Walking Is Free

Speaking of kids activities, walking is a good one.  And it’s free.

Not only can it be done for free with your kids, it can be done as a family, with your spouse, by yourself.

For example, I just went for a solo half hour walk starting at 6:15 am.

It was a tremendouse experience.  It truly brightened my day.

Also, I have to credit walking as the primary activity in which I generate new ways to think about my finances.  For example, it was on a walk in which I conceived the idea for the credit card calculator and the other personal finance tools.

It’s so simple.  I invite you to try it.  Treat yourself and go for a half hour walk.

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Budgeting (and Rebudgeting) for Kids Activities

We have two boys who are growing fast.  One is 8 years old and the other is 5.

When it comes to activities, we do a lot together as a family.  And in doing this, we naturally impose on them the requirement to roll with the punches.  If we are doing something they don’t necessarily like, for example, they have to deal with it.  Or learn to like it.  We try to keep it interesting so ultimately they end up having a good time doing whatever it is we’re doing, but that’s not to say we don’t encounter resistance on occasion.

We make it a point to try new things.  We’ve held memberships to the science museum, the aquarium — we’ve subscribed to the children’s theater series at our local theater.  We’ve had a zoo membership, season tickets to a local amusement park.  We’ve gone to Disney a few times.  And while I write this, it does sound pretty lavish.  But in actuality we allocate for these expenses and we put a cap on how much we spend on activities.  And relative to the rest of our expenses, it’s really not too bad.  Keep in mind, we hardly ever eat out.

And fortunately for us this model has worked quite well for the past several years.  But as our kids grow, we are finding that we’re loosing our need and ability to steer their interests in a path that is in tune with this model.  For example, there’s baseball.  There’s football.  Summer camps, cub scouts.  Winter indoor soccer.  These aren’t family activities, they are individual activities.  Well that’s great and all, but there goes our budget!

Let’s take a look at what our budget looks like now:

We have worked with this allocation so far.  But this is not sustainable.  For example, both boys want to play football this year.  And the registration fee is $180/person.  Both boys already played baseball.  The registration fee was $80/person.  Baseball gloves, football spikes.  A mouthguard.  A cup — a requirement for football at this age.  Those costs alone might come close to breaking the EXTRAC budget.  Plus we already subscribed to another year at the theater for $142.

Overall, I want to get behind the boys’ interests and finance whatever it is they want to try, within reason.  I will take another stab at this part of the budget:

I increased camps by $20/month.  And I added sports at $60/month.  This seems reasonable for now.  But then again, I would have said the same thing a couple years back before the days of mouthguards and cups.

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People Are Not Spending More

At least on some key things.

While reading the Q+A from the Secret History Of The Credit Card I came upon the following question posed to Elizabeth Warren.

Isn’t it really simplistic to say that credit cards, … if you will, … [are] pushing the bankruptcy rate higher and higher? Isn’t it America’s lifestyle? Isn’t it in the … consumer culture that we want all these things?

I wish it were. I went into this research with my finger out and sharpened, ready to say to American families, “Bankruptcies are up because you’re spending too much on stuff.” … The problem is, when you look at the data, you really actually look at the numbers … what were a mom, dad and two kids in the early 1970s spending on clothing compared with what a mom, dad and two kids are spending on clothing today? You know what I found? Adjusted for inflation, today’s family is spending 22 percent less than the family a generation ago.

How about food, eating out? Surely families are spending much more today than they did a generation ago. No. What the numbers actually show is that they’re spending about 21 percent less than they spent a generation ago. Appliances — today they’re buying microwave ovens and espresso machines. … Turns out, families today are spending 44 percent less on appliances than they spent a generation ago. We could go through the whole list — furniture, … floor coverings, tobacco. … We spend a little more on alcohol, but all those other things are down, down, down. …

In other words, families aren’t going broke because of ordinary consumption. It’s just not what the numbers show. Where are families going broke? The mortgage, that’s up about 70 times faster than a man’s wages over the last 30 years. Health insurance, also up about 70 times faster. A second car, because now Mom and Dad are both in the workforce, and they’re more likely to live in a more distant suburb. Child care … and after-school care, college tuitions. … Today’s family has put two people into the workforce, but for the medium-earning family, they’ve got 75 percent more money than their parents had a generation ago. But by the time they make those four basic purchases — the mortgage, their health insurance, their cars and their child care — they have less money to spend on everything else than their parents had a generation ago. American families are under the gun financially, but they’re under the gun because of big purchases, mortgages, health insurance … two cars, child care. … They’re not under the gun because they spent too much when they went to the mall. Families are just trying to make it in the heart of the middle class, and expenses have just shot out of the reach of the medium-earning family.

Posted in Budget, Credit Cards, Philosophy | Leave a comment

History of the Credit Card

Of all the topics I have touched on in this blog, I have the most experience with credit cards.  And as I climb the final stage to being credit card debt free, I grown more interested in diving deeper into the world of credit cards.  In addition to my personal experience with them, I am also compelled by the fact that there are millions of other people like me who have been or are being impacted by amassing credit card debt.

So in contrast to my original post, the relatively popular credit card calculator, I am planning to head in a different direction with my next official post.  That is, I am seeking to write a piece on the history of the credit card.  A simple google query has led me to the following pages, which have served as great starting points so far:

 

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FHA Streamline Refinance Take 2

Our first home loan was an FHA mortgage at 6.00%.

About a year later, rates dropped to 5% and we took advantage of an FHA Streamline refinance, with which ultimately:

… saved $151.33 per month on our core loan payment and will save $36,061.80 overall.

Rates are lower again.  Saw 4.25% last week.

On the hunt for another streamline refinance deal…

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When to Start Budgeting

At what age does it make sense to create a budget?

This raises a couple of questions:

Can you create a budget without having expenses?  For example, an eight year old.

Can you create a budget without income?

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Balance Transfer Refocus

Our highest balance card is a non-promotional rate of 6.99% and the balance is over $10k.  And although this is nothing to sneeze at, we have come a long way over the past year and have cut our credit card debt significantly.

When we first got serious about paying down our credit cards, we found our highest interest card was a whopping 27%.  And paying that balance down was a huge win and a great feeling.  But now that our worst-case is 6.99% the feeling is kind of missing.

Actually, I have grown content with carrying a balance at this low of a rate to the effect is that I have become much less aggressive in paying it off.  While I used to aim to overpay by $1000 each month, my goals have dwindled.

But when I have been wrestling with the fact that my CC balance depletion has slowed.

So what do I do?  I apply for two 0% balance cards.  One is the Citi Platinum and one is a Capital One card.  Each have 3% balance transfer fees with an introductory rate for 14 months and 21 months, respectively.

I feel good about this move.  It freshens my approach and my attitude about paying this down.  Because they are now ticking time bombs, it will help me refocus and crush this lingering CC debt that I have come to grow content with.

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Debt vs. Saving: Need My Friend Math To Intervene

I have a problem that I can’t seem to get over. Pay debt or invest? Lean hard one way, or strike a balance? If I choose to invest all of my excess income, then I feel like my debt is sitting there stagnant, being chopped away too slowly for comfort. If I choose to use all of my excess income to pay down debt, I feel like I am selling us short for the long-term future by not investing.  I have been struggling with this issue and have found that striking a balance is not an easy task.

Debt Versus Investment

We have debt — the worst of which is held on a credit card with 6.99% APR. But our cumulative APR for all debt is a 5.26%. Not too bad, considering last year it was over 8% cumulative. We used the highest-interest credit card repayment strategy to knock out the high-interest balances.

We have investment money in S+P 500 index funds (for both 401k and IRA).  This fund has paid an average of 10.79% since it’s inception on 08/31/1976.  I realize it’s the stock market and the future is highly unpredictable, but this historic data is a fact.

The Balancing Act

A couple of weeks ago I was putting all of our excess money into investment accounts (401k, ROTH IRA).  As for debt, I pretty much left it to the wind — minimum payments on term accounts like mortgage and student loans, and MinLock on credit cards.

But I grew discontent with not paying down the debt.  Same thing happened when I leaned too hard to hard to paying debt: I grew discontent that I was not saving for the future.

Then I realized that this is similar to the debt snowball vs. highest-interest argument in which there is an emotional component and a mathematical component.  I need to see what I hypothetically stand to loose or gain in different debt vs savings scenarios so I am going to create a calculator that does just that.

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Life Insurance from SelectQuote

You don’t have to use the Orman endorsed SelectQuote, obviously.  But I will say that they rule with their ultra responsiveness and no-nonsense attitude.  And they crushed my previous policy premium I had with MassMutual.

Anyway, I have just been approved for a 30 year 1 million dollar term life insurance policy with an annual premium of $738 ($61.50/month).  This will replace my present 10 year policy that is worth half a million.

And although I do not like the idea of paying the premium, the piece of mind had from this is HUGE.

We bought my first policy right before we had our first child.  And we kind of just pulled the number out of the air: $500,000.  Somewhere in between purchasing our home and getting serious about our financial health, I grew discontent with that number.  I felt like it was not enough considering I am the primary breadwinner of the family.  $500,000 would no doubt be helpful on many levels but just how sustainable is it?

Besides upping the value of the policy, I also determined that I wanted this to be my last policy ever.  I wanted a term duration long enough that once it was up I would be self-insured with what I saved for retirement.  I am 31 now so the policy will lapse when I am 61.  So a check there as well.

Overall, a huge win for us: doubled the policy value and extended the term duration as desired.

If you have a family and are not self-insured, I wonder if you have life insurance?  Are you content with your current policy term/value?  If you don’t have life insurance, why not?

With the idea of life insurance is pretty straightforward, there are in fact several different flavors of life insurance out there.

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LendingClub, Not Your Traditional Loan Consolidation Company

I’ve surfed into Lending Club’s website before and recently started hearing ads for in on the local radio station.  It was formed in 1999 but is new to me.  On the radio, it sounds like it could be a scam, or at the very least another credit card consolidation company.  But it’s not.  Instead, it’s an innovative company that is changing the way money can be borrowed and invested.

You really just have to go and check out their website.  The whole model is a breath of fresh air when considered next to the typical debt consolidation company.  One of the reasons for this is LendingClub’s striking transparency — after reading a couple of their about pages, it is abundantly clear how the system works.

I would have considered using this service as a borrower when I started paying back my credit card debt.  But since I am no longer in a position to need to borrow, I probably will not use it as a borrower any time in the near future.

However, I am keen on the idea of investing in folks looking to change the course of the financial lives.

Here is a handy link to view a list of people seeking money right now.  If you click on the title, you can see more about their request.  For example, what they need the money for.  You can also filter results by using the search box on the left hand side of the page.

I wonder if any of you have had experience with Lending Club?  If so, would love to hear about it.

Posted in Debt, Investing | 1 Comment