Debt

Making a profit by downsizing – Round 2

If you recall, a few months ago we got a flyer in the mail that made us seriously consider downsizing our SUV, but after running the numbers we came to the conclusion it was more expensive to downsize… Earlier this month we got another flyer in the mail, but this time for our home. The flyer stated that if we wanted, we could let this team of realtors

1. Sell our home for free (no closing costs)

2. No buying fees on a new house, and

3. Get $20k in upgrades in said new house.

Dude, now that sounds like a bargain!! Actually, it sounds too good to be true, especially since this development is just up the road from us, and we think it’s the prettiest, best designed “new neighborhood” going in around here. 

Read More…

How do you define success?

Dollar, Dollar bill y'all! Oh wait, those are just dollars...
Dollar, Dollar bill y’all! Oh wait, those are just dollars…

It’s no wonder that we as a society are such consumers and create such financial issues for ourselves all in an effort to keep up appearances that we have money and are successful. You can’t go anywhere without seeing ads showing what success looks like, and therefore what we need to strive for. The bigger question that we forget to ask ourselves is, “What does success mean to us and who are we trying to look successful for”?  It all seems to be relative though, driven mostly by how you define success. When you’re constantly looking forward striving for bigger and better and more, at what point do you declare yourself successful enough?

Then what measure do you use to determine “success”? Is it having enough free cash to do what you want with? Is it the “He who has the most toys wins” mentality? By those standards, I should keep the job I have now for many more years, and spend money like I have a good oil-field salary. Why can’t I have a boat? I love to spend time on the water, the kids are old enough to enjoy it now, and we can afford it. Check – we’re getting a boat! We should get some nicer cars too. Right now we can drive past people and they don’t realize the kind of coin we’re bringing home, not anymore. Check – we’re getting newer, fancier cars! Plus, we need something to pull the boat! Now that I have a boat, I don’t want to spend 1-1.5 hrs on the yard each week to save $25 and I like boating better, so we should get a yard guy. Check – we’re getting a yard guy! You know what, now that I think about it, I like eating out for lunch at the office. I’m tired of my home made sandwiches and chips and apple every day, day in, day out. Check – I’m eating out more! We also need to vacation more, because we don’t get a lot of down time to reflect on our “success”, so you know what, we’re taking more vacations!

Dude, now this is success!! I’ve got a nice boat, a better ride(s), no lawn worries, and I get to have someone else make lunches for me and they’re WAY tastier than my ol’ sandwich. Plus, I get to plan our next vacation for the end of the year and the ones for next year. Talk about living the good life! See, it’s pretty easy to measure success, just look at all our stuff. We have SO much stuff, we even have a storage unit now to hold our extra stuff. It reminds me of when Homer told Monty Burns he was the richest guy he knew, and Monty responded with, “Yes, but I’d trade it all for a little more.” 🙂 So does more stuff equal “more success”?

What would it look like if I defined success by a different measure; a measure of time and freedom.

You're doing what?!
You’re doing what?!

If I tell someone that instead of pursuing all of that, I want to quit my 6 figure job, give up the boat, give up ever owning a fancy car (goodbye BMW dreams), eating out all the time, and give up a “big, fancy house”, so I can try to live off of $50k/yr they’d tell me I’m nuts.Heck, I told myself that before I got on board with this whole lifestyle change we’re striving for. Honestly though, after reviewing our spending this last year or two, I don’t see why we would need to live on more. Yes, more money could be more comfortable, but I’m already comfortable now. Yes, we could feel a little more secure having a paycheck show up each week, but I’m okay with withdrawing money as needed from our savings, as per the plan. You know what I will get more of though? Time and freedom.

I can’t BUY that right now. Let me rephrase that. Right now, I am currently buying future Mr. and Mrs. SSC time and freedom by forgoing the boat, the BMW, a bigger house, and bringing my own lunch to work each day. We still vacation enough for me, and after our lifestyle change, we’ll have more time to do more of that. So I can buy time, but it’s in the sacrifice of current convenience and luxury stuff now. But what about being successful, because I’ve worked my whole life to be a “success”!

Seriously, I don’t know how you could be more successful than by choosing to dictate your life how you want to live it. For me, I want to spend more time doing more family things, and to paraphrase the great Winnie the Pooh, I want to do more “Mr. SSC things.”

Fishing shouldn't only be done on vacations!
Fishing shouldn’t only be done on vacations!

Even more importantly, I want the freedom to do them when I want to do them. Not when they fall into an empty slot on my schedule and I also have the energy to do them. My current schedule has openings between 7pm and 11pm weekdays, weekends (sort of), and every other Friday (sort of). The sort of is a reminder that I still have “life things” to do like dentist appointments, car maintenance, house maintenance, errands, groceries, yard duties, and appointments for who knows what else, like haircuts, kids haircuts, kids dentists, kids birthday parties, dog things, and more. It’s amazing how easy it is to fill those days with things I’d rather not do in my “free time.”

In the end, it’s all about how you decide what success looks like to you. As the Grateful Dead put it, “sometimes we live no particular way but our own” and this rings true all over the PF blogosphere and life in general. We all have different ways we want to live our life, and we all have a plan in place to get to achieve those dreams. Some of us will get there sooner than others and some of us may never get there, although I hope we all get to where we want to be. But I guarantee that none of us will get there if we try to measure up to someone else’s definition of success.

What’s your definition of success? Do you have something you see as a success that others might think “wouldn’t count”?

Layoffs are Looming! Would you be ready?

So it’s no secret that the oil industry is going through a typical cyclical downturn. Blame it on what you want, but that’s just the nature of the industry.

The ups and downs of the oil patch!
The ups and downs of the oil patch!

It’s also no secret that companies have been laying people off left and right. We’ve been fortunate enough to not have to deal with this yet, however, our time has come. Mrs. SSC’s company has been making waves about “re-org’s”, consolidation of departments and the like since February, and it had been rumored there would be layoffs, but it hasn’t been official until the last few weeks. They recently found out that there will be 12-15% staff reductions all across the board, with larger cuts most likely in Mrs. SSC’s group. No one is safe. Being true to their nature as a huge bloated bureaucracy, they plan on releasing little info and dragging the process out into October. Yippee!!
Alternatively, back in March my company announced that we can “keep on, keeping on” indefinitely with oil around $50-$60 a barrel. We did some minor reorganization, stopped our hiring campaign, and put raises on hold. They still paid out bonuses though, which was nice, and my move was well timed, so I already got a nice raise just by moving, so it isn’t too bad.

 

This week will mark the kickoff of the layoff cycle with a release of some info, possibly blank org charts, websites to see how you will be affected, and the like. Yep, everyone gets to essentially re-apply for their job and compete with others that may also apply for their job. Joy! Being a large company though, some people have gotten more information quicker than others. For instance, on a recent fishing trip a friend of mine told that he knows his boss’s job and likely his job is gone, as his group is going from 21 to 11 people. He’s kind of freaking out, because he’s a sole bread winner for his family, and no-one is currently hiring. However, he has a pretty good savings account, and he and his family live fairly well below their means. While he is worried, he isn’t super worried because they carry almost no debt, just the mortgage, they have a good savings account and emergency fund, and they have an amazing support group available from their church should things get really, really, bad. Another friend of ours who works with Mrs. SSC, recently had his wife get laid off from a different oil and gas company. Since he is now the sole bread winner and also works with Mrs. SSC he is more than a little worried about what could be coming. Again, they live pretty well below their means, and manage to save a decent amount. His job still covers their bills, and they can still save some along with that. So, while they are worried, they are not as worried as some other friends of ours, but no-one wants to be out of work, and have to start tapping into emergency funds and savings while scrounging for a job.

In my new company, I’ve only come across 2 people who mention that they save money outside of their work retirement plans. Two people… One of them is a new hire, and he follows the model of “pay yourself first” and then live off what’s left over. For instance one week, we were going out to lunch (I know, I know) and I invited him and he said he was going to be pretty broke the next 2 weeks because of a miscalculation with transferring funds to a Vanguard account. Apparently, he’d set it up to make a “monthly” transfer and it hit his account twice. Instead of dipping into his savings or other funds, he just shrugged his shoulders and said, “Nope, can’t afford it for the next 2 weeks.” Commendable, because I would’ve just used “other money” and then “rewarded” myself on saving twice as much as I’d planned. Sidenote – I still have bad financial ideas sometimes. The other person has “outside of work” retirement accounts, and a fund for a retirement home rather, a house to live in in retirement already and they’re only in their early 30’s. The rest of the people from our work group looked at us like we had tentacles growing out of our heads when they heard us talking about Vanguard funds, retirement savings, expense ratios, and the like. One person said, “Why are you talking about retirement, that’s like forever away!”

 

That leads to conversations of other people we know that are not in the same boat. Specifically, a couple that makes two oil industry salaries and are freaking out about layoffs, because they still live paycheck to paycheck with little to no savings, much less emergency fund savings. Yes, you did read that correctly. This couple, in their 30’s with children, still gets occasional help out from their parents with bills and vacations. They like extravagant vacations, and they take them as often as possible. In between vacations, their spending habits aren’t reigned in well either, because that’s just the lifestyle they are used to. They know they should be saving more, or any really, but between little things here and there, and kid functions, and birthday parties, and groceries, they just don’t manage their funds well. They are really worried, because with a layoff from just one of them, their house of cards could easily crash down. They’re taking the ostrich head in the sand, fingers crossed approach and hoping for the best.

 

This attitude and lifestyle of spend, spend, spend rings true with more colleagues of ours than you might think, hell it’s probably not much different in your industry either. For the occasional person that may be thinking about retirement early, or retirement at all, everyone else is thinking about more ways to spend their paychecks. It’s just mind boggling to me that people don’t save more. I have to say though, if I was still single and hadn’t met Mrs. SSC, I’d think I was doing alright maxing out my 401k, and having my debts paid down. If I was diligent enough to actually have them paid down, which is doubtful. Even then, I would probably still be only a few paychecks away from disaster. It was living with Mrs. SSC that got me to realize how to break that spend, spend, spend cycle and start focusing on investing, saving money, and paying off debt.

 

As the weeks move on, things will be pretty stressful around here. Maybe we’ll luck out and Mrs. SSC will get to retain a spot on the payroll. Maybe she’ll get laid off, and get to figure out what to do next? I know we’ve already figured out exactly how it will affect our FFLC date, and our savings though. Since this post has already gotten so long, I’ll go into that in detail next week with part two of this crazy adventure! Yeah, layoffs!!

 

Source: Macrotrends, Inc.

Free money cost me HOW much?!

money graph
Free money cost me HOW much?!

While Mrs. SSC was paying the bills, she noticed that Discover had a cash-back reward offer for her personal Discover credit card that she uses for her ‘allowance’.  Anyway, Mrs. SSC noticed that there was an offer of “spend $2k/month for the next 3 months and get $300 FREE!” Mrs. SSC thought this was awesome, since we have a second Discover card account that we use as our primary household credit card for bill paying/grocery/gas/etc… type of card that gets paid off every month. So, she went to see if she could sign up for this awesome deal with our household Discover card, and any guesses on whether it was offered on that account or not? Hmmm? Anyone?

No, is the correct answer.

So, for the card we typically have a fairly consistent amount spent on each month, there is bubkus in regards to additional offers. On the more meager monthly spend card (Mrs. SSC allowance spending) there was this nice reward offer. So then, would it be worth it to use that card for groceries and gas and get an extra $300 in a few months? Sure.  But, really Discover just wants her to boost her spending to match that of our other account with them… As my 3 yr old would say in a sing-songy voice “Ooohhh, Discover….”

So, Hooray Us! for getting an offer to get cash back above and beyond their typical rewards, but it strikes me as devious or scheming in how it was presented.

Although, thinking about it now, I guess it’s just plain business. They see someone not spending much on their card each month, so why not try and lure that person to spend 3-4 times the amount they normally spend. Especially with the holidays, if you give a consumer a target of say ~$2k to hit and get “rewarded” with a free $300 to spend at Amazon among other places, well, it would seem that it should be a no brainer to spend that amount and get your “free money”. Then maybe they are over their usual budget and can’t pay it all off at once and then interest accrues. Who wins there? Discover.

But think about this in the case of most consumers.

Hell, let’s use me as an example of said consumer, from just a mere 7 years ago. I carried revolving debt and was constantly paying towards it, because my spend was way over my pay-down each month. Yes, yes, I know, Bad Mr. SSC, and you can read about that more here. But I would’ve been delighted at that offer. Spend $2000/month and get $300? Hell yeah, free money! But is it really? Let’s say I had just 16% interest (I paid late occasionally, so it was probably closer to 18% – cringe!!) over the course of one month, that interest would be $320. Someone check my math, I could be way off…. They’ve already gotten their “free money” back plus $20 if I don’t pay it down for just 1 month. 1 month! That’s it.

So for all those analysts sitting inside the machine that is called Discover, they’ve just earned their bonuses. Think about it. If they get just 10,000 people to accept this offer and not pay their additional $2k spend down for just one month, they made Discover an extra $200,000!! That’s just from the $20 extra per person that doesn’t pay it all down. And that’s not compounding that with the fact it will probably take more than 1 month to pay it down, so just by this one little offer, they will most likely make more than they put out there to give away as free money. Genius Discover, pure genius!

For those not in a situation to pay that balance off, it’s lose, lose. But I wouldn’t have known that or thought about it back in the day, and they would’ve made way more than the $300 they “gave” me. I would have never realized I just stole from myself because it was worded as spend blah amount and get Blah amount FREE!

Have you ever gotten taken by something that seemed great but you realized later, “This free money cost me SO much more than it was worth?”

I’d love to hear that younger Mr. SSC wasn’t the only one that wouldn’t see past that “free offer” and get taken for much, much, more.

Bad Decisions 5: Cashing out my 401k!

Capture401kHave you ever done something ridiculous like cashing out a 401k? I did. Yep, one of the biggest money mistakes you can make and I did it, against countless advice to NOT do it. Let’s go back to how this all got started.

The year is 2005: I had been out of college for about 3 years, had a nice steady job, and had finally gotten accepted into grad school. It was a great school with a top-notch reputation, and I would practically be guaranteed an almost 6-figure salary when I graduated. However, I was having trouble maintaining a good work/school balance. I was still working my full time construction-type job, which had pretty variable hours throughout the work week. Scheduling my job and school was a nightmare, so after a year of dealing with a harried schedule I decided school was way more important and had to be my focus. I had been going to school part-time, but since that wasn’t working out well, I bit the bullet and quit my job and signed onto school full-time.  This left me with a decision to make regarding my 401k.

After looking into IRA rollovers, as well as my present bank account, I decided, “Hell, I’ll just cash it out. I can easily make up the difference when I start working again in a few years, no harm no foul. That money can help me more now.”  I had applied for some student loan help already (see Bad decisions: It’s raining student loans!), but I was accustomed to living off of ~$45k a year and dropping to $20k a year as a student really hurt. I mean, I wasn’t able to keep my spending in check at $45k, so how would I do that with half the money? Realistically, I know realize that I could have made $90k and still not kept my spending in check…but that’s another story. So, I informed my company that I was going to cash it out and got some pushback. “What?!?! Don’t be stupid, just roll it over into an IRA.” “Why would you want to cash it out, you’ll get hit with taxes and penalties, you won’t even be able to keep half of it!” But I just thought, “Ha-ha! Little did they know I’d already come up with how much I’d be able to keep, and yes, with the taxes and penalties, I would not be able to keep every cent of it. BUT, here’s the kicker! I’d be able to still keep more than I put in after I cashed it out and paid it all off.” Yep, I thought I was being pretty, pretty, pretty smart. I had already calculated that the value I would get paid out, penalties and all was greater than the amount I had originally paid into my 401k… so I’d still be ahead. I was a pretty smart guy.

Even my financial person did their best to talk me out of it at the 11th hr. They even had paperwork for an IRA ready to go in case I had a moment of clarity.  Did I still take the cash out? You betcha! I even had some members of my family on my side supporting my decision, because, “Hey, you need that money now. You’ll get more money once you get out of school and get a nice job.” And who am I to argue with someone that’s agreeing with me? So I cashed it out.

So, what did I do with it you ask? Surely something great and fun, and memorable because I gave up so much potential growth on that 401k, right? No, not really. As I’ve been thinking about writing this post, I realized I can’t even remember where it all went. Six years of saving for nothing!

Well, that’s not entirely true… My car’s transmission went out and instead of forking over $2k to fix it, I thought “you know what, I’m not a car guy, I need an SUV. They look cooler! Besides,I go to the mountains and snowboard and hike and fish and do outdoors stuff, of course I need an SUV.” So, I started car shopping, used of course, and something I could cover with cash, or at least just a minimum loan. I’d only had a couple of credit crads and one car loan previously, so a small car loan couldn’t hurt, right? I went out and test drove a few SUVs and haggled and got a decent deal on a 4WD Ford Explorer Sport. I loved that SUV.  I’d paid most in cash, and drove off with it, while they were working up the loan details for the remaining portion. A few days later they called and said, “Well, because of your credit score not being stellar, and the fact that you don’t have a job, the banks aren’t wanting to loan you any money right now. You’re going to have to bring the SUV back or come up with the remaining portion.”  Gah!!! In hindsight, I should’ve taken it back and found something I could get with the cash I put towards this deal, but no…. That’s not how young Mr. SSC thinks. Instead, I checked my bank, and what do you know, my student loans had come in, so I withdrew the remainder of the money needed and ta-da! I had my new vehicle. The rest of the 401k money went toward credit card debt, and into my meager savings account. The SUV was about the only fun thing I did with the 401k money. Man, did that Explorer turn out to be nothing but a money pit, constantly needing repairs. After only having the car for maybe 3.5 years, I traded it in for a new car – thus saying goodbye to the end of my 401k.

What I didn’t understand or calculate at the time, was the lost growth potential that my 401k could have been earning for me during those 2 years. Realistically, I wouldn’t have touched it until I was 60, if it had actually survived, so I didn’t calculate all of those earnings I would miss out on. By cashing it in, I was only counting the $8-9k I could get in the short term, which yes was more than I put into it at the beginning, so I didn’t short myself there. I was also counting on the fact that with my post grad-school job I would be able to replace that money in a year or two, so I reasoned that my 401k wouldn’t miss out on more than a couple of years growth. HOWEVER, I didn’t take into account the fact that it could keep growing and growing, from about the $12-15k it was when I cashed it out to about $45k. I wasn’t “gaining” an extra $1-2k from what I put into it, I was stealing ~$30k from my future self. Ultimately, me being “smart” cost me way more than I thought. What a moron I was. I look back on it now and shake my head that I could be so financially ignorant, but I just thought of the near future and not the retirement future, and that is what kept me thinking, “This is a good decision, and I can recover from it in no time.”

 

Mrs. SSC says:

Wow! I’m beginning to realize that I don’t know even half of the stupid, bone-headed decisions Mr. SSC made when he was younger!  Good thing we rushed into marriage – now we are stuck with each other!  Anyways, so Mr. SSC asked me to calculate what he lost by cashing in his 401k back in 2005.  Let’s say Mr. SSC cashed out $12,000 in 2005, of which he got $9,000.  If instead he rolled it over to an IRA based on the advice of his coworkers, HR, and financial expert, instead of listening to his financially-backward family, who were probably just hoping that some of that money would come their way.  Anyways, I’m pretending that this more intelligent version of Mr. SSC  gets 7% returns, and inflation increases 3% yearly.  Wow! Mr. SSC would have the equivalent of $42,000 at the time he turned 60… or about 10 months of living expenses.  Looks like Mr. SSC gave up almost a year of freedom for that ‘cool’ SUV.  Sigh…   Just for reference, when I quit my engineering job to start graduate school in 2003, I had ~$45,000 in my 401k from about 4 years of work, which I diligently rolled over. This could grow to over $170,000 by the time we turn 60, and luckily, my good decisions should buffer Mr. SSC’s nasty financial mistakes.

 

What are some boneheaded money mistakes you’ve made in your life? Even better, what did you learn from them? Let me know!

WTF Student Loans

I was reading this article that hit close to home regarding student debt, and it was discussing the fact that senior citizens are making up a portion of the overall American student loan debt. It described a story of a lady that took out student loans twenty years ago, TWENTY, and due to the economy going south, laid off, a divorce, etc… she had put it into deferral, or couldn’t pay it and it was now almost $100k. That’s serious coin at any age, but trying to become retired and pay off a $100k debt, how the hell does that happen?

This got me to thinking, “If the student loan debt for senior citizens is $18 billion, yes BILLION, and it represents just a small percent of the overall student loan debt, how much money do Americans carry in student loan debt?” A quick Google search revealed that the overall student loan debt load is $1.2 TRILLION! What the hell?! The average is $26,000 in student loans, however, they then note that 1 in 10 have over $40,000 in student debt.  That is a lot of debt!

It reminded me of my situation, since I was the 1 in 10 with over $40,000 in debt. I know many people who got through school with no loans, or minimal loans, as they used them to cover tuition and books only and not their living expenses. And most of those folks were diligent and mindful and quickly paid back the student loans.  This makes me wonder if the current high loan average is reflective of actual cost to go to school or the poor financial mindset of most Americans? Thinking about my friends, the ones who had minimal loans have always been debt averse, and very prudent with their finances. But those people who had huge student loans, like me have tended to be more debt heavy, and make bad financial decisions.

For instance, Kate (totally made up name, but real friend) would go through a cycle of enrolling in classes, being super pumped about them, taking out loans to cover the cost, then 75% of the way through the semester, just stop attending classes, turning in assignments, and ultimately having to jump through loads of hoops just to get a failing grade at the end of the semester. Loan debt is acquired, and no payoff is seen from it. I had many an argument with Kate regarding this as I was full-time school and work and didn’t get what she was doing every semester. I mean seriously… wtf? This cycle happened so often, she wasn’t allowed to get loans anymore. Needless to say, she has accrued even larger loans now due to interest racking up from non-payments while the loans are in deferral or penalties associated with late payments.  Another person that comes to mind was a former co-worker who had almost $65,000 in student loan debt, let’s call him John. John’s original loan amount was closer to $24,000. How did it get that high you ask? Well, I met John when he was in his 40’s and he had been carrying that debt around for almost 20 years, like the woman featured in the article. He would make payments, but then be too broke to afford it, so they would go into deferral due to economic situation, or something similar, but he never attacked the principal, and now is in his 50’s with a lot of debt. He also made poor financial choices though, like purchasing a brand new $60,000 SUV with loan payments of ~$700/month for the next 7 years, and that was with a vehicle to trade in. He didn’t seem to mind and enjoyed the new car because it “could fit all of the kids in it comfortably.”

My point is that maybe the fact it is SO easy to get student loans isn’t the issue, and maybe even the outrageous cost of college nowadays isn’t the issue, but rather the mindset of the people taking out the loans. People with a  poor understanding of what it is they are actually doing to themselves, like Mr. SSC, just take, take, take and don’t worry about interest rates or loan amounts, because “it will get worked out and paid off eventually.” I wasn’t very debt averse and had no problem carrying around debt, because I didn’t truly understand what it meant. Hell, I’m still not very debt averse, I just have seen how negative it is and how bad it can mess up your planning for any retirement, much less early retirement. A friend of mine, Alex, was asking about student loans back in the day, and I said, “it’s easy, just go fill out the paperwork and “Ta-da!!” Free money.” I literally said free money… Oh, Mr. SSC, what a poor grasp of finances you had back then. Alex looked into it and said, “Dude, I can’t get a loan rate below 6%, what did you get?” Mr. SSC, “I don’t know, I didn’t pay attention.” Alex, “That’s like a car loan, why not just get a private loan from the bank then and haggle for a better rate?” Mr. SSC, “Sure if you want to go through the hassle, but we’ll be getting good paying jobs in less than a year, so why not just get this loan and pay it back then? You should be able to pay it off in a year or less after you start.” Alex, “Nah, I don’t need the extra money that badly.” Another example of how a good vs. bad financial mindset can save you money in the long run.

If only I had that mindset back when I was racking up the student loan debt, I could have saved myself a lot of money, stress, and gained more time towards early retirement. For your amusement or maybe it will turn your stomach, I’ve also found this link to a student loan debt clock from Financial Aid.org. It’s truly amazing…. In a very, very bad way.

 

Bad Decisions Part 3: Easier credit, harder payments

So, when I left off in “Bad decisions Part 2: Easy credit, hard payments” recall, I had just started using my credit card how the credit card companies wanted me to use it. Racking up debt way beyond what I could pay off each month, and continually adding to it, to inevitably have a lifelong bill and interest payments to “the man”. Remember, they have all the loopholes and technicalities taken care of so a late payment, jump interest to 14%, another late payment, 16%, it rained today? 22%, haha! Okay that didn’t happen, but it sure seems like it could have with the ways the interest rate would keep increasing.  I didn’t really understand that higher interest rate means I’m paying way more for my borrowed money than it’s worth.

 I lived on the edge like that with no savings per se (recall the student loan post) but then, I broke my collarbone mountain biking. At the time, I had decent health coverage through work, but it didn’t cover the unpaid time-off that I had to take to heal. So, while I spent 12 weeks healing, my bills grew higher and higher since I no longer had any income. After that incident, I had a temporary glimpse of how bad the situation was.  I focused and was eventually able to catch up on rent and utility bills, and then I declared in earnest to pay off the credit card.  Well, I didn’t, and I kept using it like it would never have to get paid off. I’d get it close, but then the alternator would go out on the car, or I’d have to fly home for the holidays, or Widespread Panic was in town for a show… I blame myself, but also the company I kept. They lived by the “we can make more tomorrow” philosophy since they were mostly restaurant servers and could pick up extra shifts and have $100-$300 cash in hand at the end of the night. I was in the kitchen, paid hourly every 2 weeks and had no hope of earning extra cash…

What happened next, wasn’t me putting the card away and paying it off. Instead, I got ‘ smart’ and thought I’d go a different route and play the credit card game against them. Remember, I suck at good financial decisions, I can make bad ones all day long.  Anyway, I decided  that I’d get a NEW card and transfer the balance to that card for 0% interest for 12 months, and pay it off that way. I planned to take that extra $100 from interest on the old card that I was now saving, and use it to pay down the principle on the new card. Except, now I had TWO credit cards, and one was empty! I told myself that I would just use the old card a little bit. But next thing I knew, I was in a restaurant ordering microbrews and dinner and realizing, “I don’t have the cash for this, I should go before the tab gets too big.” I was constantly telling myself that this was the last time – tomorrow I would stop spending and pay down the bill…

But, the credit card didn’t get put away, and it became easier to use that card too. Except now, I have two cards, and I’m putting more and more on them. Enter Christmases, birthdays, Opening Day at Coors Field, subsequent ball games, plus music at Red Rocks, Filmore East, The Bluebird, and Boulder Theater! (Have I mentioned how much I love seeing live music?) I love it!  Denver has a great music scene and man did I revel in it. But it costs a lot. The best example of this was when Neil Young came to Red Rocks for a 3 day show. For the first time ever, I wistfully sat to the side and said “I don’t have enough $$ to go. I can’t afford it.” I was in school with some people that went to the first night and it sounded epic, a first set of all electric, then acoustic, then electric (did I mention Chrissie Hynde and the Pretenders were there too?) So, come the third night after hearing stories of these epic shows, I decided this is it! I’ve had all I can stand, and I can’t stand no more! I’m going to the show! I marched downstairs after class, went straight to the ATM and it said Checking: $23…. damn…. Savings: $60…. double damn… Well, I get paid Friday (this was Wed) I’m working the rest of the week, what the hell. I emptied my savings and walked out to my car. I stopped at a store to get a sixer for the show, and headed out to Red Rocks. I hit the off-ramp and found many people willing to sell tickets, but I was down to $40. After some haggling I got my ticket for $40! It was an amazing show, one of my top 5 ever, but this was typical of most of most of my financial decisions. Impulse, impulse, impulse, and no thought to future.

Eventually, I set up a system to pay the cards down. I would always write a check towards the cards first thing when I got paid. This worked, but it took $750 off the top of each paycheck just to pay down debt. That’s ridiculous! That’s about  $9000/yr towards paying down debt, so why wasn’t it all paid off in a year? Well, I had a LOT of debt, and instead of “sniper-ing” one card at a time, I was paying $300 to Discover, $300 to Visa, and $150 to Target, yep I even got a Target card…. I mean for 5% off purchases? Yeah, it didn’t pay out for me at all. Plus, by splitting it up over 3 cards, I still spent close to the amount I paid for each card each month through dumb decisions. Maybe one month I’d spend $300 on Discover, then the next month on Visa, the next month on Target. This was not helping me pay down debt.  I at least had been at this a good year or so before I met Mrs. SSC, and when we joined financial forces, I still brought in almost $9,500 of credit card debt to the relationship alone.

Looking back, I realize I could’ve been more efficient with my attempts at paying the credit cards down. By going after the highest interest first, then the next I could’ve save us a year or more of work, but no…Spreading it around and paying a little toward each card just wasn’t effective. However, on the bright side, I was consciously working toward paying them off.

What do you notice that tends to be a recurring negative trend in your finances? What, you’re not tracking them? At ALL?! Whoa, right now, open an excel sheet and type “My money” in the upper cell, and start listing where your money goes each month. It’s that simple. Even starting with large categories like, credit card, mortgage, car payment, insurance, etc… can be eye opening as to where you can cut costs. You’ll probably be as amazed as I was when I actually started “budgeting”. In a few days, I’ll be posting about my relationship with budgets in my Bad Decisions Part 4: Budgets are a four letter word!

 

 

Bad Decisions Part 2: Easy credit, hard payments

credit card disaster

So, when I left off in “Bad decisions: It’s raining student loans” recall, I had been succeeding spectacularly at living above my means utilizing cash infusions through student loans. After school with the bills coming out of my ears, I consolidated those loans, but I had added another $300/month expense to my paycheck off the top. I’m my own worst enemy in a lot of ways, and like student loans, I am almost as bad with credit cards. Fortunately, I don’t have $60k limits on my cards.

My first credit card… oh how I love that memory. I had just spent $700 on frigging books for my first semester and was leaving the used bookstore- yeah these were all used and still added up to $700!! What a racket! Anyway, I passed this little folding table with a cute brunette and some papers on it and she said (in a valley-girl voice, even though we’re in KY) “Hi, Are you interested in applying for a credit card?” I said, “Sure, what’s the catch”? Hahaha, I was and I just didn’t realize it. She said, “None, you just fill out this application, and you’ll get your card in a couple of weeks! Do you have good credit?” I said, “I don’t know, I don’t think I have any credit.” She said, “That sounds great, here’s the application!” It was an application for a Discover card, and while I still have the same account almost 20 yrs later, back then I could only use it at a few places and had to always ask “Do you take Discover?”.

I was good with my Discover card for a long time, mostly because I could only use it at certain places, since they weren’t accepted everywhere back in the 90s. Eventually, I fell off the “good credit card use” wagon and used it like it was tied to actual money I owned (it wasn’t). My downfall started when I was on a crazy New Year’s road trip adventure. I had spent the millennium New Year’s in the Keys because, hey if everything crashed with Y2K, I’m in a good spot right? Except I ran out of money, and somewhere between there and Arkansas to visit family (remember it was a crazy road trip adventure — KY to FL Keys, to AR, back to KY to pack, followed by a move to CO almost 3,800 miles in ~2.5 weeks). I called up to get a cash advancement from my credit card because my bank account was empty and I still had this big trip going on… NEVER do that, it’s like 21% interest and it never gets paid off until you pay off every other dollar first. Big, big mistake. Plus, taking a vacation right before moving across the country and maxing out funds before the move wasn’t the brightest idea either.  So, that was my first run-in with a big bill and having to make an effort to pay it down. I literally put it in a drawer and paid extra toward it and it took almost a year to pay off my huge $1800 card bill. But the point is that I did it, and I paid it off even in those trying financial times as a student.

But I didn’t learn my lesson. As soon as the Discover card was paid off,  my brain was yelling at me ” Guess what, my card’s back in my wallet baby!! yeah!!! Let’s celebrate!!!”   Looking back on that now, it is amazing how much family and friends influence our views of money.   A co-worker once told me about her dad being super broke and unexpectedly coming into a chunk of change ~20k, almost enough to cover his debts, and I said, “Oh, is he throwing a party to celebrate?” and she replied, “How do you know my dad?” I said, “I don’t, but I know my dad, and that’s what he would’ve done with ANY extra money.” I treated my finances similarly, I mean monkey see, monkey do, right?

I would go on to repeat this cycle often. Rack up the card, get it maxed out, I’d even get to pay them extra $$ for maxing out my credit line. It seems counter intuitive, but those bastards have it all figured out with loopholes and technicalities for financial idiots like myself. I loved seeing the statements with the “you’re maxed out, let’s charge you XX% interest for that too!”  posted there.

I used credit for exactly what the name insinuates, a line of credit I could rack up and then pay down and then rack up again in an endless cycle. I didn’t see that I could do the same thing with just saving money… I needed the immediate gratification of “I need this now, I want this meal, I want these margaritas, I deserve this!” That’s how I felt, and I also felt that saying to someone, “I can’t afford that” was admitting failure at life. This led to the majority of my credit card spending. Well that and impulse buys after 11pm on Amazon (damn you one click ordering!!)

A perfect example is my “Richard Pryor night” as Mrs. SSC puts it. My favorite comedian of all is Richard Pryor, I just get all his humor and can connect to it, and it literally makes me laugh, and feel sad, and back to happy every time I hear it, the guy is just so real and out there with his soul. Anyway, one night I was thinking, I have a few mp3 comedy skits, but what could I get on Amazon? A few clicks later, I have almost all of his recorded shows ordered, a couple of cd’s, and some autobiographies, and a book by his daughter. Well, it ended up being ~$120 of Richard Pryor, and as Mrs. SSC puts it, “Richard Pryor stuff was showing up for days on end.” That was from my allowance (see the allowances post) but still, this is a perfect example of my mentality with spending. This is great, I want this, buy. Oh shiny! I want, buy, buy! Oh shiny! repeat…..

The big point is that when I started out with credit cards I used them for  fairly mundane reasons and maybe how they’re intended? Emergencies, car break downs, unplanned contingencies, and not as often to cover a vacation, night out, etc… As you’ll read in my next installment of Bad Decisions 3: Easier credit, harder payments; I cross the line from recreational user to hard core credit card addict. Damn credit cards, damn my impulse buying*, damn my lack of discipline with the 1 week rule because I KNOW I’ll still want some Pryor after 1 week, so why delay it? Impulse buying ruled my life for a long time, and it still takes over occasionally.  Mostly, it’s in check now, and luckily, I have an allowance to reign the wild spending in, whether I like that system or not.

What are the habits you find yourself repeating? What do you do to break them? I’d love to hear about it, because as you can see, I’m still having trouble breaking mine… I’ll go into some of my methods to protect me from myself in my next post, but until then, let me know about yours.

 

 

*Damn! I just found another few albums of his comedy material and have those on their way to my house in 2 days. Yeah allowance! Looking forward to the commute getting to listen to some  “new material”!

Bad Decisions Part 1: It’s raining student loans!

SSC student loans

When I was in college and  grad school, I took out much more in student loans than I needed, to try to live above my means, and I have only recently started to understand the financial ramifications and lament the decisions that the younger Mr. SSC made. Let’s start at the best place to understand these decisions: The Beginning!

The problem started a long time ago when I was working on my Bachelor’s degree.  At first, I was undeclared and attending college simply because that is what I was supposed to do.  Initially, I was attending Western Kentucky University (WKU) on a Pell Grant while also working long hours at a restaurant to foot the other bills. I got the shaft when my mom married a judge and they claimed me on income tax and it derailed my Pell Grant status. After a couple of semesters paying for school myself, I took some time off to figure out what I wanted to do, and if it even involved college. My time-off resulted in a long hiking trip, and the decision to go back to school to pursue an environmental science degree. I declared my major, registered for classes, and was introduced to the wonderful world of student loans and it was amazing! They’ll “give” you money to go to school! This was brilliant! I could get a student loan, pay for school, and have some cash left over for living expenses. After all, it was ‘deferred’ – not that I really understood at the time what that truly meant. This was like getting the free money of an income tax refund two more times a year. Awesome!

Obviously, I started taking out student loans. Fortunately, the school was in-state tuition, so not very expensive. Nonetheless, I still managed to rack up about $12k in loans over my 1.5 yrs there. In August 1999, I went to Colorado to visit family and fell in love with the area.  By January 2000, I was enrolled at the University of Colorado at Denver and studying full time in the geology program.

Upon transferring to CU Denver, I did myself several disservices. First, at WKU I had completed all my required elective courses, and only needed 3 semesters to complete my new major. However, CU Denver classified things differently and I needed another 30 hrs of electives (ten more classes), almost 2 whole years because I could only manage 12 hrs a semester while working. Even worse I had to take math! Two frigging yrs of math! Gah! A whole semester of trigonometry only, and a yr of algebra, and a yr of calculus and I’m sure there was a semester of regular geometry, shit, that’s 3 yrs of math, see how bad at it I am? That just added more time and $$. Second, I was now an out-of-state student subject to out-of-state tuition. This was three times the in-state tuition price. “This was fine”, I told myself, “it will only be for 2 semesters, so it won’t be that bad”. Subsequently, my school loans jumped from about $5k/semester to ~$16k/semester* for tuition alone with almost no left over funds for subsidizing living.

My plan was to live in Denver, work and go to school downtown, and be able to play in the mountains in my free time- now that’s the life! Except I now had to study a lot just to pass stupid math classes and work full time and be broke, so I didn’t get to the mountains much except to hike some 14’ers on the occasional weekend day I may have had off. Sigh….   I was maxing out loans and still working full-time at a good restaurant job, so I had that income, but no savings or contingency in case of an accident. I felt this was fine though. I was investing in me, and my future, and with this degree, surely I’d get a good job to cover these loans.

However, with my poor finance skills, I wasn’t keeping an accurate tally of how much I’d actually borrowed. Take that back, every year I got a statement that said “you owe $XX amount in student loans”, but, I’d glance at it and throw it in the trash. What I wasn’t considering was the payback. Yeah, they eventually want their money back! Gah!!! Meanwhile, I kept borrowing and taking as much as they’d give me, and it was like a breath of fresh air each semester when I’d get that check for $3-5k extra. I was so excited that I could catch up on bills, and restock my savings which was empty again (damn thing was always empty, how does that happen?).  I even had a little extra money to be able to go out with friends.**

Eventually, I was out of school and had a good job as a geotechnical engineer. Yeah, I’m not an engineer, but I played one at work. It was a decent gig, I loved the job and it paid about $45,000. I was starting to live the dream baby! Then I started getting bills, a LOT of bills for my student loans. Kentucky wanted money for the WKU loan, Colorado wanted money for the CU Denver loan,  and Sallie May wasn’t my friend anymore, but more like an angry ex-wife. My monthly bills were close to $500. I freaked out after covering them for 3 months when my savings died and I was still paying. I got a great rate and consolidated them all at ~2.25% interest. Hell yeah! That’s some personal financing! I cut my bill in half almost, and now just had one bill to pay, and I set it up to a separate bank account so when I overdrew my main account (yes this happened more often than not) it would still get paid. Good job Mr. SSC, let’s go out and celebrate!

I ended up going back to grad school, and got those loans in deferment as quickly as possible, whew! There’s an extra $300 a month! Now, for more student loans… Yep, I still took out student loans even though grad school tuition was paid for. I was even getting a stipend of ~$20k/yr just to go to school. But I had tasted the good life at $45k and couldn’t go back! Actually, I’m just a sucker for bad financial decisions, and I racked up another $12-15k maybe in grad school loans. See, I still don’t know… Ultimately, I was in for over $60,000 when it was all said and done.

I could have helped us get to FI and leave work to stay at home almost 2 full yeas sooner if I’d been more financially sober in my decision-making. I don’t regret the decisions I made, hell it’s what makes you the person you are – good decisions, bad decisions, ugly decisions. The main point is that by being so financially reckless in my younger days, I prolonged my work life by at least a few years.

I hope that you may be able to learn from my poor decision-making and realize that yes, you can save enough and retire early. Like early 40’s early, even with a late start in life. Hell, I made the worst of the worst decisions, and I cashed out a 401k at 28, it was up to $12000! Still, I’ve been able to recover in spite of myself. For me, it took changing my mindset of living as if there’s no tomorrow and instead looking toward a future with no work and more family time. You may want to have that time with family too, or just fishing, gardening, or doing whatever you want, but until you break that mindset of “I’ll pay it back later” it’s just not going to happen.

Let me know if you’ve made any stupid decisions you realize cost you a few more years getting to FI or early retirement. Check back for more installments of the series Bad Decisions, there have been a lot… Next up — Bad Decisions: Easy credit, hard payments.

 

 

*I tried to appeal the third semester of out-of-state tuition to have it switched to in-state, but I lost the appeal and paid the full 3 semesters out-of-state tuition, because administration loves technicalities in their favor.

** Working at a restaurant had its advantages. I got $2 pints at work (off clock, of course) and a free meal each shift (so, ~6 days a week). BUT, my friends were all servers and got $100 – $300 a night. They were always saying “let’s leave the cheap drinks here and go anywhere else to get more expensive drinks, or out to dinner, sushi anyone?”.  I was running with the wrong but fun crowd, and I didn’t want to be different. So I would go and just charge it to a credit card if I didn’t have the funds available (which was always).