Ending '08 With A Small Bang

So I finally called my phone company to remove the voicemail ($6) and maintenance ($7.50) services that I discussed in the Every Penny Counts post. When the customer service rep asked how she could help me, I told her that I was interested in reducing my monthly bill but not at the expense of upgrading or getting additional services to bundle. To my surprise she said "okay, let me see what I can do." She then rattles off the following:

• We can reduce your local service from $35 to $26;
• We can reduce your unlimited long distance from $21.99 to $9;
• Your voicemail is $6, we can reduce that to, $0 (yes, zero);
• The maintenance plan is $7.50 but that will increase to $9.99 if you choose to keep it (the increase is due to the additional coverage of the DSL modem);
• The DSL you have is $32.95 and we can reduce that to $27.95 (my company pays for my DSL so this doesn't impact my monthly budget, however the $5 savings is still welcomed)

The total phone savings per month is $30.50, $5 for my company and $25.50 for me! I was calling to reduce my services and save $13.50 but I get to keep all of the services and save $25.50 instead! How awesome.

Feeling pretty good about my conversation with the phone company, I called Directv to see if my luck would continue and guess what, they offered me a $10 per month price reduction, plus free premium channels for 6 months. My guess is that either the recession or cable is creating some customer reductions for them and they are trying to hold onto those of us who remain. Whatever the reason, I'm happy to be a beneficiary of their generosity;-).

In total, there will be an additional $35.50 added back to my monthly budget for 2009. The $35.50 monthly will yield an annual savings of $426, which will be used as extra principal payments on my mortgage. Paying the additional $426 in principal payments will save me approximately $1,400 in interest payments. Woo Hoo!

Regifting - Yea or Nay?

Now that the holidays are coming to an end and all of the presents are unwrapped, I thought it would be a good time to chat about regifting. Let's get straight to the question, is regifting acceptable or not? Do you regift? Would you be offended if someone regifted or returned a gift you gave to them? I am very curious to hear your opinion.

Personally I think regifting is okay. In my opinion, once you give someone a gift it is their gift to do whatever they please with it. If you give someone a gift with stipulations or expectations on how they are going to use it, is it really a gift? Again, I'm just posing the question here, realizing that there is no universal "right" answer, but rather a right answer for each person.

A few reasons why I may regift, return, donate, or even sell a gift given to me are:

1. I don't like it. Maybe it's a piece of clothing, jewelry, bath and body goods in a fragrance that is unappealing to me, etc.
2. I cannot use it. I had an aunt give me a butter dish one year, and I was 16 years old! Are you kidding me?!
3. It's something I have already. A very good friend (who actually reads this blog) gave me a mini cocktail bar set for my birthday one year. Well I had one already, a pretty nice one too. Unfortunately since I already have one, the one that she gave to me as a gift will most likely be at the spring garage sale in a few months. Sorry friend, you know I love you;-).
4. I don't want it. Yep, sometimes this happens. It's not that I don't like it per-se, or that I can't use it, or even that I have something similar, I just may not like it. A good example here is an I-Pod that I regifted. I'm so not quite the techie person and I already have a smart phone (i.e. Palm Treo). I just can't take the thought of carrying around 2 and 3 pieces of electronic equipment throughout the day. LOL.

My disdain for clutter will not allow me to keep things hanging around the house just because it was a gift. I believe in finding a use for things. Luckily for me I don't have to regift or return gifts given to me often. Those whom I'm blessed to receive gifts from generally do a good job of picking items that they know I'll enjoy. However, once the gift is given to me, I take full ownership of it; I have complete autonomy to do whatever I want to with it because that's the definition of a gift to me. If regifting is not in your code of etiquette, is there a statue of limitations when the ban is lifted? I shared the following story with Abby at I Pick Up Pennies, she too blogged about regifting.

I have an aunt who wanted to help me purchase odds and ends when I moved into my first apartment after college. Since I lived with her for a couple of months, I knew that she had many boxes of unused dishes in the closet of her spare bedroom (from places like K-mart and Wal-mart). Because her heart is generally bigger than her purse, and there was no talking her out of getting me some household items, I suggested that she just give me a box of unused dishes out of the closet. Her response was "Oh no, I can't do that. Those dishes were given to me as wedding gifts." (It's important to note here that I did not know those dishes were wedding gifts because it had been 5 years since she got married. I would have never suggested them had I known they were wedding gifts). She got married in our small hometown so there was no such thing as a wedding registry. From the looks of the unopened boxes, it seems that everyone must have given her dishes and towels. Well my dear aunt went on and purchased me some dishes anyway. As of today, she's been married 14 years and has moved 3 times ... and those dishes are still in the closet of her spare bedroom.

Financial Nuggets - 5

I hope everyone had a wonderful Christmas holiday. I spent this entire week under the weather so my plans were rearranged. Nonetheless I have so much to be thankful for and even though I was a little ill, I had an opportunity to rest and take it easy. This week's financial nugget comes from fellow PF blogger Sharon Rose.

Slow progress is better than no progress!

Whatever progress you've made in 2008, remain encouraged and continue pressing towards the achievement of your financial goals.

CVS Here I Come

Did you know that you could get some great deals at CVS? Personal financial bloggers all over the blogosphere have posted about such deals. When my blog friend JPKittie over at Won't Go Down Without A Fight wrote a post on Sunday on how she purchased $115 worth of items for only $1.71 out of pocket, I had to inquire! JPKittie led me to Thrifty Mama's CVS 101 post, which spells out in great detail how to use the CVS Extra Care program.

I went to CVS today to get some Vick's Vapor rub (old school I know) and decided to get an Extra Care card as well. When I got my receipt, the cashier began explaining to me how the program works and all the many ways that I can accumulate bucks. At the bottom of my receipt was a $2 extra bucks coupon (apparently this was the amount of extra bucks that I received for the specific items I purchased.). Wow, so now I have a $2 credit the next time I go to CVS. Actually I may go tomorrow because they are having a sale on all Crest ProHealth products ($2.99). If I go and buy a tube of toothpaste then I can use my $2.00 extra bucks, plus a $1.00 coupon in the local paper and get the product for free (well, I'll have to pay the taxes but that's it). Oh but wait, not only will I get the toothpaste for "free" but I will also get another $2.00 extra bucks coupon because that's one of the promotions this week. How about that ... CVS will give me $2.00 to purchase toothpaste that I would normally purchase anyway.

If I've thoroughly confused you, check out the CVS 101 post.

Hey, this may be the catalyst I need to get me into couponing. Although I think it is a great idea, I've never been one to really use them. If these are the type of savings that I have been passing up, then I need to get on the bandwagon.

Is there anything else I'm missing out on?

The Cost of a Common Cold

Generally I am not a person who gets sick, not even a common cold. I can go years without a single sniffle. The one caveat is when I'm moving a thousand miles a minute, not taking any time to rest. When I am continuously on the go, juggling 25 things at one time, trying to get 30 hours out of 1 day, my body will begin to break down and demand that it gets some rest. Seeing as though I completely ignored all of the warnings, my body decided that it needed a break Saturday night. It started with a slightly irritated throat and by Sunday morning it was a full blown runny nose, scratchy throat and heavy onset of fatigue. Since tea was the only thing I had readily available I had to send a friend to pick up some additional items.

Emergen-C: $12.99 (yikes!)
Tylenol Cold PM: $7.49
Robitussin DM: $7.49
Taxes: $1.96
Total Damage: $29.93

So where does this unexpected $29.93 fit in my budget? It's covered by my HSA contributions. My HSA account comes with a debit card so I use this card whenever I incur any medical expenses.

I'm off to my umpteenth nap of the day. Hopefully I can sleep through the night tonight.

Financial Nuggets - 4

He who gets into debt is a servant to his creditor.
~Proverbs 22:7(b)

The waste of money cures itself, for soon there is no more to waste.
~M.W. Harrison

Defining Diversification

If you've managed to read any financial news in the US in the last 72 hours, then you have no doubt read about Bernard Madoff's $50 billion ponzi scheme! How many times have we heard the #1 financial principle "don't put all of your eggs in one basket" or to sum it up in one word "diversify?"

Many wealthy individuals, charitable trusts, family trusts, and other entities lost a substantial if not all of their wealth by investing with Mr. Madoff's company. (http://www.usatoday.com/money/industries/brokerage/2008-12-15-madoff-scam-ponzi_N.htm). Each time something like this happens (think Enron), we are reminded that our investments should be diversified. I used to think that diversification meant that you should not have a substantial amount of your investments in single stocks. I thought that if I had several well diversified mutual funds (i.e. industry specific, international, growth, balanced, etc) that I was properly mitigating my risk. Thanks to Mr. Madoff, I am beginning to redefine my thoughts on being diversified.

Currently 90% of my savings is in the stock market one way or another (401K, Roth IRA & Money Market Fund). Suddenly I'm not feeling so diversified, I mean all of my money is in the stock market one way or another. I know that I may be diversified within the stock market, but still, all of my eggs are in one basket. Being a woman of action, I am now on a quest to reallocate some eggs into other baskets...what baskets...that's the homework.

Are all of your eggs in one basket? How do you define diversification?

Let the Payoff Begin!

It's official, operation payoff mortgage has begun! I'm mailing my first extra principal payment today. Having goals work to my advantage because they tend to create a healthy discipline and drive in me. Generally I'm a goal keeper so once I get started, I stay the course until it's achieved ... assuming the goal still makes sense.

Do you set and keep goals?

Financial Nuggets - 3

We must all suffer from one of two pains: the pain of discipline or the pain of regret. Discipline weighs ounces - regret weighs tons.
~Jim Rohn

Budgeting is people telling their money where to go instead of asking where it went.
~John C. Maxwell

Thoughts or comments?

Paper or Plastic?

"Studies show that we spend more using plastic rather than cash." Have you ever heard that statement? I have and each time the point remains the same but the statistics change (i.e. 18% more, 32% more, etc). The primary explanation is that there is no immediate emotional connection with using plastic like there is with cash. Honestly I'm not sure if the statistics are accurate or even true because I know people who swear they spend more using cash and I know others who swear they spend more on plastic?

As for me, it really depends on what I'm buying and where I'm shopping. At the grocery store I absolutely, positively must use cash if I'm going to stay on budget. Every single dag-blastic time I use my debit card, I over spend. The other sore area for me is restaurant eating. Hmm, are seeing a theme here? Food apparently gets me into trouble (hey, what can I say, a girl loves to eat:-). I cannot think of any other area where I have to be that adamant about using cash. Actually most of my transactions are either online bill pay or cash. I do use my debit card but I primarily use cash. Over the years I have become more disciplined with my spending. Excluding the aforementioned exceptions , I do pretty good either way, paper or plastic.

How about you? Do you tend to spend more when you use plastic versus cash?

Every Penny Counts

I'm a "paperless" kind of girl. I don't like clutter and I detest junk. If I can get an electronic copy of something, by all means, please deliver it to me that way. Most of my bills are sent to me electronically or I get an e-mail letting my know that my invoice is ready for viewing. On Saturday I guess I was bored or something because I decided to look at the details of my AT&T bill. Now my phone bill does not change materially each month, it may fluctuate a couple of cents or maybe even a dollar but it's pretty much the same. Turns out my boredom was not in vein because these two items caught my attention:

$6.00 - voicemail service
$7.50 - inside maintenance plan

It's been a very long time since I reviewed my phone bill with this much attention (can you say 5 years). Let's do the math, $6 + $7.50 = $13.50 per month * 60 months = $810!

That is enough money to pay an additional 6.5 months of principal payments* on my mortgage. Guess who's about to get a call from me? You got it, AT&T. Oh, did I mention that I have an answering machine at home? Yeah, it's electronic and connected to my cordless phone. It's been "off" since I had the phone.

*I have a 30 year mortgage which equals 360 payments. When I say extra payments, I mean extra principal payment. If you look an amortization schedule, you will see that each total payment is comprised of interest and principal. For example:

Monthly Total Payment = $1,000
1. Jan: Interest $900 ....... Principal $100
2. Feb: Interest $897 ....... Principal $103
3. Mar: Interest $890 ...... Principal $110
4. Apr: Interest $883 ....... Principal $117
so on and so forth until you get to payment # 360.

If I paid $1,000 for December's mortgage plus an additional $323, then I have paid 3 extra principal payments (Jan - Mar). When I send in my $1,000 payment in January, I've moved 3 months down the amortization table to April or payment #4, and have saved myself $2,687 worth of interest (add Jan - Mar's interest). My payment made in January will be broken up as $883 to interest and $117 to principal.

Think of it this way, the amortization table tells you how much you paid to borrow the related principal amount. Taking #1 above, essentially the bank is charging me $900 to borrow $100. For February, the bank is charging $897 to borrow $103. When you prepay principal, you do not pay the related interest. Ah ha!

Budget Buster!

Sighing....

I did it again! I went to the grocery store (1) without a list and (2) without cash. Guess what happened? I busted my budget wide open. My grocery budget is $50 a week and whenever I violate those two rules, I lose. After years of trying to control my tendency to overspend at the grocery store, you would think I would do what I know works for me but noooo, I'm still going around in circles.

I went into the grocery store to get 2 ingredients to make some chicken tortilla soup, 2 ingredients! By the time I checked-out, I had a cart loaded with stuff and a tab of $117.32!! Talking about budget buster. There is no justification, this is nothing more than bad habits not going down without a fight.

How do I handle senseless budget busters...I take it out of my blow money! Yep, I blew it so oh well. On a positive note, I won't have to go grocery shopping next week so I'll sort of "add" that $50 back to what I overspent. However, let us not get it twisted, it is not a good habit to spend money before you have it.

Do you have any categories in your budget that tend to run amuck without careful and focused attention?

Financial Nuggets - 2

The purpose of a budget is to help your money to grow. It is to assist you to have your necessities, and to the extent possible, your other desires. It is to enable you to obtain your most cherished desires by defending them from your casual wishes. Like a bright light in a dark cave, your budget shows up the leaks in your money and enables you to stop them and control your expenses for definite and gratifying purposes.

~Author George S. Clason...The Richest Man in Babylon

***The book was written in the 1920's so the above quote was revised for modern language (i.e thy to your, thee to you, etc).

Any thoughts or comments?

Recession Proof

Surprise, Surprise, Surprise, the country is in a recession. Oh and get this, the country has been in a recession since December 2007. Hmm, I wonder why they waited 12 months to finally admit the state of this economy. Are you surprised? I'm not.

Several people have asked me my thoughts on the recession. It’s simple; I have chosen to opt out. That’s right, I am opting out of the recession … as in not participating. Regardless if the country is in a bull market or a bear market, the choice is always available to most of us rather or not we experience a personal recession. The last time I was in a personal recession was during the last bull market, go figure! Consequently, I learned that it’s not wise to leave my finances up to chance, the government, an employer, or even a well-meaning financial advisor. I am the CEO and CFO of Me, Inc.; it is my responsibility to actively manage my business (even if I solicit the help of others).

A few tips to avoiding a personal recession:

1. You are the boss so take control. Organize your finances, create a monthly budget, and commit to keeping it.

2. Pay off debt, especially credit cards! Period.

3. Increase your financial knowledge and practice what you learn. The rate of return on this action item is infinite.

4. Make temporary sacrifices (for example, when gas prices were ridiculously high, I switched from Dove soap to Tone and from Charmin tissue to Scott (extra soft of course:-). These were proactive, temporary changes to help accommodate the increase in my gasoline budget.

5. If applicable and necessary, increase your income.

• Obtain a new job or get an additional job


• Sell something – garage sales, eBay, craigslist, etc


• Provide a service – pet sit, cater, decorate, personal shopper, ghostwriter, baby sit, clean homes, etc.

6. Start today! It's never too late.

Are you actively managing your Me, Inc? Do you have any tips to share?

Who Moved My Cheese?

Remember a couple of posts back when we chatted about my annual check-up? Part II of that check-up is analyzing who moved my cheese ... out of my pocket ... and into theirs. Here's the snapshot:

Investments......................30%
~~Charitable Contributions (yep, I consider them investments), Retirement, HSA, Non-Retirement Savings & Mortgage Accelerator

Housing.............................26%
~~Mortgage, Utilities, Lawn Care, Pest Control & Cable

Taxes and Benefits.............25% (single w/no kids, what can I say)
~~Fed & State Taxes, FICA, Medical, Dental, Vision, FSA & Parking

Personal..............................9%
~~Personal Care, Blow & Vacation

Car......................................6%
~~Insurance, Maintenance & Gas

Food....................................4%
~~does not include eating out, that is allocated as "blow"

Looking at this snapshot tells me a few important things.

1. My spending is in line with my personal values. It's important to me that I not only invest in myself but that I invest in others as well. Now that I only have a mortgage, I have more resources to fund my dreams and passions, give to causes and organizations that are near and dear to my heart, as well as give to individuals who may be in need.
2. I literally live on less than 50% of my income. Excluding investments and taxes, my living expenses account for only 45%, or only 36% if you exclude the "personal" line item. HOT DOG!
3. The 9% I spend on yours truly is absolutely okay. I worked hard to pay off my debts and implement a financial plan that would allow me to win with money. I've been on both sides of the fence, a miser and a spendaholic, but now I'm at a healthy balance. For about 20 seconds I thought about reducing my "personal" budget to pay off the mortgage even faster but 21 seconds into it I completely abandoned the thought. I'm all about preparing for tomorrow, but I'm also about enjoying the journey. Okay, I couldn't resist, here's a quote for you "The journey is just as important as the destination," author unknown.

Do you know who moved your cheese? It's okay if you don't like who's moving your cheese now, just be sure to put a plan in place that will help you get where you want to be. I began my journey in June 1999 and failed two times before I could finally declare victory in February 2006 (if you haven't already, read http://mymoneychat.blogspot.com/2008/11/my-wealth-building-strategy.html for more details.)

Ebenezer Scrooge Platform

I read a humorous post from Clark Howard, a nationally syndicated consumer advocate radio show host. Below are a few snippets from his "2012 platform "(no, he is not seriously going to run).

• Spend only what you make -- In a Howard administration, your president would pass a balance budget amendment to the Constitution. We'd become a pay-as-we-go country -- instead of doing the opposite as we have for years.

• A flat income tax policy -- The flat tax would be somewhere around 18%. There would be a high standard deduction so that those with lower incomes don't get pinched. A flat income tax would also eliminate the corruption in Washington and let you know what tax burden you have.

• No more employer-provided retirement plans -- Your president would require that every dime on a dollar your earn goes into a personal retirement account with ultra-low management costs and simple investment choices. ***(question...have you ever added up all of your annual earnings for your entire work history? I did a quick calc and let's just say that I wouldn't be mad if I had saved 10% of my earnings since I began working. After all, we are required to "save" 7.65% for SS & Medicare but those funds are not set aside in a personal account. I think I like the 10% personal account better.)

• Just say no to socialized medicine -- there would be just 12 health plans offered: 3 HMOs, 3 PPOs, 3 HSAs and 3 of the traditional 80/20 splits. Every insurer would have to sell identical plans. That way you could switch if your insurer's plan is too costly. There would be no redlining based on your past medical history. You wouldn't be required to have health insurance, but you wouldn't be allowed to buy it when you're sick; instead, you'd have to wait 18 months.

My favorite: In a Howard administration, we would all need to do a hard reset about the issue of personal responsibility vs. what we expect from government. Santa's sack is getting less and less full, so you've got to be your own Santa. Clark will be running on the Ebenezer Scrooge platform for 2012!

Here is the entire post - http://clarkhoward.com/liveweb/shownotes/2008/11/04/14378/

What do you think about the Ebenezer Scrooge platform?

Financial Nuggets - 1

There are few accidental millionaires in the world. People who achieve financial independence, however they define it, make getting there a priority in their lives.
~Authors Stanley & Danko…The Millionaire Next Door

What each of us calls our 'necessary expenses' will always grow to equal our income unless we protest to the contrary.
~Author George S. Clason...The Richest Man in Babylon

Any thoughts or comments?

Investor Beware

If you are investing long term, are comfortable with your current investment strategy and have a weak stomach for the stock market's volatility, then do not look at your accounts or you will be tempted to make an emotional decision rather than a financial decision. If you must take a peek, then I suggest focusing more on the amount of shares you are purchasing rather than the amount of "unrealized" loss you have suffered. Think of it this way, all of the stocks are on sale and you're getting more bang for your buck. A little paradigm shift is just what the doctor ordered for the investment blues;-).

Guess what happened when I looked at my statement today? I noticed that I purchased 50% more shares this month for the same amount of money I invested last month (I invest the same amount of money each month).

Trust me, I'm seeing double digit negative returns as well but I am comfortable with my investment strategy and I am investing for the long term. The market fluctuations may get a good frown or a raised brow from me, but I shall not be moved. What about you?

Non-monthly Expenses

Are you familiar with the quote "people don't plan to fail, they fail to plan?" I find this quote to be very true in so many aspects of life, including our finances.

Many of us have expenses/bills that we pay on a non-monthly basis. I remember when those expenses used to be "emergencies" for me. Yeah, right! They were emergencies that could have been avoided so I ask you, were they really emergencies? Not at all, I failed to plan so consequently I planned to fail.

Since failure does not look good on me, I had to take a different course of action. Today I have a dedicated checking account for non-monthly expenses. Each month I deposit $210 into this account. Most of the costs are known but there is one that is unknown, car repairs. I drive a 10 year old car so I can reasonably assume that there could be maintenance costs above and beyond oil changes and tire rotations. If the car maintenance is more than the accumulated balance, I can tap my "car fund." My car fund is in a designated savings account. This is where I save money for the sole purpose of purchasing my next car in cash - that's right, no more car payments for me!

It took some time for me to get my system in place. What used to be an emergency soon become an inconvenience; what used to be an inconvenience is now just business as usual. For example, when I had to pay $590 in October for my annual car insurance premium, I didn't even notice the payment. How do you handle your non-monthly expenses?

**If you can't read the picture's legend, U is unknown but probable. Also, "frequency" is how often I pay the expense, "amount" is the total amount on an annual basis and "allocation" is the monthly amount deposited into the designated checking account. The only exception is Trash, which is $54 quarterly. For some reason I didn't annualize the payment in the "amount" column (which would have been $216, i.e. $54 * 4)...perhaps I need to update my spreadsheet. Nonetheless, the allocation amount is correct at $18.

Annual Check-up

Around this time each year I conduct an annual financial check-up to ensure that (1) I'm on track or exceeding my goals, (2) no major year-end adjustments are needed and (3) other items such as my e-fund and insurance policies are adequate. The results are as follows:

1. As of today, I have met all of my goals for the year! Anything else accomplished this year will be a bonus.

2. My homeowner's insurance company sent me a renewal notice with a 17% increase in premium. Hmph! Perfect timing. After calling around getting quotes from "reputable" insurance companies (side note...after AIG, I'm not sure what reputable means anymore), I realized that I have the best rate available for my car insurance but I hit a grand slam with my homeowner's policy. I was able to lower my rate by 20%; I saved the proposed 17% increase plus an additional 3% off of what I paid last year. Oh and I forgot to tell you, I'm getting more coverage and paying less money. Yes, more for less.

3. Okay, here is something a little unconventional. I reviewed my living expenses for 2008, took a snapshot of 2009 and determined that my e-fund is still 100% funded. Since this account is solely intended to pay my living expenses for 9 - 12 months should I need it, I am not interested in growing this account more than necessary. With that said, I have decided to take the amount above the necessary e-fund amount (basically the interest earned) and apply this to my mortgage. Remember I'm still trying to pay at least $100 a month towards my principal payments in 2009. The excess amount from the e-fund account will provide an additional $35.50 so now I'm up to $77.50 ($42 + $35.50) in extra principal payments monthly - still $22.50 shy but I'm getting closer.

Do you have an annual review process for your finances? If not, this may be a good time for you to do an annual financial check-up. Feel free to share any insights or best practices you may have with the rest of us. If you have any questions, share those as well.

Let's chat soon!

Oh My Gasoline!

Could it be...is it possible...does this mean....that we are going back to the days when gasoline prices made sense?! Gas prices were below $2 in my neighborhood as of Wed 11/5. This is one case where I hope the downward trend continues. Are you seeing the same trend in your area?

My Wealth Building Strategy

In a previous post I promised to share my personal plans on how I am building wealth. In order to appreciate where I am, I owe you a little more gritty details on where I came from.

Once upon a time there was a little girl born in a small town in the wonderful state of Georgia. She was an only child raised by a young, single mother. Fast forward 17 years to when she got her first credit card, which was a Discover card. Needless to say she "discovered" just how high it could go. "Wow" she thought, "this is so much better than layaway. I can have my things right now and pay on them later."

Throughout her college years she continued to accumulate more credit card debt, various Visas, Master cards, store credit cards, and of course American Express - but not the traditional green card that had to be paid off each month, American Express Optimum, the AmEx card at that time that allowed monthly payments without penalty (so she thought).

Like many other college students, she graduated with student loan debt, a car note, and mounds of credit card debt that she could not account for. Suddenly she had what seemed to be a great idea, "okay, let me go down to the local bank and see if they'll give me a loan to pay off these credit cards." Prior to this time she had no idea or knowledge of the term debt consolidation. Yep, the bank approved her loan request and she paid off all the credit cards.

What happens when you try to change the outcome without changing your actions? You will find yourself right back in the same situation if not worse. She was no exception, her actions did not change so she found herself back in debt, more than she was previously. Now she had the bank loan plus new credit card debt.

After two failed debt consolidations, she was still oblivious to the root causes of her debt issues, her mentality and her behavior. I guess you can say that she was treating the symptoms and not the problem. Her next brainchild was to increase her income because "obviously she was not making enough money."

You know how it goes, a friend invites you over to hear about this great business venture that he or she has recently joined. You get there and the presenter begins to tell you how much money you can make, how easy it is, how little you have to do and before you know it, you sign up and pay idiotic start-up fees. Months went by and fees associated with joining the business were paid, products were purchased, miles were driven, and very little income was produced so guess how all of this was financed...credit cards! Since I have the inside scoop on this young lady I can tell you that she made purchases without much consideration because after all, this was for her business and oh, let's not forget the almighty tax break that comes along with spending money for business purposes (please note that I'm being very cynical here;-). When it was all said and done, the only thing that came out of this attempt to produce more income was an increase in debt.

Through a series of what appeared to be unrelated incidents, she stumbled across several resources about personal finances. The Light! She was beginning to see it. During this time her job required a lot of travel so there was plenty of time for reading on the planes and in the hotels. She read everything she could and began to take pieces of this and slices of that until she came up with something that worked for her, oh wait, me;-)

Ladies and Gents, today the only debt I have is my mortgage and I am working on my plan for creating, maintaining and transferring wealth that will last for generations. How? By building my financial house one block at a time and ensuring that the foundation and structure are sound. Below are the steps that I have worked through and now I'm at the finishing touches. In subsequent posts I will expound on each block one at a time.

The Finishing Touches




Establishing the Structure





Laying the Foundation

Counting Pennies but Still Encouraged

On Saturday I promised myself that I would review my cash flow analysis to see if I could "find" additional funds to begin accelerating my mortgage. Since I allocate every dollar each month I did not expect to find a gold mine but I was hopeful that something would surface. At this point I am just looking to begin the process of consistently paying extra towards the principal. So that you can help me out, here is a snapshot of my variable and/or discretionary spending:

Net Spendable: $ 892.00

Expenses:
Auto - Gas 200.00
Groceries 200.00
Personal Care 150.00
Blow 200.00
Vacation 100.00

Net Surplus: $ 42.00

***Everything above net spendable is non-negotiable (i.e. taxes, charitable giving, retirement & other savings, mortgage and utilities.) I do pay $40.99 each month for cable and I classify it as utilities. I sacrificed and worked so hard to get out of debt that I promised myself I would not carry the miser mentality with me when I became debt free. With the exception of groceries and gas, everything else below net spendable is up for grabs...to some extent....maybe;-).

My net spendable amount rarely changes because the line items calculated to that point are pretty much fixed costs. If your budget moves around significantly each month, one suggestion is to put your utilities on budget billing; I participate in budget billing with my utility companies.

The way I see it, I can allocate the monthly surplus of $42 as my additional principal payment or I could dig a little deeper and do a little more sacrificing. Before I commit to digging deeper, let me explain what goes into each category.

Auto - Gas: I think this is self explanatory.

Groceries: Again, self explanatory. I like really good food and sometimes my food costs can get out of hand. The only method that works for me is to use cash in the grocery store. Cash and cash only. Whenever I use my debit card I go over budget 100% of the time!

Personal Care: Ahhh, my fabulosity fund (aka fab fund or glam dollars). Expenses in this category include dry cleaning, hair, manicures, pedicures, eyebrows, I think you get the picture. Although I do not indulge in all of these services every month, I do tend to use every dime in this category. When I was plowing my way out of debt this line item did not exist. In the spirit of transparency, I have to let you know that I am quite hesitant to eliminate this category. I could possibly reduce it, but I surely will not eliminate it.

Blow: Yes, I blow it. I could not tell you for certain where it goes. This is my freedom cash. I get to do whatever I want to with it. Again, during my debt payoff days, this line item did not exist. Whenever I eat out or purchase gifts I use blow money. There are times when I don't spend all of the blow money but even if I don't I still get my monthly amount.

Vacation: 2008 was the first year that I actually had a vacation line item. I set aside $100 each month towards my vacation plans for the year. This is a line item that I'd actually like to increase.

Did you notice that a category is missing? One line item is noticeably missing...clothes. I have yet to include a separate line item for clothes but between blow, personal care and infrequent cash inflows (i.e. bday/Christmas gifts, bonuses, and tax refunds if applicable) clothes are purchased.

The chat lines are open. Do you have any suggestions on how I can at least increase the additional monthly principal payments to $100 rather than $42? Remember I plan to begin accelerating my mortgage 1/1/09 but I do not plan on living like a miser again. Ever.

~Ms. Money Chat

Like David, I Have Encouraged Myself

There is an occurrence in the Bible where David encouraged himself because there was no one else around to do so (see 1 Samuel 30:6). After Thursday's chat about the benefits of paying off a mortgage early, I become encouraged all over again. I ended the chat with saying "when times meets opportunity" I will be the person who chooses to pay off her mortgage. Well the time and opportunity is now!

I love quotes. I am a self proclaimed quote junkie; some I make-up and some I get from others. One that I love and that is often echoed throughout the personal finance community is "when you begin to do smart things with money, money will become attracted to you." Okay, I'm not sure if this is verbatim but that's the way I hear it in my head. LOL.

I will share the details of my personal philosophy to building wealth in a separate post, but in the meantime, I will list the steps involved.

1. Create and maintain a monthly budget.
2. Determine your Wealth Building Index (WBI).
3. Open, designate and fund a baby emergency fund (e-fund) account.
4. Payoff non-mortgage debt using the debt snowball method.
5. Complete your e-fund account by increasing it to 9 - 12 months of living expenses.
6. Fully fund retirement - at least 15% of your current salary...generally through a combination of employer sponsored plans and Roth IRA.
7. Payoff mortgage and build wealth through non-retirement specific accounts.

I am proud to report that steps 1 - 6 are completed and I am currently working on step 7. My preference is to accelerate the mortgage payoff and simultaneously build wealth but the mortgage part has been on hiatus. Long story short, I took a temporary pay cut (voluntary) in order to free up more time to achieve other goals. ***this is a great place to pause and emphasize how being debt free gives you choices. I could not have taken that pay cut if I was burdened down with debt. The pay cut was at my discretion because there were other things I wanted to do with some of my time. It is my hope that you are encouraged and motivated to become and live debt free as well.

I digressed;-). Where was I? Oh yeah, so now that I have successfully managed living on less, literally, the passion to payoff my mortgage has been rekindled. The sun shall not go down today without me reviewing my monthly cash flow analysis (that's what I call my budget) to see where I can "find" some additional funds. Beginning January 1, 2009, I will send extra principal payments until that booger is paid off!

~MMC

Analyzing the Mortgage "Tax Break"

One of the financial sentiments among most people that just grind my gears is the notion that you should keep a mortgage in order to get a tax break. Hear me clearly...I would not suggest that you make any financial decisions with taxes being the sole motive. While I believe in sound tax planning as a part of your financial plan, I do not believe that there are many, if any, financial decisions that you should make based on taxes alone.

If you had the money available to pay off your mortgage, would you? Many financial advisors say that you should not pay off your mortgage because (1) the interest is low, (2) you will lose the tax break and (3) your money will make more in the market, which has historically averaged 10-12%. We can chat about all three, but I want to chat about #2, with an illustration.

Assume the following:
Mortgage: $100,000
Interest rate: 6%
Tax bracket: 25%

Person A choses to keep the mortgage in order to keep the tax break, therefore at 12/31/20XX , Person A...

• paid Example Bank $6,000 in interest
• got a tax break of $1,500 (they are in the 25% tax bracket, so $6,000 * 0.25)
• overall out of $4,500 (6,000 interest paid - 1,500 tax savings)

Conclusion - Person A sent the bank $6,000 so they could get $1,500 back from the government.

Person B chose to pay off the mortgage and give up the tax break, therefore at 12/31/20XX, Person B....

• paid Example Bank $0 in interest
• paid $1,500 in taxes because there was no tax break (6,000 income * .25)
• overall out of $1,500

Conclusion - Person B has $6,000 more in income because they did not pay interest, which means that the $6,000 is taxable. Since they are in the 25% tax bracket, they had to send the IRS $1,500 but they kept $4,500.

When time meets opportunity, I will be Person B! How about you?

~MMC

Quicken Online - FREE

Those who know me know that I am a stickler for maintaining my monthly cash flow analysis (i.e. budget). Over the past 5 years I have a developed a system (okay spreadsheet) that works wonderfully for me. Because I have a perfected system it takes me all of 90 seconds to do my budget monthly and I am not kidding.

There are many resources available but I use a nice and simple excel spreadsheet. If you would like to see a version of what I use, feel free to contact me and I will send it to you. Let me warn you that there are no pictures, graphs or any other illustrations. I emphasize the word simple.

For those of you who may want something a little more jazzy for the same cost, Quicken is offering their online version for FREE. Quicken is made by Intuit, the same company that makes Turbo Tax and Quickbooks. I am not providing any endorsements here, I am merely sharing information. If you choose to try it you will do so at your own risk just like I will do so at my own risk. If and when I do try it myself, I'll be sure to chat about it with you.

http://quicken.intuit.com/online-banking-finances.jsp

~MMC

Open Enrollment

For many workers this is open enrollment time. Open enrollment is that once a year opportunity to make adjustments to your health plans, assuming your employer offers them. I want to chat specifically about an option that if available, is most often overlooked - the health savings account (HSA) and qualified high deductible health plans (HDHP).

An HSA combines a high deductible insurance plan with a tax favored savings account. In other words, you can have an HSA only if you have a qualified high deductible insurance plan.

• Qualification: The IRS defines an HDHP as one that has a minimum deductible of $1,100 for singles and $2,200 for families. If you have an HDHP, you can open an HSA (Health Savings Account).


• Contributions Tax Free: You can contribute money tax free to your HSA for the use of medical expenses (co-pays, deductibles, prescriptions, dental, vision, certain over the counter drugs...even peroxide and cough drops). For 2009 singles can contribute up to $3,000 and non-singles can contribute up to $5,950 - tax free!


• Earnings Tax Deferred: Various banks and brokerages offer HSAs (your plan or employer may dictate where you have to open your HSA but they all work pretty much the same). Interest and other earnings accumulated in the account are tax deferred. If you spend the money on qualified medical expenses, the earnings are not taxed...ever.


• It's Yours: There is no use it or lose it provision like the HSA's cousin, the flexible spending account (FSA). The money is yours and does not have to be used by a certain time. The money continues to accumulate until you use it.


• No Forms To Submit: Depending on the financial institution where you establish the HSA, you can use checks and/or a debit card for transactions.


• Low Premiums: Because you are taking on more potential medical costs by having a high deductible, premiums are generally much lower than other plans.


• Portable: The HSA goes with you wherever you go. It's yours!


• Unused Funds: If you do not use the money in your HSA, you can use the funds in retirement (after age 65) just like you would your 401K or IRA. The distributions will be taxed as regular income, just like 401K distributions in retirement.

Can you tell that I am a big fan of HDHPs? Even though I think they are the best thing since sliced bread, they are not for everyone. The two most common alerts are:

• If you cannot fund the HSA there is no need to get a HDHP because chances are you won't be able to cover your deductible should you have to.


• If you are a person prone to sickness and usually need medical care beyond the annual preventative care, an HDHP may not be an option for you either.

Remember to pay attention to everything that impacts your finances. Be vigilant and purposeful about your money. When you begin to do smart things with money, money will begin to do smart things for you.

***if you are currently uninsured, an HDHP may be an affordable option for you.

We'll chat soon...

~MMC

Debt - The Definition

Merriam-Webster defines debt as something owed or a state of owing. I'm not sure about you but that definition does not really put a stinch on debt that would make me want to stay away from it. Not that it is inviting, the definition just does not ring the alarm.

If someone asked me to pen the new definition of debt I would simply say that debt is a silent thief. As strong as that may sound, here are a few things that debt steals:

• Future Income and Time: Debt presumes unfairly on our future income. When we use credit to make purchases without the intent or ability to pay it off in full each month, we are essentially presuming that we will have the income to service that debt at a later time. We are also leveraging our future time. Let's say you make $10 an hour and you charge an item that costs $500. To keep the example simple, let's assume 0% interest (ha! I hope you are laughing too). By making the purchase on credit you have agreed to give the creditor 50 hours of your work time (50 hours * $10). Regardless of how much you make the principle works the same. Chances are if you make more money and use credit, you will charge more and leverage the same 50 hours;-).

• Reality: Debt creates an illusion of wealth by allowing us to obtain things we would not have otherwise been able to attain. For purposes of this post, I am excluding reasonable mortgages although I am completely on board with having a home paid off (we'll chat about that later). Many people use debt to increase their lifestyle. Rather than living below or at their means, they spend over 100% of their income each month. We have all heard the expression "keeping up with the Jonese." By the way, has anyone every met them?

• Creativity: Debt robs us of our creative ability by presenting a quick fix. I remember hearing something to the effect that we use less than 20% of our brain. I am not sure if this is true but I am certain of one thing, always running to credit cards, lines of credit and personal loans will surely rob you of the ability to creatively think of a smarter way to achieve the goal at hand.

• Hopes, Dreams and Choices: Debt can rob us of our true purpose and calling. We can become so enslaved by debt that we stay in a job we really do not enjoy just because it pays enough to service our creditors. Are you doing what you love? If not, what is preventing you from pursuing your passion? If your answer is debt, the good news is that this could be a temporary situation. You can implement basic financial principles to pay off your debt and begin pursuing your dream.
  

I know there is supposed to be good debt and bad debt but for all intents and purposes, it is all debt to me....yes, some is better than others....gosh how I struggle with that concept. Basically I do not ever want to be comfortable with financing my life so I choose to see it all as debt, plain and simple. Currently I have no consumer debt, no car debt and no education debt but I do have mortgage debt. When I created my debt snowball I included mortgage in there as well and now it is the lone ranger on the list. My goal is to pay off the mortgage within the next 5 years or so. Yes it is a lofty goal but it's my goal and i'm sticking with it until that time comes. Can you imagine what your life would be like if you had no payments? One paid for house can change the course of your financial life forever, think about it....

A Hodge Podge of Favorites

1. Sam Zien is the host of one of my favorite cooking shows! If you want recipes that are very tasty and easy to make, check Sam out: http://www.thecookingguy.com/.

Contact

I absolutely love chatting with you about all things money sprinkled with flavors of other topics here and there so please contact me at mymoneychat@gmail.com if you like. Thanks for visiting and I look forward to hearing from you!

About Me

Who is Ms. MoneyChat?
I'm an individual who strongly desires to see everyone walk in the fullness of who they were created to be. Debt and a lack of financial education continue to rob many of their hopes, dreams and aspirations. I've been around the debt block several times and finally made the right turn to travel down a different path—a path that leads to financial freedom.

What is My Money Chat?
MMC is our blog. It is where you and I will chat about all things money. As you follow along with me you will learn more about my experiences and lessons learned. Although I hope to edutain (educate and entertain), please understand that any general information that you apply to your specific situation should be done so after you have obtained additional details and/or professional assistance.

You can read more of "my story" here ... http://mymoneychat.blogspot.com/2008/11/my-wealth-building-strategy.html