Monthly Archives: July 2013

Dealing with bumps in the road

Budget that helps me pay off student loan debt and save aggressively for a house? Check. New fitness routine that satisfies all my goals? Check. Massive toothache requiring expensive surgery and energy-draining painkillers? Ch — oh wait. And then another health scare on top of that? Oh, right when my spouse is going out of town for three days?

One of the hardest things about any journey requiring discipline and routine — whether it’s paying off debt, staying on a budget, keeping papers organized, or monitoring diet and exercise — is that things are always going to come up that mess with the routine and make all your discipline look like wasted effort. Creating habits — as I’ve learned from The Power of Habit — is a bit like alchemy, and upsetting the delicate process can make everything fall apart.

That scenario above isn’t hypothetical. Faced with potentially thousands of dollars in treatments, I’m feeling like progress on my financial goals is going to grind to a halt. And in the past, that would have meant I’d be in danger of abandoning them altogether. Luckily, my budgeting habit is so thoroughly ingrained in every part of my life that I know that won’t happen. Even if I had to push back the timeline by months or years, I’d still keep tracking finances and pushing for those big-picture goals. And I don’t think that’ll happen in this case (fingers crossed for good outcomes on my upcoming tests and exploratory procedures) — it should only throw us off by a month or two (less if I can come up with ways of obtaining extra money).

But there are other routines that are more fragile and have been thrown off. For just over a month, I’d successfully added 5 minutes of weight-training to my morning and nighttime routines, but Vicodin proved stronger than habit and I haven’t done it for about four days.

Another big goal I’ve been striving for is zero food waste. But without my attention to the contents of our fridge — and with diminished appetite and chewing ability — I’m starting to see leftovers get thrown out, fruit slowly over-ripening in the fruit bowl, expensive organic milk curdle.

I feel like a failure. It only takes a couple days of neglect for it to seem like all my months of effort and progress have gone to waste.

So what’s to be done? Well, I can think of a few ways to alleviate the damage of a break in routine, but I’d love to hear other thoughts as well.

  • Don’t beat yourself up. These things do happen, and if you spend too much time scolding yourself about it, you might cause a spiral of self-hatred and defeatism that throws you even farther off-course. I’m going to have to accept the disposal of food I can’t save and get right back onto meal planning. At the same time …
  • Don’t give yourself a free pass to do just anything. Just because things aren’t going as planned, it doesn’t mean you should throw everything out the window. I stopped calorie-counting and weight-training for a few days, but I maintained my weigh-in routine. This helped me remember that on the other side of this crisis, I still want to pay attention to my weight and fitness. And I think that helped minimize emotional eating that would have really upset my efforts.
  • Minimize the damage. Both of the above can help you at least keep some parts of your routine. If you need to simplify your everyday life so you can deal with your crisis, try to take a moment to figure out what things you can let fall by the wayside and what things you really want to maintain. If you’re able to keep some things up, it’ll be easier to pick up where you left off when your life returns to normal (or, if it’s a longer-term crisis, when you start regarding crisis mode as the “new” normal — it’s amazing how quickly I got used to a throbbing tooth!)
  • Delegate. If you just don’t see a way of getting everything done, and you know that’s going to dampen your spirits even more, don’t be afraid to ask others to maintain some of your tasks for you. If you live alone and don’t have a spouse, parent, roommate or kid you can ask for help, go ahead and reach out to your friend network. You might be surprised at who’s willing to pitch in to help you.
  • Get back into the routine gradually. Today I’m facing a new, distracting health dilemma that’s sapping my energy in a different way than the dental problem did. But this morning I thought, “OK. Your tooth barely hurts at all, you’re not stoned on Vicodin, there’s really no excuse not to start up your weight training again.” I’m not going to try to calorie-count again until I have all the non-routine stuff out of the way; counting calories is time-consuming and takes more attention than I’ve got right now. But at least I did some crunches and push-ups today. Maybe things are starting to get back to normal.

Do you have any other bits of advice or encouragement for me and others facing a bump in the road?

Bump in the road

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Q&A: The best way to fund college as a working adult

Lisa, a friend and League member, posed this excellent question. While I don’t in any way have all the answers, I can speak to my family’s experiences and my thoughts on it.

Q: Hey, we have both been thinking about pursuing additional schooling, and would be curious to hear your take on all the financial variables surrounding that. Paying for it with loans vs. depleting savings to pay for it; biting the bullet and going full-time to get it over with and get working (at a higher salary presumably) vs. doing it while working some or a lot; paying a lot for a fancy private school with a good reputation vs. just getting it done for cheap at a community college or tech school… I know there are too many variables for you to offer specific recommendations to others, but I would be super curious to hear how you have evaluated these questions for your family.

A: Well, you’re right that there are too many variables to give one answer that works for everyone. And even though my family is doing exactly this, we stumbled into our way of dealing with it. We’d already committed to my husband going to college for his bachelor’s when we had our financial reckoning and made our not-to-be-added-to debt spreadsheet. So, since I wasn’t sure how we’d pay for his college, when making our spreadsheet I added a line item of $40,000 of “estimated future debt,” and that stayed in our debt total. When he started going to school we still had higher-interest credit card debt and a family loan I was keen to pay off, so we did take out loans. I’d subtract the loan amount from the “estimated future debt” but add it to our spreadsheet, so the new loans didn’t add to our total. (That was purely psychological, of course, because they did add to our actual debt.)

We soon paid off our higher-interest credit cards and started working on the low-interest ones. At this point we could have stopped paying extra on those and paid for Neil’s tuition straight up instead, but although the interest rate was a bit higher on the student loans, the credit card debt just bugged me more, so I kept paying extra on that. (I figured the tax break on student loan interest at least somewhat offset that difference in interest rates, too.)

Once we paid off all our credit card debt, I started paying extra on the student loans. Since I wouldn’t always have all the money upfront to pay for tuition, we started taking a loan for about half the tuition and paying the rest. As our student loans got less and our incomes gradually increased over the years, I came to the point where it would only take me a couple months to save up a semester’s tuition, so we paid the last semester in full without taking any more loans, and we’ll pay the remaining semesters that way if we can. (Which is good because I’ve depleted my “estimated future debt” amount; it’s almost gone and he has over a year of school left. Turns out it costs more like $51,000!) When I’m not saving up for a new tuition payment, I put everything extra toward the student loans. I hope to have us all out of student loan debt around the same time Neil graduates, end of next year!

That’s our random, flailing story of paying for an adult’s higher education, but it’s not really that relevant to Lisa’s question. So what do you do if you’re more financially savvy than we were when my husband started school?

I guess I’ll tackle each of the either-ors in your question:

  • Paying for it with loans vs. depleting savings to pay for it. My choice here would depend on what savings you’re depleting. If you have 3 to 6 months’ worth of living expenses saved, anything above and beyond that I’d definitely put toward paying for school. But especially with a kid in the picture, I wouldn’t take the emergency fund down to nothing; better to take out student loans and then pay them off faster than required if you can. Similarly, I wouldn’t raid retirement accounts, because every year of growth on those puppies is precious.

But yeah, if you have other cash savings, I’d use them to pay for tuition. Student loan interest rates are probably always (at least in our lifetimes) going to be higher than any savings interest rates.

  • Biting the bullet and going full-time to get it over with and get working (at a higher salary presumably) vs. doing it while working some or a lot. This is more complicated, and I don’t even feel I can answer it. It’s no walk in the park to be working and going to school. It’s even harder (for both the student and their partner[s]) to be working, going to school and raising a small child. That being said, the only way we’ve been able to pay down debt so aggressively and eventually start to pay tuition upfront has been by having us all earning full-time wages. It’s stretched the college experience out by three or four years, in which time tuition has gone up (not drastically, but up), student fees have to be paid every semester of enrollment, and quality family time is dramatically curtailed (not as much as, say, couples who work different shifts, but more than if the college stuff were taken care of during the day).

What I would do in this circumstance is to rely on the good old spreadsheet. Map out the total cost of doing it both ways: Estimate the salary you can expect to start earning after college and start applying that in different years depending on whether you graduate on time or take more years, and estimate how much more you’d end up paying due to tuition increase and repeat student fees over the longer period. Mock up a budget to see what it would be like to survive without your current salary.

  • Paying a lot for a fancy private school with a good reputation vs. just getting it done for cheap at a community college or tech school. OK, when I was a kid, the cost of college was the last thing on my mind. Therefore, I accidentally fell in love with the most expensive college in the U.S. Oops! (Thanks to my dad wrangling a better financial aid package, covering a good portion of the tuition himself, and a generous helping of student loans, I was able to go there.) Back then, it was all about the experience, and I still don’t regret my choice for a second. For adult education, I can’t think of a scenario where an expensive private college could add a commensurate amount of value to the old resume to make it worth the expense. I guess there might be specialized fields where a certain college could guarantee a prime career. I don’t know of any personally, but I’m not ruling out the possibility.

If you’re really tempted by a private school, or hesitant about a “lesser” school, then maybe an informational interview with someone in charge of hiring in your desired field could illuminate exactly how valuable the name at the top of the diploma really is in getting a job.

I’ve actually considered jumping back into education myself, just to train for a second possible career so I won’t be so completely tied to editing and proofreading. But I have no interest in adding significant debt for something that’s just an alternate career possibility, so A) I’m going to wait until we’ve paid off all our other education to decide and B) I’m going to go the community/technical route if it doesn’t seem like a hindrance to getting a job in my chosen new field.

Those are my thoughts, but it’s not a subject where I’ve spent a huge amount of time considering the choices; my family has just stumbled through the experience dealing with it as we go. Does anyone else have any perspectives on these dilemmas?

paying for college

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Using a debt spreadsheet as a motivator

In 2007, when I started to wrap my head around my family’s disastrous finances, I made a list of all our debts. There were so many separate debts that I divided them into mortgage, personal/credit card and student loans. All told, we had 4 mortgages/home loans, 9 personal consumer debts (credit cards, overdraft balances, family member loan) and 3 student loans. And we knew we’d soon have more student loans when my husband went back to college!

To help me further organize them so I could figure out a way to attack them, I started — what else? — a spreadsheet! I’m no expert in Excel, but I can do basic formulas, and I gradually added lines and columns with various formulas so I could analyze our debt in different ways. Eventually, my spreadsheet could tell me:

  • Amount of each debt, each category and total debt
  • Interest rate of each debt, and whether it was fixed or variable
  • Minimum monthly payment
  • Minimum that went to principal (vs. interest) out of each payment
  • Number of months it would take to pay off at that rate
  • Number of years it would take to pay off at that rate
  • Number of months and years it would take to pay off all debt if I paid extra each month
  • The percentage of my total payments not going to principal (going to interest and/or fees)

When I started years ago, the numbers were starkly horrifying. But seeing everything laid out made it easy to choose which debt to pay extra to first. And, it gave me a HUGE push to get going on paying off the debt. I hated seeing how many debts I had, and how long it would take to pay them all off at the current rate (I think it was 25 years back then!). The “If I pay $x extra” line was to give me some comfort that my extra effort was shaving years off that scary amount.

Here’s a fictionalized example of what it looks like:

Sample debt spreadsheet

Debt is such a secret and hidden thing. Except for the very few people who have directly told me their situation, I have no idea which of my friends carry debt and which ones are debt-free. Since it’s not something most people know about one another, it’s also easier to sweep under one’s own rug. My awareness of my own debt situation — the exact amount, interest rates, etc. — faded in and out over the years. Sometimes I’d face it head-on, but other times it was too easy to shrug, decide I could do nothing about it, and just ignore it — and likely rack up more debt while I was pretending it didn’t exist.

Once I set up this spreadsheet, though, there was no going back for me. And it’s not only prompted me to throw tons of extra money at our debts, it’s kept me from getting into more debt. Anytime I’d even contemplate putting something on a credit card without knowing how I’d pay it off, the specter of having to move the numbers on that debt spreadsheet up instead of down made my blood run cold. Unless we majorly upgrade our home and take out a bigger mortgage than our current home debt, I just don’t see us ever taking on debt again without a specific plan to pay it off before we pay any interest on it.

So I encourage you, if you do have debt, to come clean with yourself. To put the data in black and white, see where you are, see if you need to redouble your efforts to reduce or eliminate your debt. To that end, I offer up a template of my spreadsheet. The debt and payment numbers are all made-up — I have no idea if they coincide with the equally made-up interest rates listed. But the formulas are all in place, so if you plug in your own debt amounts, minimum monthly payments and minimum amount that goes to principal, you’ll be able to see how many months and years it’ll take you to pay off each, and to pay off the total. And you’ll see the percentage of your payments that go toward interest and fees.

And, if you want to see how much sooner you could pay off your debt if you paid a certain amount extra each month, click into the cell to the right of “If I pay.” I plugged in $300 as a random extra amount, but you can replace that with the amount you think you could come up with each month to put toward debt.

So, how well has my spreadsheet helped me do? Well, you’ll recall I started with 16 separate debts, and we added two more student loans when my husband started college, so that took us up to 18. And now, we’re at seven separate debts, with a plan to pay off three of them within the next year and a half!

Make a game out of finances

I recently read The Power of Habit by Charles Duhigg. It talks about how habits are built through a cycle of cue and reward. The anticipation of the reward is what creates a routine.

He used many diverse accounts of habits, good and bad, how they can be accidentally or deliberately formed or broken. How one good habit can spiral out into other good habits, and the same with bad.

I found myself nodding along, because I’ve become a much more good-habit habitual person over the past few years and have knocked out a lot of bad habits (although I know I still have quite a few).

One method for creating good habits he mentions is creating a game of sorts, with periodic rewards for good behavior. This especially resonated with me because I think the main saving grace for me sticking to my personal-finance habits has been the creation of various challenges along the way. The reward is a flood of endorphins when I reach the goal. And the satisfaction of completing a routine. Because as the book lays out, you know you’ve successfully created a habit when you’d feel off or restless if you tried to NOT do the activity.

I think making a game of it, with benchmarks that signify victory, is particularly effective for finances vs. other habits you want to form, because when you look at what personal finance is, it’s not exactly a tactile, sensory thing. It’s numbers on a statement, or paycheck, or spreadsheet. Now maybe if our currency was buckets of gold nuggets instead of credit cards, checks and automated transactions, I wouldn’t need to add a game element to make it exciting!

Since June 2007 (holy cow! That’s over six years ago!), I have created a monthly debt-reduction goal. I’ve never missed a month (in terms of setting a goal; I have fallen short of the goal about five times). I base it on my budget projections, so it’s not exactly something I have to work too hard at. If I follow my budget closely enough, I will reach my debt repayment goal.

But somehow I have fooled myself that paying the amount of debt I expect to pay in a month is a huge personal triumph. And in a way it is. Because I hardly ever pay just the minimums; I also put as much extra money toward it as I can come up with. If I didn’t have my goals, I think it would be easy enough to say “Nah, all my bills are paid; let’s go buy new iPods with this extra money!” (I know because I sometimes do that, if even more money comes in than I thought we’d get that month. Though not often, because the thrill of far exceeding my monthly goal is also very rewarding.)

At first, the high I got from paying down debt was so good that I was reluctant to start funneling the money to other positive goals, such as savings. I started tracking my household’s net worth, but since debt reduction contributes to net worth, it wasn’t much motivation to save vs. paying things off. I now have a goal to save up for a new home, and that’s very exciting, and I’ve set other financial goals that weren’t just about paying off debt, so I know it can work for other areas of my financial life.

Unfortunately, saving for retirement still doesn’t give me a big thrill. (One of my biggest triumphs has been when I got a surprise cash gift from my dad, I immediately opened up some Roth IRAs with the bulk of it, and only used about 10% for debt reduction. I was REALLY tempted to just pay off more debt with it, but I wisely surmised that since retirement doesn’t excite me, I should put the windfall there. I’d find the drive to  pay off the debts using other methods.)

I’ve found the best way to save for retirement for now is put it on autopilot and ignore the deposits into the accounts, except once a month when I check our net worth. Maybe once the debt-repayment game has been won, I’ll create a retirement-savings game that gives me the same rush

Since I’ve found that debt reduction is its own reward, in a way, and retirement savings is not, I might have to add a completely extraneous reward when it comes time to boost retirement savings. For instance, I could treat us to a fancy dinner out every time we max out one of our Roth IRAs for the year. We’ll have to see what works when the time comes, because I’m nowhere near that level of retirement money contributions yet.

Do you have any interesting strategies to create habits or make yourself feel more engaged with personal finance?

game

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Easy ways to get extra money: credit card and bank bonuses

Spend less than you earn. The single most elemental tenet of succeeding financially. All personal finance advice revolves around it, including my three basics of taking financial control and Elizabeth Warren’s All Your Worth.

If you’re struggling to stretch your income to cover all your expenses (needs and wants alike), you can attack the problem from either end. You can try to reduce your expenses, either in large ways (like getting rid of cable) or small (like taking advantage of coupons and sales).

Or, you can try to increase your income. You can do this in large ways (like taking on a part-time extra job), or there are countless smaller ways to get extra money. And the small ways can really add up, if you stick with it.

I was reminded of this yesterday, when fellow bloggers in an online community I frequent started posting about a deal from Capital One 360. For three days (the offer ends tonight, July 3, 2013), they’re offering a bonus if you open a new checking or savings account with them. The bonus was $76 for a savings account or $100 for a checking account. Sometimes I’m tempted to think an amount is too small to pursue, or that there may be too much effort involved. But when several bloggers whose financial acumen I trust posted that they’d done it, it spurred me to read up on the offer.

Turns out, the savings account one was really simple. I opened an online savings account with a $500 transfer from my bank account, and the $76 appeared instantly in my new account, even before the $500 had showed up. Now, the only remaining step is to wait 30 days, when the money will be available for withdrawal. I can close the savings account if I want, or I can keep it open if it seems useful. (I will probably close it, because I have two savings accounts already.)

Just as one of my blogger friends noted when she did it, it took less than 5 minutes to earn $76 that I didn’t have before. And I spent literally nothing; I’ll move the money back into my checking account and have my $500 back plus an extra $76.

If you have a large income or large expenses, or huge goals to try and achieve, $76 may seem like a piddly amount. But these amounts can add up. In 2011, I became aware of a practice known in some circles as “credit card churn.” A lot of credit cards were offering $100, $250 or even $500 to open a card and spend a certain amount within a certain window of time. My initial hesitation was that it would hurt my credit score. My other thought was that it would be hard to keep track of the credit cards and I might end up incurring fees by missing payments, or not getting the bonus by not spending the right amount in the right time span.

But again, several trusted bloggers were saying that their credit scores were still high despite frequent opening and closing of credit cards. And as for keeping track, I turned to my trusty spreadsheets, which I use for any seemingly daunting task.

From 2011 to 2012, I opened and closed about 10 credit cards, never paid a cent in interest or fees, experienced very little fluctuation in my credit score, and made over $3000 tax-free (mostly in cash but some in gift cards and airfare discounts). And that was just in my name; I also opened cards for my family members and made even more.

Now, the really generous credit card offers come and go, and right now the $500 offers are nearly nonexistent. But now that I know about them, I’m keeping eye out for another wave. But there still are several “spend $500, get $100” offers that are easy to qualify for and receive, so I’d recommend them to anyone wanting to pick up an extra hundred bucks in the course of their regular spending. (Of course, I only recommend this if you and your finances are well-organized, because if you don’t pay off the card you’ll end up paying interest and diminishing the benefit of the bonus.)

There are many other ways we’ve brought in extra money over these past few years (not counting the part-time and freelance work we’ve taken on), and I’ll probably touch on them in later posts. But credit card and savings account bonus offers have been one of the easiest and most lucrative avenues of extra income for my family.

money tree

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