[ARCHIVED THREAD] - A Debt Free Case Study... (Page 1 of 2)
Posted: 10/5/2012 12:14:44 PM EDT
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Hi Guys.
Some of you are newer to SF. I rarely do financial rants anymore, but some of you might recall my wall of text soap box rants. Here comes another old school Fro Financial Rant. For those of you contemplating the debt free life style, I have a real world, actual case study to show you how well it can work. I'm not advocating anything in particular, just using one example as a contrast to demonstrate how this can make a difference. A very good friend had a solid marriage. He worked and made $75,000 a year, she worked and made about $40,000. Been married 23 years, house is paid for. Two kids, one in college and the other about to start. They had a line of credit, with a car and a few toys on it. IIRC, its was about $25,000. Cash came in, cash went out. They did "okay". Decent house, decent life. No problems. Just your average middle class family. Long story made short: Wife has a midlife crisis, packs up and leaves and it's divorce time. For the first time in decades he needs to really figure out what is what financially. She doesn't want much (its a fairly clean and amicable split) but he's looking at two major issues: The household income will go from $115,000 to $75,000, and he's going to go from mortgage free to having a $125,000 mortgage (she's taking her share in cash, and he's getting off easy). When looking at the check book closely, he's noticed that they have been getting dinged a few times each money with NSF charges, late fees, etc. The question is this: How is he going to be able to float the bills and a new mortgage on a reduced income? We compared his actual take home pay and the per pay amount needed to cover the bills. In his case, his pay would cover the bills. So where the heck was all the money going? Simple: it was being pissed away a little each day on absolute shit. Making monthly payments on the insurances instead of paying one lump sum annually was costing him nearly $200 in fees. Monthly NSF and other finance charges: Another couple hundred. They bought groceries to feed two growing teen monsters (6'4" and 6'3") on a convenience basis to the tune of $200 a week. Here's a big one: A couple of cups of coffee and a muffin or two each day was running - are you ready for it? - very close to $3,000 a year. 
Two things have changed: He is now pro active, setting money aside for big bills in the future, and NOT paying finance charges. (If anyone needs details on a simple, 20 minutes a month basic finacial plan, I can do a separate post). And he is now disciplined about spending. Now that he knows where thousands and thousands were going each year, he is now more conscious and deliberate about spending. He doesn't buy coffee and muffins at work anymore. He brings a thermos with coffee from home.. The Results: Two years ago it was a $115,000 two income family with no mortgage that was 'just getting by'. Then twelve months ago it became a one income $75,000 household with a new $125,000 mortgage and all the same bills, and one nervous and freaked out guy. Today, just a little over a year later, its still a one income $75,000 household, but one that is making double payments on that mortgage, shops carefully and spends deliberately and as a consequence has cash set aside, and has more discretionary income than its ever had at any time in the past 24 years. He's not living like a monk. We've gone on a really nice multiday New England motorcycle roadtrip, regularly go out for dinner, are going on a five day ATV trail ride in two weeks, and we have a awesome northern Quebec Caribou hunt planned for Dec. (Its all paid for). Undoubtedly his income helps ($75K is good income here). However, the point of the story is this: Lots of income didn't help because it was being mismanaged. His household income is $40,000 less, his bills are substantially HIGHER (thanks to the mortgage needed to pay her off), and despite all this, he has MORE actual usseable discretionary income than ever. This change is due entirely and completely to proper planning, elimination of fees and charges, and a careful and critical look at spending on stupid shit (like $2 coffees, buying $1.75 convenience 500ml Pepsi in the machine instead of getting it by the case at the grocery store). Two dollar coffee and other impulse spending really doesn't look all that 'big' until you start adding it all up.... The Moral of the Story: That same buddy recently pulled me aside and said the following: " You know, the last couple years have been pretty tough. But I've made it through, and I'm in a really good place now. This financial plan was so simple, but its the best thing anyone has ever done for me. I feel so free. This is stuff everyone should know". My Point: (or "Why the hell is Fro posting all this shit?!?") If you are thinking about getting a handle on spending and finances, stop thinking. Get off your ass and start doing instead. In many cases its you can radically improve your life by making small, simple changes. Its not always about getting a new job with a $50,000 raise. Sometimes, it's about being proactive, and making choices. |
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<snip>Get off your ass and start doing instead. In many cases you can radically improve your life by making small, simple changes. Its not always about getting a new job with a $50,000 raise. Sometimes, it's about being proactive, and making choices. Your entire post was outstanding but this was the real gold (no pun, not starting a PM thing). It's not limited solely to finances. You just defined freedom. Well done, Froz, and thanks. |
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I have a coworker going through the same thing right now. We make really good money for this area of rural Michigan. I always wondered how he was able to afford all he had. New vehicles, Harley x2, cabins on the lake, nice big house, shopping trips to Mall of America. New latest electronics - big TV's, Apples, Ipad, Ipods....you get the picture. Turns out his mom & dad had a pretty significant trust fund & he was blowing the annual distributions. 20yrs worth of an extra $20k+ per year. Well a few years ago, mom & dad passed away. The trust fund was dispersed as directed & he received a final lump sum of about $60k. He and his wife never adjusted their spending habits down to just their annual income of $100k. POOF, $60k gone in 20 months and not much to show for it. He borrowed from his 401k to pay for college for his son. His son went into ROTC & was really good at it. His second year he got a significant scholarship....90% paid. He borrowed against his 401k again with excuse he was paying for college. Actually he & his wife were trying to catch up on CC bills and blowing part of it. This past January, she runs off with her boss and tosses down divorce papers. A VERY VERY nasty and contentious divorce. He is so screwed. It likely won't get settled until next summer & with her nasty ass attitude and heavy drinking, the custody fights will continue until their 10yr old daughter is of age. Because of the divorce, he cannot sell anything or buy anything other than essentials. His wages barely cover his bills & mortgage and lawyer bills. She left and he's got the house...for now. He's 57yrs old and will never be able to retire as he's went from a $600k 401k to about $350k and he has to pay it back before he can draw on it. He's learning to cope and to live down to his income. She's blowing through his monthly child support even though they have shared custody. She's blowing her shacked up boss's money too & he's headed for bankruptcy with his business. She's headed for a train wreck in a couple years & I wouldn't be surprise to see her drink herself to death or get killed in a car wreck. |
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Good thread, Fro. Missus and I have been going the careful and calculated route since 1998, when the Y2K apocalypse was looming. The only debt we have now is our vehicles, which I believe we will always have. I trade every two years, a car for her and a truck for me, and its one of our single-most important comfort and security items. As we get older, I want to work on vehicles less and less, and the reliability of new vehicles seems to be a no-brainer for us.
Its all about being frugal. This year I had my driveway paved. Its a pretty long driveway. 120 feet, which widens out to 4-car width at the house. It made my wallet pucker, but its paid for in cash. We also had a new Rinnai wall heater and a Rinnai on-demand hot water installed. All paid for in cash. My son's wedding expenses (our side's obligations) paid for in cash. Its a hell of a lot better to be proactive with your personal financials. |
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I have an app on my phone that everytime I purchase something I can easily punch in the amount and choose a catagory (food, transportation, utilities, retail, etc.).It really opens up your eyes when you see where your money is going. Which app? +1 |
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I have an app on my phone that everytime I purchase something I can easily punch in the amount and choose a catagory (food, transportation, utilities, retail, etc.).It really opens up your eyes when you see where your money is going. Which app? +1 +2, and subscribed for Froz's writeup 
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I always read stuff like that and wonder how.
My wife and I together make 60-70k a year, we do ok, bills are never late, we always have food and the vehicles and toys are paid for. I am currently looking into borrowing more to expand my equipment for the business, which would hopefully increase my net profit for the year, although it will be a little tricky, it is not entirely out of the question. I get the feeling that with a 75k income for next year I would be on easy street, debts would be essentially eliminated, I could wipe out half the mortgage with the left over money and set myself up really nice for the same amount of money the following year. I guess I just have never had a standard of living that high, but I just have trouble seeing how it can't be easily adjusted to without going overboard. |
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About 1.5 weeks ago I decided that I NEEDED to get out of CC debt. Still paying for stuff I bought 7 or 8 years ago kind of debt. I have the Dave Ramsey book. I'm hoping it will work as advertised, given I do my part. If you have the inclination take Dave's FPU course, the group aspect helped keep me accountable to make changes in my lifestyle. Every now and again I'll toss one of the CDs in the car and listen to and from work. I managed to knock out all my debt(approx 35% of my pre-tax income) in 14 months. Haven't even thought of using a CC or borrowing money in the last 2 years; it's a great feeling. |
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Great Post! I went through something sort of similar when my wife left me earlier this year. No alimony payments thank god, but with shared child support on 2 kids, I was really worried. I had no freaking clue how much she spent on "little" things, break fast from mcdonalds, happy meals, quick snacks at fast food places. Even counting paying her ass like $900 a month, I'm doing so much better than I ever was it's insane. I've always been mindful of my spending (bring my own coffee and lunch to work, go home and eat), and it's AMAZING what a difference it makes. |
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About 1.5 weeks ago I decided that I NEEDED to get out of CC debt. Still paying for stuff I bought 7 or 8 years ago kind of debt. I have the Dave Ramsey book. I'm hoping it will work as advertised, given I do my part. book did it for me, Irony is the now EX wife wanted to keep putting 5k vacations on the cards, and scrape by. Then she ran off with another guy, I started paying bills like a fiend, and got the last card paid off in september. WAS AWESOME!!! now for the house. PAGE TWO OWNAGE |
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The app I'm using is called Driod Wallet, but there are others. Driod Wallet also lets you do things like set budgets for each particular catagory. My buddies bank has an app that does some of the tracking for him when he uses his debit card.
I use this app in combination with an actual paper budget, because for me its easier, but I guess you could do it all on the app if you wanted. What I do is near the beginning of each month I sit down with a pencil and notebook and write up a quick budget. Its just a list with prices I expect to pay next to them. It takes me like 15mins tops. House $XXX Food$XXX Fuel$XXX Power$XXX Ammo$XXXXXX I also budget in a little wiggle room, which for me is maybe 50-100 bucks. I purposely leave the particular debt I want to pay off the soonest for the bottom of the list to be added after I figure up all the other expenses. When I get to the bottom of the list I add it all up including the wiggle room but EXCLUDING the debt Im focusing on. Then I take the projected income and subtract the expected expediture from it, whatever I'm left with is how much I'm throwing at the debt this month. Say I added it all up and came to $2000 dollars before the debt payment. Say my income will be roughly $2250. 2250 - 2000 = 250 250 will be how much I pay that particular debt down by this month. I like to pay off debts focusing on one at a time, paying only the minimum on everything else. As bills are paid and money is spent I keep track of it with driod wallet, trying to keep within my budgeted amounts. Then at the end of the month I break out my notepad and smartphone. Next to what I expected to pay I write what I actually did pay. Basically this allows me to mentally reveiw my expenditures and has SIGNIFICANTLY reduced my "spurt of the moment" spending. Also I set realistic goals for myself, like reducing this catagory by X amount. There is not really a "No You Cant Afford That" cloud that lingers over me, like I expected it to be. I can spend my money however I want, just budget for it and if you have debt make sure you are slam dunking all extra money at it. It takes a couple monthes before you get the amounts figured out well, unless you have been tracking your spending for a couple monthes already. |
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If your interested in budgeting software, this one has been working well for me. http://www.youneedabudget.com You can also keep track of your expenses with their app on your phone. |
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Credit cards are the debil. Get one for emergencies only and for international travel (the get great exchange rates - almost as good as the black markets).
Know the difference between toys (wants) and needs. Nobody needs a new car every year or two (unless they're driving +100,000 miles a year), a boat, a jet ski, an RV so until you get yourself squared away stop spending credit on toys. Put one month's pay at an arm's reach - the local bank or savings and loan in a savings account. Bail bondsmen need cash. Now put six month's pay into something that can be reached within a week to two - CD's, money market, certain stock funds. There's your uninsured medical issue or a new transmission for the work ride. Next pile the dough into your 401K/retirement accounts. Nest eggs grow with time. I set myself goals. When I hit one I allow myself to buy a "toy" (small!) often survival related. Put large dough in the retirement account and I'll buy a ham radio to celebrate. No goal, no toy. |
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Credit cards are the debil. Get one for emergencies only and for international travel (the get great exchange rates - almost as good as the black markets). Know the difference between toys (wants) and needs. Nobody needs a new car every year or two (unless they're driving +100,000 miles a year), a boat, a jet ski, an RV so until you get yourself squared away stop spending credit on toys. Put one month's pay at an arm's reach - the local bank or savings and loan in a savings account. Bail bondsmen need cash. Now put six month's pay into something that can be reached within a week to two - CD's, money market, certain stock funds. There's your uninsured medical issue or a new transmission for the work ride. Next pile the dough into your 401K/retirement accounts. Nest eggs grow with time. I set myself goals. When I hit one I allow myself to buy a "toy" (small!) often survival related. Put large dough in the retirement account and I'll buy a ham radio to celebrate. No goal, no toy. I don't think one should ever buy toys on credit. If you can't afford to buy the toy with cash....you can't afford it. |
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Credit cards are the debil. Get one for emergencies only and for international travel (the get great exchange rates - almost as good as the black markets). It's the balances that are the devil, not the cards, but most folks forget to manage themselves. My wife and I have actually gone to using AmEx to pay *everything* that we can with it. We track every dime as though it was cash so we always know how much is left in the budget and we pay off the balance every month. We usually end up with points worth a few hundred dollars at Home Depot, which we then use for our household shopping. If they ever canceled the points program, we'd probably go back to cash/debit but this pays for stuff we'd buy anyway, funded by... well... stuff we'd buy anyway. Neat system. |
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I have worked for my self / owned my own business my whole career. One thing that became really clear to me early on was saving on purchases was as much or more important than earning.
This comment mostly applies to people that work for themselves. We use a rough rule of thumb (not exact but is easy to figure): I have to earn twice as much to pay for something as it costs. Example: Dishwasher goes down and the plumber wants $100 to fix it. I need to earn $200 to get enough after tax dollars to pay the guy $100. (Income tax, Fuda, Fica, and general business overhead eats approx. ½ of gross earnings). So… if I fix it myself it’s like earning $200. Is it worth it? Also learn to think in Percent! If you start looking at purchases in terms of percent you will be surprised at how much certain things cost. An example might be a new TV. You find a pretty good one but the next model up has a really cool feature. If you look at the difference in cost in terms of percent that one feature might cost you 10-20% the cost of whole TV. Is 20% more worth it just to get 3D you will rarely or never use it? |
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Tag!
I'm just about out of my cc debt and I just have my student loans(still in college) but I'm paying on them each month. Just had a realizing that I am spending money that I don't need to be on stuff that I can't afford. This thread it in perspective the stoping at the store to get a drink on the way I work that adds up. |
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Mint.com track whatever you want, they have apps too. I still write stuff down sometimes also just to see where the money goes. Agree wholeheartedly that the Drinks, fast food, eating out adds up to a lot more than you think. Are you a Financial Adviser? Just curious, I remember some of your threads about Motorcycles I think. |
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Taggage.
I'm real close to paying off my truck, the only remaining debt will be student loans. I am looking at buying a house in the next year. I know that I spend waaay too much on BS items like drinks, snacks, and fast food. This puts it back into perspective |
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Credit cards are the debil. Get one for emergencies only and for international travel (the get great exchange rates - almost as good as the black markets). I disagree as already posted... It's the interest on the balances that people carry on them... I don't buy anything with my CC that I don't already have the cash to buy, it's that simple.... I get several hundred dollars a year in cash back... I get the convenience of buying things online when I want/need to, and I don't have to carry a ton of cash with me if I'm making a big purchase. Also, store cards for some of the stores you shop at frequently can also benefit you. With my Menards card, I was able to put my $1200 shed project, the $500 front porch rail project, and $1000 new washer & dryer on there for 1 year no interest, same as cash. I had the cash to buy them outright, but now I can keep the $2700 for an extra year and let that money work for me. I can pay down my mortgage, or my wife's student loans with that. Credit cards are VERY beneficial but ONLY if you have the self-control to NEVER carry a balance (unless it's a special promotion as mentioned above). |
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Credit cards are the debil. Get one for emergencies only and for international travel (the get great exchange rates - almost as good as the black markets). I disagree as already posted... It's the interest on the balances that people carry on them... I don't buy anything with my CC that I don't already have the cash to buy, it's that simple.... I get several hundred dollars a year in cash back... I get the convenience of buying things online when I want/need to, and I don't have to carry a ton of cash with me if I'm making a big purchase. Also, store cards for some of the stores you shop at frequently can also benefit you. With my Menards card, I was able to put my $1200 shed project, the $500 front porch rail project, and $1000 new washer & dryer on there for 1 year no interest, same as cash. I had the cash to buy them outright, but now I can keep the $2700 for an extra year and let that money work for me. I can pay down my mortgage, or my wife's student loans with that. Credit cards are VERY beneficial but ONLY if you have the self-control to NEVER carry a balance (unless it's a special promotion as mentioned above). Cash, Credit Cards, Checks, and Debit Cards are all one and the same to me. They are just a means of exchanging money for goods or services. Which I choose to use is entirely dependent on the situation. Some of my credit cards offer cash back or travel miles. Since I fly a lot, I tend to use the card with the travel miles a lot. Then I use the miles for upgrades from coach. My mechanic will give me deep discounts for paying cash, so cash it is for any mechanical work on my cars. For on-line I have a credit card with a low limit in order to limit damage in the event the number gets stolen. Checks are used for one time payments to vendors/businesses that I may have a one time transaction with. Each method has it's uses and benefits. The key is not to spend what you don't have. I pay all my balances every month. I do not pay any fees or interest, ever. Credit cards are not the devil, the devil is impulse spending on foolishness and toys. How may people have dropped a couple of grand on a wave runner they use two weeks out of the year? There is no toy out there that you can not rent as opposed to buying. When I want to play with a boat, motorcycle, ski mobile, or any other big ticket toy, I go the rental route. I pay for the time I am using the toy and do not have to worry about upkeep, storage, or payments. Impulse buying, toys, and poor judgement are the devil. not your credit cards. stasiman |
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It was a drag to get set up and started, but recording all transactions (cash and debit) on quicken is a powerful tool to monitor your money. Of course it can cause problems when you see in detail how much your wife spends on clothes 
Good story fro I predict that wives will know it creates problems and will under-report the true amount to try to maintain the peace at home |
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It's all pretty simple if you don't cling to "stuff".
I have been divorced twice (long story) and in each of the divorces I gave them everything except the clothes in my closet and my vehicle and started over. with in weeks I was back on my feet and within a year I was swimming in cash.. Yep, bankruptcy (usually a smart move when you divorce) no kids helps..........a lot. and no fighting after you're done with her. I haven't talked to the ex (either one) since the day I walked out. did all the paper work in the mail. Debt free? yeah, it's great, but I don't worry if I do have debt. America doesn't have debtor prisons and I will pay my bills up and until I can't, then when you can't, you can't. No need to get emotionally tied up in stuff, it can all be replaced. perhaps my case is a simple one, but then I set my life up to be simple. And yes, I have debt, and a 850 credit score, you always can get it back once it's gone if you don't lose your head about it. |
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Good topic. I am single, but live like the person in the OP, however no late fees as I make sure I never spend more than is there. I just end up with little or no money at the end of the month. I just set up a budget on my bank account, and it tracks everything I spend money on. Pretty interesting where money can go sometimes. I also just cut up all the credit cards but one, and have not used it in almost a month! Hopefully I can get some debt paid down soon and not have to worry about living paycheck to paycheck.
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Friends got me started on the DR track March 2011 when they bought the starter kit for me. Since then I have paid off $24,605 this year and am on track to pay off over $64,000 in the form of three student loans and one credit card in just a little over two years. Now I find more reasons not to buy stuff than to buy stuff, have a very nice but big Excel budget spreadsheet, and the words "it is not in the budget" has become a big part of my vocabulary.
Since I am single, it is easier to stay on budget as I do not have to worry about someone else spending money. However, I have to pay for the mortgage and all the bills myself. Thankfully, my friends woke me up to living debt free, next year I will get to start enjoying my money more instead of sending it to some company, and I have a good job with great pay. It really was a lifestyle change from buying whatever and paying at least the minimums to sticking to the budget and paying as much as I could on the debt. It was hard at first to see so much money going towards the bills but as each one got paid off it was easier to send the checks. |
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Credit cards are the debil. Get one for emergencies only and for international travel (the get great exchange rates - almost as good as the black markets). Know the difference between toys (wants) and needs. Nobody needs a new car every year or two (unless they're driving +100,000 miles a year), a boat, a jet ski, an RV so until you get yourself squared away stop spending credit on toys. Put one month's pay at an arm's reach - the local bank or savings and loan in a savings account. Bail bondsmen need cash. Now put six month's pay into something that can be reached within a week to two - CD's, money market, certain stock funds. There's your uninsured medical issue or a new transmission for the work ride. Next pile the dough into your 401K/retirement accounts. Nest eggs grow with time. I set myself goals. When I hit one I allow myself to buy a "toy" (small!) often survival related. Put large dough in the retirement account and I'll buy a ham radio to celebrate. No goal, no toy. I don't think one should ever buy toys on credit. If you can't afford to buy the toy with cash....you can't afford it. I learned early on, the hard way, that toys on credit is a losing proposition. I got in way over my head and made minimum payments for years, and it finally caught up to me when I joined finances with a woman I thought I knew well enough to try and marry. What a dumbass. At any rate, living beyond my means came to an abrupt stop that week because not only was I a) flat broke after paying for her new place, and b) a month from my own lease expiration with no money for a new place, but I also lost my job. That was a wake up call-this was in 2001, and I haven't borrowed a dime in credit since then. I can't tell you guys the feeling I had when I knew that all of my paycheck belonged to me again. I had so much free money I could easily afford all the toys I wanted if I waited a week or so. Since then, I have paid cash for everything, even a 10 acre bug out location. People get fixated all the time on how much money they are or aren't making. What you make isn't nearly as important as what you spend, and that's a fact Jack. |
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It was a drag to get set up and started, but recording all transactions (cash and debit) on quicken is a powerful tool to monitor your money. Of course it can cause problems when you see in detail how much your wife spends on clothes
Good story fro I predict that wives will know it creates problems and will under-report the true amount to try to maintain the peace at home That's not so easy. It's a closed system. Paychecks are direct deposit. Any money that comes out as cash or debit must be accounted for or the statement doesnt balance. We both have cash accounts in Quicken for our cash expenditures. Of course the money I make trading guns, selling junk, ect. just goes into the not-so-secret gun money stash in my wallet.
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Quicken is ALOT easier than whipping out your phone everytime you buy something and entering it into an app(unless you only use cash). Every week or two you can have Quicken download your bank statements and presto, done. All you have to do is click on each transaction and specifiy what category(ies) it fits under. IE you bought a bunch of junk at Walmart in one transaction and want to break it into food, home supplies, clothes, entertainment, etc.
I ended up cutting probably $40-50/ week on fast food/takeout that I now put into my pocket. Losing weight also saves money. Since I sit on my butt all day at work I really don't need any more calories from dinner so I just snack on carrots and ranch or something unless I workout. I was burning >1500 calories on rides a few times a week, but was still gaining weight. |