Should funerals count as emergencies?

Recently, the SSC household has been dealing with loss. Mrs. SSC’s grandmother, after whom our baby girl was named, peacefully succumbed to age. As the final weeks of her life drew near the urgency with which to make plans, get plane tickets, hotel reservations, car rental all grew and grew. It was a very stressful time for everyone involved, particularly Mrs. SSC and her father who are over-planners. As we waited to see if Mrs. SSC’s grandmother would pull out of it and get better, we watched prices go up, down, up, and up some more. Eventually, she did pass away in her sleep, and we made preparations to travel across the country to pay our respects.  Luckily, we are currently in a financial position that money was not an object in planning travel.  I mean, don’t get me wrong – the airlines robbed us, but we are fortunate enough to be still be able to pay bills, and not have to ponder whether or not we should travel.

All of these preparations got me to thinking about when I lost my dad and my grandparents, years ago.  I wasn’t in nearly as comfortable of a place financially and it would almost break me every time I would need to travel for funerals. Besides the added costs of last-minute trips, I was also losing time at work. With hourly jobs, sure you may be able to take the time off, but now you’re paying a lot for traveling to say goodbye, and you’re going to get a shorter paycheck in the subsequent weeks. Back then, I wasn’t ever disciplined enough to have a “real” emergency fund, so I couldn’t dip into that when needed. I would scramble around trying to rummage up enough money for the trip home, inevitably putting the costs on my credit card, where they would sit for months and years accruing interest.

When my father passed away, I was in a little better spot, but it was still almost $800 for a plane ticket, ~$250 for a hotel, and ~$200 for a rental car. Yes, I could have stayed with family, but my family tends to stress me out with their bickering, in-fighting, and excessive drinking. It was well worth it to have a place to go that was stress free.  The costs were  a little higher when my grandfather passed a few years back, requiring travel near the always-expensive Thanksgiving holiday, but even staying with family then, it was still close to $1100. Mrs. SSC’s trip last weekend cost about ~$1200, even splitting the rental car with her parents.  Having that ~$1000-$1500 available for such last-minute travel is not a luxury that many people have, but it’s a cost that many of us have to bear, unfortunately too many times in our lives. When my Aunt passed away this last spring, it was again around $1000 for a single lane ticket, rental car, and hotel. We almost donated the money to cancer research instead, but I felt I needed to go, so I went.

I never thought about planning for “funeral money” in the emergency fund until this past week. Even in our household, budgets and monthly savings are going to be adjusted to help offset this recent unexpected expense. None of us expect someone to pass away, and even when they are very old or in very poor health, we never plan on the expenses for their funeral until the week prior to their passing, if you’re fortunate enough to get that kind of warning time. Even then, who can pull $1200 out of the air to accommodate those extra costs. Like us and most people, it will go on a credit card to be dealt with later, when the pain and grieving isn’t so bad. Now I am realizing that having that emergency fund to help offset the funeral costs is a big help. If you’re like me, I thought of emergency fund in terms of “emergency problems”, and if you’re like me, it was not nearly robust enough to cover 6 months of expense, let alone 2 months of expense. Really, who keeps emergency funds that really can cover 6 months or more of expenses? I know I wasn’t disciplined enough to do that, and I always blamed that I didn’t have enough extra cash to set that much aside, much less enough to cover more than the occasional car repair, school books each semester, etc… I didn’t plan on needing an extra $1000 in there to cover funeral related travel expenses. Unfortunately though, I found that if you want to have a true emergency fund, making sure it can handle that sort of unexpected hit is something you may want to consider.

Much like wills, this is an awkward topic, and one most people avoid because it makes them feel uncomfortable or sad, because they are reminded of past funerals they have attended and loved ones who aren’t here anymore. The last thing any of our loved ones would want is for us to get put out by coming to their funeral. Yet, invariably, we all are put out by it in many ways. Emotionally, financially, and even with schedules being changed to accommodate a last-minute “trip” back home, or wherever they live. It’s just a thought I had, that a specific emergency fund for funerals might not be a bad idea. (although Mrs. SSC says she would rather invest that money then sit on even more cash). For me personally, I wouldn’t have been able to replace my emergency fund quickly enough during grad school had I used it towards funeral travel expenses, as I lost 2 grandparents and my father within 18 months of each other, but hopefully, that’s probably not typical for most people.

My point is after having two funerals come up this year, and each one costing around $1000 +/- it seemed a topic that may be worth addressing. While it may seem morbidly specific to have an emergency fund set aside for funeral travel, or even those funds accounted for in your present emergency fund, if you get hit with the double whammy of a car breakdown time adjacent to a funeral, what was already stretched thin may just break. Maybe you are way more financially diligent than me and already have a well stocked emergency fund that can absorb the hit of a car repair, and impromptu travel, but if not, it’s something to consider. By accounting for that travel and related expenses in your emergency fund now, it can be one less thing to worry about when you are already dealing with loss and sadness.

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 4: Budgets are a four letter word

IMG_9803When I was growing up I saw my family go through cycles of budgeting vs not budgeting. My dad saw budgets the way most people see diets, a means to an end, but nothing that is sustainable or pleasant. Essentially, mom would implement a budget, it might get stuck to for a few weeks, maybe even a few months, but inevitably dad would feel too shackled by the constraints of the budget and go back to spending as if he was made of money, which he wasn’t. I never saw budgets as something useful, but rather viewed them as negative and something that meant you weren’t doing it right and needed to be told how to spend your money. I kept that view for way too many years, and didn’t realize how helpful budgets and tracking finances could be.

Clearly, I was wrong about budgets and now I realize that the only thing a budget does is let you see where your money goes, and it helps you divvy it up so that the important things get covered before you spend on excess things like gym, boats, dinner out, etc… You can make your budget as strict or loose as you need. I viewed budgets as a fascist rule over my finances with strict lines I couldn’t cross, or I’d face consequences! Consequences! Therefore, I avoided implementing budgets in the real sense of the word, because who chooses to get ruled by anything? Let’s be honest, I still hate budgets. The word itself brings up negative memories associated with being broke as hell as a little kid, arguments associated with money issues, and the feeling I’m getting punished for something I did wrong financially. It’s no wonder I never had a budget or tried to stick to one.

I’m just fortunate I married someone financially minded, that is way better at money, finance management, saving, and has a hell of a lot more financial discipline than me. Even she implements budgets or tries to. Seriously, whenever Mrs. SSC mentions the word, I recoil and get edgy and defensive. It’s amazing what gets imprinted during our upbringing. Back to budgets. If you’re reading this you have some interest in finance management so let’s get to where I went wrong with mine. Straight out, I’ll tell you I still don’t have one. Never could get one implemented, stick to it, or even had the desire. I had the desire to get out of my situation, but it’s like dieting; I didn’t want to be fat, but I didn’t want to work to be skinny either.

Sooo – here’s was my  “budget strategy” from back in the bachelor days. Money in = ~$800 and money out = $737.50. Clearly this wasn’t sustainable, because I only had ~$30/week to “have fun with”. What a crock! And note there isn’t anything going to savings at all either. And honestly, the check would just get deposited and this was all “deducted” theoretically, not actually set aside in different accounts. Even when it jumped up a few hundred more a check after undergrad, it didn’t matter because my spending habits were to spend more than I made. Plus, I had more than that going out in student loan payments… Gah!

However, even this could have worked with a little mindful spending, but therein lies the flaw in my whole system – tracking spending! How did I track it you ask? I kept a running total in my head, money in vs what was in my account. Yeah, it worked great, that’s why I’m writing about it in the “bad decisions” posts. Remember, I’m not super great with numbers, plus, I have to remember everything and keep a ledger in my head and make sure what was spent was deducted and added up correctly. I have a pseudo-photographic memory so actually, this worked better than you’d think. The main flaw was when I would have “extra money”. My $ in and $ out would be totaled, and even if I accounted for auto-draft bills that were coming due, I’d think, “Yeah good job Mr. SSC, you’ve trimmed costs and done well, and you have some extra coin to spend!! We’re going out!” Inevitably, within a week or so, a bill would hit, something I forgot about and I’d be in the hole.

So, yeah, I never actually sat down and figured out money in/money out and saw the stark reality that I was broke! Always… Constantly… And there should NEVER be extra money, ever. Had I actually just sat down and figured out what bills I had, and then put my pay next to it, and could see how close they were, and maybe I could’ve saved myself a lot of trouble. BUT I never did this. I just “knew” what my rent was, my cell bill, car insurance every 3 months, credit cards were always something, utilities varied depending on season, and gas and groceries were background noise.

This didn’t ever really change until I met Mrs. SSC and saw you could live differently. It still hasn’t changed really, Mrs. SSC just holds me to an allowance that’s brilliant and evil! I’m forced to decide if I want or need something. That’s changed my spending habits more than anything. Being forced to be accountable might suck, but has ultimately been great.

Another positive is that I have seen the positive effects of budgeting and finance tracking. Essentially, without Mrs. SSC, I’d still be in the same boat even with my salary being pretty comfortable. I would have just spent it on a boat, a truck to pull the boat, a sweet semi-restored classic muscle car (dude, I sound pretty country when it comes out like that). Anyway, the point is, I’d just blow it on more expensive crap and not be able to retire in 4 years like we’re planning on. I totally understand how most people are in debt to their eyeballs or making 6 figures and broke as hell. It doesn’t matter whether you make $40k a yr or $140k a yr, if you don’t know how to live within your means, you’ll overspend regardless of your income. Just look at how many pro athletes making millions go bankrupt, actors too, musicians… Bad spending habits just mean you blow more money per purchase not that you have enough money to cover your dumb decisions. I just suck at managing finance. I try really hard, but ultimately I’d fail at managing it well, because I haven’t gotten there yet.

BUT, seeing the spreadsheet and last 6 yrs of finance tracking and our budget, I see the benefit of it. Because of Mrs. SSC doing that and her amazing skills, we can retire in 4-6 yrs. living the same lifestyle we do now. Because of budgets and finance tracking, we even have savings to bridge the gap between now and 60 when we can access our 401k. Our budget includes savings, investments, college for kids, and all those other things most people see as secondary. But shifting them into your budget forces you to save and account for that. Like pre-tax 401k contributions, suck it up and do it if you’re not already. I did it even when I was making $35k/yr. You’ll never notice it, except for when you get older and think to yourself, “Thank goodness I saved that money, I can retire now.”

Or, you can cash it out at some point like I did. I would never recommend cashing out your 401k. Read why I did, and what I did with it, from what I can remember, because yeah,it was that great I don’t even know where it all went except general frittering away….Let me know if and how you track your finances, and stay tuned to the next ” Bad decisions” post: Cashing out my 401k!

 

 

Mrs. SSC:  One tip I have for budgeting, is that I treat our savings as a bill. I set it up to get automatically invested every month, so I have to make sure our budget stays on track. If we need to cut corners on something make ends meet, we are forced to try and trim the grocery bill or other superfluous spending, and not our savings.

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).

The Beginning: Mr. SSC – Jay

Mt HoodEarly Retirement? Riiiiiight….

This “early retirement” stuff, all started in 2014 when Mrs. SSC started throwing around phrases like “lifestyle creep” and “FIRE”, and talking about how we could retire from the 9 to 5 in maybe 5-7 years, instead of the ~20 years that had always been the plan. I mean, first of all, who REALLY does that, and how do they do it so easily? After checking out all the personal finance articles and blogs that Mrs. SSC was constantly emailing me, I realized that most people do this by living on extremely low, almost unbelievable incomes. Especially, the ones supporting a family. It might work great for them, and I applaud them for being able to achieve FI and retire early, but I just saw it as unfeasible for the lifestyle I want to live.

If only there was a way that we could “pre-tire” and transition from dual income parents to dual stay at home parents and not decrease our current lifestyle. Wouldn’t that be great?! Yeah, I agree. BUT, how does that happen? Can it work for us, and if so how? I plan on showing you our approach and how we are getting there- maybe it will help you get there also.

Let me qualify my opinion and statements on this blog with the fact that I’m horrible with money, budgets, and savings, but especially savings, and budgets, and money. My family was bad at it, so I didn’t have any good financial role models, however, I still thought I was pretty good, since I was the best one with money in my family. But the truth is, I just suck at managing finances. I can manage them, but I manage them right back into the economy and out of my checking account…

Enter Mrs. SSC

Fortunately, I married someone who is great with money, saving, and planning. Actually, she’s great at planning anything and everything and so we go well together. When we finished school and started working she already had a nice rollover 401k, and a little nest egg already built up. I had cashed out my 401k (seriously, I did that, the entire 12k…) and I had a lot of debt. Mostly from school loans, but the rest were simply self-induced due to poor spending habits through ease of spending with credit cards. By paying down ALL those debts month after month, and saving for newer cars, we never got the lifestyle creep that comes with most Dual Income No Kid couples.

While I’d been busy wanting a boat (kayaks are fun, but aren’t boats even more fun?), luxury auto (why not me? can’t we afford a nice car?) and wanting to do things other people were doing, my wife had been working her magic in the background.

I realized that while I’d jokingly referred to budgeting and investing  as Mrs. SSC’s hobby, it really was. She  would show me her graphs and spreadsheets and I’d peruse them and think, “why the hell can’t I buy a boat? I see it right there. This amount would cover the boat I want,  come on, one little boat?”  The conversation usually went like this:

Me: “We can afford a boat.”

Mrs. SSC: “Yes, but do we want to afford it?”

Me: “Of course we do! Boats are great, I like fishing, we could have fun on the water every weekend.”

Mrs. SSC: “Where would we keep it? What about tax, title, registration, insurance, gas?”

Me: “Fine, but what about a kayak?”

Mrs. SSC: “You can get a kayak, as long as your allowance covers it.”

That’s why we have an allowance system  that works, um, well it worked I guess…

Anyway, I still never realized this goal of early retirement/financial independence was being realized through Mrs. SSC’s planning. Essentially, when she showed me that this whole time we have been living our comfortable life on about 50% of our income, and investing the rest – I realized that our dream could really happen.

For us, it’s simple. We like our jobs, but love spending time with our kids more. We realized that we can keep our current lifestyle and become stay at home parents when we reach our “number” that lets us have enough money to live on from ages 43 to 60. Right now, that’s in 5-7 yrs depending on the stock market and other things out of our control. Best case scenario, in 4 yrs, we can start house hunting in our pretirement town. Worst case, it’s closer to 7 yrs. I say pretirement, because neither of us wants to stop working, however, if we can work at something we like and not worry about raising a family on that income alone, that’s what we’re looking for. Whether it’s teaching part-time, working in a fly shop, maybe a micro-brewery, essentially something that ties in with my likes and hobbies without worrying that it isn’t making much money.

A couple of weeks ago, my wife found a new financial planning/retirement calculator that she has been loving running different models with. It’s easy to use and you can set it to modes like “I always want to live off of $XXk/yr or I’m flexible to live off %/dividends in stock per yr”. You input your values and it runs it from beginning of stock market to current day and lets you know how many times your plan would fail. Through the 20’s, the 80’s, the recent downturns etc… you can see how you would fare. It also shows your ending wealth, assuming you die at 90. You may be able to change that age too, but again, Mrs. SSC’s domain tinkering with these tools, so I won’t quote anything. (OK, she just told me it is called cFIREsim)

However, what it showed me was eye-opening! It was the first time since all this jibber-jabber about ‘early retirement’ and ‘stay at home lifestyle’ was brought up that I realized “Holy Sh!t, we REALLY can retire before 45!” Seriously… Like a cold, wet fish smacked into your face. It is the first time I realized that this was a reality, even though I’ve been a silent conspirator for years now. For those of you with kids (sorry ladies, this is a guys only moment), it’s like when you’ve been feeling the babies kicks through the belly, see him/her moving around, deciding names, putting together cribs, painting rooms, coming up with baby registry lists, etc… It’s all still abstract until birth when you actually see your child, hear their cry, touch them, and it hits you, “this is real”.

Make your own Retirement Baby and watch it grow bigger each day!

My financial independence baby showed up a couple of weeks ago, and holy crap it’s REAL. We can do this without adjusting our current lifestyle. We found our number, worked backwards, and in 4-7 yrs, we can say adios to the 9-5 dual income lifestyle. Maybe you can do the same, but it will be your way, your pace, and your decision on what that number is and how quickly you want to get there. We found ours and are counting down to slowly sipping coffee on our back porch.