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!

Photo By: rAmmoRRison

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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.

Photo By: dave_n_stace

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Last week I presented an article sharing a recent experience with a reader/emailer.  In this story I referenced a pair of letters I crafted for the benefit of this person, “Ella”.

Well, as fate would have it, my ability to add a downloadable file to an article seems to not be working at this time.  This might be user error, but I’m looking into it.

In the meantime, I didn’t want to delay the impact of providing those letters as part of the overall article experiece.  Therefore, I’ve now pasted below the second letter - Settlement Letter - and will be provided the first letter – Delayed Settlement yesterday in similar fashion. 

Once the issue is resolved I’ll add the downloadable to the original mail and all will be well.

So, changing gears,  as you read the letter below, realize that this is a specific letter crafted for a specific person in a specific situation.  It is unlike the other tools I’ve provider which are more plug and play.  These letters, while adaptable to another situation, are intended more as elements of the larger story.

Read below and please provide your comments.  I look forward to hearing your thoughts – good or bad.

Thanks!

<Your Name>

<Your Street Address>

<Your City, State, Zip>

<Month ##, 20##>

Dear <Recipient Name>,

I am writing to you today in reference to my active account with your organization. 

Account Number:  <insert your account number here>

Balance Due: <insert the outstanding balance on this account>

Due to significant changes in our life circumstances, we regret to inform you that we are no longer able to honor in full the debt obligations we have with your company. 

My husband and I are both senior citizens and recent health complications have removed our household from the workforce.  This sudden and unplanned change has significantly impacted our income, resulting in our need to approach you today with three messages.

1. Effective immediately, we will no longer be sending to you monthly payments against our account balance.
2. Understand that food, shelter, and healthcare have become and will remain the central focus of our lives and remaining, and limited cash flow.
3. As individuals of character and integrity, we respect the fullness of our obligation even as we are now unable to financially honor it in its fullness.  We, however, do wish to settle this balance for a reduced amount according to our ability to pay.

If you will provide us with a written and signed confirmation agreeing to the details of this proposal, we are willing to forever settle our outstanding balance of <insert amount owed> for an amount equal to <insert proposed settlement amount>.

For purposes of protection, yours and ours, we can only accept written settlement offers received through the mail.

Please note that we are trying diligently to do right by your organization and the debt we knowingly owe.  However, abusive collection behaviors by your organization or its delegates will signal an unwillingness to cooperate.  As we are legally judgment-proof, your unwillingness to cooperate will result in an absolute default of our balance due.

Sincerely,

<Your hand signature on the printed page>

<Your Name Typed>

Photo By:  Tony Webster

Last week I presented an article sharing a recent experience with a reader/emailer.  In this story I referenced a pair of letters I crafted for the benefit of this person, “Ella”.

Well, as fate would have it, my ability to add a downloadable file to an article seems to not be working at this time.  This might be user error, but I’m looking into it.

In the meantime, I didn’t want to delay the impact of providing those letters as part of the overall article experiece.  Therefore, I’ve pasted below the first letter – Delayed Settlement – and will be providing the second letter – Settlement Letter tomorrow in similar fashion. 

Once the issue is resolved I’ll add the downloadable to the original mail and all will be well.

So, changing gears,  as you read the letter below, realize that this is a specific letter crafted for a specific person in a specific situation.  It is unlike the other tools I’ve provider which are more plug and play.  These letters, while adaptable to another situation, are intended more as elements of the larger story.

Read below and please provide your comments.  I look forward to hearing your thoughts – good or bad.

Thanks!  

<Your Name>

<Your Street Address>

<Your City, State, Zip>

<Month ##, 20##>

Dear <Recipient Name>,

I am writing to you today in reference to my active account with your organization. 

Account Number:  <insert your account number here>

Balance Due: <insert the outstanding balance on this account>

Due to significant changes in our life circumstances, we regret to inform you that we are no longer able to honor in full the debt obligations we have with your company. 

My husband and I are both senior citizens and recent health complications have removed our household from the workforce.  This sudden and unplanned change has significantly impacted our income, resulting in our need to approach you today with three messages.

1. Effective immediately, we will no longer be sending to you monthly payments against our account balance.
2. Understand that food, shelter, and healthcare have become and will remain the central focus of our lives and remaining, and limited cash flow.
3. As individuals of character and integrity, we respect the fullness of our obligation even as we are now unable to financially honor it in its fullness.  We, however, do wish to settle this balance in the future for a reduced amount according to our ability to pay.

Written and signed offers for future settlement will be diligently measured against our ability to pay and responded to accordingly.

 For purposes of protection, yours and ours, we can only accept written settlement offers received through the mail.

Please note that we are trying diligently to do right by your organization and the debt we knowingly owe.  However, abusive collection behaviors by your organization or its delegates will signal an unwillingness to cooperate.  As we are legally judgment-proof, your unwillingness to cooperate will result in an absolute default of our balance due.

Sincerely,

<Your hand signature on the printed page>

<Your Name Typed>

Photo By: UmmZ

Some of my favorite writing is in response to reader emails.  Sometimes that means a response to a comment on the website but even more fun are the letters from readers asking for my advice.  Granted, I’ve only had this happen a couple times and half of those were cases of mistaken identity, but the idea of offering advice to someone in need is compelling and engaging and rewarding.

Recently a sweet seasoned citizen sent me a message in which she shared her situation and asked for some direction.  It was a busy day in the office but I felt compelled to reply even if my response was somewhat rushed.  This led to string of emails and even my crafting a pair of template letters that may assist as she boldly and faithfully addresses her new financial realities.

Below I’ve excerpted portions from our discussion to share with you.  I’ve also included links to the letters in the event you want to review those as well.  However, it is very important to me that you don’t view those letters outside the context of the story and situational implications.

If you’ve spent much time on this site, you know that I am a strong advocate of personal responsibility.  However, in some instances we are dealt circumstances that cause us not to shirk our responsibilities, but rather to address and honor them in an unconventional manner.  I believe the situation below is an example and my advice and support are geared towards that unconventional solution.

Read along and post your comments below… if you’re reading this via email or facebook, take a minute to click over to the site to add your comment.  I feel strongly about this situation and encourage and invite a “strong showing” in the online comments for today’s edition.

Original Message to me from… we’ll call her Ella

I have contacted The Credit Exchange to help settle my debt problem with what they call debt settlement,  Is a good idea to do this,  I am 75 years old and my husband is 63 had to take early retirement due not being able to work due to bad health and our income has gone down drastically and  now there is no way to keep up with our bill load.  All we have now is a social security check which is our only income.  I am afraid this company is out to get my money only and not help settle my bills with the creditors.  I don’t know where to turn.

My Response

Thanks for your message. I appreciate you reaching out to me with a question and I’ll do my best to give you some sound advice.

However, first allow me to clarify that I am not Dave Ramsey.  I am a fan (thus the name of the site) but my name is Dave Ozment.

Now, I can, and will, still offer quality advice, but I want you to know the source.  You can read more about me on my site – DoYouDaveRamsey.com.

OK, on to answering your question…..

NO, NO, NO, NO, NO, and NEVER… please do NOT use a debt settlement company to assist you with your situation.  Now let me explain why I feel so strongly about this.

Debt Settlement companies promise 1 thing – lower payments.  However, they rarely follow through and are NEVER worth the cost.  Let me explain why:

The only reason a creditor would ever accept less than what is owed, is if they think they won’t get paid at all.  Debt Settlement companies, in general, will chase this angle by collecting a monthly payment from you and then NOT sending it to your creditors.  They may then try to negotiate a lower payment but they often fail.  I think they fail for 2 reasons:

1) they are not as personally invested in the negotiations as you would be and,

2) as a creditor, why would I accept less from someone who I know has just been making monthly payments to a debt settlement company?  No thanks, I’d say as the creditor, just send me what you’ve been paying them.

If your situation is dire enough to seek relief outside of simply paying the amounts due (and yours presents that way), there is no reason to pay someone not pay your bills when you can do that on your own.  See the thought process?  Once you’ve saved up some money, and the creditor has not been paid for a while, you can negotiate a settlement with the dollars you’ve saved yourself.

Here are 5 points to keep in mind as you work through your situation:

1 – Pay for food, shelter, and utilities first, even if that’s all you pay!

2 – Mail a certified letter to each of your creditors letting them know that they will not be paid but that you’d consider a settlement figure from them in the future if they are interested – I will volunteer to help you craft this letter if you are interested

3 – Accept settlements only if the terms are received on paper and in writing

4 – Never allow electronic access to your accounts

5 – Be very careful with your checking and savings accounts.  Social Security dollars should not be garnished or pulled from an account due to a legal action or judgment.  However, if your creditors sue and you are unable to reach a settlement, and they win a judgment, they may be allowed to sweep funds from your account.  I don’t say this to frighten you, but to warn you what could happen if the creditors sue.  That is likely a ways off, but worth keeping in mind.

I hope this helps and please feel free to reach back out to me if you want to discuss this further or if I may be of additional assistance.

Thanks and God Bless,

Second Message from “Ella”

I would appreciate your drafting up the letter to be sent to my creditors by certified mail. 

….Waiting to hear back from you, Thanks again.

At this point I realized I had signed on to provide more than simply an encouragement or word of advice via email.  Now I was somewhat engaged in the process of her situation.  To be honest, I felt a little conflicted and I was not overly disappointed that work kept me from responding for several days as it allowed me time.  On the one hand it was easy to view “Ella” as I would a member of my own family and the advice and direction flowed freely.  On the other hand, I was afraid that I might be venturing onto thin ice.  What if my advice was wrong, what if it exacerbated the situation?  And could there be legal ramifications?  Finally I asked myself the Dave Ramsey standard when it comes to giving advice to another, “What would I do if I woke up in your shoes?” 

Now the answer to this one was easy.  I knew exactly how I’d handle the situation if I, or a member of my family, were involved.  And with a little disclaimer wording, I set forth my response.

My Response

As promised, I spent some time this afternoon crafting letters you can use with your creditors.

Before we start, however, it is very important that I share the following disclaimers with you first.  I am not a lawyer or banker or financial planner.  My recommendations or advice only represent my opinions and are not grounded in professional training or education.  The advice I offer to you is exactly the same I would follow myself or provide to family and friends but it should be followed by you only with your full understanding and ownership of the steps taken.

With that said, let me share again my opinions.

You approached me with questions about using a debt settlement organization and I strongly recommended that you don’t follow such a path.  As we have only exchanged a few emails, I am not fully aware as to the types of debt you have.  This is important and something I should have already asked.  As you were thinking of engaging a credit service, I assumed you are dealing primarily with credit card debt.

If you have a car loan or mortgage loan my advice today will not work.  The creditors will simply repossess the car or foreclose on the home.  In these circumstances we’ll need to devise another plan and I’m willing to assist in that as well.

However, for unsecured debt – credit cards for example – this approach and the attached letters are exactly what I would use or offer to a family member if they were in a similar position.

The key principle here is that you respect your debt obligation but have new life circumstances that negatively impact your ability to repay the full balance.  This is not a breakdown of integrity but rather an honest breakdown of ability.  I emphasize this because there are bad people who would avoid a bill even if they could pay.  I don’t believe you are that person and that leads me to want to help.

For that reason, I’ve crafted and attached 2 letters you can take and personalize for your needs.

Both letters need to be customized to your specific creditor.  I have <bracketed> places where you will need to insert your personal information – name, address, account information, etc.

One letter assumes no ability to offer a settlement at this time.  It suggests a willingness to settle in the future but offers no timeframe for settlement.  Based on your last message, this may be the better option at this time.

The second letter allows you the opportunity to propose a settlement and the places for that language and proposal are clearly marked.  If a creditor has not been paid for several months or the prospects of payment are very low, a 50% settlement may be valid.  In extreme cases, perhaps even less.

You may want to start with the first letter and follow-up with the second letter once you’ve been able to save some money.

It is my recommendation that you send this letter to 3 levels within a credit organization; 1 copy to the customer service center, 1 copy directly to the President of Customer Service, and another to the CEO.  For the last 2 you’ll need to do some research on their web site to find these individuals and to collect the mailing address to the headquarters – send these letters to the intended recipient by name rather than just their title.  These 2 will likely have the same address which should be different than the first.

Save a copy of each letter and the return receipts as they come back so you’ll know which letter was sent in each instance.

As for the collections letters – again for credit cards only – I personally would ignore them and the collections calls which are sure to follow.  On the phone, I’d simply state that you are addressing this issue with their executives and that you appreciate their call then offer them a kind “good day”.  Meanwhile, I’d file the letters in the recycle bin, unless it is a settlement offer or a response to your letter.  You’ll want to follow-up with those letters in accordance with your ability to settle at that time.

This is a lot of information so please let me know if you have questions.  In the meantime, good luck and God Bless.

Three or four more emails were exchanged and my heart ached when she questioned her strength to power through and leaped with encouragement when, in agreeing to allow me to share this story with you she responded:

“In answer to your question, that will be fine.  I would be happy to be part of helping someone else if at all possible, although I am sure that other people have worse situations that I have.  Thanks again for your help.”

My bet is that “Ella’s” strength will carry the day and she’ll be stronger and wiser for the experience. 

Godspeed “Ella”.

Letter 1 – No Settlement Letter –

Letter 2 – Settlement Offer Letter –  

Photo By:

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.

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A few weeks ago a friend wrote an article about his experience with his CD Ladder.  That article led to a comment, a follow-up article, and a promise from me to craft an article sharing my opinion and perspective on the topic.  Today, I (finally) make good on that commitment.

So you ask, what the heck is a CD Ladder?  Great question.  It was not that long ago that I asked the very same question.  To be fair, I have seen multiple interpretations and applications.  But this being my muse, I’ll start by dispensing my interpretation.

I generally define a CD Ladder as follows:

A series of CDs with tiered or layered or graduated maturity dates often established to safeguard emergency funds or savings while distributing interest rate risk across the portfolio.

Nice… but what does that mean?

Ok, you know that CDs come in different maturities and each maturity will offer a different rate of return.  For example, the return on a 5 year CD purchased today will differ from that of a 6 month CD purchased today.  If you wait 3 months to make those same purchases you will likely find that both of these available rates have changed.  Therefore, if I purchase a single year CD using my entire bankroll I’ll earn a single rate of return for the duration – good or bad – and the same goes when it renews.  However, if I use 25% of my bankroll each quarter to purchase a series of 1 year CDs, I’m likely to experience 4 unique rates of return – again, good or bad – and again, the same goes as they renew.

The second example starts to resemble a ladder with each maturing CD a rung on the ladder.  In this example, the rungs are 3 months apart, which helps provide increased liquidity over a single 12 month CD, in addition to the greater interest rate diversification.

Why Have One?

When I first started reading about CD Ladders I was convinced it was a much ado about nothing situation.  I believe that the value of an Emergency Fund is in the inherent preparedness for an Emergency.  Those funds are intended for defense rather than offense so be they in a money market account or your sock drawer their utility is sustained.

I’ve since come to appreciate that the maximized reality may be more nuanced.  Sure, the stated objective of an Emergency Fund is as simple as that – cash at a time of need, and any gyrations perpendicular to that end should be avoided.

However, that does still leave room to operate and I’ll share 2 such movements that have swayed my response to CD Ladders.

1.     Emergency Funds are only for emergencies and said funds should not be accessed for anything shy of a certified emergency.

We’ve all seen the fire extinguishers behind the glass with the placard “break glass in the event of an emergency”.  Human nature being what it is, a fire extinguisher sitting on a table invites horseplay.  The simple plate of glass requires vandalism to achieve the same horseplay.  Clearly not worth the effort. 

A stack of Benjamins functions in much the same way.  Sitting in the bottom of my sock drawer I can hear them beckoning for my attentions even now.  In my moment of weakness no one will know but me.  However, preserved in the confines of a CD, I have to take public action… and human nature being what it is, those actions start to sound like work… and so my money remains safe from my own hand.

2.     Have an “every little bit matters” mentality.

Imagine if I eat one less Oreo everyday but keep my activity level the same.  I’ve just made a difference.  Small, yes, but still a difference.  Add in other small changes and my waistline starts to register an impact.  The same principle applies to our finances as well.  By actively seeking a solution that adds 1 or 2 or 3 percentage points to my bottom line, I can train myself to look for similar opportunities elsewhere and collectively my balance sheet starts to register an impact.

What’s the Downside?

Is there a downside to building a CD ladder?  Our world is round and it spins so things move and little is truly perfect.  But the downsides of the Ladder are minimal given appropriate efforts.

1. The first of 2 downsides is the time required to build a proper system. Borrowing from our previous example, the quarterly ladder would require 9 months to properly affect – January 1, April 1, June 1, and October 1 – assuming it is stocked with 12 month maturities.

My thoughtful counter to this complaint is… “whaaa”.  Look folks, neither Rome nor your financial security are built in a day, so invest some effort if you aspire to such a fiscal security system.

2. The second downside is a function of the perfected creation. Once built, I don’t want to break it, so I’m actually encouraged to use credit when an emergency strikes.

My reaction here is not dissimilar.  If you are willing to overlook available cash to satisfy an emergency with credit, then perhaps you need to reevaluate your definition of an emergency.

Perhaps these are aggressive stances – relative to these downsides – but they are authentically mine and hopefully they will inspire thoughtful consideration if your first response was not one of agreement.

How do I perfect My CD Ladder?

So clearly I am a fan of building a CD Ladder, but how have I designed my own Ladder?

To be clear, I have not yet built my CD Ladder but I have certainly designed it.  Using fictitious numbers, here is my design plan from the ground up:

• Desired Emergency duration/coverage – 12 months
• Monthly budget obligation – $1,000
• Total Emergency Fund requirement – $12,000
• Rung Size, or time between maturities – 1 month

To execute the build, I’ll need to purchase a $1k CD early each month for a full year – 12 such purchases.  However, the beauty is that each maturing CD will fuel that month’s household expenses – during a time of need.  (Specifically the early month maturity is designed to help cover mortgage payments).

To address immediate issues – think a sudden illness rather than next month’s layoff – I’ll park another $1k in a savings account (or sock drawer) for “1 minute access”.

Granted, such an elaborate concoction will take time and some precision to construct, but imagine the nights of peaceful sleep it will engender once in place.

So there you have it.  My take and blueprints related to CD Ladders.  Material probably a year in the making when you consider the evolution of my perspective, and I trust you will find it worth the effort.

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Related Articles I enjoyed:

Creating a CD Ladder for your Emergency Fund or Other Savings to Earn a Better, Safe Return

How to Build a CD Ladder

CD Ladder Explained

One day last week upon returning home from a difference making day at the office, as I was beginning the Mr. Rogers routine – which is to say changing from my business man attire to a much more comfortable bum-like relax wear – I noticed something stuck to the bottom of my shoe.  Fortunately, this finding was more interesting than disgusting.

It was a wayward post-it note.  Face down and sticky side up, it had latched onto the bottom of my shoe somewhere along the way – In the office?   In the parking garage?   Along the street outside my home? 

My interest in that question was only intensified by what was written on the note. 

“don’t have Lowe’s receipt for $356.89… did enter it into spreadsheet.”

Somewhere, someone is paying attention, and I love it.

I’ve been chided by my wife and my friends for tracking so many things in my varied collection of spreadsheets.  And I mostly don’t mind because that’s how my mind works and I know I’m able to make important decisions pretty quickly (at least from a financial standpoint) as a result.

So it resonated well with me that someone else would have a post-it reminder about a home purchase and its register in a budget tracking spreadsheet.

Alas, I am not alone!

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Ok, the next time I go to the grocery story, I need to pick up a gallon of milk, carton of eggs, a loaf of bread, and…

When I’m out running errands I need to drop off my dry cleaning, pick-up an ink cartridge, find a box of those energy efficient light bulbs, and…

When the economy picks back up I’ll need to remember that recessionary living, with its high unemployment and depressed housing market, is scary as hell. 

Which of these things is not like the others?  Trick question, they are all birds of a feather.

Face it, we make notes and we make lists for a reason.  We craft reminders to make things easier for ourselves.  And if we’re striving with a purpose, this allows us to be more successful.

But why limit our reminders to the small fries of our lives?  Is a second trip to the market nearly as costly or impactful as failing to remember the security we would feel today if we had a healthy emergency fund?  I can go a couple days without milk, but I’m ruined if I lose my job with no cash reserves 3 months into a 9 month economic malaise.

It could be that you’re still struggling through this downturn.  You may be hording cash in fear of another round of layoffs or perhaps you’ve simply earned a new appreciation for your current debt load.

On the other hand, you may have already weathered the worst of this storm and you’re assessing the damage.

In either case, take a deep breath and commit yourself to never having to live like this again.  Use the raw emotions of the moment as ballast in future times of prosperity to better inform your decision making process.

Here’s an easy 3 part frame work to guide your efforts.  Good luck!

1. Start by being honest with an economic reality. You’ve heard the saying that sh!t happens?  Well, so do Business Cycles.  If it goes up, there’s a real possibility that it will come down.  So as the economy starts to come back (and it will), simply keep in mind that it may eventually fall again (and it will).  That’s what cycles do… they come and go.  Admit it, and prepare for both eventualities.

2. Continue by being honest with yourself.  Who are you competing against when you buy new homes and cars and fancy trips and clothing on credit?  Your future self is the real answer.  Consider that if you had less (or no) debt, a temporary downturn would be less threatening.  In fact, reducing your debt profile assists two objectives at once – first it lessens your budgetary footprint which makes living below your means an easier objective, and second it reduces the amount required to fund a multi-month emergency fund which provides shelter in a storm.    

It is widely conjectured that when asked to identify the most powerful force in the world, Einstein responded “compound interest”.  Whether Albert actually said it or it has somehow been assigned to him is mostly moot, for the messaging is sound.  The simple act of reducing debt and increasing savings will allow you to use this force as a strength building, rather than wealth eroding, technique. 

3. Document your conclusions and your plan.  Use the free budget tools provided here to set a budget or plan a debt snowball.  Craft your financial goals.  Or simply capture the raw emotion of the moment on paper or as a video to inform your future self.  Set monthly calendar reminders to revisit these emotions or commit to revisiting them prior to any purchase decision over a certain threshold.

With purpose I have been more suggestive than directive with my commentary.  I am a firm believer that personal finance is personal.  If it were purely mathematical or robotic we’d all be wealthy and the economy would provide a smooth and predictable ride.  My point is we need to establish mechanizms and systems that will work best for us over time.

Read that again – we need to establish mechanizms and systems that will work best for us over time.

That is not an excuse for inaction but a mandate for us to be realistic – and honest – in our approach.

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