sale. I had tried several times in the past to force myself to sell my unused boats, but I couldn’t quite get it done. This time I did.

Letting go of things is psychologically hard for many of us. When the item has memories attached, it makes it even harder. There is an unreasonable desire to keep the stuff in order to relive our happy experiences.

If you have a hard time letting go, it may help to ask yourself these questions:

1) Why should you sell?

If you have an immediate need or a use for the money, that is an excellent reason to sell your unused stuff. I know I have some home improvement projects to fund from  the sale proceeds.

Upkeep: Stuff takes space, it takes time, and it requires upkeep and maintenance. I asked myself if I was really willing to allocate the time to wash and wax and repair these boats I rarely used.

New: Keeping the old makes it hard to get new. If there is a new model or style that would suit you better, that might be a good reason to sell the old.

2) Why are you reluctant to sell?

I might want to use it one day is the thought many people have. But, what if you did not own it anymore and you wanted to use it – what would you do? Could you borrow one, rent one or use a substitute?

Sentimental Value: Will selling the stuff destroy your happy memories? Of course not! Taking pictures of the stuff you hold dear might just help you bridge the gap so you can let go.

Finding a good home for the stuff you love is not as hard as it sounds. A good home is a place where your things will be used and valued.

I saw my old boat out on the lake Sunday, changing some new kid’s life.

Haiti is one of the poorest countries in Western Hemisphere; certainly you witnessed some of the country’s abject poverty during the media coverage of their earthquake in 2010. In the past 100 years, Haiti has been repeatedly devastated by earthquakes, hurricanes, mudslides, and flooding. Tens of thousands have died in these natural disasters. How can one tiny country be so subjected to so many tragedies?

One piece of the puzzle certainly has to do with the extraordinarily narrow focus of those that have held economic power. There have been no coherent national policies on environmental conservation, no building codes, virtually no functioning public education system.

The focus of the often-corrupt few with power has been ME and NOW.

They have allowed and encouraged building houses of straw. “In Haiti a block is maybe an eighth of the weight of a concrete block that you’d buy in the U.S.,” says Peter Haas, the executive director of the Appropriate Infrastructure Development Group. This might result in buildings now, but it results in many unnecessary deaths in time of natural disasters. “Earthquakes don’t kill people,” says John Mutter, a seismologist and disaster expert at Columbia University’s Earth Institute. “Bad buildings kill them.”  Haiti had some of the worst buildings in world.

They have ignored the deforestation and allowed environmentally unsound agriculture practices resulting in a land vulnerable to flooding and landslides. For years, the Haitians have used wood as their primary source of energy resulting in nearly complete deforestation of the country. Mudslides have been responsible for massive losses of life and have washed away whatever precious top soil might have once existed.

This poor country’s substandard ways and means do not invite natural disasters, but they do exacerbate the destruction the disasters bring.

Too many of us rule our financial lives just like Haiti. It’s all about ME and it’s all about Now. We ignore the fact that “disaster” is just around the corner. We don’t invest enough in the future. We rationalize how we “deserve” the many conveniences and comforts in our lives and we “need” them right now.

I want you to have what you want; even if it is fancy vacations, $5 coffees and a shiny new car.

But I implore you to think of the future first.

Invest in your career, read, study, take classes, and attend seminars. Have a plan for your advancement or for your next career.

Choose wisely. Don’t select the leather seats or the exciting high risk investment over your family’s security.

Save a sustainable emergency fund to help mitigate disasters.

Don’t be Haiti.

Transportation costs amount to a significant portion of most American’s budget (10-25%).  Taking the time to fully consider the total cost of car ownership and how you might reduce that cost can have a huge affect on your net worth.

When the total cost of car ownership is calculated (deprecation, taxes, fuel, insurance, maintenance and repairs) even if you pay cash for the relatively inexpensive ($17,970) high mpg (27/33) Honda Fit; it will cost you $29,182 for 5 years. Step up to a stripped down Prius that gets 51 mpg for a purchase price of $24,939 and that 5 year number  jumps to $31,961 again, even when you pay cash. Given these numbers, it is no surprise that the “normal” American cycle of replacing cars every three to four years can sink your dream of being financially secure. (Try out your make and model at Edmunds True Cost to Own)

If cars are your thing AND you are out of debt, AND have a fully funded emergency fund AND are contributing at least 10% to your retirement savings – I’m not talking you. Otherwise, listen up. In our quest for financial freedom, we need to beat down costs in order to have the funds to do what is important to us.

Once we have money we can spend some on cars if that is what we want; but until then it is ridiculous to spend $30,000 over five years to get from here to there. While you may be absolutely in love the new car smell and the feel of the leather seats the first three months, how will you feel about  it $20,000 from now?

The first step in driving down the cost of driving is to determine what you will need. Remember our goal is to fill our transportation needs safely, comfortably and reliably as inexpensively as possible.

How many miles a week do you drive? Is your job on the road? How many people do you transport? What stuff do you need to carry?

If most of your driving is in town, don’t buy a big car for its comfort on the yearly road trip to grandma’s house; you could rent something once a year. Nor would it be financially reasonable for you to purchase an SUV capable of serious off-roading if you don’t need to drive off-road. Choose your vehicle to fulfill its primary intended purpose.

Maybe you could even do without a car or without one of your two cars.  How far you live from your job or school, the hours you work, the weather and available alternate transportation help determine if you must have a car. If your commute is 35 miles in an area with no public transportation and harsh weather, going without a car is going to be tough. However, if your commute is less than 15 miles a bike may be an excellent option. Trains, buses and subways work in many parts of the country.

If your job is on the road or your commute is too long you may need to have a car. In a recent post, Go Little, I asked that you consider what you need before calculating what you can afford when purchasing a home. Use that same thinking when considering a car purchase. Start with what you absolutely have to have and add from there. Just because you have 12K available does not mean you need to spend 12K on a car.

Maximizing your Car Purchase Dollars

Pay Cash. You must pay cash for your car. If you already have a car loan and you can be debt free in less than two years including that loan, you can keep the car, otherwise you should seriously consider downsizing your car.

Buy & Keep Cheap. To get to the lowest overall costs of ownership:

Avoid new car depreciation by buying a 3-5 year old car.

Work to get the best possible purchase price, do your research and have patience.

Check the gas mileage and compute your estimated yearly fuel expense for all models you might be considering. Be very careful not to assume that replacing your guzzler with a sipper will save you money; actually compute the total cost of ownership for each.

Check insurance rates on the models you are considering and factor that cost into you decision.

Control Maintenance & Repairs costs.

1. Buy cars rated highly for reliability. Check Consumer Reports and Edmunds True Cost to Own for predictions as to what the repair costs will be for your make and model
2. Be able to afford the maintenance. Do NOT make the mistake I once did. I owned a BMW 325i many years ago. I stretched my auto budget to the max to afford that car and every single maintenance or repair bill wreaked my budget and made me miserable. Performing the regularly scheduled maintenance is crucial to happily keeping a car long term.
3. Drive less. Tires, oil changes, gas, insurance are all cost per mile expenses.

Keep It Forever. Ok maybe not forever, but drive it into the ground. The longer you can keep a car the lower the overall price of ownership.

Can you do better with your next car purchase?

Trent, over at the Simple Dollar, recently wrote a post that quickly received many comments. The blog, Small Steps to Buying a House (and More), was about a friend of Trent’s who recently paid cash for a house. Trent contends that his friend’s little cuts in expenses allowed him to save enough to pay cash for a fixer-upper. Eliminating his home internet, not buying coffee or meals out and opting for free entertainment were examples of his small steps.

Instead of providing his readers with hope (as I sure he intended), the story seemed to reinforce for many of them the reasons they can’t pay cash for a house, get out of debt, or achieve financial freedom. Some of the comments left:

For those of us who live in cities this is not possible, no matter how many “small steps” we take.

Maybe for one of those war-torn Detroit homes you see in the news

Something tells me the friend is single and earns a whopping salary while living on practically nothing with Mom and Dad.

extremely high salary in an area with a relatively low cost of living

incredible deal on the house

A feat like this is just so completely geographically dependent as to render the message virtually useless

It is mathematically true that eliminating your morning latte in most areas of this country will not yield enough savings in a lifetime to buy a house.

It is also statistically true that no matter where in this country he lives, or how much he makes, or how much he paid for the home – Trent’s friend is remarkable. Very few pay cash for their first home.

I have written how the small budget cuts we made were instrumental in our ability to pay off our home.  These small cuts provide you with an opportunity to re-commit daily.

Anyone that has turned off his internet at home and refuses to buy an occasional soda at the gas station probably pays significantly less than average rent. I bet they turn off the lights, keep the thermostat high in the summer and low in the winter. Their clothing budget is probably very small, as is their budget for personal care.

This is someone who has made a decision not to incur debt, even for the purchase of a home, and now tries to align ALL his choices with that decision.

If you choose to live in an area where housing costs are very high, it will be difficult to be mortgage free unless your income is also very high.

If you choose to have children, you will have expenses that childless people do not.

If you choose to be content with a low paying job you will have less to spend, less to give and less to save than someone who constantly works to upgrade his or her skills and value.

Get what you want. If it is a paid-off house then make the choices that will lead to that. If its 7 kids in San Francisco on a low paying job, make it happen; but don’t begrudge the small family living debt-free in Iowa .

Very few people really choose what they want and then commit to that choice.

We should openly and enthusiastically celebrate someone who actually does the work to achieve their goal.

Way to go, Trent’s friend!

Three Things to do Today

I have an aunt who can be a bit irreverent (age does have its privileges). Once, during a polite discussion around the dinner table, she told my sister to “quit pissing around with it” and get done with grad school. There was a definite moment of shocked silence but then a realization that maybe it was what needed to be said.

You say you want out of debt, you daydream about having no payments, you hunger for the freedom that savings will give you but you are still just “pissing around with it”.

Changing your relationship with money is not easy; it is not what everyone else is doing and it will not happen overnight. It requires commitment, knowledge and most of all ACTION.

Here are three ACTIONS you need to take RIGHT NOW:

Tell Someone

Commit. I want you to tell someone that matters to you what you are doing and why. This could be a simple phone call or email; but do it. Call your mother or your brother or your best friend and express to them how living beyond your means has affected your life and tell them what you intend to do about it. Do this even if you do not yet have a specific plan. You are NOT looking for help in terms of a gift or a loan. However, if offered you should graciously accept words of encouragement or promises of prayers.

Find a Face-to-Face Group

Helping someone else by sharing your story is one of the best ways to reinforce your commitment. If you are located to the Tampa/St. Pete area, sign up for our no-cost informal BeyondDave Meetups here. Or you can try Financial Peace University which is Dave Ramsey’s 13 week class offered at many churches. Find one near you here.

Get Consistent Encouragement & Advice

You will not finish this today or next week or next month. You will have days when you want to quit, just quietly slide back into your old behavior. Let me help you. Sign-up here to have my blog post delivered to your inbox three days a week.  I will give you the information and the encouragement you need to get this done.