Success has been achieved!  A mountain has been scaled and a once inconceivable objective is now marked done and DONE!

Debt is largely accepted as normal and we’re so easily swept into that mentality.  Often we’re so numbed to debt as normal that thoughts of getting out of it don’t surface until it’s too late. 

Getting out of debt then becomes an impossible task.  It is overwhelming.  It is climbing a mountain, losing weight, and running a marathon at once.  Who can possibly do it?

Well… I know for a fact that YOU can do it.  And how can I make a declaration so bold?  Well, because the old adage rings true, if I can do it, so can you!

That’s right – sorry if I’m being a little circular in my presentation today – We have just in the last 3 days paid off the very last of our household’s non-mortgage debt! 

…Baby Step 2, CHECK!

Such an accomplishment deserves a story, so here’s mine.

In so many ways, I am the picture of average.  I went to college and signed up for a couple easy to get credit cards and I was off.  A super cool stereo was my first really big and really unnecessary purchase.

After grad school I had more than a couple grand on cards and a fresh student loan.  When my classmates were walking the stage, I was financing a motorcycle.  Soon thereafter, I had to furnish a new apartment – college digs simply wouldn’t do in the ‘real world’ and so by the day I showed up for work on the very first day of my career… I was roughly $35,000 in the red.  How could that be?  I was fresh out of school and my starting salary was only $34K.

Only my spending didn’t stop.  More furnishings, and more clothes, and more and more and more.  My debt balance soared to nearly $50k – I foolishly bought a new car when my trusty truck with 140k miles was totaled – before it struck me hard and fast.  I was not going to out earn my spending, especially when every raise was accompanied by a new lifestyle enhancement. 

Something had to be done…

That thought quickly passed with my next raise – a pretty good one actually – and I rethought my thesis.  Perhaps I could earn my way out…. But alas, that proved fool hardy for even as my salary increased the weight of my debt continued to crush.

Budgeting was a big help.  I was able to stem the flood of new debt and I stopped bouncing checks at the end of what felt like every month, but freedom was a lifetime away.

So in proper fashion, I bought a house got married and bought a larger house – keeping (and feeding monthly) the first house as a rental.  I was able to make small strides but I felt ridiculously paralyzed and materially aggravated with my situation.  I was failing.  At least that represents how I felt.

Then a completely incidental, totally disposable conversation in passing planted a seed that triggered a series of events that started to turn the tide.  Most will find this silly but those that know me well will say “bingo”.  A co-worker started talking about her husband’s iPod – something I was wholly against until she started speaking magic words…. Her husband downloads radio programs that he would normally miss while at work and listens to them on his drive to work…. Radio programs you say?  Like maybe even sports radio programs?!?! 

Hook baited, dropped, bit, and set.  Apple reeled me in that night as I went straight to Best Buy and put an iPod Nano on my Amex.  How ironic.

One thing led to another and I was quickly obsessed with finding more abbreviated radio programs to download and that’s when I stumbled onto Dave Ramsey and reluctantly added him to my mix.  Several days went by before I listened to the first show.  I was so sure that he’d convict my approach to finances and I didn’t want to hear it.  That is until one night, in a crappy hotel room in Louisville, KY having run out of sports talk shows, I decided to give it a go.  From the start I was relaxed by his manner and humor and damn there are some crazy broke folks out there.  I listened to several shows over the next couple days entertained, but convinced his message was not for me.  Until one day it dawned on me that his message was directed right at me.

I get that it’s hokey and clichéd but it’s the truest of stories.  I was hooked and within a couple months I sold the rental house and plucked some funds from savings and recalibrated my budget and designed a debt snowball tool and was a fanatic. 

A job transition and period of unemployment halted my progress for a spell.  We suspended the elimination process long enough to replace a failing car but once we got back on track, we were full tilt and here we are.

For years as I lugged around, card hopped, and debt consolidated my way in circles a single thought persisted.  Though I had literally paid it off tens of times over, I continued to view my credit card balances as representing that very first stereo purchase.  Every time I would think of my mountain of debt, I’d think of the purchase that really started it all.

So just this week as I signed the check cutting the debt cord do I feel like I FINALLY own that darn stereo.

And so that’s probably more narrative that I had intended – could you tell I got a little caught up?  But I’m excited about the path I’ve carved and the future I’ve now enabled.  I do think there are a few “how to” nuggets buried in the story to assist your cause.  But more than absolutely anything, I hope you take away the knowledge and understanding that YOU can do it too.  Because I have now done this – and I know how I once thought about this target – I’m certain you can too.

Build both your budget and resolve and get to it.  Meanwhile I’m going downstairs to blast some Zeppelin on MY stereo!

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I’ve shared before my opinion on handling frustrating customer service situations – rather than try to reason with a script reading, non-thinker in a cube half way across the country (perhaps half way around the world), if I’m materially aggravated, I’ll draft a letter to the CEO. 

Admittedly my results have been mixed.  The CEO from Six Flags was wildly dismissive, and the CEO from U-Haul delegated his duties to a lackey unable to understand my complaint, but the COO for TransUnion called me directly and invested 45 minutes in discussing the issue and providing me with his personal contact information if I ever experienced another problem with his organization.

So while my outcomes have varied, I’m satisfied in knowing I’ve done everything I can do.  I’ve escalated to the top.  Because I know most organizations have a dedicated team responsible for handling these types of letters, I’m confident I’ll either reach a pleasant conclusion or I’ll identify a company not worthy of my business.  Sorry, Six Flags and U-Haul, my dollars are not for you.

Recently I’ve encountered an interesting cross road between my penchant for letter writing and my motivation for driving this site.  While making extra principle payments against my wife’s student loan (in an effort to get out of debt), I’ve observed a dishonest tactic by Sallie Mae.  It seems that despite very clear labeling, Ms. Mae likes to treat large principle payments as advanced monthly payments – interest and all.  In this way, a large payment pushes out the next monthly payment date (forcing you to pre-pay interest) rather than unilaterally attacking the principle loan balance.

I personally find this a dishonest practice at best and malicious theft at worst.  I’ve also found it cause for another round of letters.

As a set up to the letters below, this nonsense happened just recently (March and again in April), but it also happened multiple times in the fall of 2008 – before my job transition.  So below, to demonstrate a full context, I’m providing copies of my letters from just last week, as well as, the letter from 2008.  Finally, to further illustrate my point, I’ve provided the form letter I customize each time I submit an additional payment – you tell me how they missed my intentions.

How a lending institution could screw this up so badly is beyond me.  How they could do so when provided such clear direction to the contrary is another matter altogether.  Face it, my messages to you only resonate louder against the backdrop of these examples – Debt Sucks.  If sweet sounding Sallie Mae is so eager to screw you over, can you imagine what other lenders have in store for you?

Enjoy, and let me know what you think below:

Letter to CEO Albert L. Lord – April 2010

April 12, 2010

Albert L. Lord – 

I am writing to your office a second time to share my continued disappointment with the significant limitations demonstrated by your organization.

On a number of occasions I have submitted additional principle payments against my wife’s outstanding student loan (account number ##########).  When these payments are processed, they are routinely processed incorrectly and recently a large payment was not credited at all.

My previous correspondence dated December 30, 2008 (enclosed) dealt with the repeated failure of your organization to recognize clearly marked checks as payments against the principle balance.  Instead of reviewing the account records – which so clearly demonstrated a “next payment due” date several years into the future – my wife was met with a terse phone call explaining “her error” and a promise to contact me directly to “help set me straight”.  Not surprisingly I was never contacted and the account information on the web was quickly corrected.  Apologies and/or acknowledgements remain outstanding.

True to form, your organization has screwed up again.

• On March 14 a check for $1000 was mailed and cashed on March 22.  This check and accompanying letter (both enclosed) were clearly marked as principle payments yet processed as monthly pre-payments (screen shot enclosed demonstrates “next due date” of January 2011)
• On March 18 a check for $3036 was mailed and cashed on March 25.  This check and accompanying letter (both enclosed) was not credited against my wife’s account until at least April 9 and not until the payment had been verified multiple times by my wife.  This payment too has been processed as monthly-pre-payments (screen shot enclosed demonstrates a ridiculous ‘next due date” of February 2013)
• During my wife’s follow-ups she was told many conflicting stories.  She was told that the payments were treated as principle payments with no explanation for what your website demonstrated.  She was also told that she was responsible for all interest on the loan regardless of how quickly the loan was paid.  Clearly demonstrating errors in both your recruiting and training processes.

I am mailing a check to your organization this week to pay our remaining balance and forever close my wife’s account.  I require that you promptly and accurately process this payment – steps which have represented significant challenges to your operations team to date. 

As an accurate payoff balance is impossible to glean from your site, given its design to assume interest pre-payments, I also require a prompt return of any overpayments which may be unwittingly included.

I expect all overpayments and documents confirming the closure of this account to be express mailed within 72 hours of the time my check is presented for payment.

In the interest of full disclosure and to help inspire accountability on your side, I will be posting this letter and your response (including its timeliness) on my blog.

Attached you will find the enclosures referenced above.  Please contact me or the loan holder if there are questions, meanwhile, I await your prompt response.

Letter to Payment Center and CEO Albert L. Lord – December 2008

December 30, 2008

Sallie Mae Payment Center – 

HELLO!!!!

Please consider this letter a wake-up call to help you overcome a troubling level of incompetence.

Allow me to explain.  On two occasions in November 2008 I provided checks with accompanying letters indicating that my payments be treated as additional principle payments – I am resubmitting those letters for your re-review. 

However, when viewing the account on-line my payments have been treated as pre-payments – which includes the pre-payment of interest.  A losing practice if ever there was one.

To address this issue, I require the following 4 actions on your part:

1. Immediately adjust the accounting for my additional payments according to both my current and previous requests
2. Make the necessary interest credits to the account
3. Provide me with a detailed accounting of the above steps
4. Provide me with your preferred method of communicating an intent to make additional principle payment as black and white printed letters are not sufficient

 Enclosed please find copies of my original letters from November.  Please contact me or the loan holder if there are questions, meanwhile, I will await your prompt response.

 Additional Principle Payment Template

March 14, 2010

Sallie Mae -

Please credit the full amount of the enclosed check as an additional principle payment against my wife’s student loan.

• Loan Number:   ##########
• Loan Holder:      wife’s maiden name/wife’s married name
•  Current Payment Amount:         $1,000.00

Upon posting this payment, please provide loan holder with an updated payoff balance.

Please contact me or the loan holder if there are questions.

So what do you think?  Is Sallie Mae sinister or just inept?  Am I overacting?  How do you think they’ll respond?? 

I’d love to hear your response and I promise to share Sallie’s response with you.

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Welcome back to our study on the Views of Money.  After resetting the contextual baseline, we’ll jump into Part 2 Net Worth, Balanced Perspectives and Opportunity Cost

Money is important.  It is the lifeblood of our society.  It is our economy.  In the context of our modern culture it is a requirement for our day to day living.  If you doubt this notion, imagine yourself penniless for the next 30 days.

Money also is dynamic.  It is huge in the context of government spending programs or corporate initiatives.  Equally so, it is small measured against our next meal or gas tank top-off.  Money is even tiny as it collects nightly in our change cup.

A former teacher oft shared a story of 3 blind men describing an elephant.  The man at the trunk reported an animal significantly different from those reporting from the side and tail of the animal.  All reported a piece of the truth but not a whole truth. 

Money operates in our lives in a very similar manner.  Many of our views on money are technically correct, but lacking a grasp of the greater whole.

Across this two part series I want to reconcile several views to ensure that we keep each in proper balance.  If we skew too hard in one direction we’re likely to end up with a distorted picture of reality. 

The key to our money, as with many things in our lives, is proper balance.

Today we will examine:

View 4 – The Long View – Net Worth Planning

View 5 – Mosaic View – Balanced Perspectives

View 6 – The Lost View – Opportunity Costs

Please visit Part 1: Objective Setting and Simple and Advanced Cash Flow if you missed that entry.

View 4 – The Long View – Net Worth Planning

Once the art of the Mid View (Annual Planning) is mastered, it is not difficult to begin expanding the annual view into 5, 10, or even 20 year horizons – think new(er) car, new house, college savings, and retirement.

With your mind now wrapped around larger and life altering objectives, you are less likely to direct your unallocated cash flow towards acquiring a new monthly payment, first because your mind resists such shortsighted thinking and second because there are no unallocated dollars.  The planning and aspirations are too focused to allow otherwise.

As with previous views, you may still feel constrained by your income.  But the constraints are positive rather than negative.  Instead of feeling constrained against being able to lavish yourself with new gadgets and trinkets, you are much more likely to feel constrained against making large debt payments or maximizing your IRA and 401k contributions.  The beauty is that as you are able to overpower those constraints you are propelling yourself forward rather than further tethering yourself to fixed station.

Net worth is the scoreboard for your long term financial success.

View 5 – Mosaic View – Balanced Perspectives

There is a certain evolution of thought as you progress from view to view but there are important lessons to carry and retain as you progress.  In many ways it is like using the addition, subtraction, multiplication, and division fundamentals you learn in grade school to master the principles of geometry, algebra, and even chemistry and finance you engage later in your education.

Another example may be a highly successful business that monitors its stock price (think net worth) by reporting and managing its cash flow statements, balance sheets, individual store sales amongst a bevy of additional reports and performance matrices.

The key message here is that we need to be nimble and versatile across these views.  At times, we may need to gauge a purchase or investment across multiple perspectives. 

Borrowing from a personal example, I am currently in the process of refinancing our home.  While I am lowering my interest rate I am also shortening the term on my loan from 30 to 15 years.  This move has implications across all views.  My monthly payment will actually go up a bit which impacts Views 1-3, but the condensed time horizon will play a significant role in advancing view 4.

View 6 – The Lost View – Opportunity Costs

If View 1 is our starting point and most immature (in terms of thought development) view, then the mastery of Views 5 and 6 are our most evolved judgment criteria for driving our financial activities towards a successful outcome.

Opportunity Cost is a compelling and engaging concept but sometimes hard to fully grasp.  The idea is that, unless you are a member of Congress, you can only spend a dollar once.  However, when you hold that dollar, you have many potential opportunities for its deployment.  Opportunity Costs suggest that the cost of an item is the sum of its actual dollar cost AND the cost of the lost opportunity had that dollar been spent elsewhere.

For illustrative purposes, here’s an extreme example.  Let’s say that in the early 80’s a spent a couple dollars to buy a hotdog rather than an aggressive option for Microsoft stock.  You could argue that I had consumed a million dollar hot dog. 

That may be a fun example, but it is not realistic because the ballooning value of Microsoft was unknowable at the time.

To really work the concept, you have to consider your actual and viable options.

Consider a more realistic example whereby you decide to spend a $1000 bonus check on some cool new electronics gadgetry. 

Instead, you may have directed those dollars against a high interest credit card, placed it in a mutual fund, or applied it against your outstanding mortgage balance.  Each of these options has an interest component that makes the comparison math easy.  For example, a 10% interest rate on the card suggests that you’ll accrue $100 interest waiting until next year’s bonus.  Similarly, the investment and mortgage prepays could be calculated but it is easy enough to grasp that the $1000 bonus has an exaggerated value when considered against three likely alternative deployment opportunities.

Putting it all together

Consider now another example.  You positioned yourself in a job or career better aligned with your values and income targets and are now receiving your first annual raise and bonus.  What do you do?

• View 1 is addressed with the job selection and income
• View 2 understands our cash flow has increased and immediately looks for deployment options
• View 3 recognizes our annual budget has increased and provides a ‘capture’ point for the new inflow
• View 4 envisions how these new dollars can best drive the future you envision for your family
• View 5 finds harmony amongst the varying perspectives
• View 6 makes the best and most informed decision

 Without the full view we’re much more likely to make an impulse decision which often is a suboptimal decision.  Meanwhile, chasing an input through the full range of perspectives does not ensure absolutely that we’ll each make the same or even the best decision.  We each have our own visions and dreams, and our own personal contexts.

And that in the end is part of the beauty and mystery of that dynamic lifeblood we call Money.

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Money is important.  It is the lifeblood of our society.  It is our economy.  In the context of our modern culture it is a requirement for our day to day living.  If you doubt this notion, imagine yourself penniless for the next 30 days.

Money also is dynamic.  It is huge in the context of government spending programs or corporate initiatives.  Equally so, it is small measured against our next meal or gas tank top-off.  Money is even tiny as it collects nightly in our change cup.

A former teacher oft shared a story of 3 blind men describing an elephant.  The man at the trunk reported an animal significantly different from those reporting from the side and tail of the animal.  All reported a piece of the truth but not a whole truth. 

Money operates in our lives in a very similar manner.  Many of our views on money are technically correct, but lacking a grasp of the greater whole.

Last week I wrote about viewing our spending on a day over day basis and last year I penned an entry on viewing our incomes as annual rather than hourly inflow.  Both stances are valid and accurate and true and both articles garnered interesting responses.  While no one outright disagreed with my position in those articles, many shared an alternative visual.

Across this two part series I want to reconcile several views to ensure that we keep each in proper balance.  If we skew too hard in one direction we’re likely to end up with a distorted picture of reality. 

The key to our money, as with many things in our lives, is proper balance.

Today we will examine:

View 1 – Income and Outflow:  Objective Setting

View 2 – The Short View – Simple Cash Flow

View 3 – The Mid View – Advanced Cash Flow and Budgeting

View 1 – Income and Outflow:  Objective Setting

The starting point is obvious but important.  Money is like water.  It flows into our lives as income and out as spending or expenses.  An important first lesson is that we can control the rate of each flow.  The type of job we have, the hours we work, or even a second job; all drive the income equation.  How we spend that money is the outflow. 

The question we need to consider is how we want to engage this flow.  Do we want to forever swim in the steady but potentially uneven flow of money or do we want to dam the waters and build for ourselves a reservoir as fortification against future uncertainties.

The answer here is pretty obvious but our decision point should then project itself throughout our other vantage points.  That is where the idea of reconciling these views comes in handy.  Are our actions congruent with our objectives?

View 2 – The Short View – Simple Cash Flow

The Short View of Money is often the earliest lesson we learn and in that way is the easiest and least mature.  That is not to say that it lacks value, but that this should not our landing spot – though, unfortunately, it is for many.

Our earliest jobs in high school and college are simple time exchanges for money.  I trade one hour of attendance for a set number of dollars.

If, as we progress into higher payer jobs and even careers, we maintain only this simplistic point of view, then we often see our monthly income as a to-do list rather than a resource.

Rent – Check; Food – Check; Utilities – Check… and down the line until we discover that there’s a full $500 left at the end of our income.  To this mentality, that starts to sound like a new car and payments on a flat screen TV, still with a few dollars left over for a minimum payments against a credit card or two.

This view and approach leaves us perpetually stuck in neutral, which probably does not reconcile well against your goal from View 1.

A popular personal finance book, Your Money or Your Life adds a level of sophistication to the Short View.  The thesis of the book largely agrees with the idea of viewing our income as an hourly exchange but only as a perspective rather than a way of life.  If we acknowledge that our lives are finite, then each hour we engage in an activity is an hour forever gone.  In this context then we should consider both our income objectives – think early retirement on the beach or unencumbered time with loved ones – and our spending patterns – think 6 hours a week to hump a stinking car note.

View 3 – The Mid View – Advanced Cash Flow and Budgeting

In combat, the simplest rule of thumb is to control the high ground.  While I can envision fighting ‘downhill’ as easier, the objective is to have an advantaged point of view.

In this view we shift our money thinking from hourly wage, weekly paycheck, and even monthly checkbook balancing to annual planning.

While annual planning certainly requires a working knowledge of monthly incomes and expenses, it also anticipates events over a longer time horizon. 

Anticipating an annual car repair is not itself unreasonable, but too many people forget that Christmas comes every December and thereby create a deficit that is otherwise fully predictable.

The key then to the Mid View is to plan your income and expenses (monthly, irregular, and unknown), for the entire year.

A straightforward method for this is to craft monthly budget templates for the entire year while being sure to incorporate a monthly (1/12^th) allocation for Known Annual expenses (insurances, HOA dues, Holidays/Birthdays, etc), and an allocation into savings for buffer against future unknown expenses (car repair, hot water heater replacement, other).

Dave Ramsey’s popular book The Total Money Makeover is a perfect discussion in the How-To and Why-To elevate into this line of sight.

Getting to this point is a significant accomplishment for many and in that way it can easily become a plateau.  That can be ok, but advanced prosperity requires still more advanced thinking.

Come back next week for Part Two in the series where we’ll review:

View 4 – The Long View – Net Worth Planning

View 5 – Mosaic View – Balanced Perspectives

View 6 – The Lost View – Opportunity Costs

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The other day I was about to grab lunch at work.  Lunch at work for me is a boring affair.  On Sunday evenings I run a sandwich making assembly line which churns out 5 identical turkey sandwiches for my daily noon time feedings.

On this particular day I thought about the pattern I was weaving and I realized that it has been several weeks since I’ve spent money on lunch.  My guess was that it had been since a late night vending machine run back in mid January that I’d spent even a dollar while at work.

That’s cool, I thought, it’s been several days since I’ve actually spent any money.  That’s a lot of dollars saved.

Then I laughed at the absurd nature of that commentary… a long time since I’ve spent any money, how ridiculous is that?

Understandably, I was spending less money that I could have been spending.  After all, I could be stopping at Starbucks on the way to work every morning, and I could be going out to lunch every day.  But just because I was not exploiting the most obvious of holes in our budgetary buckets does not mean I was not spending money.

What I had overlooked, and then laughed at, were the concepts of Cost Accounting in relation to my monthly budget and daily activity.  Ok, admittedly I sometimes have boring sense of humor but rarely can you have it all.

Cost Accounting, in the simplest of terms, is the recognition of an expense (or cost) as an asset or good is consumed.

For example, I may write a check for my mortgage once a month but I incur an expense equal to 1/30^th of my mortgage every day.  I may stop at the dry cleaners once a week but I recognize 20% of the expense every business day.  All of my utilities are monthly payments against daily accruals.

You get the picture.  Through this lens, the idea that I spend no money on a given day is kinda silly.  Our paradigm is to pay for such expenses on a monthly basis.  And while this approach is certainly efficient, it too is dangerous.  Dangerous in the way it separates our consumption from our spending.

Simply put, monthly payments are numbing.  Monthly payments lull us into spending more than we should for many of our daily items.  The dominant financial model becomes less about our balance sheet and more about cash flow statement.  Our short term thinking empowers an appetite to consume which then seeks to milk another payment out of any spare cash flow.  Instead we should be looking for ways to wean the monthly expenses suckling from our budgets so that we can create a long term position of wealth.

Now I’m not mad at my power company because they bill monthly, some such arrangements are unavoidable.  But, 1) I can dial back the air conditioner or heater on any given day to manage my expenses and 2) the monthly ‘payment’ represents the entire purchase price.  A car payment, on the other hand, represents a disconnect in your cash flow.  Your cash flow may support the payment but your income probably does not support the full purchase price – otherwise you’d simply pay cash after delaying the purchase for a couple short months.

So reevaluate your budget with a keen eye on your monthly outlays and how they compare against your income.  Are the expenses utility in nature – literally and figuratively – or are they nursing a large banker only too pleased to have his hand in your pie?

Shake awake the numbness and regain control over your income.  And the next time you’re tempted to think you’ve survived a day without spending any money… give it a second thought.

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A couple weeks ago I was exchanging emails with a friend – and reader – and during the exchange he shared from a discussion he was having with a co-worker about tax deductible debt – think mortgage.  It seems that his co-worker – a CFO, trained in the ways of finance – was in favor of maintaining a mortgage for the purposes of the tax deduction rather than paying off the debt as quickly as possible.

I thought it was an interesting topic and discussion so I wanted to share it with you here today.

Here’s the question/discussion as presented:

…as you know I have an accounting background and I got into a great debate with my CFO at work about paying off tax deductible debt vs. managing that debt and taking advantage of the write-off, (a mortgage is a great example).  I know that DR would say that most should get rid of the debt because they can’t manage it but if you can, does he still want you to pay it off?  My example is my home mortgage which is close to being paid off.  I’m watching my tax deduction go away and I’m wondering if I should instead be leveraging that option.  Let me know what you think.”

Here’s my response:

As for deductible interest, I say it’s nice while you have it but that it’s not a reason to keep it around.  Assuming a 25% tax bracket for the sake of the math… if you have an 8% loan you can deduct 25% of the interest… you effectively lower your rate to 6%.  Or stated from the other end, for every $1000 of interest you pay, you save $250 in taxes.  You’re spending a grand to save $250.  In that case, why not give $1000 to charity and have the same tax deduction?

The former example is probably what the CFO is talking about… using the tax deduction to lower your effective interest rate.  Again, just using the numbers above for round math, if you can lower 8% to 6% then you might be able to generate an arbitrage situation.  On some levels that makes sense but it doesn’t account for either the income tax you’ll pay on the gain nor the risk of having the mortgage.  In accounting or finance terms, the CFO is not applying a beta factor.

Consider the last 18 months as an example.  If you borrowed $100k from your home to put into the stock market you’d have a mess on your hands.  The market went in half while home values tanked but you’d still have the $100k in debt against your home.  In that case, you’re screwed on both ends.  However, if you didn’t borrow against your home you’re likely set.  Paying yourself a mortgage payment once the house is paid off will make you very wealthy very quickly. 

I’ll admit that I’m pretty vanilla in my approach here.  I’m opposed to debt and am happy to shed it when I can.  However, I understand – even if I don’t fully embrace – the notion that some debt is better than other.  I suppose I’d rather have a 0% credit card than a payday loan, but I’d really rather have neither.

In the example above, the CFO is using some sound ideas to try to create an arbitrage situation – think something for nothing if you’re not familiar with the term.  If my rate is 8% and I can earn 10% then I’m making money for free – assuming no other variable.  Similarly, if my rate is 8% and I can lower it to 6% with a 25% tax deduction on the interest, I can then drop my earning rate requirement to 9% and still make an even larger profit on the spread.  It, tugging my ear lobe for a charades-like effect, *sounds like* a no brainer.  But the catch is that there are other variables and to ignore them is folly.

For starters, the tax model you use for your favor does have a backlash.  Borrowing from the above, your 3% spread is subject to taxes.  Using the same 25% tax rate lowers your spread to just over 2%.  In additional, there are risks at play.  Your investment could tank which would swiftly erode your small spread, your income (job) could wilt which hampers you ability to service the debt, or life could strike in the way of health issues, a new child, or pricey repairs which also impede you ability to service debt.

Sometimes it is easy to out think a situation.  Sometimes we like to engineer complex solutions because we can rather than because the situation demands it.  Sometimes we have to “say it out load” and recognize that often true elegance is found in a simplified solution.  Sometimes we simply need to control those things which are within our reach.

And as I shared above, the last 18 months should serve as a wake-up call in that regard.  My current employment, the value of my home, and the stock market are all well out of my control and the more complicated my solution the more likely I am to rely on some or all of those factors to win.  However, a paid for home may not be elaborate but it is both in my control and largely insulated from those things outside my influence.

In more than one way, that’s a safe place to live.

Photo By: aksamidr

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Today marks DoYouDaveRamsey.com’s one year anniversary!  This is the milestone I’ve been targeting from the start.  I marked time by writing about my 1 month and 6 month anniversaries, but the 1 year mark was the unattainable goal in my mind.

I say unattainable because writing to a recurring deadline is something of a challenge.  At least it has been at times for me in this busy year of transition.  But it has been a wonderful journey and I’ve certainly enjoyed the ride.

Most blogs come and go such that simply making it to this milestone is unique.  That’s another reason I once believed this milestone would not be reached – or at least not reached with an uninterrupted production schedule.

With that, I must quickly move to say thanks to those who have been reading and commenting along the way.  I sometimes wonder if I don’t enjoy engaging the comments more than writing the original articles.  I certainly recall a couple instances where my comment responses were longer than the original article and those are fun and engaging moments… so please continue to comment or start commenting if you have not done so already.

If you’ve only read my words on Facebook, hop over and check out the full site.

Having hit this milestone and taking a moment to look back, I want to set my sites on the future.  As we’ve already started to see in my monthly goal posts – January and February – I have at least hinted towards, if not demonstrated, a full slate of activity for this year.

It is not lost on me the irony or apparent conflicts that exist in my aggressive goals.  Time spent pursuing separate writing projects may be at odds with my desire to grow the site’s footprint.  That is a balancing act I’ll enjoy managing and is likely a topic I’ll engage as the next months unfold.

As a published heads up, there may be instances over the next year in which I’ll need to scale down my twice weekly schedule to accommodate other initiatives.  I don’t anticipate ever failing to deliver at least one article a week but I hope to limit the need for even that scale back.  In any event, I’ll keep you current with my projects and projections in the monthly goal summaries.

So with that as context, let me transition back to a more positive topic – YOU.

For those reading along, I like to think that you play a key role in this writing journey and I’d like for it to be a more active role as well.  Please let me know what you’ve enjoyed most and least about my efforts thus far.  On what topics would you like to see me spend more time?  On what topics would you like to see less time?  What questions or topics would you have me explore that I’ve not yet commented upon?

In the next year I do want to grow my readership and traffic, and I can think of no better way to start than to serve well those following faithfully today.

THANKS!

With an acknowledged nod towards self promotion, here’s a list of my favorite posts from each of the past 12 months.  I hope you’ll take a moment to comment as to your favorites as well.

February 2009 – Focus, On What Is Yours

March 2009 – Some Answers Are Obvious

April 2009 – Debt Is Squalor

May 2009 – I Once Met A Man In A Sauna

June 2009 – Does Your Money Even Like You

July 2009 – Plant Your Financial Tree

August 2009 – Car Lease Saves Budget…?

September 2009 – I Love Football

October 2009 – Happy Recession Anniversary

November 2009 – Mandatory Healthcare Reform – Part 2

December 2009 – Money Buys Us Options

January 2010 – Financial Infidelity

 Photo By: perfectbound

Your Turn – If you enjoyed this article, I would personally appreciate it if you would consider commenting below and/or subscribing to our Free Updates via email or RSS updates.  Thanks!

I received a letter in the mail the other day that was equal parts shocking and appalling… and sadly, genius.

Discover, a credit card I’ve held for a couple years and last used nearly that long ago, sent a letter offering me $500 and encouraging me to rack up massive amounts of debt in the process.

The hook was obvious.  Who doesn’t want five crisp bills?  But the catch was brazen and laughable and dangerous.  Simply notify Discover that you want to make them your credit card of choice and then proceed to spend $2000 a month on the card each month for the next four months.  Presumably the first step is optional

I actually found myself insulted at the mere thought of such an offer.  I suppose that reaction may sound elitist but I’ll count that as a compliment when compared to the brain waves engaged by those eager to fall prey.

That’s $8000 in new credit card debt in exchange for $500 in return – an amount that would be consumed by the interest charges nearly as quickly as it would be “earned”.

Now forget for a moment that we’re still in a slow recovery from an economic swoon brought on my too much debt… let that sink in for a moment… but actually planning to incur eight grand in plastic debt before summer hits its full stride is a losing plan all around.

As for those willing to game such an offer, I generally laugh at your hubris.  Personal finance is not a math problem.  Credit cards and their purveyors would be tame beasts and not nearly so widely marketed were logic a principle tenant in their usage.

Consider that no one signs up for such an offer without some hope or idea of benefitting.  That alone puts you in questionable company. 

But suppose you were able to navigate the offer, including the small print and specialized restrictions and terms of the deal.  Through it all you were able to pay off each balance and incur zero interest charges.  In this unlikely scenario you would have managed to prove 2 things – 1) you are the rare exception to the rule and not the true object of Discover’s snare, and 2) you likely have a healthy cash flow position such that jumping through such hoops for a couple hundred bucks should generally not be worth your hassle.

At least that’s my take and why I’ll rail against such offers every time they cross my path.

But that’s why Baskin Robbins offers 31 flavors of ice cream.  There’s a taste for every taste, and more than most will make Discover fat.

Photo By: bitzcelt

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This article was written by Steven, author of Hundred Goals, a blog about achieving your goals while managing your finances. Steven writes about his journey of traveling the world and working towards completing a life list of 100+ goals, including skydiving and becoming debt free. Sign up for email updates and be sure to join him and hundreds of other readers on the Hundred Goals Facebook Page!

…and paying it off sucks even more, right?

You work your ass off every single day of your life, only to fork over your money to faceless companies called Visa, MasterCard and Bank of America. You pay and you pay and you pay some more but nothing seems to change. Whether you pay the minimum or you empty your bank accounts to try to pay off your debt, you can’t seem to get your head above water.

What difference does it make anyways? Things are always going to be this way no matter what you do, so why not just pay the minimum, keep a little bit of money in your pocket and go have fun? That what life is all about, fun! And this is your one chance at it so why waste your energy being a slave to your debts?

Eating oatmeal, rice and beans and ramen noodles is a drag! A night out on the town, some drinks with friends and a great steak sound much better than sitting at home cooking for yourself and playing Monopoly again. Ironically, you tend to kick ass in Monopoly, you greedy bastard!

Sounds ludicrous, doesn’t it? But how many of us have found ourselves telling ourselves exactly these same lines? Hell, I’d go so far as to say that most of them are even true! Life is supposed to be fun and a night out with friends does sound like a great time. But when you are in debt, the dynamics of life change.

Even when you schluff off all of your responsibilities, go have the drink and spend way too much on a night out, your debt doesn’t disappear and neither does that feeling inside of you that keeps telling you that you are being an idiot.

Ignoring the problem and making minimum payments isn’t going to cut it. If you want a life without debt, I mean really want a life without debt, you have to change. And that isn’t going to be easy. Just because you paid your card this month and you now have a remaining balance again does not mean you have money to go to the mall for a new pair of jeans or the new Taylor Swift CD. There will be no more vacations put on your credit card without a way to pay them off by the time you get home.

Credit cards give us this illusion…wait, delusion…that we can afford to live a lifestyle well above what we are really able to. Then we find ourselves stuck in a world of shit with no good way of getting out. But we deserve to have the nice things we buy on our credit cards and we have a right to vacation at the nicest resorts on the beaches with the whitest sands!!! Sure, you have a right to these things when you are paying for them and not Chase (unless your name actually is Chase). One day, when you can afford these things out of your own pocket, these things can be yours, but for now you need to focus on getting out of debt and getting a life.

“But paying debt sucks!” Yes, it does. I’m not going to tell you that there won’t be sacrifices. There must be sacrifices if you ever expect to turn things around. Listen. I’m not telling you to live in a hole or even change all that much, really. I’m just saying, start living below your means so that later you can live within them. After you get yourself out of debt, your live will be dramatically better than it was even before you put yourself on a budget and got real with your finances. Think of all the money you will have for saving for the future or for using to vacation at the nicest resorts on the beaches with the whitest sands!!!

Debt strangles the life out of you, plain and simple. Change your attitude about your relationship with debt and you will have your life back soon enough. Debt sucks, and so does paying it off, but if you don’t do anything about it, your entire life is going to suck. You might be able to charge all of the things you want today but in the end, you are short changing yourself and are not living the life you could be without debt. Today is the day for change!

Thanks to my friend Steven for sharing this candid spin on debt.  I agree, debt does suck!

Image By:  Leo Blanchette

So, when was the last time you cheated on your spouse?  What?  It’s a fair question, no need to get all bent out of shape.  We all cheat on our spouses from time to time.  Heck, I know I’ve done it twice, at least that I can recall.  Some folks consider it sport or simply a normal way of life.  That’s just how some households roll.

Now to be sure, I am not talking about marital infidelity.  That is a serious and life altering violation.

Rather, I’m referring to infidelity as it relates to the household budget.  How many times or how often have you made significant purchases outside the bounds of spousal approval or review?

I know I’ve done this twice – my wife may well remind me of other times when she reads along. 

I once spent the lion’s share of a tax refund to carpet the basement and another time bought and installed a surround sound unit while she was out of town.  In both instances I felt the purchases were necessary but hindsight does allow validity for my wife’s assertion that we could have used the money in other more pressing ways.

In fairness, my transgressions were minor and directionally aligned with improvements for our shared space, but the execution was poor on my part.  I surely could have, and should have, involved my beloved in the decision making process.  It is a lesson I’ve since learned and we now enjoy more frequent and open communication on the topic of our finances.

On another end of the continuum, I remember a couple years ago listening to Ramsey read a letter from a listener.  In the letter the writer conveyed the story of his wife opening numerous charge cards and racking up tens of thousands of dollars in charges.  The man woke up thinking he was free of all non-mortgage debt and ready to enjoy his life’s diligence only to find that his household was actually buried under nearly forty-thousand dollars worth of credit card debt.  I recall being horrified at the prospect which only begins to approximate how he must have felt. 

Betrayal, damaged trust and respect, and anger so commonly associated with one form of infidelity certainly apply here as well.

So how do we confront or combat this behavior before it gets out of hand.  I can think of 3 easy ways to get started.

Grow-up – Let’s be honest, my purchases were impulsive and rooted in a sense of entitlement.  I am the primary earner in our home and I allowed that fact to direct my actions with only slight regard for the opinions of my wife.  I look back now and recognize my behaviors as silly and childish.  And now with a much more collaborative bent towards our finances, I know the prudence of making these decisions as a team.

Communicate – In a marriage there is no such thing as too much communication.  As a man, I may find there to be instances of too much chatter but open and honest and connected communication represent prized moments.  Sharing from our broad financial plans to our mundane monthly budgets to our ever evolving “list” of next-in-line home projects ensures that we’re both pulling in the same direction.

Allow Wiggle Room – The easiest way to have freedom within the constraints of a budget is to build it into the process.  Matching his and her ‘blow’ money line items allow flexibility for smaller impulse purchases which often scratches the psychological itch enough to empower restraint against the larger budget busting spin outs.

So now you’ve been both warned and equipped, keep your wallet in your pants and the salesman out of your purse – all in the name of enhanced harmony at home.

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