10 feet

Venesa found a surefire way to get me off the couch: Threaten to pay for something that I think I can do myself.  That's exactly what happened with swimming lessons this summer.  At a recent pool party, we watched every other kid fearlessly jump in the deep end of the pool, splash, play and carry on... while ours were stuck in the shallow end like quarantined ebola patients. After a conversation with another mom, she asked if she could sign the kids up for lessons.

You'll get no disagreement out of me that the J's are getting too big to be showing up to pool parties with inflatable arm rings and flotation devices.  Mind you, getting them to swim was actually a priority for us at some point (they both took lessons around two years ago)... but sometimes even the best intentions have no shot against the busyness of life. Yet and still, when Venesa said lessons... all I heard was a loud ca-ching in the background.. and so I asked her to give me a week or two before we discussed it again. Two trips to the Y and one backyard pool trip later, the J's are officially drown-proof. Free of charge.

Cloudy Skies

A string of bad luck.  That may be the understatement of the year. The truth is, our family is in the midst of a storm and at this point I can't even tell you how it started any more than I can tell you when it's going to end. The details are all starting to blur, but here's what I can still piece together.

I guess even hurricanes start out as a drizzle.  In October or November, we got notice that our Virginia tenant would be expelled from the housing voucher program; which meant she'd be moving sooner than later.  No sweat (or so I thought). The timing was unfortunate, but that's the nature of the beast.  We'd get her moved out, renovate the house, and contemplate the pros and cons of re-renting or selling the property.  Par for the course.

Then I got a text from a different tenant. The garage door stopped working.  $400 repair.  Not ideal timing but hey, these things happen.  More drizzle.  And then the bottom fell out.  The initial assessment on the Virginia property: $21,600 in damages.  I can only laugh as I read that last sentence out loud because this entry could pretty much end there and be retitled, "financial ruin"... but as it turns out, we were still in the opening act.

The irony is, not less than a month before, we had just begun to reassess all of our assets and retirement plans, etc. in order to make sure we were headed in the right direction (ha ha).  With all three rental properties seemingly secured with long-term tenants, I reached out to a financial advisor in order to explore stock-related options for retirement accounts and college savings.  Well, we never got very far before the rental fiasco hit.  However, we did move forward with dual applications for life insurance.  Yet, what seemed like a pretty wise decision turned out to just be more fuel for the fire. Long story short, both of our applications got denied (well... technically, I got denied and Venesa got a downgraded rating).  How's that for a boost of morale? As I told the financial advisor, there is something distinctly depressing about a company saying they're not willing to bet on you living to the age of 60.  I know it's not that simple, but when you're already down; everything feels like a kick to the ribs.  Granted, it's been made obvious that the denial and re-rating were both due to clerical issues and misinterpretations of our medical charts... but the timing still couldn't be worse.

But back to our financial woes. The repairs on the rental property are in motion, an our hope is to price the house to move quickly and count it a victory if we break even.  In this case, "break even" means saying goodbye to 10 years and $70,000 in equity... 30 of which we just paid down in cash 3 years ago. Ouch. No sooner than when I start getting comfortable with this unfortunate fate, the circuit breaker box in our primary residence started to sizzle.  One tripped breaker, two calls to electricians, and one air conditioning guy later, we isolated the problem to our well pump.  That was Friday at 3pm... which meant we'd go the weekend with no heat in about a third of the house.  Three days and $700 later, we have a new well pump and heat is restored throughout the house.  We endured the weekend! Oh... well... except for that trip to the emergency room on Saturday night.

Rewind to Friday afternoon. Venesa started having sharp pains at the top of her neck, and by Saturday the intensity and frequency had gotten to the point that we had to do something.  Call it an overreaction, but when you're in the midst of a losing streak there are certain risks that are not worth taking.  Yes, I know... few things will help you flush out your bank account like a CT scan in the ER; but it's hard to put a price on the reassurance that your symptoms don't point to something life threatening. In the end, we got sent home with a good report and peace of mind; but of course not before adding to the financial woe tally.

Gosh, I totally forgot to mention that I had the flu.  I think that hit me last Thursday, and the worst was probably over by Sunday morning.  By this morning, I was feeling pretty good.  The well pump was replaced, the heating system was back up and running, and Venesa and I were both on the mend.  I remember laying in bed this morning, feeling better than I had in a week, and literally thinking that this might be that point.  The turnaround.  The pivotal moment.  My energy is back. We weathered the storm, and now we start to move forward and rebuild.

And then the toilet broke.  The van wouldn't start.  And the garage door feel off the hinge.  And it was just 6:43am.

Welcome back to the storm.

Kid Sports

At $75 for ten weeks (classes are held once a week), Jasmine's gymnastics endeavor seems reasonable enough. In fact, on the surface, I'm pretty sure that this'll be one of the cheapest extracurricular activities that we finance over the next two decades. But it's a sneaky cost. 3 class cycles later (plus a registration fee) and we're up to $250. Add another 2 cycles to take us to the end of the school year, and we're up to $400. Whoa... What happened to reasonable? Multiply that by 3 other kids who will inevitably have other interest, and all of a sudden the only approved extracurricular activities in our household are playing in the sandbox and raking leaves. Heck, I can toss her around the backyard for free. And we have a trampoline! Who needs a leotard, anyway?

Anyhow, come March, Jasmine will be trading in her cartwheels for soccer shoes. I still can't figure out Justin, though. Granted, soccer was pretty much a disaster for him 3 years ago. But at this stage, he's so rambunctious and aggressive with other boys (I think his favorite word is "tackle"), you'd think he would love a game that involves some running around and physical contact. But to my surprise, he has opted for baseball: A sport where you have to stand around for 10 minutes and wait your turn. Granted, I personally love baseball... but with this six-year-old's attention deficit, I don't see this ending well. Plus, baseball is so rich with rules and regulations (the rules of soccer are pretty much run, kick, and don't use your hands). I envision a lot of base running in the wrong direction. And the first time someone throws a ball at him, forget about it. But maybe he'll surprise us.

 I won't hold my breath, though.

The 3.5 Challenge

Last week I was surfing the web in my usual haphazard, nonsensical, non-linear way.  You know, that method where you do an internet search on tire size (because we had our second flat tire in about a month) and less that two minutes later you end up reading about the history of knitting… because a search on tires led to a discussion board about wheels… on sedans versus trucks… busses with permanent wheels… wheels on the bus… children songs.. toys for christmas… Justin likes the Avengers… random article about boys and action figures… dress-up for boys…  super hero costumes… make your own costumes… sewing… knitting… and bam! You've landed on a bizarrely interesting article on the difference between knitting and crocheting.  I'll tell you what… the internet is a dangerous place for those of us who lack focus. Anyhow…  It must have been that type of drunken stagger through the internet that led me to a blog entry about how some couple paid off their mortgage in 3.5 years.

The funny part is, I never even read the entry.  It was probably just one of a dozen windows that I left open as I dashed through websites like a madman and promptly left for work.  But when I got home I was greeted by a wife who, with determination in her eyes, cornered me in the kitchen and said, "I read the article you left up on the screen… and I'm ready! Let's do it!"  Um…. okay… but what article?  She figured that I had left it up for her to read, so we both found it funny that I had no idea what she was talking about.  Evidently, my last click of the mouse led to a blog entry that had convinced her to take up her sword and conquer the financial dragon that is our mortgage.  And so we discussed it, I read the article, and it all left us with the question of, can we do this, too?

Here's the background: We have 3 rental properties with remaining mortgage balances of $158K, $125K, and $82K; and a primary residence with a balance of about $197,000.  That's over a half million dollars of debt owed to 3 of 4 different banks combined.  That's a sad state of affairs, not to mention a state of high financial vulnerability.  Lord knows that we are always one unemployed tenant or one collapsed roof away from what would feel like financial disaster.  Not a fun place to be. So, true to Dave Ramsey form, we decided to focus on the smallest of the four amounts. The $82,000 mortgage started in 2008 as a 30 year $124,000. One year later, we were at least fortunate enough to refinance to a 15 year mortgage.  That dropped the payoff date from 2038 to  2024.  Since then, we've been putting extra money towards it here and there, chipping months off the amortization table whenever we could.  That has us down to an expected pay-off date of September, 2023; essentially 10 years from now.  Which leads us back to the question of, can we do this?

We combed over the finances for about 48 hours… and came up with an answer of no.  But we did try. We drew up plans to cut our YMCA membership, cell phone plan, grocery budgets, etc.  But the truth was that we had been there, done that a number of times already… and are at the point where there honestly doesn't seem to be much left to cut.  With no cable, no home phone, no car payments, and few things left in our lives that anyone in their right mind would call luxury… we seem to be in a good position to maintain our title of Mr. and Mrs. Frugality.  Nonetheless, we massaged the numbers for hours at a time, and it just didn't add up.  Even if we sacrificed big time on our quality of life, the trade off between what we'd gain (maybe a year or two less on the mortgage) and the conveniences that we'd lose just didn't seem to balance out.  Besides (and funny enough) I had just mentally committed to increasing our charitable giving next year. Somethings gotta give. So we closed the book on the conversation, and moved on.  Ten years ain't too shabby, after all.

Except I never really moved on.  This thing ate at me until I finally said, ok… the numbers don't add up… but let's do it anyway! Four years or bust!  Let's get this done!  After all, has God not done crazier things in our lives over the past few years?!  He created the heavens and the Earth and parted the Red Sea… and so I'm willing to think that he could figure out a way to nip a little five figure mortgage in the bud.   Especially with the gainful employment that He has blessed me with.  So let's go for the gold, because even if we fall short, it's still a victory.  I have to believe that the God we serve would still honor our pursuit to be good stewards over the worldly possessions that He has blessed us with.

So consider this entry our public declaration… because it would be easy to not say anything and just try to do it unannounced…  avoiding public scrutiny throughout the process, and saving us the potential embarrassment of not reaching the goal in the end.  But the public nature of an entry brings with it a certain amount of accountability.

So why 4 years?  Why not aim to cut the 10 years in half to five, or better yet why not match the 3.5 that the original blog entry mentioned?!

----


I wrote that last question two days ago… and (as much as I tried) I have yet to come up with a good answer.  I'd write… then promptly delete… then write… ponder… and promptly delete.  Because no matter how well written the words, or savvy I tried to be in the statement of my excuses… my conscience kept coming back to the same thing: Hypocrisy. Here I am in one breath saying that God can heroically bridge the gap between our goals and our abilities if that's His will. And in the very next breath, I limit Him because of my own lack of faith.  Man, talk about being smacked in the face.

From our calculations, just cutting our mortgage from 10 to 8 years would require somewhat of a heroic effort and a good amount of sacrifice and cost shaving our our part. But the truth is that we could do that ourselves. For me, setting the goal to five years would have put it in the "wow" category. And I guess sliding to four years put even more space between, "wow… look what we did" and "wow… look what God did to honor our faithfulness!"… And I was content with that until I messed up and asked the question: But why not the 3.5 that we actually read about? Why scale it back at all? What is it that's making me think, yeah, that was good for them but that's just not reasonable?  It's only a difference of six months, but it felt so much bigger than that.  I tell you, I have struggled with this question for two days now; but funny enough the answer was obvious from the minute that I typed the question.  Don't limit me.  That's what I heard.  And man, was it convicting.  Here I am starting a blog entry that I was rather proud of, and it somehow morphed into a public evaluation of my personal faith.  Talk about painting yourself into a corner.  But here I am, with a marquee match up of God versus my personal pragmatism.  And thanks to the blessing (and curse) and free will, who wins is totally up to me.

So it is.  The new goal is three and a half years.  July 1. 2017.  A bit of a ridiculous goal if you ask me.  But then I'm reminded… nobody asked me.

Rental Property Refinance

Who puts a 45 cent stamp on a Mortgage PAY OFF CHECK?! Nothing like paying interest on a $125,000 loan for 6 extra days because your paralegal hasn't figured out the joys of wiring money (or at least overnight mail.... geez) in the year 2012.

And that's just the tip of the iceberg from our most recent not-so-wonderful refinancing experience. One mistake after another. Looking to hire Conner Law firm (115 Cargill Way, Hartsville SC) for a refi? Run like the wind. In the opposite direction. Miserable Experience.

Chesapeake Pt II

Random thoughts about the move...

1. According to her, V hates moving, but I love it. There's nothing like a fresh start. It forces you to reevaluate your physical (and mental) inventory and abandon your comfort zone for the potential of progress. Change. Love it.

2. Justin is so not feeling the tire swing. Jasmine on the other hand...

3. Say what you want about stereotypes, but as a landlord how can you not love the section 8 program?! Under what other program can your tenant flat out lose their job and your rental payments not skip a beat. Love it. Love it. Love it.

4. It's kinda sad to think that the kids probably won't remember our house here in Norfolk despite it being where we lived when they were born and where they spent their first few years (I certainly have zero memory of my first domicile)... But then, this digital age is so rich with technology that maybe they won't forget as much as I think they will. Given all the photos and videos that they've logged here, Justin has already seen more photos of himself on the internet than I've seen of myself in my entire life. We live in a totally different era.

5. It's going to take a lot of discipline not to invest too much (if any) money into someone else's property in the name of trying to make "our house" the way we like it. We're gonna have to focus on them long term goals. Constantly.

6. If you thought we were frugal before, then you just wait. We'z about to get super frugalistic on that behind as we do what we can to save up for our next home... wherever and whenever that may be... because we sure aren't trying to rent forever. I would put a time limit on it (2 years sounds like a nice number) but I ain't stupid. We were supposed to be out of this house 4 years and 2 kids ago. Go figure.

7. Having a refrigerator flush with the wall seems like a super cool idea until you realize... now where are we going to put all of these magnetic toys and to-do lists? I'm way too OCD to have all of that stuff plastered on the front of the fridge. We'll figure something out.

8. And last but not least, what's a new house without some new big boy toys. Meet my new friend John Deere. Forget about the fact that I don't even know how to turn it on yet. I'm so excited that I don't know what to do with myself. Never been so excited about watching the grass grow. Is it springtime yet?

Norfolk to Chesapeake

We're moving! I don't even know what else to say...

As the saying goes, things move so quickly in life that you've gotta be ready to seize the opportunity when it comes. Well, it came. And we grabbed it by the neck. As of a few weeks ago, we had decided to put off the prospect of moving for at least another year. We were more than content that the neighbors who had given us the most grief had moved out and the original owners of that home had moved back in... instant 300% upgrade to the neighborhood. We had also just revisited our financial goals, long term and short, to adjust them based on our new expectation of not leaving our home for a while. V had also just come home from her 2-week stint in SC, expecting to settle back in and return her life to normalcy. And then BAM. A sharp left turn knocked all of those plans out the window. And here we are. Packing up and getting up outta here.

Now for the specifics. Last Monday, our latest section 8 applicant finally got approved. Just when we had given up hope of ever getting someone with a section 8 voucher even close to our asking rent, we got one. And while they still missed the mark by $300... (hey... the first potential tenant from a few months ago was off by about $900) something told us that this was it. For one, we got a good vibe about the tenant. Two, the $1525 per month we'll get won't cover the mortgage, but it will cover the place we'll be renting for ourselves in Chesapeake (which we found, agreed on, and signed off on in record time). Three, it's no guarantee, but a rent increase via section 8 seems likely after the first year of occupancy. And so now we're packing. The moving truck comes in 4 days. We will turn over the keys to our primary residence in 7 days. And this, my friend, will be one crazy week.

And while we don't know exactly what the next step will be, the good news is that this puts us in a pretty decent position in a few respects. For one, I'm up for tenure and promotion this year at The University. Having our house rented and not having to worry about a quick sale in this awful market will give us a nice amount of mobility in 2011 in the event that the university administration loses their collective minds and decides to shaft me in any respect whatsoever. Secondly, it officially makes us the owners of a 3rd rental property. Granted, when we first started the rental thing, I was always hopeful that we would've had rental property 3 ages ago... and whenever it did come, I would not have guessed that it would be in Virginia (the 1st two are in SC). But life has a funny way of turning your grand scheme of a plan on its head and spinning it in a totally different direction. So here we are. I suppose we're exactly where we're supposed to be. And without a clue as to where we'll be next. But enjoying the moment, and doing our best to hang on. Not to mention pack up... and get out.

Buckle up, kids. We're going for a spin.

We'll see you in Chesapeake.

Lemonade

When there's no money in the budget for a true vacation, it's time to turn to that lemon of a deck out back, start the transformation, and make do with what we have... because who says you have to travel away from home for a little slice of tranquility?

Now the only question that remains is, why didn't we do this 5 years ago?! Barbecue at our place. Everyone's invited.

Enter the Realm...

... of the soccer mom. It's official: We have officially pulled the trigger on the mini-van purchase. Justin and I will be booking a flight to Florida to pick up our new wheels within the next week or so. Yep... a non-direct flight (his first of any sort) and a 12-hour drive back home, all with Justin as my wing man. If nothing else, that trip should be worth at least one good blog entry by the time we get back. Wish us luck.

This is Farewell

Top ten reasons why it's great to have an old beat-up car...

10. Zero concern for adding mileage to the car. Multiple roundtrips to from coast to coast? No problem. Just make sure your AAA service is up to date.

9. The convenience of leaving the doors unlocked all the time. "You want it? Take it!... Just change the oil before you bring it back!"

8. Safety. With good ol fashion metal construction you probably couldn't tell the difference between getting hit by a newer car and going over a speed bump.

7. You've become one with the E light in the car, and know when you have 6 tenths of a mile left in the tank before you have to get out and push.

6. Every State Inspection is like a pot luck dinner: always a "fun" surprise.

5. The prospect of achieving the ultimate goal of a frugal mind: having the odometer hit 999,999 and rolling over to a fresh start.

4. The ability to park next to the shopping cart return without concern of dings and dents.

3. You can have a picnic in the car with no concern for spillage. At this point, honey mustard spills, barbecue sauce stains and baby spitup just adds to the decor.

2. No car payment. Cheaper insurance.

1. Feeling like you're in a rare fraternity whenever you see another car just like yours since very few are still on the road. The rest have already beat you to the junkyard.

And with that, our '97 Nissan Altima (V's car from her college days) has seen it's last hooray. We're not emotionally attached to it like I am the Civic (which is 9 years old now) but It has served us well, and we hate to see it go (okay, not really... actually we just hate to have to buy another car). So this is goodbye to an old faithful friend (well, maybe not that faithful)... and probably hello to the ranks of (gasp)... the MINIVAN. I guess everything happens for a reason. To be continued...

Another Day

8 hours ago, I was in a car accident. Hit and run on Terminal Boulevard as I neared the interstate entrance. Hit from behind and side swiped on the passenger side, I fishtailed into the guardrail several times, doing my best to avoid entering oncoming traffic, before regaining control of (myself and) the vehicle. No one was hurt. But the level of frustration felt when someone flees the scene (and flees accountability) for what could have been a fatal situation is indescribable. And the timing of it all (just days after Jasmine's arrival) made the whole situation extremely surreal as I was reminded (very violently, no less) of how precious life is and how quickly it can be taken from us. Scary thoughts, for sure. Certainly enough to make you go home, kiss your wife, hug your children, and redouble your efforts to make the most of everyday.



So now the cleanup begins. Phone calls. Car repairs. Or perhaps a car replacement (depending on if the vehicle is "totaled" or not). Unexpected expenses. Huge inconvenience. And plenty of time lost. It is incredible how 8 seconds on a nondescript Thursday night can conceivable impact the rest of your life. But I just thank God that I am still here to see another day. Because in the scheme of things, everything else besides life suddenly seems very trivial. What a reminder to count your blessings.

Debt Obliterated

On March 8, 2006, between 2 student loans and a credit card bill, V and I had 31 THOUSAND 8 HUNDRED and 23 dollars in debt. Well fast forward 33 months, 2 children, and a boatload of sacrifice later, and we are (absurdly) proud to announce that as of 8:34 am on December 31, we will officially be entering the new year of 2009 DEBT FREE!!!!!!!!!!!!!!!!!!!!!!!

The progression was about $2000 paid off in 2006 (not much but you've gotta start somewhere), $12000 in 2007, and a whopping $19000 in 2008. Of course, I've already got my eye on baby step #6, which is paying off our home early... but one step at a time. As for now, I could write a book about what it took for us to get here and what we plan to do next now that the money we make at work will actually be ours! (we get to keep our own money... what a concept... lol)... but instead, we just want to...

1. thank everyone who was supportive of us during the grueling process of babysteps 1 & 2

2. thank the people that we know who are steps ahead of us in the babystep game for encouraging us through their example and reminding us that it can be done... and lastly,

3. send an encouraging word to the handful of people that have joined us on this journey of financial freedom.  

So Happy New Year from the newest debt-free family! 

... And no, you can't borrow 10 dollars.

Financial Snapshot V

While I didn't plan on doing another financial snapshot anytime soon, it just dawned on me that V and I recently hit another important financial milestone worth sharing. Did we pay off our house? HA! Very funny... In fact, if you combine the 3 mortgages we carry (primary + 2 rental props), we are still on the hook for over $450,000 of mortgage-related debt (and that can be a scary number to look at in these uncertain times)...

So what's our milestone? Well, for the first time since being married, V and I have a positive liquid worth! wooo whoooo. In other words, that just means that we actually have more money in our bank account than we owe on our (non-mortgage related) debts. In the past 3 months, we basically made about a $7K swing in our finances by means of a summer teaching program, a wedding photography opportunity, 2 eBay auctions, and the usual Scrooge-like budgeting and spending habits.



And while a positive liquid worth is probably not a huge accomplishment for many, it is definitely huge for us. Are we debt free yet? Um... no, not quite. But in the last 2+ years, we have gotten our short-term (e.g., student loans & credit card) debt down from $32,000 to about $9500. And even though that's still a lot of money owed, finally shedding that negative liquid worth was a needed pat on the back and encouragement for our efforts so far... because if I had a dollar for every time I wanted to throw budgeting and sacrifice out the window... I mean, sometimes a brother just wants a new camera, a plane ticket to anywhere, and better reception on his no-cable-television.

So what's next? For now I still have not decided if we will continue with the public financial snapshots or not. Truth be told, I think the public accountability provided by this blog helped us a lot; particularly in times when tough decisions had to be made concerning sacrifice for the betterment of our finances. And I've also enjoyed the dialog that the finance portion of the blog has facilitated with family and friends... If nothing else, we're trying to do our part to help take away the taboo associated with discussing ones personal finances. And so since we still haven't reached our bigger goal of being totally debt-free, I'm leaning towards continuing with the updates until we get there... but we'll see.

Justin & I crunched the numbers together 

and were pleased with the results 

Oh! One more thing. I'd be remiss to close my first finance entry in a while without addressing the current economic situation. There are people writing about the economic downturn that are way smarter than I am, so I will not bore you with my unremarkable opinions (except to say that I'm as opposed to the proposed bail-out plan as a person could possible be). However, I did want to share two emails that V forwarded to me recently. The first is Dave Ramsey's alternative to the current proposal. Even though I think the title of his plan is a bit presumptuous, the plan seems to accomplish the same intended results without the broad brush of amnesty that the government is suggesting. The second is an email she got from a friend who is not only financially savvy but also works within the banking sector. The email detailed what I thought was sound advise for the everyday guy and gal from a person much better informed than I. In fact, at least one thing in the email (her point #4) caused us to rethink some of our current financial strategies (e.g., prioritizing the accumulation of savings versus debt payments in volatile times); and so I thought I'd share the entire email in hopes that at least one other person found her insights worthwhile. Click here for the full letter. Enjoy.

Financial Snapshot IV

The Bottom Line: We have officially paid off 2 of our 3 debt accounts and are superbly ahead of schedule in our quest to become debt free. What follows are the details, for those who are interested.

The Strategy
Dave Ramsey's strategy is to first accumulate an emergency fund (he suggests $1000) and from there you are supposed to use every surplus dollar to pay off your debt. In other words, unless you have no more consumer debt, your savings should not climb above that $1000 mark. The idea is that, as long as you have enough to cover short-term emergencies, in the long run your dollars are better served by eliminating your debt. It is not until your debt is totally eliminated that you should begin to increase your savings beyond your given emergency fund mark.

For us, our emergency fund should probably be substantially higher than $1000 due to our inflated cost of living and the ownership of 2 rental properties. As I mentioned in the last snapshot, owning 2 rentals and a primary residence means that for any given month we can be on the hook for $3700 of mortgage payments if our tenants were to disappear... And once you tack on an additional $3K+ for cost of living (we're working on lowering that number)... it is no wonder that we were reluctant to deplete our savings in order to pay off debt. In short, the rewards of paying off the debt did not seem to outweigh the risks of living check-to-check.

The Big Payoff
But with all of that said, at some point during the month we got tired of looking at our balances and just said what the heck. The most troublesome of our two tenants has paid rent on-time a whopping two months in a row (ha)... and the newer, more reliable tenant has sent postmarked checks for the remainder of the year. And so we took that little bit of peace of mind and ran with it.

As it turns out, May was an ideal month for us to get bold with our debt reduction. Our monthly zero-budget is based on us receiving 2 monthly paychecks apiece. This works out perfectly for me as I'm a semi-monthly (24 checks a year) state employee. However, as a biweekly payee V gets 26 checks per year, which leaves us with 2 months per year that she gets a 3rd paycheck. So BINGO... For the month of May we received an "extra paycheck". We spent most of it on new clothes, camera equipment, and that new bedroom set we've been eyeing for a year now. Psyche! (Y'all know better). Of course we threw the whole thing at our debt. And on top of that, we got our Economic Stimulus Payment this month, and so that was another $1500 that we were able to funnel directly to our debt (please tell me you didn't spend your whole rebate check!!)... Long story short, we took those two checks, plus a chunk of our savings, squeezed our monthly budget for any more change that would fall out, and paid off two of our debt accounts. So Student Loan 1 AND the Credit Card Debt (or what we called the Stupid Tax) are both officially GONE. From March 2006 to date, we have gone from a debt total of  $29,695.10 down to a total of $10,925.81! [insert jump for joy here].

Here is the corresponding snapshot:







So where do we go from here?
Here's where we deviate from Ramsey's plan yet again. As to not stay financially exposed too long, the plan is to start accumulating our emergency fund again. Of course a big part of that is continuing our efforts to sell our primary residence. If that happens then we'll be in a position to reduce our cost-of-living significantly, and increase our mobility (which opens up more options like moving to an area with lower costs of living,  either of us switching jobs, or V staying home for baby #2). It would also give us an easy out towards paying off Student Loan 2. In the event that we don't sell the house, it may be a while before the final student loan account is paid in full (the current target is July 2011, but I expect that to change). At 3.25% interest, this will cost us about $700 in interest over 3 years, which we think is worth the trade off.

But who knows what tomorrow will bring.

Financial Snapshot III

Want to know how much you're worth? Calculating your net worth on a yearly or even monthly basis is an excellent way to track your financial growth (or lack there of) over time. One of the personal finance blogs that I frequent is Consumerism Commentary, written by "Flexo". Aside from worthwhile information about staying financially afloat, one unique feature of his blog is that he publishes his financial reports at the end of each month in gruesome detail in order to keep himself accountable to his financial goals. In all, his blog is a good read, and I recommend it as a bookmark to anyone interested in personal wealth building.

With that said, here are a few excerpts from his entry from May, 2007, on calculating your net worth (see full entry here):

… your net worth is one thing only: the value of all your assets reduced by the value of all your liabilities.

Figuring out the liability part is easy, as most people are well aware of who they owe money to. However, the asset part of that is where we tend to overlook important items. An asset is any item you own that is convertible into cash. So truly calculating your net worth would be like having a huge yard sale and assigning a value to your every possession… from your home, cars, and mutual funds... down to your furniture, dishes, socks, and underwear (good luck finding a buyer!). For more details, see Flexo's other entry, "Are Clothes a Part of Net Worth?". As he points out in the original post,

...you’re unlikely to liquidate clothing, so (including such things in) the number may be meaningless for you. In the same respect, your car is not a financial asset the same way money in the bank is, so there may be no reason for you to track its value from month to month.

And in general...

While it’s a great idea to treat your personal finances somewhat like a business, it shouldn’t have to be an excessive chore. Since the purpose of the calculation isn’t to compare yourself with others, it doesn’t matter what you choose to include as long as you’re consistent each month, and the numbers are meaningful to you.

So with that said, in continuing to track our financial progress, I’ve decided to use two different pseudo-net worth figures. I’ll call the first one our liquid worth, which is simply our on-hand cash minus our outstanding non-mortgage/auto debts. There are no large assets (e.g., rental properties & autos) included in this calculation since that’s not money that we can usually get to quickly or reliably if we had to. This figure will give us a better idea of how much money would we have on hand immediately if financial hardship struck TODAY.

I'll call the second pseudo net worth figure our extended worth. This is more of a long term measure and takes into account the liabilities and wealth building tools that I left out the first time (cars, primary residence, & rental properties). And without further ado, here is our first net worth snapshots:



Obviously, we'd have to sell 3 houses and a 2 cars in order to get a hold of our extended worth, so that's not all that helpful of a short-term measure. And unfortunately our liquid worth is still negative... which is a big problem since owning two rental properties and a primary residence means that for any given month we can be on the hook for $3700 of mortgage payments between the three... and that expense would be before we tack on an additional $3600 per month (on average) for food, electricity, water, diapers, car insurance, internet service, medical co-pays, child care, home security, cell phones, debt payments, gas, etc. (And suddenly I understand why Dave Ramsey said don't buy investment property if you're broke). So, needless to say, we've got some work to do in order to reduce our overhead and build a sturdy buffer (i.e., emergency fund) between peace of mind and a financial tragedy waiting to happen.

And hey, at least now when we become debt-free, climb to a positive liquid worth, and eventually skyrocket past the 6 figure net worth mark, you can look back and say "Wow... I remember them when they were in the hole like a prairie dog on a rainy day. But look at them now." ... and hopefully you'll be right there with us. Not asking to borrow anything, but instead reminding us of how you did the same exact thing, got on board from the beginning, and achieved your own personal financial goals; whatever they are.

See you at the finish line.

Financial Snapshot II

Hello Rental #2

Well, it only took forever... December 17 to March 14... but as of Friday, we officially closed on rental property #2. In the end, taking 88 days to close on the property probably worked in our benefit since it almost took that long for us to find a new tenant for rental #1. But with the closing behind us and rental #1 back on track, we can now turn our attention to getting the new place move-in ready and advertised. This particular property was a HUD home with a purchase price of $126,260 (about $15K below fair market). With a $3K seller's assists, our total closing costs ended up being $314.

$314!!! Those are the types of savings I get excited about. I wish I could say the same for rental #1 (those closing costs were literally about 20 times more)... but you live and learn. As for the required repairs, here is what we're looking at:

Remove the gawd awful wallpaper throughout
Remove the what-were-they-thinking do-it-yourself molding around the ceiling and windows
Paint entire house
Paint exterior of front door and shutters
Remove storm door framing and refinish surfaces
Replace spring on backyard screen door
Order garage door openers & reprogram frequency
Ensure that all ceiling fans work
Pressure wash entire home exterior
Replace mailbox and wooden post
Install blinds throughout house
Change the locks on all exterior doors
Install all missing bathroom fixtures (faucet knobs, etc)
Install vanity lighting in master bathroom
Replace all carpet
Replace one window
Install new window screens where needed
Replace or repair banister
Replace or repair laundry room doors
Inspect and repair closet shelving where necessary
Install new toilet seats in upstairs bathrooms
Fix hot water heater
Fix running toilet
Address any problems with water pressure
Install closet door in 4th bedroom
Address the 200 little things that might be overlooked, but that have to be done to get the house into move-in ready condition (cut padlock to backyard, replace light bulbs, door stoppers, toilet paper holders, matching wall plates, fireplace key & covers to light fixtures, etc.)

Green stuff on the siding is nothing that a little bleach pressure
wash can't take care of.... but there may be no hope for the
decorating skills of whoever put up that bathroom wallpaper.

The targeted completion date is April 5, with tenancy beginning by May 1. Those may be high hopes but hey, if you've gotta hope for something, why not hope for the best? A lot of things will have to line up perfectly for us to pull that one off... but stranger things have happened.


Financial Strategy
As for the purchase itself, we definitely skipped a few steps to get to where we are now. From everything we're learning now in FPU, building wealth is supposed to be Step Three in the overall get-rich-slowly scheme that we've got cooking in our financial crock pot. Presuming at least $1000 in savings to begin with, Step One is having all of your debt paid off and Step Two is having an emergency fund of 3-to-6 months of expenses put aside. Without those first two steps taken care of, I'll be the first person to tell you that owning three mortgage notes (2 rentals + our primary) can be a surefire recipe for disaster. Just last week in FPU class, Dave Ramsey reiterated that a person should never invest in real estate without having substantial cash reserves in savings to smooth out the rough months. And in December, V and I certainly got a taste of the ugly side of real estate when our first tenant bailed on us... leaving us with an extra mortgage payment and utility bill to carry for about 2 1/2 months. Long story short, it was a reminder that responsibility for a bad rental property with no back-up savings can potentially have "financial disaster" written all over it.

Up to this point that was a (calculated) risk we were willing to take in order to get Step Three of the process jump started. But now it's time to stop tempting fate and re-prioritize our goals... because tenants do leave (sometimes in the middle of the night, as we've learned) roofs don't last forever, dirty walls need repainting, and carpet eventually needs replacing. So with that, there won't be another rental property (or any other investment tools) for a good while to come. For now, our attention will be squarely on those first two steps: eliminating debt and raising cash. And on that note, here was our financial snapshot from about a year ago:


Student Loan I: $8,647.19
Student Loan II: $12,125.40
Stupid Tax: $8922.51
____________________
Debt Total: $29,695.10

Even including the proceeds from the flip property, we were projected to spend 7 grand more than we make this year, bringing the total up to a $36,695 deficit that we needed to shovel ourselves from under. Since that snapshot was taken, two things have happened. For one, we ended up with a tax refund of $4000 rather than the tax bill of $3000 that we projected and set aside for. So that $7K swing eliminated the 7K shortfall that we were bracing for, bringing the total back down to $29,695.10. Secondly, over the past 12 months (and particularly since FPU and Stanley Johnson) we've become fanatical about budgeting our money, curbing our spending, questioning or purchases, and paying down debt. So with that, the here's our new financial snapshot:

Student Loan I: $5,682.45
Student Loan II: $11,048.44
Stupid Tax: $1966.35
____________________
Debt Total: $18,727.35


Still a big number, but we are excited about our progress. So now, one year later, it's time to tweak our goals. The (short term) Goal #1 is now to eliminate Student Loan I and the Stupid Tax completely by the end of the year (leaving us with Student Loan #2 and about $10K to go). That will position us nicely for Goal #2 which is to save at least 10% of our salary each month (as of this month we've worked our way UP to a measly 3%). With Goal #1 accomplished by December, my hope is that we can accomplish Goal #2 by the first quarter of 2009. Goal #3 is then to work towards having our 3-to-6 months of expenses put aside as an emergency fund / buffer against financial crisis. For us that equates to having about $40K in some type of liquid investment (e.g., in our ING money market account). Granted, that's a whole lot more than either of us have ever had at one time... but after just 2 months of using a zero-based budget and the envelope system, those numbers no longer seem as far-fetched as they used to. For us, that amount should be enough to withstand a dose of catastrophe to our careers, health, or lifestyle without having to endure severe and immediate financial hardship (or bankruptcy). My projection for this goal is somewhere in the neighborhood of 4 or 5 years. That gets knocked to 3 years if we're super aggressive about it, the photography business takes off, and everything else goes perfectly. And if we sell our house, then we get to "pass go AND collect $200 dollars", as we'd be able to use our equity to fund our emergency fund in one lump sum. And knocking 4 or 5 years off of your financial planning horizon is always a good thing.

Goal #4 is to revisit the various investment strategies and wealth building tools that we are currently putting on hold (401K, 403B, real estate, ROTH IRA's... yadda yadda yadda). We'll probably reinsert these objectives when we're about halfway to achieving Goal #3 since (1) I'm a sucker for overlapping tasks and having things cooking in the background, and (2) the sooner we starting diving into this arena, the sooner we can begin reaping the benefits of compound interests, matching programs, and long-term market performance. But until we've got enough cash to where a tenant dropping dead tomorrow does not make our financial stability implode, putting any more money towards Goal #4 would probably be a mistake.

And of course, ALL OF THIS is subject to change at the drop of a hat (or more specifically, the drop of another baby... or change in job, location, prerogative, or financial objectives). But hey, you've gotta start somewhere. So that is what we are doing to secure our financial future. Being deliberate with our money. Pay off our debt and saving with the same fervor and intensity that we put towards everything else. How about you? Motivated yet?

FSBO

As of a couple of weeks ago, the installation of our new fence was finally complete. While we absolutely love the end result, there are some obvious things that our local fencing company (Hamilton Fencing and Decks) still needs to learn about professionalism and business acumen. Click here for the full story.

We didn't know that the new fencing came with complimentary dirt,

muck, and a grand opportunity to clean up someone else's mess.

Aside from that, we are both anxious and excited at the prospect of selling our home. Granted, if the house was sold today, we'd have no clue where we'd end up and how (in-state? out-of-state? owning? renting? house? apartment? long-term, short-term?...) but those things will have to take care of themselves once we get there. For now, we simply recognize this as a chance to take advantage of our home equity, eliminate debt, build wealth, increase our mobility, and establish a new situation in which we stay well beneath our means with respect to living expenses.

So with that, we are certainly eager to see where this FSBO thing leaves us in the larger scheme of our financial, family, and career goals. Wish us luck!

Financial Geekdom

From poking around, I'd venture to guess that the average feedback rate for non-profit blogs is less than 1 comment per 500 visitors. And so with the typical blog reader having a serious aversion for leaving comments, it's usually difficult to assess who is reading your posts, which entries people find interesting, etc. Granted, there is plenty of software available to track the number of visits to a given website, and even how long they stay on the website. But besides direct feedback, we'd never know the difference between those who haphazardly peruse our website and those who actually take an interest.

With that said, I have to admit that I was quite surprised to find out how many people actually took an interest in the Stanley Johnshon series in December. Since then it has been kind of cool to go different places and have people just randomly start telling me about their financial plans, strategies, blunders, etc. Long story short, for those who fall into that category, I am glad that you found the series provocative and I'm certainly happy to contribute even a little food for thought as you contemplate your personal financial goals and strategies.

In the past week or so, I have had a number of people ask me about creating a budget in MS EXCEL. And being the nerd that I am, I thought it might be worthwhile to share my latest rendition of our family budget with those who are looking to start one of their own. So with that, you can click here to download a template of what I've come up with as we try to sort out the financial scrum that we call a bank account. However, I must warn you: I'm still working through this new format myself, so it is a work-in-progress and may still be running rampant with errors. If you find some, let me know! As I make changes I will try to keep this online version updated.

Enjoy.

____________________

Details...

Advanced vs. Basic
There are two worksheets in the linked file (see the tabs at the bottom of the worksheet). The first is the Basic Budget. This is an easy way to keep track of your finances on a monthly basis. The Basic worksheet is not very sophisticated, but is all most people will need to get started. The second worksheet (Advanced Budget) is financial planning on steroids. It is based on an annual planning horizon, rather than a monthly one and involves a lot more formulas and data collection than most people are willing to put up with. So unless you are an EXCEL / Math geek like me who revels in the details of number crunching and gets excited over the inclusion of "if/then statements" in a spreadsheet, I suggest that you delete the advanced sheet and pretend it never happened.

Overall Format
Our format lines up with what Dave Ramsey calls a "zero budget". To account for every dollar of your typical monthly income we have 2 major sections: INCOME and EXPENSES. The total of each section is given in the yellow boxes. So when you're balancing your monthly budget, the goal of this "game" is to make sure that INCOME - EXPENSES = ZERO. The cell called "Budgeted In - Out" checks this for you automatically. If this is not zero, then either you don't know where your money is going (you'll get a positive value for the amount left over) or you've spent more than you have (you get a negative value and beat with a shoe). In the end, the two yellow boxes should be identical for every month.

Also... Things happen. So plan on them. The "buffer" box is simply our "catch all" category which accounts for everything else that we forgot to include (medical co-pays, postage, gifts, etc.). I think the biggest downfall of most financial plans is that they don't incorporate room for those invitable and forgotten items. There's just no way to think of everything ahead of time, and that is where the buffer category comes into play.

Blue Boxes
The boxes shaded in blue are the categories for which we use the envelope system. Our "dining out" envelope for example, has about $200 in it every month. That includes everything from Carrabbas to vending machines. If we spend that entire amount by the 12th day of the month, then oh well; we better have a nice set of tupperware for those brownbagged lunches. But seriously, the envelope system in my opinion is the main staple of our financial strategy. This is the first month that we have implemented it, and I can already see how it has changed our entire spending philosophy. I feel about a ten times more likely to pass on a given purchase knowing that I will only have $72.84 left in that category until the 1st of the month rolls around again. It is forcing us to consider and prioritize EVERY purchase more carefully, and to operate with a totally different (more wholistic) perspective. It's a constant reminder that our spending in every category has predetermined hard limits that cannot be compromised from month to month. Otherwise, those nonchalant ATM withdrawals and credit card swipes will nickel and dime us into poverty everytime, leaving us on the last day of the month wondering, "Where did it all go?"

Some people literally put cash in envelopes and use it as they go through the month, so when it's gone so is your spending ability. Meanwhile, others (such as us) just keep track daily via receipts. The latter is much more convenient, but takes more discipline. Either way, you have to be committed to staying within the contraints of the envelope limits. Otherwise, it simply will not work. It will probably take a few months of trial and error before we get all of our envelope limits right (eventually they should all be fixed amounts). But even after a couple of weeks we are already getting an idea of how we may need to tweak the numbers for next month. Click here for more info on the envelope system and how it works.

By the way, at the end of the month, once you input the actual amounts spent in every envelope category on the worksheet, the formulas will automatically carry over the surplus amount to the next month's income category.

Advanced Budgeting
The Advanced Budget includes a summary section and also accounts for extra income and unusual expenses (i.e., unexpected and/or non-monthly items). It also includes our annual envelopes, which are for items that we keep track of on an annual basis rather than a monthly basis; such as travel and home improvements. Since I think most people will start with the basic budget, I'll spare you the details of the advanced budget. If nothing else, you can browse the second worksheet on your own to see if it provides you with any additional mental fodder as you tweak and perfect your own financial plan.

Last words...
If nothing else, whether on the computer or with pen and paper, I challenge you to come up with a budget of your own. I've sat down and done this with a number of people over the years, and without fail they have been surprised to see either how much of their money is not accounted for, or how much more they spend than they actually have and why. And I will warn you in advance... having a zero-based budget will force you to look at your money situation literally EVERY DAY of the year. If that seems like too much to you, then just think of the countless other things you will spend time on today that will ultimately reap zero benefits in your life. I'm just asking you to replace one of them with something that will matter in the long run.

Any Questions?

Stanley Johnson (5 of 5)

For those of you who made it this far, hopefully you realize that the point of this series was not to sell you on FPU, the Momentum program, or any other finance program for that matter. Financial strategies are just like diets; what works for me may not work for you. And vice versa. But! That's definitely not a reason to avoid setting your own goals, developing a strategy and figuring out what does work for you.

Besides, there may be plenty of things about Dave Ramsey's philosophy that you disagree with (V and I certainly don't do everything that he suggests). There may also be plenty of things that I have said in this blog that you disagree with. But the point is not for you to take someone else's strategy or advice and blindly apply it to your life... Don't let the details of the message rob you of our own financial opportunities. Instead, the point is just to get you thinking about your money from a more positive perspective.

As I've hopefully demonstrated, by no stretch of the imagination do V and I have it all together. But we finally got to the point to where we are willing to take a long, hard look at our financial situation and make some difficult decisions and sacrifices in order to turn things around and get headed in the right direction. And simply put, we challenge you to do the same thing.

Will your financial legacy be wealth and prosperity...
or credit card debt and poor money management
for generations to come?

Maybe I should also add that this is certainly not a "get rich quick" scheme. It would be nice if we could get out of debt in the same blink of an eye that it takes to get into debt. But barring a winning lottery ticket, it just doesn't work that way. Instead of a sprint, it's a marathon. It's gonna take focused intensity over (possibly) a long period of time. And even at that, once we are at the finish line, V and I (for example) will have only freed up about $500 a month after eradicating over $35,000 of debt. Only a fraction of our combined income. After so much work, it just seems like it should be so much sexier than that. I feel like we should be able to quit our jobs and start a chicken farm or something (my dream, not hers).

But no such luck. Then again, we are not fighting for instant wealth. Instead, what we are fighting for is the opportunity to control our own purse strings and at least have the options available to us to take the next step. The opportunity to give more freely. The opportunity to save and invest. The opportunity to build wealth and freely pursue investments and new business ventures. The opportunity to be aggressive with securing our financial legacy and ensuring that we leave Justin and his siblings more than a funeral bill. Because right now, as long as our debt remains overwhelming, its like being handcuffed to a chair in a candy store. Lots of sweet opportunities, but virtually nothing good in reach.

With those handcuffs off, the next step will be to become as deliberate with what we do with that "extra money" as we were with paying our bills beforehand. We still haven't figured out what to do about retirement, our mortgage or the possibility of V staying home to raise Justin's brothers and sisters... not to mention diapers, clothes and college tuition for the 14 more kids V wants to have. But without our financial handcuffs, our salary and bill collectors will no longer drive our decisions. With that freedom, we will increase our options immensely and be able to take advantage of the true-to-life adage that it often takes money to make money.

So in the end, we don't care what you do! Just make sure that you are doing something!!! Be deliberate with your money. Pay off your debt and save with the same fervor and intensity that you put into Christmas shopping. Question your purchases. Rethink your goals. Develop a strategy. And most of all, take your financial future seriously.

As Dave Ramsey puts it... If nothing else remember that, in America, to be "normal" is to be in debt.

So why not strive to be weird?