Beyond Dave – Page 8 – I can teach you a better way.

Teach Your Children Well

Jim Collins over at jlcollinsnh recently lamented how he is fearful that he has failed his daughter because she is not greatly interested in managing her money.

I’m with you, Jim, I often worry I failed my son in the same way. Although it sounds like you did everything right to instill financial savvy, I know I did a lot wrong.

While you, Jim:

I started her early. Allowance. Envelopes for spending, saving and charity. “The Richest Man in Babylon.” Checking account. Saving account. Mutual fund. Endless conversations (ok lectures) on the subject. What child wouldn’t love this stuff?

I, in my son’s formative years, saved too little, spent too much and invested almost no time or effort in learning or teaching sound financial principals.

Disinterest in financial matters is absolutely the norm. We spend 40 hours a week making money and another 20 spending it. But most of us would prefer not to spend any time thinking about it. The 9 basic concepts you spelled out for your daughter are definitely worth consideration.

JLCollinssnh-The simple path to wealth

It starts with nine basics.

Avoid fiscally irresponsible people. Never marry one or otherwise give him access to your money. (Wow, this is a great point. Do everything else right except this and you still may end up with nothing!)

Avoid money managers. It’s your money and no one will care for it better than you.

Avoid debt.

Save a portion of every dollar you get.

The greater the percent of your income you save and invest, the sooner you’ll have F-You money. Try 50%. With no debt, this is perfectly doable.

Put this money in the Vanguard Total Stock Market Index Fund (VTSAX) This is the fund you already own, so just keep adding to it.

Realize the market and the value of your shares will sometimes drop dramatically. People all around you will panic. They’ll be screaming Sell, Sell, Sell. Ignore this. Even better: Buy more shares.

When you can live off the dividends VTSAX provides, you are financially free.

The less you need, the more free you are.

Since my son left home, I thankfully have learned to live without debt and I’m freer (but not yet free) from the shackles of consumerism.

I still worry if his money decisions will be influenced by my new clearer thinking or by all the times when he was growing up when I was quick to flash that American Express card.

Then I remember he is smarter, more aware and more self-disciplined than his mom so I think he’ll be fine.

Job, Career or Calling

Can you imagine working a job so mind numbing that you spend your workday memorizing pi out to 3000 digits to keep from going crazy?

I read about this guy, Tracy Thornton, in the spring 2011 Monarch Magazine, a Ford assembly line worker who did just that. Lucky for him he was laid off. He went on to earn a degree from Old Dominion University and now looks forward to a new life – teaching science. I think he must feel as though he’s been set free after 12 years in solitary confinement. I know I would.

I get that sometimes you just need a job. It doesn’t matter if the work interests you or it is the best use of your talents and skills. You need a paycheck and maybe you need some health insurance. In the world of jobs, you agree to trade time for money. Since your time is limited and your main incentive for working is the financial reward, you want to trade the least amount of time for the largest sum of money.

I’ve had jobs and I don’t mind them a bit, but a job is never going to be a long term commitment for me. You, as an employer, need something done – I can do it. If we agree on a wage, I’ll do the work – cheerfully and to the best of my ability. In the end, you as my employer are happy and I’m happy– just as long as you don’t start expecting this is to be a long term relationship. My motivation as a job seeker is money and when I need some it’s powerful; but once I have some-not so much.

One person’s job is another’s career. When you leave the job mindset and think in career terms, you have a much longer view. Working in your career field, you will be willing to make short term sacrifices for long term benefits. People often speak of paying their dues in less desirable positions in order to make themselves ready for advancement. Money remains important, but the opportunities to build skills, experience and connections are even more so.

I suck at the career mindset. In my experience, ladder climbing results in a lot of wasted effort in terms of the end product. Everyone is so concerned with their place and their next advancement that very little energy is left to improve the actual product or the service of the company. Many people are happy and successful in this mindset; it’s just not me.

My highest level of work satisfaction comes from a calling mindset. When your work is a calling, you focus on the work itself, you strive to improve your competency because it will improve the quality of the resulting work. Money still matters, but it’s not the greatest reward.

At my best, I love to work. I love to dive in and solve problems and improve efficiencies. I love to challenge others to learn and grow. I can develop a calling mindset with almost any job. I’ve learned over the years that I need three things to transform a job into a calling.

Autonomy-I work best when an employer is able to describe the problem they need me to solve, tell me what tools and resources I can use and then go away. In exchange for this autonomy, I will demonstrate ability to self-manage by keeping them informed and asking for help when needed.

Opportunity to Improve Competency-I cannot think of a skill I have that cannot be improved. The chance to learn new skills or improve old ones is a key factor in my ability to develop a calling mindset. Tracy’s repetitive task job on the Ford assembly line would not qualify as an opportunity for mastery for very long. Performing the same task every 50 seconds, 65 times an hour, 60 hours a week leaves little room for learning.

Purpose-For me, the work has to have some purpose beyond profit. I’m not stupid; I know I get hired because my work will make my employer more money, but I’m at my best when I can focus on the overall picture rather than just the dollars. For example, I’m stoked when given the opportunity to help an unenthusiastic workforce develop the skills and character required to be an efficient, motivated team. Does this affect the bottom line? Absolutely, but it also has a huge effect on the quality of life for the team members and their families.

The difference between a job, a career and a calling is primarily mindset. A cabinetmaker can have a job where 8 hours a day he uses his skills to complete the tasks his employer asks of him in exchange for a paycheck or he can make it his career, investing his energy in working to become the foreman, the shift manager, the general manager. Or it can be his calling, where the most important thing to him at the end of the day is the product of his work, his art, the cabinet. This does not preclude him from becoming the foreman or the general manager; managers whose focus is the product of the work can be very successful.

What conditions are necessary for you to turn a job into a calling?

If your current position does not allow for a calling mindset can it be changed?

I’m happy that Tracy found his calling; I just wish it hadn’t taken him 12 years.

What Do You Want ?

What I really want to do is ….get out of this town, this job, this debt….but

I heard this twice today, not that much different from any other day, except today it was from two different, very bright 30 somethings. Really? You’ve got the world by the tail and you’re letting that stop you?

As much as I’m blown away by people who actually do the work to get what they want, I’m saddened by the majority that just can’t commit.

I suspect in most cases the real problem isn’t the inability or an unwillingness to do the work, it’s the failure to clearly see the dream.

“What I really want” is too lightly spoken and in the heart of the speaker, they know it. It is not what they really want; it is something, anything to distract them from where they are right now.

Like most of us, they have no clue what they really want. They only know that they are not satisfied with what they have.

On the surface, it would seem easy to answer the questions:

What do I (we) want?

What is most important to me (us)?

Is the way we live in alignment with the first two answers?

but it’s not.

It takes a lot of time and effort to discover what is important to us- it’s world’s easier to let the marketers tell us what we want.

Start with why. Why do you want out of that job or that debt? Why did you get in?

If you are thinking, If Only, about your situation, your not looking deep enough. If only I had a better job, more money, less debt, could wear my skinny jeans, etc.- life would be grand. Bullshit. Someday, you are going to find yourself in your dream job with disposable income and a completely new list of If Onlys.

Continue on to examining where you are. What works and what doesn’t work about your current situation? What can you do to fix the part that doesn’t work?

Do this with the knowledge that the pull is always strongest to stay where you are. No matter how uncomfortable, unreasonable and future-killing your present situation; you will be compelled to find a bazillion reasons you cannot change it, at least not now – right up until you get the urge to bolt.

Don’t Bolt. Our first reaction when we have finally had enough but don’t want to ask the hard questions of ourselves is to bolt, to quit, to walk away without a plan.

Not smart. Sit with it. If leaving is the right thing, leave to go somewhere better. Leave with a much clearer picture of who you are and what you want.

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.

Do the Math

Now that gas prices are eating into your lifestyle, you may be considering getting rid of that SUV or becoming a Prius owner. Before you head out shopping, let’s look closely at how mpg will affect how much you spend on gas.

Pat & Joe own two cars, a small sedan and a SUV. They drive each vehicle 10K miles a year. The sedan gets 20 mpg while the SUV gets 8 mpg. With 4 kids they need at least one large vehicle. Given the price of gas, Pat & Joe are considering making a car move.

Option 1 Sell the SUV and get a minivan

At 8 mpg, no doubt about it that SUV is a gas hog. If they can replace it with a 20 mpg minivan, a 12 mpg difference would certainly cut down on fuel consumption.

Option 2 Sell the Sedan and purchase a very efficient small car that will get 50 mpg.

Wow, 50 mpg, a 30 mpg improvement.

Based solely on Pat & Joe’s desire to spend less on gas, which option should they choose?

Most people answer this question wrong – did you?

Here’s the math:

10,000 miles / 8 miles per gallon =1250 gallons of gas x $3.50 =$4,375 to keep the SUV rolling

10,000 miles / 20 miles per gallon =500 gallons of gas x $3.50 =$1,750 for a minivan

Pat & Joe would spend $2,625 less on gas if they replace the SUV with a minivan.

10,000 miles / 20 miles per gallon =500 gallons of gas x $3.50 =$1,750 for the sedan

10,000 miles / 50 miles per gallon =200 gallons of gas x $3.50 =$700 for the high mpg car

Pat & Joe would only save $1,050 if they replace the sedan with a high fuel efficiency car.

This is yet another example how our intuitive answer is often wrong.

Rick Larrick & Jack Soll write about this at their scientific blog, The MPG Illusion.

Break through thinking, if you don’t need it, don’t buy it.

When I first started playing with this “get out of debt” thing, I did it quietly for two months. I cut out mindless spending, cut way back on eating out, changed a couple of insurance policies, cancelled some subscriptions and paid off my truck.

One of my mindless spending habits was Target. For the longest time, I would take my Mom to Target on Sunday afternoons. We could get things she needed while I was around to help load and carry them. The habit was an easy way to be sure I spent time with her every week because my job kept me so stupidly busy Monday through Friday.

What did I buy? I wish I could tell you. I know I spent about $100 every Sunday. I know I rarely had a list of things I needed. It was shopping for entertainment and I don’t even like to shop. One thing I remember that I bought every week was a big busy bone for Higgins. It cost about $6. If I did that every week for a year, that was $312!

Some of that $100 was for things I needed; paper towels, toilet paper, cleaning stuff; but most of it was impulse buys. Looking at what I spend now, I estimate that 25% of the $100 average weekly trip went to necessities. Eliminating Target mindless spending allowed me to put $7800 over the course of 24 months towards killing debt.

If you are just getting started on this thing, before you take your next trip to Target or Wal-Mart or wherever, take everything out of the cupboard where you keep cleaning supplies and inventory it. How many cans of Pledge, bottles of Febreze or boxes of Swiffer refills do you need? Don’t buy any new products until you’ve used up the old.

When we replaced our windows years ago, the installer recommended cleaning them with a mixture of 10% cheap white vinegar, 90% water with a bit of Dawn detergent – if they are really dirty. This same concoction works great on our bathrooms and counters and floors (just not marble). One spray bottle: cheap, easy, and effective.

Do the same for your pantry. Is there really a need for 4 jars of peanut butter? Take everything out; inventory it and figure out how to use it up.

So, what about getting together with Mom? Our regular outing is now to the library. We still go to Target occasionally, but if there is nothing on my list, I don’t buy anything. And as for Higgins, he is glad to have a walk instead of a bone, any day.

How Much Money Would it Take?

I have a great “get out of debt” story, but I am sometimes reluctant to share the details. When we decided to do this thing, we really did it. Without selling anything significant or inheriting anything or winning the lotto, we paid off $220,000 in debt in just 24 months.

During that period, we had a significant income. I had a great paying job, we had several side hustles and Jim had retirement income.

My reluctance to share the numbers of our story stems from a fear that some will use this as another reason that they can’t win, instead of inspiration that they can. If you hear this and think, if only I made that kind of money I would be debt free and fiscally fit too. Please read on.

People with huge incomes lose all the time, maybe even in similar percentages to those with lesser incomes.

Take for example, NFL players, the minimum salary in 2011 is something like $340K a year yet many of them are considering taking out high fee, high interest loans to get the through the lockout. (Excellent post on the subject, NFL Players, Lockout Loans, and Predatory Lending by Lazy Man and Money). This is despite the fact that the Players Association will pay them $60K over a six-week lockout.

Dang, at least $340K a year and they don’t have any savings to get them through a rough patch even after a $60K payday? What kind of fools are these guys?

Wait a second, they are the same kind of fool that I was. They spend all, or most of, or more than they make. They build no safety net into their finances. Banks have offered them easy money to buy the glittery stuff that their peers were wearing or driving and they took this to mean they could afford it.

The key principal of financial success is the same whether you make $35K or $340K .

Spend less than you make.

If you need to dump debt – spend significantly less then you make.

If you are like me and you really, really NEED in your heart to be free, find a way to live on the smallest possible percentage of your income.

Mine was 21%.