Car Payment
Lifestyle Inflation Or Economic Inflation – Which Harms Us The Most?
Over the weekend I caught up on some blog reading and found an old post from The Simple Dollar where Trent discussed the differences in today’s budgets from those of our parents. It was an interesting post, and the comments provided more food for thought. I began inventorying our own monthly bills and compared them to the bills I knew about growing up.
These are the types of bills I remember my mom paying:
- Rent
- Car payment
- Power/Gas bill
- Home telephone
- Cable television
- Car Insurance
Admittedly, our situation was somewhat simplified because my mom rented, but it seems everyone’s situation was much simpler back then. Compare her monthly bills to the list I came up with:
- Mortgage (including property taxes and homeowners insurance)
- Power bill
- Home telephone
- Cable television
- Car insurance
- Internet service
- TiVo
- Netflix
- Gym membership
- Cell phone
- Onstar
In addition to those recurring bills, you could expand the list of modern conveniences (that cost additional dollars) even further. Divorced Dad did just that in his post listing what he calls, The New “Necessities” of Modern Life. From his list, I’m reminded that things like bottled water, cell phone texting, gourmet coffee, and $200 iPods were not around when I grew up, and certainly not around when my mom was young.
A number of these modern “necessities” do add value to our lives, but they do not come without costs. Because of this larger monthly outflow, most families have to work more, and more members of the family have to work more, to cover these expenses. And that phenomenon has brought about even more “situational” expenses such as the need to for two vehicles, two professional wardrobes, additional childcare expenses, increased commuting costs, etc. Makes you yearn for a simple time, doesn’t it?
So who’s to blame for this lifestyle inflation that led to higher expenses and less time with family? Marketers could certainly share some of the blame, as their artificial hype leads many to products they wouldn’t normally buy. I’m not immune. Those Onstar crash commercials replay in my head every time I consider canceling the service. What if my wife is in a crash and can’t call for help and the kids are with her and…panic sets in. I instantly rationalize the monthly fee.
If marketers are to blame for a portion of the lifestyle inflation we’ve experienced, then we need only to look at ourselves for the remainder of the blame. Let’s face it; we’re a spoiled people in many ways. We strive for the bigger and better, never content with good enough. Over the last few decades, the size of our homes has doubled from 1,400 square feet in 1970 to 2,330 square feet in 2004 (National Association of Home Builders). We build bigger homes just because we can, not because we necessarily need to. Or maybe we do need to. After all, where would we put all our toys in a small home?
These bigger homes come with bigger mortgages, and more expensive furniture, and the need to fill a two-car garage with, well, two cars. You see where this is headed.
In an era where people are beginning to share concerns over inflation (or maybe more accurately, currency deflation), thanks to exorbitant government spending, perhaps we should first consider our own lifestyle inflation. Perhaps we should start voluntarily moving towards simplicity, before we are forced to.
In my own life, I’ve decided to draw a line in the sand. I have nice things, and am perfectly content with them. My desire to have the latest thing will not override the contentment I have with my current thing, and the fact these “things” are paid-for is even better. We plan to stay in this home, keep driving our current vehicles, look at the same television, use the same cell phones, and keep the same basic expenses regardless of what others do, or try to convince us to do.
If you are like me, and have been “unfrugal” at times in your life, you don’t have to sell all your possessions and live the life of a pauper. Simply be happy with what you have now, and let that mantra guide future spending decisions.
Post by Frugal Dad
Live Fab-u-LE$$: WPBF: Video: Mini-refresher course on how to live fabuLESS!
Watch the video HERE and be sure to tune in to WPBF (ABC, West Palm Beach 25) every Tuesday and Thursday at both 6am *and* at 4pm to catch the latest segment of Live fab-u-LE$$!
Over the past few months, I’ve shared a lot of information with you all– and I thought that for the first segment of the new year it would be a good time to have a mini-refresher– “Live fab-u-LE$$” in review, if you would.
Many of you have made a New Year’s resolution to spend less and better this year but may not know where to start. And, you might be contemplating getting a second job– but really, it’s not how much you make– or how much you spend– it’s the difference between the two.
You may not be able to change what your house or car payment is all that easily, but you can start shopping better immediately. Right now. Today.
So let’s start spending less– but let’s do so in a smart– and fabuLESS– way.
You don’t have to have it perfected– just start doing it and you’ll get better and better as you go along. And, small savings are better than NO savings at all.
Okay, here’s the quick and dirty overview how to live fab-u-LE$$:
1) ONLY buy items that are on sale– you don’t have to clip a single coupon or do anything other than buy the items that on sale– our local stores make it easy with dozens and dozens of staples on BOGO– buy one get one free– each and every
week. If you ONLY buy the BOGOs and start building a small and rational stockpile of those items you use regularly, within a few weeks time you’ll have a fully stocked pantry– and a fully stuffed wallet, too.
2) Buy everything that you need but nothing that you don’t– Buy NOTHING that you don’t need, no matter how inexpensive it is.
3) Make it fun– saving money isn’t about deprivation, it’s about maximizing your
resources– and maximizing your fun too! Involve your friends and family– make it into a healthy competition. Instead of keeping up with the Jones, it’s saving MORE than the Jones!
4) Save enough of the un-fun stuff to have money left over for the FUN stuff–
slash your budget, but don’t cut out all of the fun- it may not be fun to buy toilet paper and detergent, but it IS fun to go on vacation– so make sure that you’re saving on all of the boring stuff to still go on vacation! Incent yourself to do well– for instance, set *both* a goal and a reward– save money and earmark a percentage of it for something fun, even something frivolous!
Remember, don’t change your lifestyle just change the way that you shop and live fab-u-LE$$!
Create a “Dream Budget” for Extra Motivation
One of the reasons the idea of budgeting is depressing for many of us is because it is the point in time each month where we realize we don’t have a lot of breathing room. There is simply no disposable income after the mortgage, the car payment, the credit card bills and the rest of our spending categories. What if you could take a magic eraser and wipe out all those debt payments?
Unfortunately, no magic debt eraser exists, but like I tell my son, “let’s pretend.” Let’s pretend for a moment that you do not have any debt. How much different might your budget look?
That’s the idea behind creating a dream budget, an exercise I have toyed with informally a few times, but was sold on after reading a post at Enemy of Debt. Here’s how I created our “Dream Budget.”
- Grab a copy of your most recent budget. Highlight the amount of total expenses, total income and any savings contributions you are making.
- Make a second budget minus any payments related to debt. Leave the mortgage payment for now, but remove credit cards, student loans and car payments.
- Using this new “dream budget,” calculate the difference between total income and total expenditures. This difference is the amount you are spending each month to service debt.
- Find a new home for the difference. What will you do with this new excess? If you are like most families with a $400 car payment, and several thousand in credit card debt, you could easily free up $700-$800 a month by paying off debts.
- Break out “savings” category into more targeted goals. Finally, there is enough money to invest in a Roth IRA, save for the kids’ college tuition, put a little away towards a replacement car, and maybe even a little towards a down payment on a new home.
What’s standing between you and your dream budget? Debt. Debt is like a soul-sucking black hole in your financial world. Being in debt is worse than the worst job you’ve ever had, and the worst relationship you’ve ever been in, combined. To put it bluntly, being in debt sucks.
Most of us are aware of this fact, at least intellectually, but by creating a dream budget you finally have evidence of the things debt is robbing from you with each required payment, and it has a way of getting you fired up, emotionally.
Consider just the interest accumulation on your debts. How would you react if your bank was reaching in and grabbing $148 a month out of your checking account? You would be outraged, and rightfully so! Well, that’s the equivalent of allowing credit card companies and other loans to tack on interest each month on a large balance of debt. Get rid of it once and for all, and free your budget up to do bigger and better things.
Keep this dream budget handy if you feel motivation for your get out of debt plan waning. It might just be the kick in the pants you need to get back on track and make your dream budget a reality.
Post from: Frugal Dad
Car Replacement Fund Underway
Over the weekend I took some time to complete a few finance tasks that have been stacking up on my to-do list for weeks. One of those tasks was to officially establish a car replacement fund.
Now that we have paid off our car, we recognize that it won’t last forever, so we might as well continue making “payments” to ourselves so we can pay cash for the next one. Since we have been in car debt our entire marriage up to this point, we are used to living without that $300-$400 we were sending to banks and finance companies over the last decade. Continuing to make a “car payment” to savings shouldn’t be that painful.
The Car Replacement Fund
As usual, I turned to ING Direct to handle my car replacement fund. I could get a slightly better rate with other banks, but the convenience of creating additional “sub-accounts” at ING, and seeing all my targeted savings accounts in one view, is key to my motivation.
We labeled the new account “Car Replacement” and scheduled a monthly transfer from checking for the exact amount of our most recent car payment (roughly $300). In just one year we should have around $3,600, plus a little interest. In two years we should be up around $7,500 - well within the range of replacing our car.
When the time comes we will sell the car via private sale, and put the proceeds with the cash in the car replacement fund. Based on an a depreciation estimate for our current vehicle, and the projected savings balance in two years, that should give us a solid $15,000 to look for a newer, used vehicle.
Over time we will continue this trend of upgrading every few years, but always doing it with cash. The schedule isn’t that much different than someone financing a new car, paying it off over 60 months and then financing a new one. Well, except we won’t be financing it from a bank - we’ll be using our savings.
I’m lucky; I’m not a “car guy.” I don’t drool over showroom models, and with only one exception, I’ve never really cared what I drove (there was that whole Isuzu Rodeo leasing saga). To me a car represents four tires and sheet metal with an engine to get you from point A to point B. It says nothing about who I am, my status, or my personality. Fortunately, my wife feels the same way.
Thanks to this utilitarian approach to car ownership, we simply look for the best value, not the sexiest design. Give me a beat up exterior with a solid engine and low miles any day. And driving that car without dragging a payment makes it just that much sweeter.
Post from: Frugal Dad
Weekly Roundup: Sink Or Swim Edition
Our kids are in the process of learning to swim. It is something we probably put off too long, but that we’ve become more dedicated to both as a survival skill and a form of summertime entertainment. Teaching kids to swim takes a lot of patience, a virtue I was not born with, but one I’ve tried to cultivate over time.
Things like having kids young, coaching youth soccer, and settling down to write all help develop patience, and it’s a good thing because patience is a key factor in financial success. The most serious screw-ups I’ve committed with money were made when I moved too fast. When not teaching the doggy-paddle, or how to float on your back, to the kids in my spare time, I managed to run across a few excellent posts this past week.
The Fab Five
Can You Survive As a One Income Family? Yes, we’ve been doing it for over ten years now. But living on one income is not easy, and it requires a tremendous sacrifice. (@ The Wisdom Journal)
Retired at 31: An Early Retirement Story. I read these stories and wish I could go back to 20 years-old and have a mulligan. If I only knew then what I know now. Still, I find these posts to be extremely inspiring for those in their early twenties because it is a decade of so much opportunity!(@ Million Dollar Journey)
Junky Car Club. Cool idea here. Register your “junky” car here and agree to use at least some of what you used to pay for a car payment for charity. (@Stiletto Money Online)
15 Ways To Get Started On Snowflaking. The idea of “snowflaking” is one of the best ways to get out of debt. I’ve used it to pay off thousands of dollars of debt in small increments of micro-payments from various side hustles. Believe me; they add up over time! (@The Simple Dollar)
Poor Man Wins Lottery – Will it Help or Hurt Him? After any sizable lottery winnings the media instantly reports all those who have been cursed by the winnings. I still believe the idea that it is the love of money that is the root of all evil. Money alone is simply a tool. (@Money Help For Christians)
Best of the Rest
- SEP IRA: Self-Employed Retirement Plans
- Four Simple Ways To Make The Most Of Your Day
- Keep Your Kids Busy Without Breaking the Bank This Summer
- How To Win a Race in Last Place
- Three Quick Tips For Getting Ahead In Life
- How To Be A Millionaire: Start Thinking Like One
- Is the 401(k) Broken? I’m Not So Sure
- The Four(ty) Hour Workweek
- Where Is Gold Heading To?
- Shopping List For A Newborn Baby
Post from: Frugal Dad
What Order Should I Pay Off My Debt?
Stacy writes in with the following questions regarding paying off debt:
Q: If you have a canceled credit card and its balance is the lowest should you work on paying that one off first or one that isn’t canceled? Also, would you work on paying over the credit limit cards or paying off payday loans first? We have ideas but just aren’t sure where to start and attempt to tackle the debt.
A: Stacy, there are about as many ways of paying off debt as their blogs dedicated to the subject! First of all, I commend you for taking control of your financial situation and eliminating the temptation to go even deeper into debt. The usual advice is to wait until your card is paid off to close it, because it can be detrimental to your FICO score to reduce the amount of credit available. Having said that, I’ve violated this advice myself and closed an account before paying if off because of the way the credit card company treated me.
From your question, it sounds like you have a variety of debts including a canceled credit card, an over-the-limit credit card or two, and some payday loans. The standard advice is to pay off the debts in the order of the interest rate - paying off those with the highest rates first. In my own experience, I have found that method of snowballing debt to be tougher to work through because of the lack of emotional reward returned.
I recently linked to an article over at Man vs. Debt about the Debt Tsunami method of paying off debt. According to this debt snowball style you line up the debts giving priority to the one that is most emotionally charged. or gives you the biggest emotional boost when paid off. In your example, that might be the payday loans, or a personal loan that you’d like to clear from your list of debts. For me, it was my car loan, because since marrying my wife eleven years ago I’ve never known freedom from a car payment.
The other thing to consider is the fees associated with the over limit credit cards. Perhaps it makes sense to prioritize those first until the point that they are all safely under the credit limit and current. Then you can regroup and reorder your debts in the priority that works best for your situation.
Finally, there is no easy way out of debt. For me, the climb out of debt has taken more dedication, more perseverance, and more sacrifice than anything in my life up to this point. However, the rewards at the end are just as sweet. I suspect because you took the time ask for help with lining up your debts that you also have a gameplan for paying them off, and I have little doubt that you can do it. Let us hear from you again when you are debt free!
Post from: Frugal Dad
Why An Ostrich Could Never Be Wealthy
For the better part of my early twenties I acted like a financial ostrich. When I began to worry about our financial future, such as how we were going to live on one income, or pay off my school debt, or pay for my kids’ college education, I simply buried my head in the sand. After all, it was easier to do that than face the mess I had created.
Photo courtesy of lorentey
But those months spent with my head in the sand now represent time wasted for putting things back on track. The opportunities lost for compounding growth will never be recouped, no matter how much I save in my thirties and beyond. Sure, I can make up some ground, but that $10,000 I could have easily saved in that decade would have grown to hundreds of thousands by retirement. So what’s the lesson here?
If you are young, do not ignore your financial future
I know when you are young the thought of retirement is a distant future, but there are many things that happen between graduation and retirement that you need to plan for. Things like buying a home, a car, having children, paying for braces, paying for your children’s education, etc, all compete for your limited supply of money. Somewhere in all that you will need to continue to save for your own retirement, so why not get a head start before all these competing priorities enter the picture.
If you have your head buried in the sand, look up before you get run over
Remember the old Road Runner cartoons when Wile E. Coyote stuck his head down the manhole cover of a busy street, just as the sound of a truck began to rumble towards him. You knew what was coming next - WHAM! The truck hits Wile E. Coyote and sends him flying.
This is kind of like what happens to us ostriches. We keep our heads stuck in the sand because we don’t have to hear, and see, all the noise above the surface: The car payment we can barely make; the mortgage payment we are late on; the kids’ college fund with barely enough to pay for textbooks, much less tuition; the credit card debt that continues to climb thanks to a 28% interest rate. If you don’t look up soon, that “truck” will smack you right in the rear and send you flying.
It’s never too late to get started
Some of you might be reading this and thinking, yeah, great advice. Wish I had read it thirty years ago! It’s OK. I know it sounds cliche, but it really is never too late to get started. If you are 50 years old, have virtually nothing saved and a pile of debt, start working down that debt! And when it’s gone, start adding more to your retirement plan at work, open a Roth IRA, and begin to take back your financial future. It’s never too late to look up.
Post from: Frugal Dad
The Correlation Between Frugality And Debt Repayment
My wife and I are still working to become debt free. In fact, we are now within a month of paying off her car. It will be the first time in our marriage we will be without a car payment (look for a celebratory post next month)! While working our way through debt repayment we have found that living frugally has helped by creating more disposable income to use to pay down debt. Let me use an example from this past weekend.
Can coupons help you get out of debt faster?
We have been members of The Grocery Game for some time now. It is a service that lines up coupons and store deals to notify you of rock-bottom pricing deals at your favorite store(s). We diligently collect the coupon fliers from each Sunday paper and file them by date in our filing cabinet. When planning a grocery trip, we print out the latest Grocery Game list and clip the coupons from the weekly flier. If you sign up for The Grocery Game, I would appreciate it if you would plug my email address jason[at]frugaldad.com in the referral box - I think I’ll earn a couple free weeks if a number of you do it).
Last Friday my wife headed off to take the kids to school and planned to do a little grocery shopping on the way home. Then she realized she forgot coupons. Dilemma. Return all the way home to pick up coupons, or just go on to the store since she was sitting in the parking lot when the missing coupon realization came over her. She decided to go shopping, sans coupons.
Despite her best efforts to find store deals and generic brands, she still spent a considerably more without our coupons. Normally, this wouldn’t be that big a deal - we would simply adjust the budget a bit and write it off as a lesson learned (we should really keep our coupons in an accordion file in the car for this very reason). However, since we are so close to paying off our car early, and set a goal to do it by June, every bit we can save goes directly towards that car loan balance.
A penny saved is a penny earned, or one you can use to pay off debt
Of course, this is just a recent illustration of something we’ve known all along. For every penny we spend it is one less penny that can be used to repay debt, or build wealth. This is easy to see when setting up a budget - an increase in one category means a decrease in the other. However, it is harder to recognize during the day-to-day grind.
We also recognize that living ultra frugal while in debt is extremely difficult, because your family is already making supreme sacrifices to get out of debt. Now you are asking them to not eat out, stay out of the movie theater, and skip the annual vacation. Don’t be surprised if you meet resistance.
If you can manage to live a frugal lifestyle while in debt, the payoff will come when you pay off those debts. We’ve already experienced this feeling with a couple credit card balances, and now it’s time to knock out this car loan. Who would have thought clipping all those coupons would help us pay off our car.
Post from: Frugal Dad
10 Reasons Why Being In Debt Sucks
After being in debt for some time you find yourself struggling to remember what it feels like to not owe anyone. Unless you have been deep in debt, it is hard to describe the feeling to others. At times it feels like a tractor is parked on your chest, and other times it feels like two tractors are parked on your chest.
The best way I can sum it up is to say that being in debt sucks. Sorry, I know that’s a bit crude, but when it comes to debt all rules of verbal civility must be tossed. Without further apologies, here’s my list of reasons why being in debt sucks.
1. Debt limits your opportunities. How would you like to pick up and move across the country, or maybe just closer to relatives, or to the beach, or to the mountains? Perhaps you would like to make a career change, go back to school, or take that international assignment for a couple years. Forget about it. You are in debt.
2. Debt forces you to put up with more crap. Debt forces us to put up with bad jobs, poor living conditions, broken down cars, and cubicle creeps with headsets, also know as debt collectors.
3. Debt is the first thing you think about each morning. Seriously, you know you are in trouble when you hit the alarm clock at 5:30 in the morning and think, “Hey, that’s the same amount as my car payment - $530. And I have no idea how I’m going to pay it this month!”
4. Debt is the last thing you think about each night. Money problems is a leading cause of insomnia. Instead of drifting off to sleep counting sheep you lie there counting the months until you will be debt free. You obsess over it. You worry over it. And the reality that you can do little to get rid of it right away leaves a feeling of helplessness that is truly depressing.
5. Debt eats away at future earnings. For every dollar you pay in interest on debt it is a dollar that could have been spent on something else, and a dollar taken away from your earnings. It’s like a little debt monster snatching $100 from each paycheck and depositing it in their bank, laughing all the way!
6. Debt makes you desperate. There is a reason people applying for positions with financial authority are scrutinized more carefully. Of those who commit financial crimes, it is not unusual to find out they were deep in debt. It has a way of challenging your morals for the promise of freedom.
7. Debt affects your entire family. Kids may not fully understand the financial ramifications of debt, but they recognize Mom and Dad sure fight about that “d” word a lot. They don’t know what debt is, but from listening to you they think they’ll always be in it, and being in it must be bad.
8. Debt is a lousy employer. When you are in debt, and over half of your income is going towards repaying that debt, you might as well consider yourself working for the debt. And debt is a lousy employer!
9. Debt plays by its own set of rules. Don’t believe me? Try carrying a large balance on a credit card. One month your statement reflects an APR of 6%, the next 29%. What did you do to deserve it? You just appeared risky to their scoring model.
10. Debt makes even the sweetest life events taste sour. Getting married, buying a house, and having a baby should all represent some of the highlights of your life. But if you are deep in debt, these event only provide temporary relief. Until the bills arrive, that is.
If you find yourself deep in debt, you’ve probably experienced some or all of these feelings. I hope you are working to get out of debt. If you are not in debt, or have never been in debt, consider this ten reasons to never go into debt. Trust me; it sucks.
Post from: Frugal Dad
Weekly Roundup: Car Payment Almost Gone Edition
My wife and I are closing in on a status we have never achieved during our married life together - without car payment. Just a couple months after we married I leased an SUV. The lease represented one of the dumbest finance moves I’ve ever made, and has haunted us, financially, for a decade.
When the lease was up I refinanced the balance into a traditional loan, and before that loan was up I traded in the SUV and financed our current vehicle. We are now within one month of saying goodbye to car payments - forever. We plan to continue to pay our car payment to ourselves by depositing the same $310.00 we’ve been paying for our curerent vehicle into an online savings account. In a few years we’ll use what’s in savings to buy a new (used) family car and I’ll drive the old one back and forth to work. We will continue this pattern for the rest of our driving lifetimes.
The Fab Five
Early Retirement or Meaningful Work? Thought-provoking post which asks, would you rather “retire” early or continue meaningful work? To me, the question is asking, would you rather hang up your current job to spend your remaining time in an endeavor that is meaningful to you. Which begs the follow up question, why aren’t we already doing meaningful work? Like I said, very thought-provoking. (@ Brip Blap)
Your Real Wage. Do you know your real wage? No, not your hourly wage…your real wage? I’m referring to the amount you are paid after taxes, commuting costs, employment costs, child care, etc. Read on to figure out your real wage. (@ Hundred Goals)
Five Ways to Make Laundry Day Easier. My wife recently had to tend to an ill family member, leaving me alone for a couple days with the kids. I typically help with laundry duties, but rarely do I take the lead. I was reminded why I dislike it so much over those couple days. The tips in this article remove much of the stress (and expense) from laundry days. (@ On Simplicity)
Recoup Your Lost Savings. The last time I looked at my retirement account statements I was closing in on being down 40% from the highs of last summer. Thanks to a slight rebound, I’m hoping the most recent quarterly statements will look a little better. Kiplinger has put together a helpful calculator to figure out how long it will take to get back to those high balances again. I’m still depressed. (@ Kiplinger.com)
How to Live Well on Less in Retirement. This post goes along with the theme of my favorite personal finance book, Your Money or Your Life, which emphasizes the point that you don’t need to be a multi-millionaire to enjoy a comfortable retirement. By making sacrifices early on, and living frugally both before and during “retirement,” you can live on less than you might think. (@ Get Rich Slowly)
The Best of the Rest
- 6 Job Search Tips for New College Grads
- An Amex Credit Card Bill You Won’t Believe
- 5 Practical Steps for Generating New Ideas and Insights
- New Debit Card for Teens and Parents - The Discover Current Card
- When How You Spend Determines How Much You Spend
- Cheap Summer Activities
- Four questions to help redirect your life plan toward your dream
- Save Money By Turning Off Your Television
- I Am An Investor
- Investment Strategies I - Passive Investing
Site of the Week
Early Extreme Retirement. I was planning to include this site in the roundup itself, but I found so many interesting posts I decided to just link to the entire blog here. Any time I feel like I am sacrificing too much I go read a post at Jacob’s blog about how he became financially independent and I quit feeling sorry for myself. This guy has made some incredible sacrifices, and I like that his ideas are outside of the normal personal finance advice box.
Post from: Frugal Dad
