Knowing is half the battle...

I used to watch G.I. Joe as a kid and every episode ended with the phrase “Knowing is half the battle.” this has always stuck with me, because its so simple yet completely true. I am an avid learner and an even more avid reader. I love to learn new things about almost any subject that will hold my interest. I want to know. I have read books on cooking, automotive repair, history, warfare, finances, personal development, and a large amount of science fiction. My goal is to learn something new every day. I will read opposing points a view just so I knew the other side of the issue.  Good sources of information are the Internet, professionals in the area of interest, and YOUR LOCAL LIBRARY! So many people I know don’t even know where their local library is or have a library card. The local library is a treasure trove of information on every subject you can think of and most of them have free internet access. 

When I learn about a new subject I run a quick search on Bing for relevant topics or authors.  This will give me a quick overview of sources such as blogs, books, magazine articles, and recent news coverage. for example, if I am researching personal finance, I search for blogs and forums on it and make note of them a pad of paper. Sometimes I will search Amazon.com for book titles or magazines on finance. Then I head to the library to check out the books on personal finance. If the books look interesting, I take them home for further study. Now I have two sources of information (books and internet articles) about personal finance, then if I have more questions I will call a local CFP or investment professional. Industry professionals like to talk about what they do, so give them a call and strike up a conversation. You may just benefit from it more than you know (think networking!). By then, I am well versed in the subject, or at least enough to talk to other people about the subject without sounding like an idiot.

You can do this with any subject or topic. The point is to keep learning. Never stop seeking out new information or expanding your knowledge base. There are many situations that I have been able to apply skills and knowledge I learned in the Boy Scouts while backpacking to areas such as planning my finances (i.e. the 3 piles of packing method explained in my old Scout manual applying to wishes, wants, & needs of budgeting). Right now, I am avidly learning about finances and how to become better with them. In a few years, I will be into buying a house and my knowledge on finances will come in handy in getting a loan because I will understand how the market is doing in relation to my mortgage rates. Every little bit of information helps whether you think its relevant or not. 

Knowing is half the battle...

Moving!

Hey Everybody! I am moving my blog to Wordpress.com so that I can use some other site features I like. Please follow this link to my new blog and thanks for reading.

http://theclimbtofinancialfreedom.wordpress.com

Sincereley,
Brian

Defining Career Finances

This past weekend, I was at my Uncle’s house enjoying a pre-St. Paddy’s Day dinner. My cousin Tiffany was looking to start a new job and the subject of planning for a retirement came up. We talked about the differences between a pension, 401(k) or Differed Compensation, and IRAs. As the night went on, Tiffany explained how she had managed to save a good amount of money to help pay for college and cover her bills while attending school. She is not a big spender though she does love fashion and trying out new things in San Francisco. What surprised me about the conversation was that Tiffany had never been taught about career finances but was really good with personal finances. I am no expert in both areas but I figured that a few other people like Tiffany could benefit from a little insight on the topic.

I define career finances as the financial benefits an employee has available to them through either their employer or a private financial institution linked to their employer. The financial benefits provided by your employer include items such as a pension, a 401(k), and Flex Spending Accounts. A private institution, like TD Ameritrade, would provide employees the ability to have a direct deposit made into an IRA, 529 college savings plan, or other long term investment. Some might suggest that the private institution is not involved with your employer but since they have the ability to do direct deposit, I place them in this category.

A pension is a form of retirement plan that an employer provides to a former employee for completing a pre-defined amount of years of service. Many companies still have pensions but even more are doing away with them because of the cost to the company. For example, if you work for the same company or government for 30 years, the company would pay you a percentage of your salary after you retire. Pensions are not to be confused with a 401(k) or deferred compensation plan. A pension is provided by the employer and not contributed to by the employee.

A 401(k) or differed compensation plan is the more common way for employers to help employees in retirement. These are accounts established by the employer for the employee and both parties can contribute to them. The funds are then invested in specific ways, such as target date mutual funds or company stock, chosen by the employee. The employee can contribute up to $16,500 each year towards their 401(k) and typically employers will match the first 1-5%. Note: in recent months employers have stopped matching contributions due to the economy. The money contributed into your 401(k) is pre-tax and is allowed to grow tax free until you begin withdrawing from the 401(k). Talk to your HR department for more information about your employer’s 401(k) plan.

A flex spending account is a relatively new concept in career finances. This account allows you to have a specific amount of money taken out of every paycheck which can be saved for medical, child care, or personal health expenses. The benefit is that the money comes before taxes which can place you into a lower tax bracket and the money is used tax free. The downside is that you have to use the money up every year or you lose it and pay outs are in reimbursement form. For example, if you usually spend $1000/yr on child care you could place $1000 into a flex spending account. Then as each monthly bill is due, you could pay the amount and then file for a reimbursement from your flex spending account. If you didn’t spend the $1000/yr, you’d lose the excess. I don’t have experience with these types of accounts so talk to your HR department for more information.

In future posts, I will expand a little more on the subject of retirement and career finances.  I hope this helps as a good starting point.

Staying Stylish and Under Budget

Back in high school and through college, I worked in retail stores and every season the store would conduct a roll-out. A roll-out is when the new merchandise gets displayed in the windows and the store is rearranged according to what is in style. It was a real pain in the ass for the employees because the work had to be completed after the store closed but before the store opened the next day. After doing a couple of these roll-outs at J.Crew, I had a revelation.

Use the mannequins to create a new stylish look for cheap. Retail companies pay people hundreds of thousands of dollars to design and create new outfits and wardrobes specifically for display in the stores. I realized that when I was putting these mannequins together complete with $200 jeans, $150 sweaters, and $90 t-shirts, that I could get the same look for a quarter of the price. The idea here is not to try to exactly duplicate the new look but to take style concepts from the new look.

Just a few weeks ago, I was shopping for some new jeans and t-shirts. I went into Banana Republic (great store for ideas for business casual guys) and J.Crew (everything fits me well and I like the classic looks) to get some ideas. Apparently the new look is loose or slim fit, dark jeans paired with a graphic t-shirt of contrasting color, and a neutral shaded zip-up sweatshirt hoodie or jacket. I took this “new look” and went to Kohl’s and Old Navy to see if I could replicate the “new look”. In about 30 minutes, I managed to find items on the clearance rack and on the shelves that gave me exactly the same look for a fraction of the price. In all, I got a pair of jeans ($15 – Old Navy), graphic t-shirt ($5 – Old Navy), long sleeve thermal knit top ($15 – Kohl’s), and a dark gray zip-up hoodie ($15 – Old Navy) for a total of $50, which is half the price of a pair of jeans at most designer stores.

Next time you are out shopping for a new outfit, check out the high end stores and take their looks with you, then go shop at the lower end stores, like Old Navy, Kohl’s, and Target. Hope this helps in gearing up for the summer months!

Here is another article on fashion and being frugal. Click Here.

My Apologies!

I must apologize to my readers for not keeping up with my posts. I made a newbie error when it comes to blogging or starting a blog. I did not have enough posts saved to cover myself in case I was away for a long period of time. I was in training for work down in Miami, FL and my saved posts ran out. So, now I am back and ready to start blogging...again.

Why Nalgene is Your Friend

I used to go backpacking all the time when I lived in Pennsylvania and I would carry my water in a Nalgene bottle. These bottles were indestructible & held 32 oz. of water. I moved out to California a few years back and my Nalgene got put away into a box. When I moved into my new place last month, I came across my Nalgene bottle. Since I am trying to save money anyway I can, my Nalgene gave me a great idea. 

I drink a lot of water every day (you should too for a healthier body) and I was spending at least $2/day on bottled water and other drinks. I realized that I could save almost $10/ week just by filling my Nalgene up at the water fountain in my office. My Nalgene became my new way to save money and my new best friend. Not only does this friend save me money every week but promotes a healthy lifestyle by drinking more water and less (insert high sugary drink of your choosing). Also, I stopped buying bottled water which was creating more trash and consuming natural resources & energy.

The funny thing is that I by renewing my friendship with my Nalgene, I discovered another friend, Travel Mug. I don’t drink coffee but I do drink tea and a lot of it. I would drink almost two cups a day of tea (had to switch to herbal tea because of caffeine headaches) which was about $3/day at the local coffee shop. Because I drank so much tea, my aunt gave me a hot water heater for my new apartment. I found a Travel Mug and bought some herbal teas. The hot water heater is a small kettle pot that sits on my counter and keeps water always hot enough to make tea. Not only was Travel Mug saving me $15/week but was putting antioxidants into my body from the herbal teas. It is a known fact that herbal teas, especially green teas, have a large amount of antioxidants which helps promote a healthy body and heart.

Now I have two friends I take with me every day, Nalgene and Travel Mug. They are great because they save me $25/week and promote a healthy body. I feel good at the end of the week knowing that I did something to live a healthier life, reduce my debt, and help the environment.

Keeping the Record Straight

I love history, especially a good story about an event in history. I would have never known about King Leonidas and the 300 Spartans or Capt. Winters and the 101st Airborne, if someone didn’t keep a record of the event. That’s why I started keeping a detailed record of everything I do to get out of debt. I don’t plan on making a book, well not yet at least, but I want to be able to look back on this time in my life and see how I overcame all of the obstacles of becoming debt free. I would recommend you do the same.

It doesn’t have to be something elaborate like a full blown webpage or a novel with the intention of turning it into a NY Times Best Seller. Just keep a record for you and you alone. I like using a simple journal that I write every few days in about some of the things I have done to get out of debt. An entry can be as simple as a few lines or as long as a few pages; whatever you need to get your thoughts across.

The added bonus of writing your actions down is that it allows you to clear your head and focus on the important things you have done. Also, some ideas will come into your head while you are writing and now you have a perfect place to put them, your journal. I routinely go back and review my entries just to make sure that I haven’t forgotten any ideas I had while writing. I actually keep an “idea book” with me so I can put down the random ideas I have during the day. A really good “idea book” is made by Moleskin because its small enough to carry around and its hardbound for long term keeping. The idea is from another blogger, I don't remember who, maybe "The Simple Dollar" or "Wisebread". Either way, I liked the idea of an "idea book" so now I use it everyday.

One of the things I like about writing in my journal is that all the ideas and thoughts that take up space in my head I now can get out of my head and onto paper. This allows me to focus my brain power on more important things, like controlling my spending habits.

Emergency Fund Complete!

Today, I can finally say that I have an emergency fund! It is ready to tackle the unexpected events Life decides to throw at me. This is a big milestone for me because I have never had $1000 in savings before. I can not begin to describe the feeling of relief from stress that this brings. After reading “The Total Money Makeover” by David Ramsey on my way back from holiday vacation, I set out to take control of my finances. The first step in the book is to get an emergency fund of $1000 established. This seemed like an ass-backwards way of dealing with your debt but I read some more blogs, articles, and books that all hinted at the same thing. An emergency fund allows you to stop using a credit card and to start using cash instead. Granted my emergency fund came from the security deposit refund on my old place, but hey I’ll take what I can get.

My goal is to have two emergency funds. One will be for true emergencies such as “I need to fly home to Philly tonight because a family member was in a car accident” or “I got into a fender bender and my deductible is $500”. This emergency fund, lets call it Major, will have a balance of $1000 and will be in an online savings account by the end of the month.  The second one is for mild emergencies like “I forgot to pick up a birthday gift for my niece whose birthday is this weekend” or “Its my turn to provide for the soccer team half time snacks at today’s game”. This emergency fund, called Minor, will have a balance of $500 and just be in a regular savings account at my bank.

It is difficult to define what a true emergency is and everyone has their own definitions. So thats why I have two funds.  I don’t like making decisions, and by forcing myself to act a certain way my decision is made for me. 

The best part about having the Major and Minor, I know that if some emergency comes up, whether big or small, I’m covered.  

Always Ask for a Discount

Asking for a Discount

This past weekend I took my girlfriend out bowling. (A side note, bowling is a fun time for everyone even if you suck at like I do) It was a local bowling place and was pretty full with families and high schoolers when we got there.  The total cost was $30.00,  which was split amongst $5 for shoe rental and $5 a game per person. As I was paying, I joking asked the counter lady, “So I get my 10% discount for being awesome, right?” The counter lady smiled and said “Since you were nice and agreed to play next to those teenagers, I’ll give you a free shoe rental. How’s that?” I was like woohoo because asking for a discount actually worked! Most people I encounter that I ask for a discount from just give me a half-hearted smile. 

The great thing is that I got more than a 10% discount! If she had gone with a simple 10% off, I would have paid $27. But since she threw in a $5 shoe rental I only paid $25 which means I got a 16% discount! Here's another example of someone asking for a discount and getting more than they hoped. (Click here for article)

The point is to always ask for a discount, even if it’s a light hearted manner and you know you aren’t going to get one. Every chance I can I ask for a discount, and sometimes I know full well that they aren’t going to give me one. I like forcing people to say “No” because by doing that they are out of their passive-aggressive comfort zone, and the situation favors me now. I digress from the topic, back to getting a discount...

Where I live 10% off is like getting something for tax free (stupid California sales tax of 9.75%!) and is definitely worth asking for. Also, a lot of employees do have the power to add on a 10% off coupon that might be at the register or toss in some item for free, such as shoe rentals. The important thing to remember when asking for a discount is to always be nice and friendly when asking, especially to retail employees as they get towards the end of the day. From my experience working in retail, I was more likely to give discounts near the end of the day or my shift. If the store is super crowded, like at holiday times, a good way to ask for the discount is this:

“Since I had to wait for 20 minutes to get help, do I get a 10% discount for being a customer thats still     happy about shopping here?” or “You have the power to give a 10% discount for being a repeat customer, right?” 

An employee would have to be seriously cold hearted not to do something because not only have you pointed out that the store is lacking in customer service but also that you didn’t complain about it. On the second approach, you question their ability but also give them a solution to prove to you that they are all-powerful and can prove it. 

 If you don’t get a discount don’t complain about it. Always say thank you and go about your business. It’s a numbers game, meaning the more times you ask the more chances you have to get a discount. But if you don’t ask, you definitely won’t get the discount. 

Making a Successful Budget

When budget making, you should start simple.   A budget is not some complex scientific enterprise. A budget is a tool that will help you save money and help you focus your money towards your goals. I tried to have an all encompassing budget that alloted for every penny that I earned. The problem that arose for me was that if an unexpected expense occurred, it threw my whole budget out of whack. I was also spending large amounts of time thinking about how to best organize my budget, make it easy to read, and other little nitpicking things that really didn’t pertain to the budget itself. After some serious reading and experimenting, I came up with a 3 step process to create a successful budget for getting out of debt. The only rule is that you must spend less than you earn.

The first part is to set rough guidelines as to how much you want to spend in a certain area. My first month I planned on spending $300 for food including work lunches. I thought I could spend this amount and not go hungry but still not eat filets everyday.  During this first step, you need to track your expenditures for a month. I recommend a small notebook, sometimes called a cash notebook, that you can carry in your pocket or bag. At the end of everyday I empty out my pockets and tally up my receipts in the notebook.  

“Once you’ve set some realistic targets, spend the month sticking within those targets. Keep a categorized list of your spending and regularly update your budget with your totals in each category along with any pay you receive. Your first month is likely to have problems as you realize that it’s hard to get off the routine of spending. That’s OK, just keep making an effort and you’ll eventually get there.”  

                                             ~ The Simple Dollar blog by Trent Hamm

At the end of the month, total up your expenses for each category that you have created.  Compare these numbers to the rough budget you created at the beginning of the month.  Did you spend more food than you expected? Less on gas? Was there a one-time large expenditure that might have doubled spending in a category? What ever your answers are, make the adjustments now. Again the only rule is that you must spend less than you earn. 

The second step in the budget making process is to fine-tune your budget and prioritize all of your expenses. During the next month, you should update your budget at least once a week. Your goal is to create a budget that you can live with and try to trim all of your unwanted expenses. This is the step where you can really see the areas that you can save money and start climbing out of debt. After my first month, I realized I was spending closer to $450 on food and most of that was from buying lunches at work and dining out. I like to go out to lunch at least once a week at work so I plan for that in my monthly budget and reduced my dinners out to once a weekend. I was able to reasonably budget $350 for food. I just cut $100 from my budget that can go towards debt repayment. 

During this step you really need to ask yourself: Do I need this or can I get by on something less? I noticed that I had a cell phone bill of $150 bucks and was only using half the minutes due to free mobile-to-mobile minutes. I reduced my plan, saved $50 a month, and use my land line for calls when I am in my apartment. Could you bundle your insurance together? Most places allow you to do that and get a discount. Can you not go out two weekends a month or do a free activity offered in your community? Once you have figured  out your priorities and adjusted your categories accordingly, congratulations you have created a budget (Budget 1). Now, you are ready for step three. 

Step three is the harder step for most because you’ve been living for two months now on a good budget. You have kept within your limits and spent only what you earn. You feel good. Congratulate yourself on accomplishing a big feat: you made a budget...for someone who has no debt, not for you. You, my friend, have debt to pay. Here’s what to do.

Take a piece of paper and make three columns. In the first column write down all of your categories from your budget and in the second column write the amount you have allotted for each category. In the third column, reduce all of your amounts by 10% (Budget 2). Do not include the categories that are fixed, such as rent, car payment, and insurance. Now the third column just became your new budget amounts. This is how I found money to start paying off my debt. You are spending less than what you earn, and that excess goes towards your debt pay off. It does not matter if you squeeze out $5 or $200, the point is to reduce your spending so you can get out of debt faster. 

                          Budget 1   Budget 2

Rent                 $1,000.00 $1,000.00

Car Payment    $250.00    $250.00

Insurance    $120.00    $120.00

Utilities              $90.00      $90.00

Food            $350.00    $315.00

Entertainment    $100.00      $90.00

Gifts                      $50.00      $45.00

Clothes            $100.00      $90.00

Household      $75.00      $67.50

TOTAL         $2,135.00 $2,067.50

At the end of every month, review your budget and if you need to adjust your categories do so. Using this method I saved over $100 a month from my budget and was able to apply that to my debt. The crazy thing is that I thought I was going to be living so frugally, but in reality I never missed that 10% I cut out.  

---------------------------------------------

MSN Money Article on Budgeting

A good article on how to start a budget for recent graduates and those just starting to live on their own. The article uses a 60% Budget method for budget, which means that all of your monthly expenses make up 60% of your pre-tax income.  The remaining funds are portioned off into 10% increments for retirement, debt pay off, and savings. 

Dealing With the Stress of Debt

For the past year or so, I have been on an emotional roller coaster when it came to dealing with my huge debt. I would stress myself out just by thinking about how much debt I still owed and that it would take forever to pay it off. Every time I made a payment to a credit card, I would be elated and then I would see how little of a difference that payment made. It was ups and downs for the better part of year and then the stress started to affect my health. I would not sleep through the night or my mind would wander at work which increased my stress level. Eventually I went to my doctor to see if he could help, and he had a great idea. 

My doctor suggested I go see a therapist. Now, where I grew up a therapist was for someone who had mental issues and multiple personalities. I was very hesitant about going but go I went. The first few months didn’t help much but that was mainly because I was so reluctant to expose my failings to another. I was not worried about the cost because in my opinion, when it comes to health there is no price tag too high...you only get on life. Slowly but surely I started to open up and explain my situation to my therapist. It was a hard road to walk down. I had to own up to my credit card purchases, the poor financial decisions I made in the past decade, and face the facts that I was the only person responsible for it. 

Now, because of my therapist, I am less stressed about money and finances in general. I know its not going to happen overnight but eventually I will be debt free. I have a plan and knowing that has allowed me to sleep at night. A therapist might not be for you but talking about your financial situation will help in the long run. It gives you a starting point because you can’t hide from your debt even if you hide it from everyone else. The debt will still be there but now it doesn’t control you, you control it. 

The Bottom

This year I have decided that I will no longer be a debtor. I realized that I was living beyond my means and had a large amount of credit card debt to show for it. It was a huge shocker to me when I realized that my parents had not really taught me anything about how to save or create a budget. Don't get me wrong, my parents taught me how to make money and work hard to do it. They just never showed me how to keep it. I was determined though to change and the start of a new decade was the perfect place to do it.

On my flight back to San Francisco, I wrote some goals I wanted to accomplish for the year and read a very good book. "The Total Money Makeover" by David Ramsey has really changed the way I view how to handle my finances. I have read several books on personal finance and each book has contributed to my understanding of the subject but TTMO really brought all the concepts together in a very simple format. So when I got home (to an empty apartment...totally another story for another post), I wrote out my debts. I started with the smallest balance and worked my way to the biggest. It was an eye opening gut wrenching life pivotal moment to see all of my debts lined up and the large total underneath. I have five credit cards, two student loans, and a car loan as follows:

American Express - $1,291

Barclays iTunes Visa - $2,743

Chase Southwest Visa - $5,520

Bank of America Visa Signature - $8,019

CapitalOne No Hassle Visa - $10,697

ACS Student Loan - $11,471

Ford Motor Credit - $31,293

Great Lakes Student Loan - $35,565

TOTAL: $106,558

This is equivalent to one year's salary for me. Yes I make $100,000 per year and I have nothing to show for it. That was the hardest part about this whole experience. I realized that I had enough debt to equal an ENTIRE YEAR of income. I didn't like that so I had to change.

I started small and gave myself some goals to accomplish for the month of February. You are probably saying well what happened to starting in January? I was going through a lot of crap personally and just couldn't do it. So February is my New Year, fiscally that is. I sat down at my desk and started a budget. I put in my rent, bills, debt payments, food, entertainment, etc. and came up with a pretty decent budget. Now mind you, I had created pseudo budgets in the past that I thought I was keeping when in reality I was just ignoring. I wrote it down and look it at almost everyday. I bought a small notebook and began tracking my spending. Every time I spend money, I write it down. I am not trying to reduce my spending...well, I am...just not at this moment. I am seeing where all my money goes during the month. At the end of the month, I am going to add up my expenditures and compare them to the budget to see where I was over and where I was under.

SO now I am at the bottom and started my climb out from underneath my debt. It will be a slow climb at first but as time goes on, I am sure I will gain speed and strength. Along the way I hope to share with readers some info and insight into how to achieve financial freedom.