Monday, December 29, 2008

Friday, December 19, 2008

Robbing Peter to Pay Paul

Ya'know the saying "You're just robbing Peter to pay Paul."? I respect the principle this statement represents. It's the driving idea behind why ponzi schemes end up collapsing. Once you open the door to the idea of shifting resources around to make it appear that things are covered, things go from bad to worse. It's a slippery slope. A no win game. There are some short term benefits though. But in the end it's not worth it.

Yesterday I robbed Peter to pay Paul. Here's what happened:

My oldest son Josh was leaving to school in about 10 minutes. I asked him "What's going on today bud?" Josh repliess "Today is our class Christmas party. We're having a gift exchange. Except, I am not going to get a gift because I am not bringing one?"

My wife Carla and I simultaneously gasped "WHAT?!" My son, in such an non-chalant way, "Yeah, no biggey. I'll just sit and watch all the other kids open presents. It will be over soon." I, putting on my game face, start to calculate how fast I can race to Wal-mart and back. What will I get? It's gotta be under $5. Something for a boy. Josh would be leaving in five minutes for school.

Carla comes over and whispers in my ear, "Just go out to the bag of Christmas toys and steal that one yo-yo ball that we were going give to Nathan (my second son)." Ah! Great idea! I told the kids "I will be right back, I'm running to the store." I came back in the house and showed Josh the present. He was pleased. They all thought I broke the world record for a round trip to Wal-mart.

Nathan though saw the ball and wanted to touch it, smell it, have it. (A yo-yo ball is one of the top items on his Christmas list.) He wanted it - now! I explained to him that he "might" be getting one for Christmas. Of course to him Christmas was not today and so he got ticked and went into an emotional nose dive. I tried my best to calm him down with no success. Now I had one son happy and the other one upset and another present to remember to get before Christmas.

After school I asked Josh how the party was and to see his present. He said "Oh, the party is tomorrow. Sorry Dad that things went crazy this morning. But thanks." I love Joshua, it's not at all his fault, but I am suppose to learn from this, right?

Saturday, December 13, 2008

Be Ready to Start a Debt Snowball Plan

What's the process for getting the snowball rolling toward paying off consumer debt?

Before starting a debt snowball plan there needs to be a short term plan for getting ready to pay off debt. The idea itself of being totally debt free is exciting and provides a rush of transforming motivation for any one willing to see the dream. Yet, once the idea settles in, there is also an awesome sense of urgency that could lead to premature action in the way of foolishly allocating money toward debt when it is needed elsewhere. I believe certain requirements need to be met before applying extra toward paying off personal debt otherwise being in debt continues on as an endless, fruitless cycle of trying to get out of debt. I think these are the essential steps:

1. Stop, stop, stop, stop using debt to fund life. Cut up the credit cards - all of them. There is no need to have a credit card for emergencies. In a time of great want the definition of "emergency" changes too easily. At the very least, keep one credit card, place it in a large bowl of water and place the bowl in the freezer. Next time you want to use your credit card, think deep about your needs, wants, and emergencies as you watch the ice melt.

2. Create a zero-based spending plan. In other words, create a budget on paper that allocates every penny before it is actually spent. I've read advice that says to track what you spend for 30 days, then you'll know where it all goes, and then you are better able to create a budget. I disagree. It's a waste of time. I'll be doing more posts on this topic but essentially budgets are never set in stone. A personal budget is fluid and the bottom line changes from month to month. Create the budget first and work it for three months, that will give you an idea of what you're spending and create great habits for running the budget as you begin a debt snowball.

3. Sell something and apply the money to step 4 or 5. This is not an official step in Dave Ramsey's plan even though he does suggest selling stuff. I am making it a step because is proves commitment and of course it creates cash. Most households have something that can be sold on ebay or in a garage sale. Also, what about the car you are making payments on (sorry, that might have stung)?

4. Get current on all past due bills. Past due bills like utilities, phone, etc are vicious enemies of any debt snowball plan. In essence they are debts but they're probably small enough to catch up on in a month or two. If they would take longer than that then perhaps these past due bills need to be placed in the debt snowball plan (as the first items to get paid down).

5. Save $1,000 for a savings account as fast as you can. This is Baby Step 1 in Dave Ramsey' s plan. This is a short term reserve so that you don't have to use a credit card. This may take a while but with the prior three steps in place first saving $1,000 will happen sooner than later. Sell more stuff to achieve this step.

For my family this process took about two months but if you're starting totally from scratch it's plausible that it could take six months or even a year. We already had a zero based spending plan in place, we just needed to pay more attention to it. We cut up our credit cards two years prior as well. Oh, I also sold $1,500 worth of stuff on Craigslist for steps 4 and 5.

The three years prior to starting our debt snowball plan I believed the only answer to our problems was to make more money. I decided to let go of that thought while my wife and I went through Financial Peace University in January 2008. I realized that the drain on our finances had to do with not having the above requirements in place.

Tuesday, December 09, 2008


Two of the reasons I strive to be a better man! The women I am called to love, serve, and protect!!

They were on their way to a Christmas concert.

Friday, December 05, 2008

Bailout For Me

First off I need to get my traffic back up so I figure a post using "Bailout" would get me placed back into some google searches. HA!

A good friend (he likes it when I call him good) told me yesterday that I need to adjust my debt snowball because I haven't factored in a bailout. With a bailout I'll be 100% debt free in a few months possibly. I think that is what he is hoping for for himself (he is also motivated more by trash talk than encouraging words.)

Another good friend a few weeks back made a comment to me that ironically, people who aren't paying off debt may end up being the ones who suffer the least while the US economy works through its current dismal state.

NO Bailout for me! NO Bailout for you! Create your own plan to get out of debt!

Thursday, December 04, 2008

Debt Snowball / FPU Update

Before I get right back at it I probably should offer an excuse for my absence. I haven't posted at all since September 2nd and the last post on my family's progress on our debt snowball plan was June 26th. Really? Well things are always much more complex than a single answer so I don't have something as simple an as excuse like "I hate blogging". Rather, I've been focused on three areas: 1) Family, 2) Work, and 3) Sleep.

Debt Snowball Progress

February 29, 2008 December 4, 2008 Change
Total Debt $182,890.00 $168,347.00 ($14,543.00)
Mortgage $138,489.00 $136,440.00 ($2,049.00)
Consumer $44,401.00 $31,907.00 ($12,494.00)
Number of Debts 12 3 -9

On the consumer debt side of things we're down to two items, the second mortgage and a personal loan. The amount of the personal loan is $6,847 and we're applying over $1,000 per month to pay it down. I have a goal to get it paid off in April 2009 by finding some more money to throw at it. The money will come from budget cutting and a tax refund.

After the personal loan is gone we'll have the second mortgage to content with. With the balance still at $25,000 we'll be working on paying it off over the next two years. Rather than applying our entire debt snowball payment to the second I'd like to take some of it and start on babystep three - cash savings to cover 3 to 6 months of expenses. With the economy the way it is I really feel the desire to have much more in savings. The great thing is, for the first time since deciding eight years ago to have my wife Carla be a full-time stay at home mother, we're finally in a spot to be able to save any money what so ever. I've made no decisions on this because all I care about right now is kicking that personal loan out of our house. I'm a tired of living with it.

The plan is to keep working the plan. Keep working, keep giving, and keep shrinking debt.