I did a big, scary thing today....at least for me. I changed my mortgage to a bi-monthly payment automatically deducted from my bank. Auto payments make me uneasy just because I feel like I'm not in control of it. But, the benefits of doing this FAR out-weigh that. First off it will force me to pay even more attention to my spending, always a good thing. With splitting the monthly mortgage into two payments I'm actually able to pay more each month on it which means the loan will get paid off earlier. The projection with what I'm paying now is it will cut 7 years off the mortgage. Nice....but not good enough for me. My goal is to pay off my house in 15 years so I will be working for the next year to get into a position of being able to up my payments even more. The third benefit is in 10 years I will have gained an additional $26K in equity that I wouldn't have had. All in all, a smart financial move that I've known every since I bought the house I needed to do....just had to get serious about it.

I still want to start a home business too. Something else I really need to get serious about and start doing some planning for.

I got derailed from blogging over the last few months. And I think I've figured out why this happens to me. I'm someone who needs there to be a point to doing something. I love blogging....as long as I feel someone, anyone, is reading. No comments ever equals no one reading in my mind. So if no one is reading then why blog, right? I know that's not necessarily the reality of it but its how my mind works. So if you read my blog comment on occasion! And I promise I'll be more regular about blogging.

I've gotten re-focused on the financial stuff so will be blogging more on what I've done and what I'm doing now. I'm also looking to learn to be a more frugal shopper. Coupon cutting has always been a fruitless exercise for me but I think its more a function of I just haven't found a method that works for me. Plus, for a lot of things I buy store brand/generic so coupons don't tend to work. But I want to learn to plan grocery lists based on what's on sale and figure out which grocery store truly gives me the most bang for my buck.

I'm checking out www.mint.com to see if its something I'll use. Not sure yet. The one huge negative I've found with it is you can't add a debt to it that you don't have an online log in for. So if you have a short credit-line debt or personal loan with someone there's no way to add it to the loan category. That sucks when trying to use the site as part of your debt pay-off tracking. It looks like the budgeting function though has a lot of nice features so I'm going to finish setting up my budget in it and try using it for a couple months to see how it goes. Any and all suggestions and advice welcome!!

I'm going to take a sidestep here in my financial postings to talk about something I feel very strongly about. That would be the used of credit. Let me put it right out on the table. In general, I don't believe in the use of credit. If you can't afford to pay cash for an item then you can't afford the item. (I am not talking houses and cars) Or you spend your cash on unnecessary things so when that emergency comes up you suddenly have to use the credit card because your cash is gone.

If you look to the past it seems to me people's financial stability has gone down over the generations as their reliance on credit has gone up. This can't be a coincidence. When we start buying on credit we start down the path of spending more than we have. And lets be completely clear about one thing. Credit card companies are not your friend. They are not going to look out for your best interests. In fact, most of them are designed to get you sucked in to them for life. If you didn't already know this, that minimum amount due? That nice low number that seems so simple to pay...how nice of them!.....yeah, not so much. Those minimum amounts are designed so that you'll essentially never get your card paid off and they end up making tons of money off of you in the interest you pay.
Credit card companies are notorious for their draconian policies. Read all that fine print some time. That lovely 5% interest card? See what happens if you are one day late on one payment. Suddenly you're paying 29% interest.

Buying things on credit because you can't afford to pay cash is a childish behaviour. Children demand instant gratification. Adults set goals and plan for the things they desire. Its called financial responsibility people. Its a value that has been lost over the last couple generations.

Every person, company, entity you owe money to owns you. Personally I don't want to give up that kind of control of my life. I'm told they get very nasty too if you don't tow their line. Fortunately I've never had to deal with a creditor or debt collector but I know others who have and it ain't pretty. But I'll be writing another post down the road on how to handle those kind of calls.

For now though, think about your use of credit cards. Is what you're doing responsible? And no, you don't need a credit card to reserve a hotel room, rent a car or buy airplane tickets. A debit card will do just fine.

My next financial post will be about the nitty-gritty of how to go about paying off debt.

I'm talking about budgets.  People hate budgets.  They hate making budgets, they hate trying to live on budgets.  But that really is because people don't understand budgets.  They don't understand the real importance of one and they definitely don't understand how to create a budget you can actually live on.  I know I sure didn't before someone taught me.

First off budgets serve one very important purpose....knowing where your money is going.  Now I know a lot of people who say, "but I know where my money goes".  Really?  Do you?  Do you truly know where ALL your money is going or do you just have a vague idea of where it goes beyond the basic bills?  This is really important.  If you only know where some of your money is going then you only have control of some of your money.

To start your budget you must first list EVERYTHING you need to spend money on each month.  Mortgage/rent, electric, water, TV, internet, phone, gas and groceries are pretty standard things but there are other things that you may need to include.  Do you have meds you take on a regular basis?  Or regular doc appointments?  Maybe manicures?  These things need to be listed in your budget.  What about car repairs and clothing?  You may not spend money on these every month but you should be saving up for these expenses because you know they're going to come.  Here's what my categories are.  They're split into two sections because the top ones are the things I use cash for and the bottom ones are the ones I pay via online.  The "Blow" category is my spending money.  I can "blow" it on whatever I want.  And there is no such category as "misc".  That's a meaningless category that basically says you don't know where that money is going.


Gas
Car Repairs
House Repairs
Groceries
Meds
Blow
Doctors
Clothes


Savings
Mortgage
Insurance
Security
Electricity
Water
Phone
TV/Internet

One you know where you need to assign money to each month now you need to decide how much goes to each item.  You always take care of your "four walls" first, meaning you pay for your basic necessities: housing, food, transportation and utilities.  So fund those budget items first.  Once those are funded move on to other bills such as credit cards and loans.  For a start fund these for the minimum payment due.  Its easy enough to adjust those later if you have the money and I'll do a post soon on how to pay these things off.  Next is things like car/home repairs and medical stuff.  Finally, what you have left over you divvy out among what other things you have left.  Make sure to give yourself some blow money.  No one can stick to a budget that doesn't allow for them to have any spending money.  It may not be a lot, depending on your financial situation, but even a little is better than none.  When I was working to pay off my debt I only had $20 a month for spending and I thoroughly enjoyed spending that $20!!  

The critical part to a budget is making sure EVERY penny is accounted for somewhere.  This is known as Zero-based Budgeting.  The money out should equal the amount in each month.  It is the only way to really know where your money is going and money that goes where you tell it to is now working for you.  

Love to talk about budgeting so feel free to leave any comments or questions.

This is known as "Murphy-proofing" yourself.  Face it, something is only an emergency if you aren't prepared for it.  Murphy's Law can't happen to you financially if you already have funds in place to take care of those pesky things that pop up.  Please note, this money should be in a separate account from the one you do your day to day banking from.  You want something that you can get to in an emergency but isn't sitting right there with the rest of your money.  The temptation is too great to dip in to it then.  I highly recommend an ING savings account.

I know $1000 doesn't really seem like a lot but its more than most Americans have in savings.  And really, if you think about it, $1000 will cover most unexpected expenses....washer breaks, A/C needs fixed, new brakes for the car.....you get the picture.  The key here though is being clear about what an emergency is.  New shoes are not an emergency.  A weekend away is not an emergency.  Replacing something simply because you want the newest, shiniest model is not an emergency.  Trust me, this is a hard one for me too.  Especially when it comes to bright and shiny techno geek stuff.

A lot of people want to skip this step and go straight to the paying-off-debt phase.  Don't.  Trust me on this.  You can't imagine the peace of mind that $1000 will give you, especially if you do need it.

So I know someone is probably saying "But I don't have enough spare cash to save up $1000.  It would take me forever"!  Been there, know that feeling oh so well.  Most people can find some extra money in their budget (which will be the topic of my next financial post).  However, there are other ways to find money as well.  Look around your home.  I bet you can come up with any number of items that aren't really serving any purpose in your life.  Sell them!!  Use this as an opportunity to de-clutter and simplify your life.  About half of my original emergency fund was funded from selling things I really no longer needed and wasn't using.  For me that included a really nice 35mm camera with lenses and filters, and a motorcycle helmet.

(BTW, just as an FYI, don't ask me to come over and help you de-clutter unless you really mean it....because I will, and will take great joy in seeing things go away.  I am a minimalist at heart and purge my home at least once a year following the rule that if I haven't used it in the last year I obviously don't need it.)

Honestly, once I took a hard look at my finances and readjusted my budget then sold a few things I had my emergency fund in place in a month.  So if you don't have that $1000 set aside yet, start working on getting that taken care of.  You won't regret it.

I'm following 7 steps to achieve financial freedom.  This works very well for me because I'm a planner but I had no idea what I SHOULD be doing to fix my finances.  What was the fastest/best way to pay off the debt?  What about savings?  What about retirement?  How do I make sure I'll be ready to quit working when I want to?  The 7 baby steps outlined what to do in what order and how to do it.  So I think starting out with a brief description of the 7 steps is a good place to start.  I'll go into detail for each step in separate posts.

Step #1 - Save $1000 into an Emergency Fund. 
Step #2 - Pay off debt using a debt snowball. 
Step #3 - Three to six months of living expenses in savings.
Step #4 - Invest 15% of household income into Roth IRA's and pre-tax retirement.
Step #5 - Save for college for children (If this is a goal for you.)
Step #6 - Pay off house (If you have one)
Step #7 - Build your wealth!


So there you have it, my secret financial formula. Ok, so maybe its not really so secret.  Ask any questions you might have.  I truly love talking about this stuff.  And for those who like to keep tabs, I am currently on Step #3.  Because of what my future plans are I'm aiming for the 6 months of living expenses.  That's part of what I need to do now....redo my budget so I can see when I will have that in place.  Please feel free to ask me about my progress if you're interested.  It will help hold me accountable to doing what I need to do.

Its been suggested I start blogging a bit about something I'm super passionate about.....cash basis/debt free living.  I thought that was a good idea so here I am.  I want to start with just a little history about my financial journey.

In 2003 I found myself pretty much flat broke.  I had lost all my financial resources, including having to cash in my retirement fund simply to have money to live on.  The whys of how this happened aren't really all that important.  On top of that I had moved to DC and started a new job at $5K less a year than I had been making back in Cincinnati.  It was definitely paycheck to paycheck for awhile.  I was living the way most Americans live, on credit.  I had the same collection of plastic my friends had so I must be successful......right??  By the end of 2005 I was in about $24,000 of debt. I had the $9000 in college loans. The credit card was now close to $4000. I owed someone $800 in a personal loan. And I had an $11,000 car loan. I was making more money by now, yes.  But the debt was eating up any extra money and I couldn't see a way out of the hole or even a way to keep the hole from getting deeper as I had no way to pay for anything else that might come up.  I knew something had to change.

Christmas 2005 a friend gave me probably the greatest gift I've ever received.  They paid for me to attend Dave Ramsey's Financial Peace University**.  I started the journey in the end of January 2006 and using the things I learned I became 100% debt free in April 2008.  Don't get me wrong, it wasn't easy.  I had to make a choice, what was more important to me....continuing to buy "stuff", eat out, go places or learn how to handle my money and get out of debt.  The way I looked at it I was going to have to pay the piper at some point...now or later, and I chose to do it now and have financial freedom later.

Today I am debt free with the exception of a mortgage.  Yup, I was able to buy a house last year because of the choices I made before.  I still struggle at times with sticking to a budget and living on a cash basis but I keep working and trying.  I have a definite plan for where I want to be in life in the next 3 or so years so now I am starting to work on what I need to do financially to get there. 

I'm going to start writing about what I've learned and how I got out of debt as well as share my financial work on my future plans.  So stay tuned.

**For those interested, the course I took is Dave Ramsey's Financial Peace University. Yes, it is a Christian based program however, while Ramsey does reference Biblical principles he is very good about not cramming them down your throat or moralizing about money choices. His main focus is teaching people how to handle their money regardless of their beliefs. If you want more information about the program, feel free to ask me.