My Financial Recovery

Emergency Fund Challenge 2009

Posted on: June 4, 2009 by Matt 7 Comments

A couple of months ago I pulled most of my cash out of savings and applied it to my credit card debt. While this eliminated the debt it put me back in the position that many Americans today are stuck in: not having an emergency fund. I could always fall back on my credit card in an emergency but I really feel much more comfortable having a little bit of money in savings in case something comes up.  One of my goals is to reestablish my starter emergency fund and while thinking about it last night I thought that I would invite any readers trying to get their emergency funds up and running to join me!

The challenge is pretty informal and is geared to help hold me accountable to rebuilding my emergency fund and to help anyone else out there that would like the additional encouragement!  To take part feel free to leave a comment, contact me here, or even send me an email to: matt at myfinancialrecovery dot net. Just drop me a line somewhere along the way with a goal you would like to reach by the end of the year.   Then send over an update at the end of each month from June - December and I will post updates monthly of my progress and will also post your progress in the process.

saving-account

Originally uploaded by epomali

My goal is to build back up to the $1,000 starter fund recommended by Dave Ramsey in The Total Money Makeover by the end of the year.  My current status is that I have $108 in my online savings account that I have had set aside as an emergency fund.  In order to reach my goal of getting it back up to $1,000 I do not want to drastically impact our family budget in any given month.  In fact - I would like to reach the goal without any noticeable impact on the family. Here is my plan so far to accomplish my goal:

• Communicate with my girlfriend about where we are at financially:  Setting money aside will effect both of us and I find life is a lot better when we are both on the same page.  Usually checking in once every week or two works fairly well for us on financial matters.
• Pay attention to my spending: Identify areas that I buy things for myself that I could go without and make a few sacrifices.
• Make small weekly transfers to savings: In stead of trying to make a big monthly payment work on making small weekly ones - $25 per week seems much more manageable than $100 in one shot.
• Keep an eye open for any extra opportunities to save a little bit extra.
• Discuss budgeting based on my base salary with my girlfriend and put a couple months of commissions into the bank.

Based on the math I would have (including June) 7 months to reach this goal and would need to save about $125 per month to do so.  At the same time I intend to continue paying off my current debts by making at least minimum payments.  I also have one other variable coming up in August when I send my last payment to an ex-girlfriend for the car she lent me money for - which will free up another $400 per month.  Overall the goal should be easily attainable based on my current income and expenses and I should have it completed by the end of summer or so.

So now the question is - does anyone else out there want to join me in starting, rebuilding or increasing their emergency fund?

Positive Change In IRA Value

Posted on: May 14, 2009 by Matt 2 Comments

A lot of people writing about personal finance seem to have quite a bit to say about investing and investment strategy. However - I do not invest much at all. The total of my investments is the roll over IRA I have from a 401K plan I had with an old employer. Why do I not invest? Do I not understand the importance? Well - mostly because I am trying to eliminate my debt prior to putting money away for retirement. I do plan to invest in the long run but right now it does not fit all that well into my budget.

That said - I still do have the one IRA account that I normally do not pay much attention to. When my statement came in the mail earlier this week I noticed that it still had an old address on it (since we moved) and figured I should open it up and give them a call to update the address.  I had not checked the balance on the account since transferring it over to a new institution (I moved it to a local firm with somebody that I know from high school).  So I was pleased this month when I discovered a 10% increase in the plan value.

I know these numbers go up and down frequently but was still rather impressed given the current economic state.  When I spoke with my financial advisor he noted that he has been seeing some action lately that makes him hopeful we are on the way to recovery.  He also believes that people who stayed in through the economic downturn or are just buying in now should see some pretty good results if the trends continue.

I for one have had enough with the crazy econcomic news and am looking forward to a positive change.  I hope that my advisor is correct and we do start to see a turn around!

Lesson Learned The Hard Way #1: Large Sums Of Money

Posted on: April 28, 2009 by Matt 4 Comments

Originally uploaded by Gnerk

Shortly after my 18th birthday my mother passed away. I had plans to head off to college about a month later and intended to go just to get away from all the old memories lingering around where I grew up.  I had very little in my bank account and all of it was probably going to be needed for books and other expenses related to college.

Later that semester I received notification that I was due to inherit my share from my mother’s estate which amounted to about $11,000. To date this was easily the largest sum of money I have received in one lump sum. I had no idea what to do with the money and was still grief stricken and in shock from the loss of my mother (I really had trouble coping with her death).  I did what most college boys probably would have done: deposited the money in my checking account and spent frivolously.  Of course the nice lady at the bank attempted to give me some advise but I wanted nothing to do with saving money or planning long term.  I more or less told her to just give me the money and shut up.

For the most part I do not remember what I spent the money on.  From what I can recollect now I can recall buying:

• Lots and lots of booze on a regular basis: I developed an even bigger drinking problem in college that I carried with me until a little over a year ago.  At this point in my life I have come to realize and accept that I am an alcoholic and can not drink.  I have been sober now for about 16 months.
• A PlayStation2 that I had to have: I was a guy and in college - of course I needed the newest video game console.
• A beat up car from my girlfriend’s (at the time) brother: This was  my first car.  I did not get my license until I was 19.  It was a little beat up but ran well and I managed to get quite a bit of mileage out of it.

Needless to say - I spent every last dime within a year or so. I do not regret spending it but do think that I made some poor choices.  I suppose that if I had to start all over again today I would probably look to start out by:

• Learning how to manage money: Not just large sums but also general personal finance.  I was fairly clueless, nobody had taught me anything about money management and I had not taken the initiative to learn on my own.
• Parking the money in a CD where it is locked for 3 to 6 months: Actually - I probably would have opened a few of them that would mature at different lengths of time.  Maybe break it into quarters and put 25% in each 3, 6, 9 and 12 months.  I was in no emotional state to make any financial decisions and knew little to nothing about handling money.
• If I needed money, get a job: I had limited to no income the first three years of college.  I cited having to focus on my studies as the reason for not working but the real reason was I was too busy drinking and generally slacking off.  I could have easily worked a part time job.

I do not regret spending the money or wish to change the past but do try to learn from my mistakes.  In this case I learned that having a large sum of money float into your life requires that you press a pause button and do some planning and possibly some healing.  When the inheritance arrived in my hand I was still grieving (at a point where I maybe should have put college off a semester or two) and was not clear headed.  Parking the money and forgetting it existed would have given me some time to work on healing myself.  Once I was in a better place emotionally I could have moved forward with learning how to manage money and planning.  My lesson did not have to be learned the hard way - I could have listened to the nice folks at the bank but I chose not to.   So I guess there is also a general life lesson here as well: Listen to the advise of people who specialize in a field you know little or nothing about.

Credit Card Situation Update

Posted on: April 23, 2009 by Matt 4 Comments

Earlier this week I posted on a discussion my girlfriend and I had regarding paying off my credit card debt. Since I posted on Monday a lot has changed and I thought I would provide an update.  As of right now the $1900 in credit card debt is now down to $601.  This came after applying most of what I had for expenses in my checking account along with some money from my savings.  After thinking about interest rates a little bit I opted to move money from my online savings (which currently earns 1.65% APY) and apply it toward my credit card balance (interest rate of 13.40% APR).  I figure that not paying the extra in interest every month is well worth not having all the cash in savings. In addition I believe I will have the card paid off between one more transfer from savings and the remainder of my checking account balance before the end of the month.  I find this extremely exciting!

Of course we still have normal living expenses and a vacation that I had budgeted for based on my checking account that still need to be paid for this month.  We discussed these items last night and came up with a game plan to work on reducing expenses this month and next month by:

• Cutting back on food expenses: Paying better attention at the grocery store and cutting back on dining out.  We have been steadily getting better here but there is always room for improvement.
• Cutting back on gas expenses: We like to go places and get out of the house.  In our area we drive to a number of different towns to do things.  Aside from vacation we can try to stay closer to home and I can start walking or riding my bike to work.
• Let my girlfriend cover more of the vacation: She has space in her budget to pick up some of the vacation.  I had planned on covering it and intended to pay out of my checking.  However she seems to be committed to fast tracking debt repayment as well and asked that I let her cover more of it.  I have a difficult time letting her pay but I suppose a little growth in this area will not hurt.

My credit card will probably get used before the end of the month and new charges will be incurred but I also anticipate being able to pay them off next month as well with our new plan.  So having the credit card paid off puts me ahead of the goal of getting the balance paid off by October by about six months! I may not be paying it off in full and never using it again as my original plan had entailed but I am working toward that and by not carrying a balance month to month I will not be paying the interest fees! I should also be able to replenish my savings account fairly quickly (within 2 months) to the level it was at before paying off the credit card so that will be available again as well.

I am already looking forward to my next goal of having my car loan paid off (August if I stick with my current payment schedule) and then I will be down to my student loans.  Unfortunately the student loan that needs the most attention is about $20,000 and stuck in collections.  I will simply have to keep moving forward with one step at a time.

Would You Rather Pay Down And Use A Credit Card Or Pay With Cash?

Posted on: April 20, 2009 by Matt 5 Comments

Originally uploaded by lemonjenny

While driving with my girlfriend yesterday we had a conversation about my credit card that still carries a balance. We started talking about my car loan from an ex-girlfriend and how excited I am to have it paid off in August and I noted that I should be able to pay the balance of the credit card off by the end of October.  She asked how much the balance on the credit card is and I told her that I still owe about $1,900 on the card.

She thought for a minute then asked the questions: “Why is it going to take so long?  Why haven’t you paid it off already?”

I responded that I just can not afford to pay off the debt and still be able to carry other expenses that we incur.  She then argued that I make enough that I should be able to pay off the card in a couple of months at the most and that all the expenses that I claim I need cash for could just as easily be paid for with the credit card. I started to feel a little squeamish.  I just do not relish the thought of emptying my bank account and using a credit card for living - especially when I am trying to just pay the balance off.

After further discussion she logically laid out the following thoughts:

• I am paying a high interest rate on the card: Certainly higher than the interest I am getting returned from my bank account.  Paying the card down to a lower balance certainly makes sense here.
• I will still have the money available, just in a different place: My argument of not being able to pay for gas, groceries and other expenses makes no sense.  I normally use a debit card for all these purchases - if I pay down the credit card balance I can just as easily use my credit card.
• I will probably spend less on the credit card: I argued that I was trying to avoid spending on the credit card because I would probably spend more, not less.  Her response: If I am working on paying the balance off and not wanting to increase the amount owed - I will probably think a little harder about impulse purchases. I had not considered that using a credit card would encourage me to spend less before.  Her argument is good and plays to my thought patterns pretty well.  If I am holding a card that I am hesitant to charge I am really gonna think about how much I really need what I am buying.
• I am just neurotic about money: I knew this already.  I freak out when my checking account drops below having a couple hundred dollars in it.  There is not a set amount but it triggers me into a bit of a panic mode.  I like the security of having money available.

At the end of our conversation I agreed to give her method a shot and see what happens.  It should be interesting and I will be sure to keep everyone updated on how it goes.  I am hesitant as it seems that most personal finance literature I read expounds the evils of credit cards but she made a good argument (you guys just got the synopsis).

What would you do?  Would you prefer to pay down the debt and use the card for expenses or keep using cash and try to pay the debt down slower?  I suppose the real question is cash or credit?