No Debt Plan

No Debt Plan is a blog about living a debt-free life. If you're new here, you may want to subscribe to my RSS feed (e-mail subscription also available). Learn more about me, or read some other popular articles. Thanks for visiting!

Who I Am

If you’re going to read this blog, you should probably know who you are reading, and where he comes from.

I’m a 23 year old happily married guy that lives in Birmingham, AL. Well, technically I live south of Birmingham in a suburb, but you get the point.

I’m not a professional personal finance adviser. I don’t hold a CPA, CFP, or any other certification. I’ve got a bachelor’s degree in business management and currently working on my MBA. My wife is a teacher. Everything you read on here is simply my opinion. I encourage you to visit a fee-only financial planner (NAPFA.org) for advice on any financial decisions you need to make.

Speaking of my wife, we got married on January 6, 2007. We’re completely in love. To boot, we’re on the same page with our finances. This has been one key in how smooth our first year has been. I want to help people achieve this in their marriages, too.

We lived in my apartment for the first 9 months of our marriage, and bought our first home in September of 2007. We put 5% down, and got two mortgages (80%/15%). We do not pay PMI, but our interest rate is slightly higher on the 2nd mortgage. Our excellent credit, monthly cash flow from our jobs, and the down payment allowed us to achieve this dream. We love our house. It may not have been the best decision on paper, but there is nothing like coming home to your house. Plus, we’re aggressively paying down the 2nd mortgage.

I like BMWs. My first car was a 1995 BMW 318is. I now drive a Honda Accord, but have a 1978 BMW 320i sitting in the garage. It’s in pretty good shape for a 30 year old car, and I paid cash for it.

I also love personal finance. I love budgeting. I guess I wouldn’t like it as much if we didn’t have significant positive cash flow at the end of every month, but thankfully we do. I love helping people setup their own budgets, too.

Where I Stand

As mentioned on the About page, I hate debt. It seems so easy to get in, and so difficult to get out. The personal finance world is a tricky place. There are indeed some unsavory characters out there that want to squeeze you for your last dime.

Yet I also believe in personal responsibility. No one put you into debt. No one put $20,000 of credit card charges on your account. No one forced you to sign the papers for your sub-prime mortgage. They may have made it seem easy and put a lot of things in the fine print, but you signed it nonetheless.

Once you are in the hole with debt climbing out seems nearly impossible. You are standing at the base of Mount Everest. You lack training. You lack tools. You think to yourself, “I’ll never get out.”

I’m here to help change that. Getting out of debt is easy when you look at the numbers. Income must be greater than expenses. You have to make some hard choices, but the process is simple.

If you ever have any questions, leave a comment. Comments don’t get posted without me looking at them first, so your personal information never hits the site. I’ll respond back via e-mail.

The Dividend Guy has put up the 137th Edition of the Carnival of Personal Finance. Check it out! One of my posts made the cut, and I’ll throw up some other quality ones I come across when I get a minute today.

Some posts I found interesting:

• ChristianPF talks about getting textbooks for free or nearly free. I do this exact thing with my MBA textbooks. The books usually end up costing me $10-20 due to Amazon taking a cut of the selling price, and shipping costs.
• SearchLightCrusade goes into amazing detail about refinancing costs. A really impressive post from someone within the industry.
• Green Panda Treehouse discusses how they manage their money. I recently shared how we manage our money, too. I think it is interesting to see how different people manage it in different ways.
• Gather Little by Little shares this — Improve Your Finances: Direction not Perfection.
• Money Management and You talks about how to save money without really budgeting. He says budgeting doesn’t work; I completely disagree. However, whatever can be done to get you started on saving is important so that’s why I am linking it. Budgeting is not rocket science, in my opinion.

I don’t have to tell you that printer ink is expensive. But do you know how expensive?

Let’s take a look at this HP 38 Magenta cartridge as an example. Price at Amazon: $29.99. Number of ounces: 3.4 ounces. That’s $8.82 per ounce, if you absorb the cost of the plastic in the cartridge as well.

There are 128 fluid ounces in a gallon. Do the math. For a gallon of this ink, you would pay $1,128.96. And you thought gas was expensive!

Of course there is a ridiculous amount of profit built into the ink. If you can find refurbished ink for your printer from a reliable source, you are going to save a ton of money. Thanks to FatWallet, I did just that.

At FatWallet, I discovered 123inkjets.com. They sell refurbished ink cartridges on the cheap. For $51.97 I was able to buy 12 cartridges for my Canon Pixma iP5000 printer. Thanks to the rebate process at FatWallet, I’m going to get $11.43 of that back. If I had gone to a local office supply store, I would be able to buy maybe two or three cartridges for the same amount. Simply stunning.

I haven’t had to use the cartridges yet, so I’ll put up an update in the future. There is always the chance of it being an inferior product. Yet, I doubt it.

Using HP’s Annual Report for 2006 (warning - large PDF file), let’s run some numbers:

• Imaging and Printing Group
  • Net Revenues: 26,786 million
  • Earnings from operations: 3,978 million (14.85% of net revenues)
• Company as a whole
  • Net Revenues: 91,658 million
  • Earnings from operations: 6,560 million
• IPG as % of entire company
  • Net Revenues: 29.2%
  • Earnings from operations: 60.6%

That’s right — if I am reading the numbers correctly, the Imaging and Printing group brought in 60% of HP’s earnings from operations in 2006. Do you think ink is profitable now? I’m sure part of that profit is the printers, but they essentially give those away to get you to buy the ink. This is very similar to Britta pitchers — they want you to buy a ton of filters, not pitchers.

We’ll see how the refurbished ink works out. I’m hoping I’ve found a much cheaper alternative. Ink is ink after all.

This post kicks off a series that will develop my plan for getting you out of debt. This may seem an odd topic for me to tackle; the only debt we hold are student loans that are in deferral. Yet I have read, seen, and heard the damage debt can do to individuals and couples. I hope you can take a small piece of everything I write with you on your way to the land of no debt.

Before we can talk about budgets, interest rates, credit cards, frugality, or retirement… we must discuss attitude.

A negative attitude will severely hinder your attempts to climb out of debt. Why? Getting out of debt isn’t a cakewalk! They are going to be hurdles and stumbles as you climb out. You can view each of those challenges in one of two ways: positively or negatively.

If you run into an obstacle, a negative attitude will just slow you down in overcoming it. It is a true momentum killer. You have to stay focused on the end goal: getting out of debt.

Second to a positive attitude is an honest attitude. You can’t play games with yourself. Take a good, hard, honest look at your situation. Face the music. Look at everything in your situation — not just some of the pieces. Do you have a negative cash flow at the end of every month? Do you know how much you spend each weekend going out to dinner and drinks with friends?

It isn’t hard to take an honest look at the data — credit card companies and banks send you statements. You should be able to decipher from these where your money goes each month. The data is there. The only thing stopping you is you.

So be positive, take your lumps when they come, and be honest with yourself. Do that, and you are well on your way to reaching any goal — especially getting out of debt.

Here are our personal finance goals for 2008. These are not New Years Resolutions. I always fail at resolutions. These are concrete S.M.A.R.T. goals.

1. Pay for a trip to New York City by November 2008 - $3,000
2. Put $80 into savings each month for school through August 2009
3. Put $50 into savings toward emergency fund (until we reach 3 months of expenses)
4. Put as much money as possible toward 2007 Roth IRAs - $8,000 maximum
5. After we do our taxes, put as much money toward 2008 Roth IRAs - $10,000 maximum
6. Continue to pay extra on our 2nd mortgage

So far we have been very successful toward these goals. We put $200 each month toward our New York trip. We should have the trip paid for with cash in hand by August. The school saving and emergency fund come out, too. The Roth IRA contributions come from our free cash flow. We should be able to open our first one next month.

In the long term (not 2008) we are going to start saving for new cars and a trip to Europe. We use a “savings snowball” method to our savings. I’ll share more on that later.

What are your goals for 2008?

The original title of this post was going to be “The Story of the Gas Bill and the Bounced Check.” That seemed a bit long, but we’ll get to those details shortly.

Everyone Does It

Everyone makes finance mistakes. Seriously! Every person out there at one point in time has done something boneheaded, something stupid that affects their finances. All of the bloggers, celebrities, and pundits you read from have done it. Dave Ramsey? Lost millions in his twenties and filed for bankruptcy:

(Source: Wikipedia) At the age of 26, through his brokerage firm, Ramsey Investments, Inc., he had built a rental real estate portfolio worth more than $4 million. He became one of Tennessee’s youngest brokers to be admitted to the Graduate Realtors Institute.

Ramsey’s debt-fueled success soon came to an end as the Tax Reform Act of 1986 began to negatively impact the real estate business. One of Ramsey’s largest investors was sold to a larger bank, who began to take a harder look at Ramsey’s borrowing habits. The bank demanded he pay $1.2 million worth of short-term notes within 90 days, forcing him to file bankruptcy.

Ramsey made an enormous mistake that cost him millions of dollars. The fact that you made a mistake is not what ruins you. The real kicker is how you react to the mistake. Do you learn from it or ignore it? Dave Ramsey filed bankruptcy, rebuilt his life, started talking to couples in his church about finance, and now has millions of dollars. There was a lot of hard work in between, but you can tell he learned from his mistake.

Our Mistakes

I want anyone to read this blog to understand I am not an untouchable, perfect person. I make mistakes just like you do. In fact, I made two large mistakes in the last week.

We moved into our new house the last weekend of September. We got a bill from our gas utility company for service through October 22. We paid the bill and went on our way. With all of the chaos going on in our lives — new house, wife with her first teaching job, me starting my MBA — I failed to notice that we had not received a gas bill since then.

I called the gas company at the beginning of January. I was assured my account was in good standing. There were no flags on my account, and we were current. Yet we hadn’t received a bill in three months. The customer service representative assured me a new bill would be coming out in the next few weeks.

This weekend we received the e-bill notification from the gas company. The bill is a whopping $340+! Ouch. Note that is spread over 2.5 months, but that still comes out to $130+ per month. That seems high to us, but since we didn’t know what our usage was costing us we could not change our habits. Needless to say, we’ve turned the thermostat down to try and cut back on the cost.

The second mistake I made angered me more than the first. As I mentioned previously, we use our paper checking account only for checks to church or other places that we cannot use a credit card. We keep a $250 buffer in the account to cover those small checks. If I have an expense coming up such as a power bill, I transfer the money from our ING account and then write the check.

Our homeowner’s association sent us the annual bill (which we had saved monthly to cover) for $440. During a busy morning I decided to write the check just to get the bill into the shredder and off of our office desk. I would transfer the money later — it would take a couple of days for the check to be deposited regardless.

You can see where this is going, right? I never transferred the money. I neglected to check our account online. Again, this weekend, I received a notice in the mail that we were in the red on our checking account. We don’t have overdraft protection, either. I figured we were in for a hurting. Yet, the notice said they had waived the fees to keep our business. When I login to the online account management, it says we are over $100 into the negative. The transfer from ING should come in on Tuesday. I’m skeptical that they won’t take out additional fees, but I guess we’ll see.

So what have we learned?

• Awareness is key. If we had realized our gas bill hadn’t been coming before we did, it is likely we would have received a bill in between. We could then react by lowering our thermostat.
• Discipline is needed. We had more than enough money to pay the homeowners association fee. A simple mistake could have cost of a lot of money in needless fees. I should have transferred the money immediately. On the positive side, this is the first time we have “bounced” a check. Our discipline in the past has paid off up to this point.
• Our emergency fund can help. We have an emergency fund saved up that should only be dipped into for actual emergencies. However, a “surprise” bill like our gas bill might put you over the edge for the month. We don’t need to go this far, but if we did, we could pull from the emergency fund.
• Is isn’t the end of the world. I have a temper, and stupid mistakes like these really get under my skin. A mistake isn’t the end of the world unless you make it so. Instead, learn from it and move forward. I’m going to be extra careful in the future with writing paper checks. I still won’t get overdraft protection; I’d rather save on the charge.
• Learn from your mistakes. Again, take your lumps and move on. Don’t forget the mistake, but don’t dwell on it. Fund managers of Selected American Funds (disclosure: I am invested with Selected American Funds - SLASX) Christopher Davis and Kenneth Feinberg frame and hang their worst investment decisions on a “wall of shame”. This reminds them of the past and to not repeat it. You’ll notice this post is filed in a new category titled Mistakes. I plan to do the same thing here.

So, what mistakes have you made?

I’m not 100% comfortable sharing this with the universe, but what the heck!

I’ve got something to confess. In terms of pants I wear to work — business casual slacks — I do not have a closet full. I don’t even have enough to wear all week. That’s right… I own three pairs of work pants. Should I buy another pair or two? Sure, but three seems to be working just fine.

And no, I don’t go into work two days per week without pants on!

You see, I work in an office environment. I sit at a desk all day long except for lunch. Lunch usually consists of client meetings — perhaps 3-4 per week. Unless I go to lunch somewhere especially aromatic (Chinese or BBQ), or I spill something on myself, my pants aren’t exactly “dirty”. Thus, later in the week I will re-wear them without a wash.

This has saved us money and should continue to in the long run. First, I’ve saved on purchasing pants. The three pairs I own are what I consider ‘nice’, and I probably paid $30-50 for each. That’s $60 to $100 in savings up front. I also anticipate they will last longer than a pair of $20 pants. Secondly, we’ve saved on washing clothes more often. We do laundry every weekend, and just two or three full loads. If I had to wash my three pairs every three days, we would be increasing our waste by running non-full loads. This saves water and energy, as well as wear and tear on the pants from over-washing.

This isn’t something I am especially proud of, either. Maybe I should have a pair for every work day. For now, the system works. What do you think?

In part of a full disclosure effort, I thought I should share what accounts I use and for what purposes.

• Checking (for paper checks): Regions Bank
  • This is used only for expenses that must have a paper check that cannot be done via ING’s electronic checking; examples: tithing to church.
  • Interest rate: 0% (free checking, no fees, no minimum balance requirement).
  • We keep a $250 buffer in here and transfer money from ING as needed.
• Checking: ING Electric Orange*
  • This is our primary checking account. We pay 99% of our bills electronically, and this really does the trick. You can also request a paper check be sent to someone, and ING will print and mail it for you — for free. Transferring money between ING accounts and outside accounts is very easy, so writing paper checks with Regions is no big deal.
  • Current Interest Rate (1/16/08): 3.15% APY
• Savings: ING Direct Savings*
  • This is used for all of our savings goals (emergency fund, trips, holding spot until we have enough for a Roth IRA, etc.)
  • Current Interest Rate (1/16/08): 4.10% APY
• Roth IRAs: Vanguard
  • Technically this isn’t set up yet, but this is our choice. No fees if we use electronic statements. We would have chosen electronic anyways for environmental choices.
• Discount Broker: Firstrade
  • $6.95/per stock trade. Seems like the best deal around (other than perhaps Zecco). We don’t use this a lot anymore.

* - ING runs a promotion that gives you $25 if you open an account with $250+ if you were referred. The person referring you gets $10, and you get $25. Again, only if you put in $250 to start. $25 is a 10% return off of your deposit of $250 — instantly. I can give referrals for both the checking and savings account. If you’re interested, leave a comment. It’s a win-win.

Chandler: Oh yeah, gym member. I try to go four times a week, but I’ve missed the last 1200 times.
Ross: So why don’t you quit?
Chandler: You don’t think I’ve tried? You think I like having 50 dollars taken out of my bank account every month? No, they make you go all the way down there! Then they use all of these phrases and peppiness to try and confuse you! Then they bring out Maria.
Ross: Who is Maria?
Chandler: Oh Maria. You can’t say no to her, she’s like this lycra spandex covered gym…treat.

Thanks to the writers of Friends, we can kick off what I hope becomes a regular post that we’ll call Dumb Money. Simply put, these posts revolve around dumb money moves that are keeping you from getting out of debt. Keeping you from moving forward with your financial life. Sort of like Dave Ramsey’s stupid tax.

Physical exercise is a great thing. Staying in shape should help your finances down the road because you will be healthier. Exercising creates endorphins which puts you in a better mood. All around, exercise is a good thing and I’m not knocking it. In fact, I need to do more of it.

I am knocking paying $25 or $50 per month to let someone allow you to exercise.

What does a gym offer that you can’t do at home?

• Equipment? You can get by with the basics.
• Special showers? No; at least not that I’m aware of.
• Convenience? What is more convenient than your house or apartment?
• A warm space in the winter or cool space in the summer? If you work out at home, it will be heated and cooled just as much as the gym down the road.

In regards to equipment, you don’t need a treadmill, elliptical machine, or stationary bike. Some basic equipment you can use at home: tennis shoes and dumbbells. Of course the shoes are to jog/run outside. You don’t need fancy $100 running shoes either — I use tennis shoes I’ve had since high school. I’m 23. (Again, I’m not a fitness expert, but these work for me.)

Dumbbells are surprisingly diverse … you can work a lot of different muscles with such a simple tool. Judging from a quick Google search, you might expect to pay $1-2 per pound per dumbbell. So your $25/month gym membership would buy you two 10 lb. or one 20 lb. dumbbell in the first month. That would keep you busy for the first month, and you get to keep them! The next month you could buy additional weights, or save for something larger; in essence building your own home gym.

On top of jogging and dumbbells, you can do push-ups and crunches. All for free. In your living room. In your underwear (blinds closed, please).

Just like any other service provider, gyms want to entice you with “free” benefits — especially this time of year. It’s New Years resolutions time, so sign up now and get three months free! Or free spa treatments in your first month, or, or, or…

$25 per month is $300 per year. $50 is $600.What if you put $50 towards your debt snowball, emergency fund, or retirement account?

So don’t be Chandler. Suck it up and quit the gym!

* * *

I just noticed Flexo at Consumerism Commentary wrote an interesting article in 2007 about the gym: 10 Things Your Gym Won’t Tell You.

I am always looking for little ways to save money. You can save money by not spending it, or spending it more effectively. This post goes into the latter category.

I can’t remember how I came across FatWallet, but I’m glad I did. It is an all in one “deal” site. Users post up deals they find online such as coupon codes at specific retailers. Also, retailers register and will give a certain amount of cash back (through FatWallet) if you visit their site through FatWallet. This is designed to give consumers incentive to purchase, of course. However, if you are already planning on purchasing from the site it becomes an extra discount.

I’ve made three qualifying purchases so far. Back in November I decided I was going to refresh the hardware in our desktop PC. I always purchase parts through NewEgg. Through FatWallet, I can earn 2% cash back on my purchase. I did just that and earned $15.26 on $762.94 in purchases. I would have purchased the parts at NewEgg regardless of the discount, so this is just a nice bonus. On top of all that, I also get cash back on my credit card. Cash back coming from everywhere!

The only catch is you must wait a standard 90 or 120 days from purchase to claim your cash back. This is to insure you don’t purchase items and then return them, while keeping the cash back.

My third purchase was refurbished printer ink, but I’ll go into that purchase at a later date.

I’ve got $26.69 eventually coming back to me. Have you used FatWallet?