Beyond Dave

Don’t you hate it when you get called out for failing to walk the walk? It happened to me again last week.  Jim and I sat down with our Wealth Manager (I wish we needed a Wealth Manager), I think we are really more in the category of needing a Savings Adequate for a Simple Life Manager. Anyway, it was an interesting sit down.

I was ready for the regular risk tolerance questions, I had a handle on what investments we have and where they are but I totally failed every goal question.

Really? I spend all week helping people get to where they want to be. We talk a lot about goals and setting them S.M.A.R.T (specific, measurable, achievable, realistic and time-targeted), writing them down and really using them as a way of taking control of your life and your future.

And, there I sat and could not answer a simple “What’s your income goal for next year?” question – let alone all those 5 year and beyond questions.

We have done really well with our financial goals for last several years, we got out of debt, completely and totally including the house, changed our (well mostly me, Jim never did spend) spending habits and have become very intentional with our money. And then, I think I felt done.

The best I could come up with was my financial goal for this past year was not to spend any of our savings. Wow, that is bold. That is like having a goal of not getting arrested, not going hungry, not getting fired, not gaining another 20 lbs. Lame, lame, lame.

So thanks for the wake-up call. It’s time for “back to basics”.

Zig Zilger has always been one of my favorite guys to listen to and he knows a thing or two about goal setting. Seth Godin’s Domino Project has republished Zig’s The Performance Planner as a cool little workbook that Amazon sells in a four pack for $20. So get three of your friends and spend $5 a piece and let’s accomplish 4 big goals together next year.

Maybe you don’t need to read it but I need to write it; so starting January 2, every Monday for twelve weeks will be “Goal Monday”.

I have three workbooks that I would love give to three friends who agree to help hold me accountable for those 12 weeks. Just ask.

NEXT POST IN THE SERIES Be, Do and Have MORE(of what you want) in 2012

OK, here’s the great idea in a nutshell for my friends that won’t read 300 words.

Sell the house. Buy THREE energy efficient, low property tax, little houses in interesting places, find two other couples that think this is a cool idea and play musical houses every couple of months.

House #1: Close to the Appalachian Trail in a small urban community where we could live almost car free.  See listing here

 

House #2 Tiny, very private waterfront cottage off the grid way up north on Prince Edward Island See listing here

Finally, House #3 off the grid and off the beaten path in Hawaii. See listing here

I wouldn’t want to spend all winter on Prince Edward Island but how cool to spend part of the winter there, I bet you would feel like you were the last people on earth some days. And wouldn’t it be great to be out in the tropical rainforest in Hawaii while they are shoveling snow in the east.  Or, riding your bike along the Blue Ridge parkway in October?

I found all these places on GreenHomesforsale.com because utilities costs are one of the things I hate paying. We’ll spend an average of $330 a month for electric, water and trash while in some of these green homes those expenses are more like $400 a year.

Another expense I hate paying is property tax. We pay about 2.5 times the combined property tax for all three of these houses.

I have no information on what these homes cost to insure but I’m fairly certain I could insure all three for significantly less than we pay in our hurricane prone state to insure our one home.

I’d happily trade the saving in taxes, insurance and utilities for the additional travel costs involved with a roving lifestyle.

So what do you think? Is this a cool idea?

 

It’s laughable how fast many of us non-conformists buckle in the face of public opinion when it comes to some purchasing decisions.

For many years, the diamond industry has told American grooms-to-be that they should spend two month’s salary on an engagement ring.  Brides-to-be are not immune; they have been conditioned to measure the depth of his devotion by the size of the rock.

So if you shouldn’t spend two month’s salary, how much should you spend?

The “easy to say but not so easy to do” answer is to spend what you can afford and do it in proportion to the ring’s importance to you and your fiancée.

Let’s look at this more closely.

Case 1: We have the money, we have no debt, and we have a 6-month emergency fund.

If one of the mutual early goals of your marriage to is buy an old farmhouse on 10 acres or to travel extensively, or become a single income family, how much money do you already have put away to pursue these dreams? If you spend $5 or $10 k or more on a ring, how much longer will it take you to reach that goal? Is that wait worth it to each of you?

Case 2: We have the money, we have no debt, but if we buy the ring we want, we will have only  a $1000 emergency fund.

Tread carefully here.  Don’t listen to those that tell you a diamond is an investment. It’s not. You do not intend to hold this ring for five years and then sell it for a profit. A thousand dollars is a tiny emergency fund especially if you own your home (think leaky roof or broken water heater), have children (think orthodontist or math tutor) or have just one income. Maybe you would have less stress and more happiness if you purchase a less expensive ring and left more in your emergency fund.

Case 3: We have the money saved but we have debt.

Seriously consider going cheap and paying down that debt. Really, who cares what your friends whose marriage lasted 9 months think? Money fights are one of the leading causes of divorce. Make the commitment starting with this decision to become a financially healthy couple.

Case 4: The jewelry store will give us 6 months to pay with no interest.

Yikes. There is a tried and true method to determine how much you can afford to spend. It works for rings, TV’s and cars. Go online and look at the balance in your checking account. If you cannot afford to pay for it, you cannot afford to buy it. Do not mark the beginning of you new life by going further in debt.

Spending less on an engagement ring does not mean you have to settle for a cigar band. There are lots of options and you certainly can find a way to stay within your means.

• A second hand ring may allow you to have what you want at a price you can afford.  Often you can find a very unique cut or style in a pre worn ring.
• A fake. If you’ve really got you heart set on a diamond, get  a decent quality fake and replace it with real at your 5th anniversary.
• An engagement ring can be anything you want. It doesn’t have to be a diamond, it can be a pearl or sapphire, it can be a antique band.
• Ask the family, is your great grandmother’s ring sitting unused in someone’s jewelry box?

Let this be the first place that you and your future partner question the often-unrealistic expectations of our society.  Whether you decide to spend $100 or $25,000, buy a ring that you can afford and one that fits you new life.

If you think of yourself as an entrepreneur, small business owner or even a key employee who cares about the growth of the company you work for, you should be reading Seth Godin. Like, I mean everything you can get your hands on. Read his books, his blog, his interviews and watch his Ted talks like this one. 

Godin has a ton of real world, right now, business stuff figured out and he has a special gift of being able to tell you about it in a very few words.

This is a recent blog of Godin’s. If you will take the time to honestly and thoughtfully answer the questions he asks in this 313 word essay you will gain more insight into your new business venture than if you read any 3 of the best  “How to Start and Run Your New Business” books.

Questions for a new entrepreneur

A few things came up over coffee the other day. His idea is good, his funding is solid; there are many choices. Some of the questions that don’t usually get asked:

Are you aware of your cash flow? The thing about a fish in the stream is that it doesn’t care if the water is six inches deep or a foot deep. As long as it never (ever) goes to zero; it’s fine. What’s your zero point? What are you doing to ensure you get to keep on swimming?

Are you trying to build profit or equity? A business that builds a brand, a footprint, a standard and an audience might end up being worth millions (witness Tumblr, which has many millions in value but zero profitability). On the other hand, a business with no exit value at all might spin off plenty of profit (consider the local doctor’s office). It would be great if you could simultaneously maximize both the value of your company and the profit it produces (in the short run) – but that’s unlikely.

What’s your role? Do you want to be a freelancer, an entrepreneur or a business owner? A business owner is the boss, but it’s a job, a place that is stable and profitable. An entrepreneur is an artist of sorts, throwing herself into impossible situations and seeking out problems that require heart and guts to solve. Both are fine, but choose.

Are you trying to build a team? Some business owners want to minimize cost and hassle. Others are trying to forge a culture, to train and connect and lead.

Which kind of risk is okay with you? There’s financial risk, emotional risk and brand risk (among others). Are you willing to put your chips on the table daily? How about your personal reputation?

And finally, and most important, why? Why are you doing this at all?

If you want to be a successful entrepreneur or small business owner, you need to move faster, work smarter and latch on to people that can help you figure out what you should be doing next. Seth Godin is definitely one of those people.

There are many very successful business owners and CEO’s that take great pride not only in the product or service they sell, but also in the relationship they have with their employees. They genuinely care that their employees make a living wage and have opportunities for education and advancement.

They understand the difference between greed and ambition.

Unfortunately many do not understand that distinction. In a great economy the greedy may fail to attract and keep great employees; but in this economy many employees feel grateful to have any job – even while they feel a building resentment toward their greedy bosses.

So, what’s the difference between greed and ambition and how can you tell when you have crossed the line?

Here is a simple test:

If you are driving a car that cost three times your lowest paid employees annual wage (or spend a similar sum on a different luxury), can you meet this criteria?

My lowest paid employee is paid well enough to house, feed and provide health coverage for all of his/her family members.

My lowest paid employees are given opportunities for education and growth.

My full time employees do not qualify for aid. Their kids don’t get free lunch or have Medicaid or state subsidized insurance, the family does not need food stamps or subsidized housing.

My college educated employees are paid a wage high enough to allow them to repay their student loans.

The ugly truth is some businesses have used the poor economy as an excuse to exploit their workforce. They have cut hours and/or cut staff and imposed long unpaid overtime hours on salaried staff. They have frozen wages and cut benefits. The businesses have done these things not because it is an economic necessity but because they can.

These misguided company leaders underestimate the power of an engaged and motivated workforce. They are failing to invest in their company’s’ most important asset, and it will affect their future growth.

Even more disturbing is the fact that these potential community leaders have no ability to demonstrate consideration and compassion even for those that work for them.

If you struggle with greed cut out the quote below and tape it to the edge of that $80K rear view mirror.

Do to others as you would have them do to you Luke 6:31

Obama’s “new” student loan plan is a modification of the existing Income-Based Repayment Plan   for Student Loans. Instead of setting monthly payments at the current 15% of discretionary income, the new plan sets payments at 10%. If you qualify, this change may significantly reduce your monthly payments. The new plan should be available in January 2012.

To get an idea of what your payments would be, use this calculator for the old 15% plan here

Also, the forgiveness timetable in Obama’s plan is shortened from 25 years to 20. Additionally, the plan also offers borrowers who have a loan from the Federal Family Education Loan Program and a direct loan from the government to consolidate them at an interest rate of up to a half percentage point less.

If you are currently under employed (or over indebted) and struggling to make your student loan payments, this may help keep you out of default (which you should be doing everything possible to avoid). The 10% will be recalculated each year and as your income increases so will your payments. However, if you should remain  under paid relative to your student loan debt for 20 years (oh my, we certainly hope not) and faithfully make you payments, any unpaid balance will be forgiven.

This plan is not available to those who are already in default (Another important reason to do everything possible to stay out of default).

Your monthly payment will be lowered by extending the term of your loan. As we know, extending the term on a loan increases the amount of interest we will pay over the life of the loan. But this plan has an important escape. If after making twenty years of payments (again, I hope not – as it would probably mean you have never reached your employment potential) your loans are not paid off, the remaining balance will be forgiven.

Like with any other loan, you should pay as much as you can as fast as you can.

Here are a few real life examples:

Bill has a MBA from a good school and student loans of $85,000. He is unmarried and has been fortunate in this economy to land a job paying $60,000 a year. His loan payments under the normal 10 year payment plan would be about $978 a month. Under the current 15% Income based repayment plan, his payments would be about $545 and under Obama’s new plan $363 per month.

On the old plan if your monthly payment amount did not cover the interest that accrued each month, the government paid the unpaid accrued interest on only Subsidized Stafford Loans and only for up to three consecutive years. I expect the new plan to work the same, forgiving interest only on subsidized loans, but those details are not yet available.

For Bill, the 6.8% interest for the first three years will exceed $363 a month but all of his loans are not subsidized. For those loans that are not subsidized the interest will accrue; in other words the balance owed on those unsecured loans will continue to increase.

The longer you pay on the loan the more you will pay.

 Ann is a teacher with an income of $42,000, student loans of $55,000 and two children. Her 15% Income-Based plan puts her monthly payment at $180 a month as opposed to the $632 on a ten-year plan. The new 10% plan should drop the payments down to about $120. Since Ann works in the public sector as a teacher, her balance could be forgiven after ten years if she makes her payments for that period.

The “pay as you earn” plan can offer some real relief to those who have or will graduate with a bunch of student loan debt and inadequate income to make their loan payments.  As with all debt, BE VERY CAREFUL to understand all the rules BEFORE you agree to a new payment plan or consolidation. This stuff is incredibly complicated and it is easy to screw it up.

A call to the Federal Student Aid Center revealed that they have not yet been notified how the 10% plan will work, for example will existing 15% plans be convertible to 10% plans? This document answers many questions on the current plan but we’ll have to check back at a later date for more detailed information on the new plan.

 

When it comes to managing anxiety or stress during difficult times many of us have developed a huge trunk full of coping skills. We can take a walk, drink a beer, call a friend, turn up the music, write in our journal, pray or eat chocolate – sometime lots of chocolate.

Some of these strategies work better than others and some have unwanted side effects; but it is important to understand that even our most trusted strategy only provides temporary relief of the symptom and does nothing to solve the underlying problem.

If the stress is temporary, choosing to handle it with a coping strategy is reasonable. However, using coping mechanisms to avoid the needed change can be very destructive.

Take for example my friend Kate. Kate brings home $560 a week. Kate’s obligations total $595 a week. Dear Kate is strong, she has excellent coping skills, and she manages the stress of never being current on her bills really well, almost all of the time.  Every once in a while things stack up and Kate starts feeling hopeless. She often chooses this time to vent to a friend. She sometimes even asks for advice when she is feeling this way but in her condition, she can’t hear the recommendations given.

Kate’s coping skills are over-developed. In a lot of ways she would be much better off if she just crashed. Crashing is all about humility. Humility is NOT about weakness, it’s about open mindedness.

Sometimes it takes the repo’ ed car to bring about the humility necessary for a person to change their money behavior. Sometimes all it takes to “crash” is to hear the right words at the right time.

We’ve all resisted the hearing of the truth about something. Maybe it is/was a bad relationship we just couldn’t let go of or the fact that our career path has led to a dead end or that we are destroying our tomorrows by living beyond our means today.

Whatever your unheard truth is, maybe today is the day to let go of your coping mechanism and really look at the underlying problem. Pray for the strength and humility required for change.

 

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?