financial zen

Seeing Debt Hater’s post reminded me to check my tax refund – and behold – it’s there! State and federal taxes, in my bank account. What shall we do with this cash?

Pay down debt, of course! But what else?

The Wife and I are taking a much needed vacation to Niagara Falls, for a weekend of relaxation the end of this month. We’ve not had a vacation since after we found out about our son’s coming (back in November of 2006) and this year we decided Niagara was the place to see (I’ve never been). This year, I’ll have to mind my finances closely, as I’ve got three weddings to attend – one in Denver, Colorado, one in Brooklyn, New York, and one in Columbus, Ohio. A lot of travel, mostly in the middle to end of the year time frame, so we’re going to try and have “mini-vacations” all year long.

But at what expense?

We thought about how much money we’d have to spend on these trips, and since we picked up a new car, we’ve decided to drive – at least for Niagara – since it’s a six hour drive. We’ve landed a decent deal on a room (could’ve done without all the bells and whistles, but do to a strong vacation fund, we’re letting that slide). I recognize I need to update my networth – a lot of things have changed!

I’ve read across a few finance blogs that have been talking about prepaying mortgages or not – a lot of people seem against it, saying that the money would be better spent putting into various investment vehicles for “in theory” greater returns on the investment.

In researching this idea, I’ve gotten a good grasp on what seems to be the going concern – what debts are being paid off first?

In thinking about prepaying the mortgage, we’re laying out the debt that takes interest – i.e. credit card debt, which we will have paid off this month (as we do every month).

Our debt consists of:

• 0% credit cards (used for appliances, setup to be paid off one month before they expire)
• Student loans (for me, still in school).
• Mortgage

That’s the extent of the debt – Mortgage, Student Loans, and credit cards. What is charging the most? Our mortgage!

I’m contributing to my company’s 401k to the match, so I’m not losing any money, and with my wife working that gives us over a grand extra disposable income per month! The plan is to take this money and apply it towards our debts AND the mortgage principal – paying the principal (by sending a direct check notated that it’s for the principal) will cut down on insurance, as well! I do not look at it as “a return on investment” with our prepayments do to the recent volatility of the housing market. If we prepay the mortgage and sell the house in – say five years – we’ll have paid down $30,000 on the mortgage, plus the built up equity, meaning we could potentially have a huge down payment for the next home – all from the money gained from our home!

It’s still something I’m looking into, but I will be paying some extra down on our mortgage while paying down all other debt – while reaping the tax benefits of interest paid on student loans and our mortgage… :)

I’m taking that “oh-so-forbidden” (I kid, I kid) route to personal finance shame – I’m buying a house.

Guess what? Interest-only mortgages are making a comeback. Guess what? On houses people can’t afford. Because, in theory, you’re going to take the difference (i.e. “savings”) and hope to get a return on it higher than what you’ll be paying down the line – or maybe you’ll pay more than you owe and have your house paid off in less than twenty years. Maybe sixteen, maybe ten – who knows? The point is to not buy a house you can’t afford – but then would Interest Only loans on a house you can afford work in your favor?

Free Money Finance has five tips to get the best deal in buying and selling (from parade magazine) – buying is what I am doing (did?) and we (Wife and I) hit it pretty much on the head. We’ve got great credit ratings, our debt is almost extinguished (I promise to update my networth this week! And my NCN Network!). Overall, we’re doing incredible – on top of our finances, enough cash to cover emergencies, and we landed a great deal in a great neighborhood – a house that was on the market for 180+ days, passed inspection with flying colors.

But why housing? Why not investing?

We want a house. We, being my wife and I, want a place to call home, where our neighbors are not against our walls, their dogs aren’t scratching at our door, and they aren’t blaring their polka music at full blast at 3am. We’re wanting stability, and a place where we can have space to grow a family, a backyard to throw Barbecues in, and a place we can decorate and design the way we want it, how we want it, without the landlord complaining.

Yes, it’s an emotional thing. But you have to weigh the cost (financially) with what we will get out of it (utility). Trust me, it’s something we’ve debated, gone over, checked our selves on renting vs. buying many times (and we’re not the only one) – we came to this decision after a lot of thought. We won’t have to deal with misinterpretations of our lease, or poor maintenance (I get to be poor maintenance!).

It’s a hefty decision – but like many bloggers have pointed out, sometimes you save too much for retirement that you miss out on life. I’m not saying they aren’t right about investing or renting, I’m saying that a person who buys a house has more in mind than just making money.

No doubt if you’re involved with Personal Finance, you’ll have figured ways to reduce your bills by some.

“Ways You Can Decrease Recurring Household Bills” from the Real Estate Journal brings it up but I think they’re missing a few key points.

They are working on cutting their bills down – but it seems they also went for more bang for their buck! They didn’t reduce prices, they allowed themselves to be upsold on their cable and internet. They didn’t look to decrease their bills, they looked for more for what they were paying.

It’s not that getting more for less is bad, but when your goal is to reduce spending, keeping bills at the same levels is detrimental and counterproductive. So you get ten more channels for the same price – great! Now you have more to watch instead of doing something with your life. Maybe that’s a bit too harsh, but do we really need 100+ cable channels when you know nothing is on that is going to satisfy you?

At the end of our test we racked up a net savings of $323 a year. Not bad, but we hoped for more after negotiating through the tangle of phone trees and inscrutable pricing plans. We actually let ourselves be talked into paying more for an upgraded service from one provider and struck out completely with two others. On the bright side, we’re no longer completely in the dark about our electric bill after hearing a clear explanation of it for the first time.

I think that one line (emphasis mine) is the saving grace. They got a better explanation of one of their bills – my problem is why didn’t they do this sooner? You should very clearly understand every bill you are paying – if not, why are you paying it? Why are you getting that bill? Will you pay my bills if I send them to you?

I’ve found an effective way to help my budget is to sign up for the budget plans with the utility companies – I’ve done it with gas and electric. They give you an estimated bill monthly, and after a year’s time they reevaluate it – I saved a ton going this route, although I initially overpaid, at the end of the year my next year’s bill was much cheaper – but I monitored my usage and made sure I wasn’t abusing the system. Personal Responsibility!

Have you had any experiences lowering your bills, or getting a better understanding of them?

(Note: My Personal Finances is calculated using my salary – not my wife’s income, so we’ve got a good idea what will happen after the baby’s born)

Our personal finances for the month of April – we went over by $146.11! – mainly because of our inattentiveness to our fast food fix! I’ve noticed my weight slowly declining since we noticed the unhealthy fast food trend. Our goal for this month is to keep our dining out to <$40 (I promised The Wife Sonic if we can manage our budget this month). We had a slight increase in clothing expenses - namely a couple prego clothing items (we buy mainly used - but we found a couple cheap garments we'd prefer new). We also bought sunglasses! Stylish and $10 from a mall kiosk (I love to haggle). A large chunk was dedicated to paying off bills (and knocking out some student loan).

Also increased! Medical bills! Who knew kids were so expensive? He's note even born yet and The Baby Logan is looking at a $2500 bill (possibly less).

Our gas intake is under control some - we're averaging about a tank a week (it's a long drive to the office - thank God we car pool!) My car should be back from our Friend the Mechanic this week - for a lot less then my first estimate (it was between $800-$1100). Thank God for Mechanic friends.

I’m moving to a new office closer to our home, but that could change in the coming month (I’m weighing a few job options – one is a lot closer, the other is right next door to my current location). This should effectively increase my budget – it depends on the location and pay.

Lastly – I’ve got a chart with the No Credit Needed Network! I’m anxious to update my progress – all in good time, I suppose! I’ve got a lot going on (hence my less than stellar posting) but I will not neglect writing! I’ve got a stash on incomplete writings I’ll try to have ready (and relevant) so I can hopefully keep this up every morning.

MSN Money has a great article showcasing people that conquer huge debts quickly – and it makes ours look like a small pittance!

A couple paid off a $150,000 mortgage in five years, another knocked out $8,000 (of $49,000) of her credit card debt in nine months!

The stories themselves focus on a couple key components of most frugal living/personal finance topics: grads getting a house, unexpected job loss with debts out of control, or my favorite, a desired life-style change to spend more time learning and loving your family.

The key factors they really show us, are something you’ve no debt read (and will continue to read about, until everyone out there thinks of it as common-sense!) is:

Live like a college student! Just because you graduated and are ‘making the big bucks’ doesn’t mean you need to start splurging. Sure, buy yourself something nice – but save, scrimp, and pay off! It’ll be in your best interests in the long run – I know quite a few people in their thirties who tell me they wish they buckled in and paid off their debts earlier, and not delaying them and spreading them out as long as possible, to the point that after marriage and kids, it’s still an issue.

The last story, one of post-divorce, had a great list of tips (but I think they needed some help, emphasis mine):
* Opts for basic TV service — no premium channels. Why cable at all? Free TV still lives!
* Chooses a dial-up Internet connection ($9.95 a month) over high-speed service. I agree – only get High Speed if you really need it
* Buys food in bulk to last for months. Canned goods and non-perishables all the way!
* Takes his lunch to work. I skip lunch at work most days so I can eat with my wife after work – I’m a little more hungry, but it’s nice to sit with my wife.
* Makes a budget for the holidays, birthdays, etc., and sticks to it. This applies to all social events – budget, and stick to it. And do you really need a million-dollar party?
* Applies “extra” paychecks to debt (a biweekly pay schedule had provided a third check two months a year). I love the three paycheck weeks. That is debt pay-down time.
* Applies any bonuses toward his debt. Bonuses, rebates, tax refunds – all of it to your debt!
* Sets the thermostat in winter to 63 degrees. Wear warm clothes, socks, sweaters or get a space heater – preferably one with a built-in thermostat and sensor!
* Sets the air conditioner to 79. If it’s summer, be naked. The environment will thank you.
* Buys compact fluorescent light bulbs to reduce electric bills. We’re in the process of this now! Save money in the long run.
* Takes out $25 in “walking around” cash each week. When it’s gone, he doesn’t spend more. I don’t think I even hit $25 with my current budget. It’s a nice idea, though.
* Keeps the credit cards at home. I love how it’s plural. Leave them at home, frozen. With no balances. ;)
* Shops with a list and buys only what’s on the list, and avoids looking at anything else, including sale items. When my wife and I started doing this, we noticed a drop in 50% of our grocery bill.
* Keeps his car tuned up to avoid bigger expenses. This is important to prevent that “little problem” from becoming “the big problem.”
* Doesn’t keep up with the Joneses. He says he doesn’t care what they drive, where they vacation or what they wear. I love the Joneses. They give me a model to avoid, because I don’t envy their American Express bill.
* Avoids buying coffee or food “on the go” but instead eats at home whenever possible. The little expenses add up.
* Stays away from vending machines at work. Vending machines are trap doors to fatty fat and brokey broke.
* Doesn’t play the lottery. Gambling is gambling. If you want to throw money at something, throw it to me.
* Buys broken bags of mulch and fertilizer at deep discounts. This goes for many items – always check for a discount on used/dinged goods. Cosmetic defects are just that – cosmetic.
* When shopping for appliances, buys last year’s model. Buy last years, and check out for places that have close-out deals.
* Budgets vacations and looks for coupons wherever possible. This is what we’re doing – setting a goal and time frame, and slowly budgeting towards it. When we reach it – we’re taking a vacation. Not before.

A ton of useful tips for a grad, a divorcee, or anyone looking for a lifestyle change. They mention taking a second job, which I recommend (and have done before) but remember not to stress yourself out! You need to budget your time so your loved ones don’t suffer!

Tricia (@ Blogging Away Debt) has a great article talking about MSN’s “Money trouble? It’s your own fault!”

She’s right, it reads like tough love – but one thing I think most people need to understand is that is what they (and their debt need) – a good ole’ kick to the head.

Placing blame won’t do anything except delay the inevitable. As I once read:
A young man will blame the world for his troubles, a smart man blames himself, a wise man blames no one.

People get too hung up on placing blame – on others, on themselves that they miss the whole issue – their is debt to resolve!

I once blamed the credit card lenders for preying on my ignorance – I realized it was my fault, and knocked my debt down and focused. Now, the majority of my debt is from a wedding, a honeymoon, and an emergency. It’s under control – and my wife and I are knocking away our debt like crazy. I’m looking forward to post our state of “monetary affairs” at the end of the month so we can better come to grip with our finances – we’re all ready aware we’ve got a fast-food problem!