Real World Finance$

Getting out of debt is a good thing.  You can run all the numbers you want and find thousands of reasons having less debt is a good thing.  Having less debt helps you save for retirement, save for a child’s education, and maybe even afford a nicer home.

However, even though we are talking about money, numbers and reason is rarely the biggest motivator to drive people to get out of debt.  Take me for example, I LOVE numbers, I’m great at math and have spent several years of my life doing financial analysis for a living.  Yet, I’m am in a huge hole of debt. 

Why?

Personal motivation.  I didn’t have the motivation to change anything.  I always manged in the past and figured there would always be a higher paying job around the corner.

Now, things have changed.  I have the motivation and I’m making progress towards paying down that mountain.  My motivation did not come from analytical reasoning, but from an emotional decision.  You see, though my brother and Free Money Finance would both agree that your career is your greatest asset, I personally disagree.

Even my own brother has called me a job hopper and said he wouldn’t hire me if he saw my resume float across his desk.  That’s okay by me.  I am currently enjoying work as an hourly contractor.  Though some would say there is little security in that, I say there is just as little security as an employee.  In Missouri at least, there is no law requiring severance or no employment contracts that will entitle you to your pay regardless of the situation.  Either party can terminate employment for no reason whatsoever at any time.

That being said, part of the reason I enjoy contracting is that I feel more independent.  Though I am not self-employed currently, that is the true goal for me.  It is that goal that was my real motivation to make the changes necessary to get out of debt.  What I’m discovering is that I can really live on a lot less money than I make now.  So much of it goes towards debts that if it wasn’t there, I would have a lot more freedom to work for myself and do something I enjoy.  I’m not sure what that thing is yet, but it’s out there.  I’ve got a few years while we pay down the debt to decide on my next step though.  Here are a few of the things I’ve always wanted to do someday, but don’t pay enough money for my family to survive at the moment:

• Go back to school for a PhD in Economics
• Get certified as  PGA Teaching Professional
• Make custom furniture
• Own a small, local retail store
• Become a landlord
• Remodel Old Houses

These are all things I like to think about or do in my spare time.  Getting started in many of these is very difficult with little or no pay to speak of.  What they all have in common is often a much more flexible schedule to allow more time for myself and my family.  Yes, you can still make money with some of these and spend hours and hours working, I won’t disagree with that.  But with little to no debt, the motivation to make a large income to keep your head above water is gone.

That’s why I’m getting out of debt.  Mine was an emotional decision. 

How about my handful of readers out there? 

What is you motivation to get out of debt? 

What do you want from life when you get there?

I have an update to make to our 2008 Goals. 

Originally, my goal was to get our Credit Card Debt below $30,000.  We currently have about $54,000.  That number was assuming we would be moving $16k over to a HELOC of some sort.

Well, it seems that we will NOT be doing that and instead be moving it to a low interest credit card in the next couple of months.  Now, rather than just raising the goal number by $16k, I have some more math to do here.  When we had planned on the HELOC, we also planned on having at least $4k to pay off of the $16k when we did the switch.  We’ll still have that money and plan to pay it off of debt as well.

Also, because the credit card interest will be lower than a HELOC, and the minimum payment will be higher, we will be paying off more principle each month. 

So, with all that said, I’m going to revise my Credit Card balance goal to $40,000 for the year.  By doing that, I’ve added $16k to the starting number, but only increase the goal by $10k.  That means we will be paying off more debt than we had planned on this year and keep us on track for being out of debt in 5 years.

It’s that time of year when we set our goals for the coming year.  I had given a preview of our financial goals in my post a few weeks back.  Here’s a review of those goals and where we stand as our starting point:

• Credit Cards - We are now at $38,641 on our credit cards/line of credit balance.  The goal here is to get that down to $30,000 by the end of the year.  If you look at my Net Worth IQ, you will currently see a higher figure of R54,000 plus.  This currently also includes the $16,000 loan for the AC.  That will be rolled into a HELOC in a few months and out of the credit card category.
• Net Worth - Our net worth currently stand at -$19,025.  Our goal this year is to get up to $0.  While this is a bit of a stretch goal, I know we can easily get way inside the -$10,000 just by making minimum payments, and continuing my 401(k) contributions (my employer will start matching in April).  The retirement account alone could get us half way with just an average year in the market, so the other half is us getting debt paid off and increasing our savings.  I’m not the only one trying to get back to zero, check out I Paid for This Twice Already.
• Retirement - Our balance here is currently $5,848 thanks to a couple of poor months in the market.  I want to increase this to $15,000 by year end.  With mine and my employer’s matching contributions this year, I should add close to $9,000 this year.  So, some average returns and maybe some extra stocked away into my IRA account should do the trick.
• Cash - We currently have $3,368 in cash between our checking and savings accounts.  Because I am an hourly contractor, I need some more money set aside should I find myself out of work (though my contract is already extended through year end).  I’d like to have our cash accounts up to $10,000 by year end.  This is a big stretch to meet this while meeting all the other goals, but I think with my second job we can do this.  The trick is going to be avoiding spending it on home improvements during the year.

Some lofty goals to be sure, but it will be a huge step for us to meet this year. 

Of course, those aren’t the only goals I’m reaching for this year.  I have 2 others that are personal goals as well.

• Garage - I want to be able to park our car in the garage by the end of the year.  While our garage is functional and not packed full of junk, the garage door is falling apart, we don’t have a key to the door and there is no electric service to run the opener.  I’ve got some work to do in order to clean out the basement and make way for some electric updates to the house at the same time I have someone out to put in the electric in the garage.  With a new car, I’d like to no be parking on the street all the time.
• Fitness - This past year I had a goal of being 12 pounds lighter than I started the year.  I was very specific on that number as 1 pound a month.  Though not much, with a family history of high blood pressure and diabetes, I need to keep my health in control before those things take over.  As of yesterday, I had lost 16 pounds from the prior year.  I’m now down to 160 lbs.  To continue that trend, this year I want to decrease my percent body fat.  We used the remaining amount on a gift card to Bed, Bath & Beyond yesterday to buy a new bathroom scale that measure your body fat as well.  Currently, I’m at 19.0%.  My goal this year is to get it down to 15.0%.  The weight bench we bought me for Christmas will help me get to that goal.  I’ll also have to work on a few diet changes along the way. 

Do take notice about my goals this year, they are all SPECIFIC.  I don’t set goals that are to do better at something without defining what that better is.  By being specific, I know when I’ve reached my goal.  Also, my goals aren’t about reaching them sometime during the year, it’s about what I want to be at the beginning of next year.  That keeps me on pace to the goal all year rather than slacking off after I reach it.

One thing I’ve learned over the past few months since starting this blog and my journey of taking control of our finances to pay off debt is this: It’s a LOT of work!

In the past 3-4 months I have done the following:

• Changed Auto Insurance
• Changed my work health insurance to an HSA plan
• Started using Netflix and Gamefly rather than the video store
• Put together our first family budget
• Started finance and money classes with the family
• Opened 2 new savings accounts
• Opened 2 new checking accounts
• Purchased a New Car

In addition, the following is also underway:

• Have application in process to refinance the mortgage
• Moving my prior employers 401(k) plan to a rollover IRA

The biggest frustration in all this is that almost none of this activity is directly related to paying down our debt. This was all things that needed to be done in order to organize us properly. I never realized how out of control we really were until I started to try and control things. When I took the time to actually analyze where our money was going it was eye opening.

I had always thought of myself as rather savvy financially (despite many setbacks, we’ve always manage to keep good credit and stay out of major trouble), but now I know better. We’ve always lived by the paycheck and making the move to my current job as a contractor (from being an actual employee) has forced me to plan further ahead and save more for contingencies.

As frustrating as this has been, it’s also refreshing to know that everything should be done by the end of the year (or at least final decisions made). That means next year will be the real test of our fortitude to stick with our plan and make real progress. I look forward to next year, but the rest of this one still has some work to be done!

If you are ready to take control of your own finances, don’t be discouraged, the upfront work like this takes some time, but (hopefully) once I get in the swing of things we’ll hit our stride and start seeing some real progress.

I’ve been working on a set of goals for 2008. I first started thinking about the categories I want to improve. The first of course is debt reduction (Credit Card debt specifically). In addition, I want to improve our Net Worth, Retirement and our Cash Position (checking and savings balance).

I tried to choose areas that need to go together. I don’t want to just focus on the credit card debt and eat away our meager cash and retirement. Doing that wouldn’t help our net worth either as we would be using assets to pay off part of the liability. So, below are the goals spelled out along with what our expected starting balance will be and why I chose the amount for our goal. I’m trying to stretch all of my goals a bit past my budget plan to encourage me to not slack off the budget and to find more ways to make money to increase the income line.

• Credit Cards: Balances down to $30,000. I expect to have total balances of about $39,000 at year end and I have $800 a month figured to pay on those. That means, with interest charges, that budgeted amount won’t get me there completely.
• Net Worth: Balance to $0. Yes, I want to be out of the red at year end with this category and we are currently a -$16,000 or so. That’s a big step, but paying off $9,000 in credit cards gets me over half way there. The increases in retirement and cash listed below should easily get us the rest of the way there (even neglecting any changes in other asset values such as car and house).
• Retirement: Balances up to $15,000. I’m expecting to be right about $6,000 by year end with my last couple of pay check contributions. With my contributions and my employer matching the last 9 months of next year, that should add about $8,000 to it. Of course, that is still a little shy of my goal, but hopefully we’ll have an okay enough year in the market to get the rest or I’ll be able to stock away a little extra (pun intended).
• Cash Position: Checking and Savings total balance up to $10,000. This is pretty aggressive if you ask me, but I need to go for it. We are currently bottoming out at about $3,000 in our accounts at the end of November. December might be a wash, but January should be a good start. By taking better control of our money and keeping us on a budget in the checking account, I hope to transfer any money we didn’t spend every 2 weeks back to the E*Trade savings account and only rely the next 2 weeks on my automatic paycheck deposit for our budgeted amount ($575). That way we will have to plan ahead for big extra expenses to pay cash by moving the money ahead of time while still getting the benefit of interest as well.

Well, that’s what we’ll be shooting for by the end of next year. Each month next year, along with my net worth update, I’ll share our goal status as well. Keeping us honest and on track will be something new to deal with each month, so wish us luck!

A long term-goal of mine is to become self-employed. One of the main reasons for this is a desire for Independence. The biggest reason for this though is variety. In the 10 years since getting my undergraduate degree, I’ve found that I get bored easily doing the same job over and over again.

Since spending nearly 4 years at my first company after graduation (during which time I had 2 very different jobs for the same place), I’ve consistently moved from job to job with various contracts and some regular employee jobs thrown in to boot. Many people would consider me to be a job-hopper (including my brother who still works at the same place he started after college going on 15 years this next summer). For me, it’s not about that. I like doing a lot of different things and have been involved in numerous sides of the businesses I have worked with/for over the years.

This past weekend, the wife and I began thinking again about starting our own business. The local homeschool bookstore is about ready to go out of business (after only about a year) and we were talking about what was wrong with it and why it was probably failing. A small bookstore and coffee shop has been of interest to us in the past. Combine that with a resource center for homeschooling families (of which there is a pretty substantial population here in St. Louis) and you could probably make a decent living.

However, I know that starting a business can be very difficult. The hard part is having cash flow in the early stages. That’s where my love of variety should play well for us. Hopefully I’ll be able to continue working on creating multiple streams of income over the next year or so to increase our chances .

Lucky for us, there are 2 of us when it comes time to start a business. While we will work out our business plan at the time to make sure the business itself has multiple models/methods of creating income, we also need to have multiple methods outside of the business in order to provide necessary funds during the first couple of years to stay afloat. Here are some of the ways I’m hoping to accomplish that:

1. Teaching: I currently teach part-time and plan to continue that. Right now it is 1 night a week. If I quit my full-time job, I could probably go to 2 nights a week without any trouble. This could help with an extra $1,500 - $2,000 per month in income.
2. Blogging: This is an area I hope to improve on in the next year. I’ve got 2 different blogs that I run currently. I plan on moving to a real domain name and host early in the year and getting things more consistent with posting (especially on the weekends) . With all this, I hope to be able to bring in some advertising revenue at some point. After all, it’s a good thing to make money doing something you have fun doing!
3. Real Estate: This is an area I have always enjoyed. I’m a self-described house nut. I love this old house and home remodeling shows. I love walking through open houses and looking at run down places. I have a great eye for beauty amidst rubble (knowing a house with good “bones” so to speak). For years growing up I wanted to be an architect, now I think I’ll work on getting a real estate license this next year and try to help others find a house they can enjoy.
4. Crafts: This is more my wife’s area than mine, but something I will be helping out with. My wife has enjoyed making her own jewelry and purses for several years now. She constantly gets comments on her purses. We are looking into patterns and designs that will make them simpler to make and then try making some to sell at some local shops to test the waters. Plus, if we open a store of some sort, we’ll have a built in display location to continue this as well.

Sure, starting a business may be a couple years off in the distance still, but building some additional income streams in the mean time can only help. Not only will it help us to pay off some of our current debt, but it will also decrease our monthly expenses in the future allowing us to need less income once we start the business. Then, the extra income can make up more of our total income until things get going. I’m all for turning hobbies into income!

I read a post this morning from JD over at Get Rich Slowly: Quitting the Day Job: Finding the Guts to Pursue Your Dreams.

It reminded me of why I am doing this (getting out of debt, not the blogging). I too want to be in the position to quite the regular working world and move on to something I enjoy. For me, it’s not blogging full-time, though I do find this to be enjoyable and helpful in reaching my goal. I’m hoping to someday work on houses part-time and get my PGA Teaching Professional License.

I’ve got a ways to go for either one of those, but I know I can get there some day. JD is inspiring me to make it!

I’m not sure I’ve mentioned this yet, but over the last couple of years I have been working with some friends of mine to start a business. We’ve had some software developed that runs on a mobile smart phone that sends GPS co-ordinates back to our server for tracking frieght. It has a number of other features we’ve built in to handle receiving and verifying the delivery and can send all the information back out electronically to all parties involved.

Well, I can tell you about that now because, as of yesterday afternoon, we now have a Patent Pending on the system. We should have a nicer website up and going hopefully sometime today and we have a meeting scheduled with our first potential customer late this afternoon.

All of us working on this have worked together for various companies at one point or another and look forward to working for ourselves. I’m torn now though because of my very good paying contract job. I’m most likely to stay on here as long as I can and help part-time with the other. I’ll be fine with an extra few thousand here and there to speed up our debt removal (not reduction) plan.

To me, that’s where I really want to head in my career. I’m sure, if all continues to goes well, that I will end up working for myself full-time. I hope though to grow the business enough and get out of debt so that I can higher someone to take my job and I can cut down to just residual income (dividends) from the business. That will free me up to only work at what I want to do.

For me, that means I would continue to teach part-time and maybe try and find a job working at a golf course in a warm climate. I still dream of passing the PGA Playing Ability Test (PAT) and becoming a golf pro. If you don’t know, the PGA and PGA Tour are seperate entities. I’m talking about just teaching golf, not playing for a living. I don’t have far to go in order to be in the range to pass the test, but that just starts the process. There is a 2-4 year apprenticeship program that requires you working full-time in the golf industry (for very low pay usually).

So, that’s my goal for increasing my income and getting out of debt. What’s your motivation???