Sunday, August 29, 2010

Couldn’t You Have Picked a More Exciting Hobby? (4)

So, that’s where I found myself in 1995 and as I stated in the first post of this series I was searching for a way to solve my money problem. After 11 years of searching I had made no real progress in paying off the debt. In fact, after buying a house and another new vehicle, the debt had only grown. I honestly believe I had just resigned myself to the typical myths:

"I will always have a car payment."
"I will make minimum payments on these student loans until they are done."
"30 years from now, I will have this house paid off."
"This is normal, life is full of payments."

At some point in 2006, I reached the point where I ended my first post in this series:

You ever have one of those moments where emotionally you have given up, but mentally your mind says, “God, I’m ready and willing, please help.”?

Because I had quit trying to find the money answer on my own, I stumbled onto Dave Ramsey through a Focus on the Family (FOTF) radio program. I rarely listened to FOTF, and I am not sure why I was listening on that particular day. I was streaming it while at work and listening through my headphones. It was during the last two weeks of 2006. Focus on the Family was replaying some of their most requested programs from the past year. As I listened to Dave, something struck me about how he talked about money and having financial peace.

He mentioned things about handling money God’s way, and that the “borrower is slave to the lender”. Well, I had enough debt for that statement to ring true. Dave said, "We give you the same common sense advice that God and your grandma did; only we keep our teeth in!" It wasn’t long before I found his website, and started doing more research on him.

I bought his book, The Total Money Makeover (TMMO), which I had seen in the stores many times but never picked up. As I said before, I had resigned myself to just making the minimum payments and living a normal life. I already had so many personal finance books, why would I need to buy one more?

One of the greatest discoveries in listening to Dave was that life did not have to be full of payments. I was right, broke was normal, and according to Dave:

"Debt is Normal. Be Weird!"

Within the first month or two of 2007, I had read the book, and was quoting things in it to Mindy. The book is set up in two parts, not literally, but through the message that it delivers. The first half starts with a challenge to stop denying that you are not doing too badly with money and start behaving differently. Dave discusses things we believe about money merely because it is so engrained in our American culture. These are labeled as myths, about both money and debt. He gives common sense advice on how to look at these myths differently. Through his explanations, it is easy to understand how we keep getting the same bad results when we live by the same bad rules. Your knowledge and understanding of money goes through a process of transformation by reading and studying the first five chapters.

In the second half, Dave’s plan is laid out in seven baby steps. The baby steps lead you on a walk out of the bondage of debt and into a life of financial peace. The walk is one of both contentment and sacrifice, but depending on your level of “gazelle intensity” can start to look like a full sprint. Overall, his strategy is loosely based on the Bible and he includes a few scriptural quotes. But, as he says in the beginning, it “isn’t a Bible study on the subject of money.” The subtitle of the book is “A Proven Plan for Financial Fitness”, and as Dave states, “that plan includes addressing the spiritual issues surrounding money.”

I was very interested in getting started, but as with most things I tend to lack patience. As we progressed through the year, I applied his plan incorrectly. At the end of 2007, Mindy and I were still struggling with quite a few financial issues both on paper and in our attitudes. Through my impatience I was trying to apply at least four of the seven baby steps all at once, instead of concentrating on the step I was on.

I would encourage you to pick up a copy of the book (most libraries carry it), and see what you think. If you do start to apply the plan to your life, remember that focus is one of the main keys to success. Next time, I will discuss the focus we found in 2008, to be continued...

Sunday, August 8, 2010

Couldn’t You Have Picked a More Exciting Hobby? (3)

Before I headed off to the University, I wish someone had sat down with me and shown me the financial facts on paper. Now that I am older and a little more experienced, I can see how the money-thing works. But, back then I really needed someone to enlighten me. Bear with me on this, as my numbers reflect figures from 20 years ago. In my head it would have went like this:

Ok Wes, three months from now, you will be starting school. Tuition for the year costs $4K; Books cost $500; Room & Board will be $7K. How much do you think you will need for gas & entertainment each month? One hundred dollars. Ok, that is every month, over nine months, we will just plan for an even $1K. So, totaling that up, we have $12.5K. Now, that is the total of your expenses.

What about income? Your GI Bill is $150/month for nine months, annually that is $1350. You make $133/month for your Army Reserve Drill weekends, annually that equals almost $1600. With two weeks of Annual Training, you have another $500. You have a part-time job, right? Yes. That gives you another $2450 per year. Is that it? Yes. Ok, well, your total annual income is $5900. That leaves you with a shortfall of $6600, how do you propose to make up the difference? Well, with student loans of course. Student loans? Really, ok! Can we look ahead to the future? Sure.

You plan to be there for three years. After three years, you will have a shortfall, or student loan debt of $20K. Then, what do you plan to do? Get my Masters Degree. Oh, do you have to attend Graduate School? Yes, for architecture I will need more than a 4-year degree. You need a professional degree for architecture! Ok, here’s a good school, and after two years there, you will have another $30K in student loan debt. So, now, we have you fresh out of school with $50K of student loan debt. What do you think your starting salary will be? I do not know, but I have always been told architects make lots of money. You are not sure; except that you are sure whatever it is, it will be enough. Pretty much, I do not plan on making six figures right out of school, but I should be able to live well enough.

Ok, well – I took the liberty to research starting salaries in architecture. Based on these figures, you are looking at about $25K per year. Wow! What do you mean “wow”? That seems like a lot, at least compared to what I am making today. Oh, you think that is a lot, because it is almost 5 times what you are making today – I see. Care to look at how that breaks down after taxes and deductions. Sure. First a few questions: Would you like Health Insurance? Of course. And 401K? Yes. And how much? 3%, I will start small and build up over time. And you live in the city, right? Yes. So, an additional 1% income tax. Ok, bottom line: you will receive an average $1443 per month – some months a little more, some a little less, as you will get paid every two weeks. Care to see how far that goes? Guess it would be good to know!

Architecture Income: $1443
Reserve Income: $150

Total Income: $1593

Rent: $500
Car Payment: $230
Utilities: $100
Cable: $50
Cell Phone: $50
Food: $250
Gas: $150
Student Loan Payments: $253
Total Expenses: $1583

Total Income – Total Expenses: $10

Well, would you look at that – you did it! You are $10 ahead. Oh, but wait, you are a young man. Were you planning on going out on the weekends? Of course. $10 is not going to get you very far! No, it is not.

Wes, looking out five years into the future, what do you think of this plan now?

The fact is that I did not look five years into the future before I started at the University. Due to my choices, which lacked wisdom, knowledge, and counsel – this was the predicament I was saddled with, more or less, when I finished graduate school in 1995.

Is it little wonder why I was searching so desperately for answers to my money problem?

What about you? Have you taken the time to see how much you spend each month? I am not just talking about the mortgage/rent, food, gas, and utilities. What about the little things? The things that add up, slowly each month, perhaps on a credit card, and become long-term debt. If you are to ever win at this thing called money, you need a plan (a budget) - "on paper, on purpose before each month begins." (DR) 

Start today, use a small notebook and track each dollar you spend for the next 30 days. The truth might just shock you into starting an all-inclusive spending plan next month. When you do that, you will start to change your money spending behaviors.

To be continued...