Beating Broke

Personal Finance from the Broke Perspective

The Debt Free Treadmill

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Treadmill WorkoutWhen you’ve got bills and debt to pay off, you are constantly feeling like you’re running a personal finance marathon.  Each month is a sprint to the finish to see how much debt you can pay off.  We do it to get to that finish line.  To send that last check (or bill pay payment) and then run into the streets screaming.  Some of us may even follow that up with a call to a certain Mr. Ramsey.  With any luck, most of us will reach that point sooner rather than later.

But, then what?  We’re done paying off debt.  We don’t need this silly budget thing anymore right?  And we certainly don’t need to be worried about how much we’re spending.  And so what if we leave a balance on our credit cards now and again.  Wrong.  Oh so wrong.  If your years of debt repayment hasn’t conditioned you to it already, you’ll soon find out that you still have to do all of that.  You might be able to loosen the strings a little, but keeping those habits is what will keep you from ever going back there again.

Just like any physical trainer will tell you; if you want to keep in marathon shape, you’ve got to keep maintaining your fitness. You can’t expect to stop and then still be able to run another marathon. In short, you’ve got to keep on the treadmill.

With all of your debt paid off and only your monthly expenses to worry about, you’ve got to get on “the Debt Free Treadmill”. You’ve got to use it to keep your self in financial shape. However, in this case, it is so you never have to run that marathon again. Debt is an easy trap to fall into. It only takes one lazy month to leave a little balance on a credit card and start the cycle all over.

Get on “the Debt Free Treadmill”!  Keep yourself in financial shape by continuing the same habits of saving, budgeting, investing, and frugality that you used to finish that marathon.  Use it to your advantage.  Unlike a large majority of the people in this world, you aren’t running that marathon.  Best of all, you get to use that financial fitness to benefit others.  Share your knowledge, and help people reach the marathon finish line so that they can jump on “the Debt Free Treadmill”!

Image Credit: Treadmill Workout by sirwiseowl, on Flickr

You’re Doing it Wrong! Rethinking Your Processes

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Habit.  It’s a dirty little 5 letter word.  I read somewhere that it only takes 6 times of doing something before it becomes a habit.  Habit is a close relative to addiction, although somewhat easier to change.

If you’re like me, you’re a creature of habit.  You like doing things the way you’ve been doing them and don’t feel very compelled to change them.  That’s the way I was before I began taking control of my finances.  I was a habitual spender of my paycheck.  There was no saving involved.  When I started this personal finance journey, I had to break that habit and begin a new one.  One that involved paying off my debt and saving money.  Like any other habit, it took time to really make it into a habit.

Within that greater habit, there are other habits.  The habit of checking balances regularly.  The habit of balancing the bank accounts.  The habit of keeping the budget.

That last one, the habit of keeping the budget, is the one I’d like to focus on here.  In the beginning (anyone else hear that choir?), I used only a copy of Microsoft Money (now defunct).  As I matured in my budgeting, I adapted a spreadsheet based on the budget spreadsheet that Dave Ramsey created for his Financial Peace University.  And that’s where it’s been since.  I have spreadsheets going back several years, in fact.

LedgerRecently, my computer became ill.  I ended up having to back all of my data off the hard drive and rebuild it.  Not a lot of fun, but it’s sometimes nice to start with a fresh drive and get rid of some of the flotsam that it’s accumulated.  Long story short, it took over a month to get it all sorted out and rebuilt.  When I had gotten everything installed and ready, it had been nearly 6 weeks since I had last checked in on my budget.  The process, if you’ll indulge me, is somewhat cumbersome.  First, I would manually enter in transactions from the internet banking application at my credit union.  With the version of Money that I had, I was never able to get it to properly import a file, so manual entry was my only option.  I would then manually enter in any outstanding checks and bill payment items.  Once the info was entered into Money, I would then manually, line by line, transfer the amounts from Money into the appropriate budget categories in my spreadsheet, using a calculator as I went to calculate the totals for each category.  (This was necessary because I didn’t have the individual line items in the spreadsheet, so I merely took the existing total and added whatever the line item was in Money to it.)

So, you can see, 6 weeks of undone budget work was quite a pile of work.  And like any good person with lazy tendencies, I put it off.  Before I knew it, there was almost 3 months worth of budget to do.  That was about the time that I decided that maybe my habit needed a bit of rethinking.  I began looking into new personal finance software that might integrate a little bit better.

What I decided on was You Need A Budget.  I’ll have a review of that coming up in the next week or so.

Telling all of you that was just getting us to this point.  The meat of the idea.  You’re doing it wrong!  Somewhere, something your doing is being done wrong.  Maybe not wrong in the sense that it’s incorrect (none of us make financial mistakes right?), but wrong in the sense that the processes that you are using are costing you;  Time or money, or both.

If there’s one thing I’ve learned through all of this, it is that you must be vigilant.  You’ve got to rethink your processes periodically.  It doesn’t have to be all that often; Some will go overboard and spend so much time rethinking their processes, that they’ll suffer from analysis paralysis.  Instead, set up a schedule where by you set aside an hour or two to go through your processes and try and discover new ways of performing those processes that might save you money or time.

In our case, moving to a newer software that made it easy to import our transactions and had the budget part of it all built in has resulted in saving us a lot of time.  What about you?  What processes do you perform that you’ve never changed?  Take a look at them and see if you can’t find a way to save yourself some time or money!

Image Credit: Ledger by er1danus

Sometimes Saving is Wrong

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Invariably, every few months, we get a wave of posts talking about “what would you do if you won $x,xxx,xxx?”  Or, what you would do with a smaller windfall.  And invariably, a majority of the people talk about how they would save the money.  And in some cases they are right.  But, most of the time, they are wrong.

Why are they wrong?  Because they’re looking at saving from the wrong direction.  I wouldn’t save a dime of it.  I would use every last cent of it to pay off debt.  And until I have no more debt, that’s what I would do every time.  Sure, maybe I’d by a few things that I needed, but the rest goes to debt.  Saving in a savings account doesn’t do you damn bit of good if you have debt.

If you have any debt at all, you really should think twice about having any savings at all except for an emergency fund.  Why?  Because, there is no savings account in the world that will guarantee you more interest than what you are paying on your debt.   If you pay off $100 of your credit card debt, you’ve just earned the 19% interest that you would have paid.  You “saved” more with that $100 than you would have in years if you had put it into a savings account.

Don’t fool yourself into thinking you need to have anything more than an emergency fund in the bank.  All the rest is just money that could be making you 19% interest instead of the paltry 1.30% that you’ll get at that high-yield online savings.  When you get rid of your debt, then is the time to start building your savings!

Some of you will likely ask “what about retirement savings?”  That’s a gray area.  There are some that would argue that if you don’t get that debt paid off, you’ll end up taking that money out early anyways.  Others would argue that due to the tax benefits of retirements accounts, and the magic of compound interest, you really should be putting money into your retirement too.  My current opinion is stuck somewhere in between.  I think that you should be putting a little into retirement, just so you have something going.  But, I also think that you should keep in minimal until your debt is gone and then ramp it up like gangbusters.

So, what would you do if you won $x,xxx?