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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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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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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About this time a year ago my wife and I talked about how good 2008 had been to our household.  It was a fun moment of connection, and reflection, and celebration, and optimism.  In a demonstration of faith we agreed that 2009 would be an even better year for us.  And so it has been.

Of course 2009, for our house, began with tremendous questions in the air.  Walking away from a long term employer in January amidst the prevailing economic climate and with no known landing spot will do that.

But the time between jobs was refreshing and motivating.  Within a month I launched this site and have been faithfully exploring and chronicling my thoughts and reactions for all of those patient enough to read along.  I believe this exercise is more for my benefit than yours and it has certainly opened doors of opportunity in my mind – more to come as we track my goals in 2010.

The time between jobs also helped me identify what I had enjoyed most about my previous employer.  I honestly thought I wanted my next job to take me in directions far from my previous experience.  That was the case until I really started walking through my resume and in preparing responses to mock interview questions.  It was then that I realized how I wanted to perfect my previous experience in my next career chapter.

Then – as if suddenly – the perfect opportunity presented itself.  The fit was instant and obvious like hand in glove with much less travel and in aggregate a more handsome benefit package.  I asked, God answered.  That’s not to say there are no challenges, that’s every day, but solution to challenge and growth through exposure is part of what I enjoyed and enjoy most.

And, that’s not to say one day my dreams and harnessed abilities won’t lead me to new pastures, but 2009 introduced me to a perfect career home for this season.

2009 brought us incrementally closer to financial security – debt repayment, Roth IRA Investments, and a dream realizing Real Estate Investment.  Perhaps not all were executed in absolute accordance to Ramsey’s plan but none were whimsical or ill-considered either.

2009 brought us upgrades to our previous car situations – his and hers.  New used cars that will serve us for years to come and with no monthly payments in tow.

2009 afforded another ride weekend with my father – moments in time, for me, that at once race forward and stand still as snap shots in my mind.

2009 marked the passage of time with my 20^th high school reunion. It was everything and nothing I would have expected and it was invaluable in the way it dusted off long ignored friendships.

2009 is a banner year for my college alma mater as our football program marched through a spectacular season and now stands on the threshold of greatness.

2009 yielded reconnections with family members and time well spent with dear friends crafting memories that will endure.

Yeah, 2009 certainly delivered on its promise and our household is better for it.

…A couple nights ago my wife and I talked about how good 2009 had been to our household.  It was a fun moment of connection, and reflection, and celebration, and optimism.  In a demonstration of faith we agreed that 2010 would be an even better year for us.  And so it shall be…

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Our society is given more and more to laziness and victim mentality, or so it seems.  I’ve conducted no scientific research but the prevailing winds of conversation, and print stories, and news ‘events’ seem to prevent as much.  Perhaps this is just the vocal minority – I so hope – or perhaps we’re on a horrible downward trend.

A pair of illustrations resonated, or more accurately collided, with me.  These are recent events but they mimic a theme that has does resonate with me.  In fact, it’s a theme I’ve written on before.  I hope today I add to the discussion rather than simply echo the same rant.

The first item was a recent caller on a Dave Ramsey program.  I disagreed with both the caller and the advice he received.  The caller was about 6 months behind on a $11k credit card bill and was trying to settle the account for about 25% of the balance due ~ or about $2750.  Ramsey agreed that the creditors would not settle for such a low amount so quickly and advised the caller to continue to save up his settlement funds while continuing to negotiate a settlement.

The advice was directionally sound, however, that it reeked of a failure in personal accountability caused me to bristle.  Rather, I believe a more genuine approach would be to negotiate down some of the usurious fees, make a huge payment against the remaining balance (say 20%), negotiate a moratorium on interest and pay the freaking bill each month as you previously committed to doing.

I don’t necessarily fault Ramsey here because many of his callers have circumstances that limit their ability to pay, and the advice offered fits that bill perfectly.  However, this caller had no such circumstances other than wanting a smaller bill.  HEY TOO LATE DUDE… should have thought of that when you were running up the tab at the bar, literally or metaphorically.

The second event was the one that really sent me into orbit and solidified my need to string together these words.  Several months ago I enjoyed and commented on an article posted on another site.  As part of the commenting process I was able to subscribe to subsequent comments so I could continue to engage the conversation.  The original article was about preparing a mortgage and frankly I can’t recall my comment though the general idea is one to which I aspire.  The other morning I received just such a subsequent comment from some deep thinker who has it all figured out.

The genius – sarcastic speak for moron – did not feel constrained by his mortgage payment obligations simply because the value of his home had declined.  It was not a function of his inability to pay but rather that his commitment to pay for an asset that is now – and likely temporarily – underwater was simply inconvenient.

I could, and should do a full treatment on the topic, but ladies and gentlemen, this is a loser mentality.

Consider 3 questions as a measure of this dude’s brain lock:

     1. Do folks expect to lower their car payment when they find its value upside down?

      2. Do investors expect a refund when stock prices/values contract?

      3. Do people expect their mortgage payments to increase when their home values rise?

The answers… NO, NO, and HELL NO!

In fact, the first item is so common that it’s a sad and well repeated punch line – the worst accidents DO happen on the showroom floor.

That this level of infantile thinking exists in a civilized society chaps me to no end and I can’t help but wish ill upon them.  It is as if I want to personally witness as their sins catch up with them.  But that takes me to a negative place.  I place I’d do well to avoid.  Instead I’ll do my best to take care of my business while both congregating with like minded responsible adults and sharing my beliefs with those willing to listen.

And so I want to thank you for listening to my rant and ask that you help to grow the like minded community this fledgling site represents.  I don’t often ask so overtly, but if you agree with the prevailing thoughts represented here, then take a moment to forward a link or email.  I’d love, welcome, and appreciate your help in turning up our volume.

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Several weeks ago I debated the notion of writing an article on the Cash for Clunkers program.  With a flair for the dramatic, I was going to title the piece “Subsidized Death Spiral”. 

I trust, given the prospective titling, my position relative to the program is clear even sans a 750 word exposition. 

But alas the program came and went and no article materialized.  That’s mostly ok, as I don’t feel beholden to headlines to inspire my regular writing unless it frames a unique angle or otherwise motivates my thinking.  On Sunday morning while surfing the web, I was struck with just such a story – thanks CNN.com!

It seems that our government, a player in the auto industry since way back in the days of March 2009 has mastered the nuance of the industry and its trends such that it feels justified in publically chastising an auto industry veteran, and leader, and consumer advocate, Edmunds.com.

In what presents as a form of democratic censorship, the U.S Government blogged – just think about that for a moment – an article attempting to debunk a researched study released by the 43 year auto industry veteran decrying the effectiveness of the program.

While the Edmunds.com article seemed to suggest that the overall health of the industry was improving, surely a welcome development for those dependant on its well-being, our government seemed more interested in preserving or propagating good will towards its flawed environmental program.

Interesting, and disgusting, and our tax dollars at work.

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Related Articles I enjoyed:

Cash For Clunkers, RIP

A couple weeks ago I read an interesting article in Smart Money entitled Lessons from the Crash.  While the specifics of the story were geared towards those given to single stock investing, it was more the premise that caught my imagination.

The set up was the top 5 lessons investors have learned over the past 12 months, the spiritual if not literal anniversary of the downturn.

So that got me to thinking. What are 5 financial lessons I’ve learned or revalidated over the last year?

Debt is Risk

It is the easiest and most straightforward principle in the toolkit, yet the hardest to execute on.  The idea of debt reduction is so impossibly intriguing that simply talking about it has made some folks quite wealthy, yet it remains a struggle for most and others have seemingly given up and claim the shackles of their creatively contrived debt are signs of their own financial enlightenment.

But the harsh reality is that every claim on your ‘as yet to be earned’ income represents risk.  If you’re still not sure, try imagining the next six months without an income.  How would that impact your current reality?

I’ve written before about the idea of our financial footprints.  I use this term to define the monthly cash flow required to fund our current existence.  In my experience, debt is the most manageable variable in this equation.  At its peak, my footprint was over $4100 per month and it was ripe with student loans, and furniture payments, and credit cards.  Had I embraced the average American’s car payments (one flavor of debt I had already managed to shed) for new ‘his and her’ sleds, I would have been bumping $5k a month in pre-obligated expenses.

Fortunately, I woke to the realization that debt is risk before the economic down turn and waged an attack such that last year when things started to turn, and a then unknown stint on the rolls of the unemployed loomed, my footprint was down to a more manageable $2400.  And while there is still room to whittle, the shift from debt yielded obvious results in our household.

Green is Good

Paper or plastic is mostly commonly asked as it is related to how you prefer to transport your groceries not how you wish to acquire them.  If, as we previously covered, debt is a risk then fat stacks of cash are sweet comfort.  Consider the footprints we stepped through above and imagine how cozy you’d sleep at night if you had 6 times that amount in cash tucked away in a savings account to help insulate you from life’s unexpected moments.

No one would argue against the security afforded by accrued cash, but few have the resolve to save.  However, if the last 12 months have taught us anything, it is the significance of setting something back.

Panic is a Killer

In doses, fear is healthy.  It causes us to lock our doors, follow traffic laws, and flee burning buildings.  However, fear traded at wholesale quantities is lethal.  Consider those that dumped their stock as the market started to spiral and those who continued to sell even as the bottom settled.  In many cases these are the same folks who are now missing out on records returns.

This is not to say that folks didn’t take a beating when the market tumbled, I know I sure did, but the vast majority of folks would have done well to unplug the panic button rather than the invested dollars.  Unbridled fear clouds our judgment and prevents us from seeing events as part of a larger whole.  Sure, a 40% drop in value is cause for concern, but selling out only locks in losses, losses from which many may never recover.

You’re Your Bailout

The most annoying aspects of the economic downturn were all the governmental bailouts.  Each party hosted a spending free-for-all so this is not a political statement, but rather an indictment on the concept of big government stepping in to save us.  The reality is that we are our own bailouts.  Our time and energy and efforts have an immediate and direct impact on our reality.  Consider the relative size of our economy and limited impact the nearly $2 trillion – that’s $2,000,000,000,000, a ‘2’ with 12 zeros! – in bailout dollars has had. Folks are still losing homes and national unemployment remains in the crapper.  The macro economy it too big to be bailed out, however, consider your individual economy and the impact a quick $1000 influx from a second job might have.  A second job sustained for several months may boost your bottom line by $10,000.  Sure, it’s a lot less zeros, but they’re all yours and powerful when applied directly to your point of need.

Opportunities Abound

Historically speaking, downturns on our economy have planted the seeds for fantastic growth and the explosion of personal wealth for those poised to take advantage.  Now, I’m not claiming to have the corner on wealth building ideas, but I agree with the principle and am motivated by its promise.

Perhaps the reduced staff in your office is providing you an opportunity to demonstrate additional value – value which may enable you to grow your income with your current or future employer.  Perhaps low stock prices are preparing your 401K for explosive growth.  Or perhaps reduced mortgage rates are allowing you to realize significant monthly savings.

Whatever the case, the events of the last 12 months should inspire – or force – you to look at your situation in a new way.  And with a keen eye and open mind… who knows what you might see.

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The title is a quote from Super Bowl winning coach Bill Parcells. The idea is that a team is as good or as bad as its record indicate.  Fans, commentators, and even players like to interpret – or rationalize – circumstances and game events so as to suggest that a team is better, or sometimes worse, than its record might suggest.  A lucky bounce here or a bad call there and those close losses are wins, see, ‘we’re better than our record suggests’.

Parcells on the other hand will have nothing of it.  His take is that a team’s record is its bottom line.  Explanations and rationalizations will not lead you to a championship season, only your results on the field of play.  So rather than tell me that you’re a good team, show me.

Life often parallels sports, or is it vice versa.

We have a bottom line metric that tells us without question or explanation how we are performing in the arena of our personal finances.  Too many assume this metric is our level of income.  But income alone is like the team who scores points in bunches only to watch their opponent do the same.  It (high income) can contribute to a win, but it is not the only ingredient in the winning process.

Rather, the key metric – the record indicating the relative success for our financial play – is our Net Worth.

For purposes of example, consider the wealthy business man living in the McMansion, funding newly leased German luxury sedans and Caribbean vacations rather than retirement or junior’s college education while sporting an array of $1000 suits.  The dude is loaded!  And doubly so when compared to the unassuming school teacher living in a quiet townhome and driving the 10 year Corolla raking perhaps a third the income.

But a funny thing happened on the way to a cozy retirement.  The schoolmarm contributes to her 401k (or equivalent) has steadily paid down her mortgager, and traded a monthly car payment for a positive monthly cash flow.  Meanwhile, the business man’s killer income has washed through his hands like so much water.  His kids are in private schools and travel soccer teams, his perpetually renewed leases provide a relentless and growing outflow, the leveraged dream home is upside down and retirement planning begins with the next raise or perhaps the one after that.

Hey, it sounds like fiction, but I’ve read enough Money mag “Real Life” segments and observed the bevy of Lexus’ in my office parking garage to know that too many folks are working away for the now rather than the future.  Sure they may be paying attention, but to net income and cash flow rather than to the bottom line – Net Worth.

So what is this Net Worth number?  Trent over at The Simple Dollar offers a great illustration of the mechanics, so I’ll send you here rather than recreate his efforts.  But suffice it to say that Net Worth sums the net value of your assets against the net value of your liabilities.

Simply stated:  Net Assets – Net Liabilities = Net Worth

In the example I provided, the business man with his leveraged home, car debts (a contracted lease obligation is the same as a debt… try breaking a lease if you doubt it), and limited savings may actually have a negative net worth.  For all his outward appearance he has nothing but debt to show for his efforts.  Whereas the teacher has learned the lesson taught by others – she has bulked up savings and equity in her home offset only by her mortgage balance.  According to her financial record, she is putting together a winning performance.

Now fast forward to the very end of our individual games.  Our net worth will represent our final estates.  It is the legacy we will or will not be able to leave behind to the ones about whom we care.  Dave Ramsey uses a line when talking to callers trying to settle an estate.  He is not meaning to be harsh, but reality is sometimes cold.  Depending upon the structure of the dialogue he’ll ask or comment (paraphrasing) “there is nothing left to show for the estate”.

When I hear this comment, I personally rephrase the question in my mind – rather harshly I might add – as motivation for myself:  “financially speaking, there is nothing to show for this person’s life work but debt”.

Now, the key is “financially speaking” because we’re all worth more than the money in our accounts, but this is how I repeat the question to myself and it forces me to consider how I’d want it answered upon my coda.

At a minimum, I don’t want my final possessions liquidated to pay my accrued debt.  Nor do I want creditors hounding my loved ones for payment when I’m gone.  So I find it important to keep score.

And, because one day I want to enjoy more of life’s finer things – including a dignified retirement – I actively keep score.  I monitor my net worth on a monthly basis and track my percentage change month over month.  I’ve written before about my net worth goals, and it is a winning score most anyone would be pleased to accomplish.  However, I’m now tracking my progress in a way that allows me to be intentional in my actions relative to those goals.  While that does not by itself ensure success, it sure crystallizes my game plan and directs the path for my execution.  One day I’ll look at my record and feel a touch of pride, because I’ll know both what it says and represents.

Photo By: AMERICANVIRUS

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I remember a day in the late 90’s.  More precisely, I remember a particular episode of self talk back in the summer of 1998.  At the time I was living in St. Louis and was only a couple short years out of grad school.  I don’t know exactly what prompted this specific contemplation but it was about money. 

It was often about money in those days.  I was learning about money but in a slow and passive sort of way.  I had a degree in Finance and an MBA.  And in a very tangible way, I was better equipped to dissect a corporate balance sheet that I was to balance my own budget.  Sure, it could be called a shortcoming of my education, or a degree of hubris in my thinking, but in reality it was case of too much personal in my personal finance management.

When I graduated school and took my first ‘real’ job, I was making more money than I had ever made in my life.  My previous feelings of having money came at the end of 50 hour weeks of landscaping during college summers for what now passes for little more than minimum wage.  This was different.  I was in my mid 20’s making in the mid 30’s and it was supposed to be a good set-up.

That is, until I quickly realized that more money than I’d ever made does not equate to more money that I knew what to do with.  No, there was an apartment to rent and then outfit, and new work clothes to purchase, and of course a new car.  The money went fast, it always did, and I often found myself thinking about it.

Had I only stopped in a bookstore and searched out a title to help me collect a perspective on my musings then perhaps today’s reality, which is not bad by any stretch, would be considerably different.  But that would have been proactive or reactive learning and I was still passive on the matter.

In those days when I thought about money, it was always wrapped in a feeling of helplessness.  Finances happened to me rather than me happening to my finances.  The only way for me to gain control, or so I was convinced, would be to earn my way out of my hole.  I did not believe (or want to believe) that my behaviors at that time could contribute, it was only my ability and luck in securing large raises.  No, I’d have to earn enough money to catch-up and pass my levels of consumption.

And so there I was, speeding south on I-270 and thinking about money.  I suppose it was a lottery sign or casino billboard or even a song lyric that spurred my thought train.  I started thinking about winning a huge sum of money.  But I paused, and thought not about a mega windfall, but a more modest amount.  I started to ponder how I’d define a “life altering” sum of money.  Sure, $100 million is life altering, but so too is a smaller amount.  Perhaps even a much smaller amount.  I started to calculate my debt – a frequent topic in my money musings – credit card, student loans, car… the usual suspects… and a few extra dollars in the bank just in case. 

Yep, $50,000 was all it would take.  That amount of money would have changed my life at that moment in time.

But a funny thing happened on my way to 50k.  I was both right and wrong about earning my way out of my hole.  Yes, in the ensuing years I’ve managed to grow my income by that $50,000 and even more.  Had my hole not grown proportionally with my income, I’d be years closer to basking on the beach by now.  But no, homes had to be purchased, and outfitted, vacations had to be taken, and Harley’s ridden. 

My spending grew at a rate that continued to exceed my enhanced income.  This was the pattern until the summer of 2007 when my life changing dollar amount swelled to well over $425,000.  An unbelievable number even as I triple check the figures. 

It was during this summer than I finally became proactive.  I started listening to Dave Ramsey’s podcast and devoured his books.  I sold a rental property and sold out on getting out of debt.  My number today is still large at just over $200k but it is almost all mortgage, whereas my original calculation was all consumer debt.

I flipped the switch from passive to active, I happened to my finances rather than vice versa, I recognized and reduced risk, I enforced a written budget, and most importantly I shed my feelings of helplessness.  My beliefs and plans and actions empowered me.  Finally, after too many years, I felt control over my finances and my financial future and it was (and is) a fantastic realization.

Perhaps the phrase “if I can do it, so can you”, is the most over used expression when selling a product or service, but it’s the only one that truly fits this occasion.  I suppose since I’m not selling anything, that the words carry more weight, and I certainly hope so.

Instead of selling, I’m actually giving.  When I launched this site I prepared all of my personal budgets and spreadsheets as downloadable documents on this site.  I don’t reference them as much as I once did and I want to circle back to them more often.  I’m planning to start a series in which I step through each of those documents to breathe new life and recognition into those tools and to introduce them to my newer readers.

Here is a link to a summary of each of my budget tools - each is accessible from this page.  If you take a look at these and have any questions or need any assistance implementing them in your situation please let me know.  I welcome questions or requests for assistance.  I’d love to come back in a couple months and roll out a series of reader Q&A’s based on these resources.

Thanks for indulging my money minded recollections, and best of luck to you as you take charge of your financial futures.

Photo By: daretoaffirm

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!

Hey everyone, I trust that today’s edition finds you well.  I’m a little compressed for time as my next deadline is quickly approaching and having just recently boasted as to my 6 month streak, I wanted to get something out even if I’m relying on others for all the heavy lifting.

One of the treats in maintaining a site like this is the chance to interact with folks with whom I’d likely never otherwise have the chance.  So below, as a small gesture of my appreciation, I’m sharing links from folks who have recently emailed or left comments on my articles.  I hope you’ll give them a look… there’s a lot of good stuff out there!

For example….

Steven at Hundred Goals always has an interesting take on things… and I love his perspective on “Going Green”.

Wizard Prang – you have to read his definition of what a ‘wizard prang” actually is - wrote  a nice piece on the end of the cash for clunkers program.  I personally wonder how the inevitable wave of repos will be reported… or if it will be…

Prime Targeting shares an interesting correlation between a CEO’s personal finance behaviors and the financial strength of the company he or she runs.  Very interesting and something I found equal parts surprising, and not so much.

Dustin from Engaged Marriage connected with me recently and I have to admit, that I’m looking forward to investing some time (when my schedule allows) catching up on his work.  I’ve written about the need to diversify our goal setting and improvement strategies.  Well, here’s a great resource for working on your marriage.  Two articles have captured my attention recently – the first speaks to investing time in your relationship and the second talks about investing time away from the relationship.  That’s a little word play on my part, but check them out and share what you think.

Bucksome Boomer asks if America is becoming more frugal?  It’s an interesting question and with savings and debt repayment trends moving the way they are, it’s hard to argue against it.  It will be this type of longer term fiscal responsibility that will repair our recent economic woes and help stave off the next one… if such habits stick.

Thanks to each of these fine sites and their contributions.  I hope you’ll check them out… and let’em know I sent you!

Photo by:  Roadsidepictures