My Christmas Shopping List

Christmas time is here and with it comes the Christmas gift list. Black Friday and Cyber Monday have officially kicked off the holiday shopping season. But your trusty neighborhood frugal fury fighter isn’t sweating it one bit. In fact the way we Christmas shop has been evolving in an interesting manner over the last few years.

In 2009 we started our total money makeover process and were in the midst of cash flowing our ensuing wedding expenses. Needless to say we did not prioritize a huge Christmas budget that year. Instead we started what has become a piece of our current tradition to make homemade gifts and Christmas cards as well as an annual family newsletter to talk about the happenings in our world over the past year. That first year we had set a Christmas budget of a few hundred dollars and stuck to it. Our Christmas list has generally consisted of each our parents, brothers and sisters, nephews and nieces and some friends of family.

The Christmases of 2010 and 2011 though have really stuck with me. In both years we set a ceiling budget of $500 and both years we came under by at least $200 each Christmas. In 2010 we gave the excess funds to our church. In 2011 we gave the excess funds to Water for Waslala, a non-profit dedicated to ending the water crisis in Waslala, Nicaragua. In both years we had every person and every item crossed off on our lists and we still came under budget. And this year we have again set our budget ceiling at $500. So here’s a few tactics I use that I would like to share with you, to hopefully keep you on budget this year.

Gifts of Wisdom

I am a huge believer in passing along knowledge. And I am also an advocate for getting the best price possible. So a great go-to gift for me is used books found on Amazon. Throughout the year I gorge myself on non-fiction books pertaining to personal finance, estate planning and topics that encourage me to build my overall character. From the best of the best that I read throughout the year I single out a few people on my list and gift away accordingly. No I don’t give tattered books but I refuse to pay retail as well.

Personalized Gifts

We are big on gifts with a personal touch. Nothing says personalized better in my book than something home made. In the past we have given homemade Christmas cards, soap, jewelry, coasters and spice rubs. Making our own gifts has not only been cost effective but it has also provided an outlet for us to be creative.

Shop Thrift

We have also picked up a ton of great Christmas items, in excellent condition mind you, at rummage and garage sales. We have had to be a bit flexible with our list but when we have found quality items we match them up with the perfect people. Buying Christmas gifts at a fraction of retail cost truly makes me feel jolly.

Needless to say there are a plethora of options at your disposal to keep Christmas gifts from busting your budget. So get creative out there and I challenge you to avoid paying retail whenever and wherever possible.

My Tortoise Thoughts

Honey Smith over at getrichslowly.org posed an intriguing question last week. When attacking a large ticket debt item, what is the turtle thinking as they move along? This question is based on the premise, which I subscribe to, that when it comes to building overall financial security the tortoise wins the race. Being slow and intentional over a long period of time builds wealth.

It caused me to reflect on the process that was obliterating our debts through Dave Ramsey’s debt snowball process. Dave’s debt snowball works like this. I lined up all of my debts one by one. I paid minimum payments on each debt and with every extra dollar I could squeeze out of my budget I paid extra on the smallest debt first. Once that smallest debt was paid off I would repeat the process moving from the smallest to the largest debts until we were debt free.

Between my wife and I we paid off and closed 3 credit cards and 2 student loans that in all totaled just over $80,000. The process in its entirety took us three and a half years to complete. The credit cards and 1 student loan were the easiest and quickest to payoff. With deadline dates in hand and gazelle intensity in our hearts we annihilated 4 of the 5 debts within 6 months. What remained was the largest and last debt that mathematically was going to take us a few years to payoff even with paying extra every month.

So what was this turtle thinking during that time period? I knew that the road ahead for this final debt payoff was long. But I also knew that with a final payoff date on the horizon that there was light at the end of the tunnel and that we were going to be ok and we would be debt free. Since this last debt was going to take us more than 2 years to pay off we went back to our emergency fund and raised it from $1,000 to 6 months worth of expenses. We also began to contribute to retirement savings. Though short of Dave’s recommended 15%, in gearing up for the long haul of that final debt payoff we decided to put ourselves on a firm foundation.

But we also budgeted and planned to live life. We saved for and paid cash for our wedding and honeymoon. We took small trips to Mackinac Island, Charlotte and to visit my family in California. We treated these small trips as ways to keep us motivated and give us breathers in between the extra payments and long sprints of gazelle intensity.

So even with the aforementioned plans we still paid off that last student loan faster than expected. To seal the deal we took our 6 month emergency fund down to $1,000 to pay off the last of the loan. And then we swiftly rebuilt the emergency fund. It was a long couple of years to focus on one goal. The “attaboys” through small vacations and even the birth of me tracking our net worth helped us feel that we were moving in the right direction every month and passing quarter.

Now that we are living life after debt the opportunities before us seem limitless. When we want to travel to far away destinations we save up, pay for it and go. Our next milestone is saving up to pay cash for our home. While I am still taking a turtle’s approach to this goal, there is a great deal of comfort and peace knowing that we are accomplishing this and all of our goals without debt and with carefully calculated and intentional actions. We are going to start having some more fun along the way and coming up with joyous and unique ways to give. Dave Ramsey says there are only 3 things to do with money in life after debt: Invest, give and have fun. For 2013 our household is ready to start doing a little more of each than we did in 2012 and that is what this turtle is looking forward to in the coming year.

My Inflation Hedge

The Chicago Transit Authority is at it again. This time their latest proposal on the table has their 30 day unlimited use pass, my transit option of choice, to go up to $100 from its current price tag of $86. So this scenario caused me to evaluate my sensitivity to rising inflation. To do this I pulled back to look at our monthly household budget to see where we are currently allocating our spending. Plus it gives me insight to see the impacts of rising costs onto our overall budget.

For starters my wife and I both use unlimited 30 day CTA passes. My wife buys her monthly pass with after tax dollars. Through my employer I can purchase my 30 day pass with pre-tax dollars. So instantly the increase of $14 in the monthly fare reduces my taxable income by that same amount. Sure, I’m paying more for the pass to the CTA, but in using pretax dollars I am paying less to the government in order to buy the CTA pass. Speaking in after tax dollars, I need to make about $134 to be able to bring home enough to buy the CTA pass ($134 taxed at 25% leaves me with just enough to buy a $100 transit pass). With pretax dollars I only need to make $100 to buy the $100 pass, and again, my taxable income goes down with every purchase.

 But I feel that we are in an excellent position to be able to take on cost of living increases. We have no debt payments and honestly live on about $22,000 a year. Below is a cute little pie chart that reflects our monetary priorities. We budget and plan every penny we expect to earn every month before the month begins. Every cent is categorized and allocated before it ever hits our bank accounts. So based on net income, these percentages are what we are prioritizing during the month of November within our household.

A few points of clarification first though. As of January 1 we will be raising our “Giving” category to 10%. For the last quarter of 2012 we have consciously chose to take this category down in amount. Also the largest chunk, “Discretionary Spending/Saving,” is primarily made up of our savings towards our first home together and future travel. There’s some other miscellaneous items in there like mani/pedi, budgeted spontaneity and date nights, but the meat and potatoes of that category is for our future home and for future travel. On the retirement front for the past few years I had been contributing 15% of my gross income to retirement and my wife 12%. As of November 1, 2012 we drew a line in the sand and have agreed for the next 2 years we will only contribute to our retirement through my wife’s 401(k) and will max out her match which is 100% up to 6%. We are doing this to in essence play, “hurry up offense” to pay cash for our first home faster. Once the home is purchased we will both go back to contributing 15% towards retirement.

But back to the point. Based on this chart I don’t feel that a $28 increase (for my wife and I) impacts our bottom line month to month. Now yes, if this increase remains steady year after year for over a decade it may become advantageous for us to buy a car. But for now the increase really doesn’t change our bottom line. The price increase does not affect our standard of living. But do not let that leave you to think that I am unsympathetic. I can see how, in being saddled with monthly debt payments and being in a situation where you have more month than money, that a price increase of this nature could affect your bottom line and be a big hairy deal. That’s even more reason why I advocate to become debt free and get monthly debt payments out of your life forever.

Even looking at my chart there are plenty of places for our money to go around before debt or dreaming even enters the picture. For us rent, insurance premiums, groceries, going out money, clothing, utility bills and transit passes are priorities for us every month. On top of that we are planning to travel and purchase our first home in the next 2 years. To me debt payments rob you of the flexibility to dictate where your money goes every month and create household budgeting headaches when the evil monster known as inflation rears its ugly head.

So I will conclude with this outrageous assertion. Being debt free has given me the strength and ability to rip inflation to pieces with my bare hands. It will do the same for you J!

P.S. Here’s an unrelated funny comic I found that I find particularly amusing. And although not directly related to this post, I am not above taking a shot at Bernanke when presented with the opportunity, even if indirectly related.  

My Thanksgiving 2012

There’s a lot for me to be thankful for this year. As I have become an adult and the years begin to fly by each year around this time I have found myself becoming more and more reflective about what I am thankful for. 2012 will definitely go down as a memorable year as I look back on it. This is the year my wife and I became debt free together. I have become more involved in my church and began facilitating Financial Peace University to help lead others down the road to financial freedom. My 20 something nephew stayed with us over the summer and I like to think he walked away from his experience with some nuggets of wisdom drawn from the example of our living below our means lifestyle.

So what am I especially thankful for this year? I’d have to say for opportunity. For God knocking me on the head and somehow allowing my thick skull to be open to his ideas on how to handle money and follow the example of a biblical steward. I am thankful for my wonderful wife who strengthens me day in and day out and is the truest example of the woman described in Proverbs 31. She is my everything and I love her with every bit of my being. I thank God for second chances. I know it may sound corny but I really mean it, I am thankful for my life and where it is right at this moment and the direction it is going.

And I genuinely wish a wonderful Thanksgiving to you and your family today. I am gratefully thankful to you for stopping by to read about my journey. I hope it generates discussion on personal finances and inspires you to join me on the total money makeover journey!

My Sickening Movie Experience

I saw a rather disturbing movie this past week. From the library I checked out Michael Moore’s “Sicko.” Now anyone who knows me would ask, “Why would you watch that liberal garbage?” Jokingly I’ll tell you that I like to read my Bible and get my media from liberal sources so I know what both sides (good and evil) are up to. But between you and I, I’ll admit that I actually enjoy hearing points of view that go directly against my personal beliefs and outlooks. Not that I’m looking for a fight or a reason to get mad at “the other side,” but because the opposite view points stretch and grow me as a person. The information I seek out either reinforces my existing point of view or it shifts me to take a more balanced approach when looking at the world.

Moore’s Sicko definitely challenged me. In its essence Moore suggests that because of the human inevitable need for healthcare, that the for-profit aspect of the healthcare industry should be stripped away so that all people have equal access to healthcare services. Moore looked at two examples in the film for socialized healthcare: the UK and France. Compared directly to my life, if my wife and I earned the same US equivalent income in France, our federal income tax rate would go from 25% in the US to 41% in France and 40% in the UK. In exchange for the increase in federal taxes, just about all major medical costs (as Moore conveys) are paid for by the state. No deductibles and no co-payments.

Seeing between the lines though I argue that your deductible, co-payments and medical costs are all being pre-paid to the state in the form of taxes. In our household, to live and work in France or the UK would cost us roughly $14,550 more in annual taxes for the privilege of living in a system that has universal healthcare. Of course you know I’ll run the numbers. $14,550 invested annually at 12% over 20 years generates $1.2 million dollars that can be earmarked specifically for medical costs.

But Moore raises a point that hit me right between the eyes: In the event of a (financially) major medical disaster that was unavoidable, should I have to make the choice between becoming grossly indebted to a medical institution for a chance to live or die at home without medical care. Yes I believe that if services are provided that I should have to pay for them. But Moore painted some pretty convincing “what if” scenarios. What if I am diagnosed with a disease that costs hundreds of thousands of dollars to treat, my insurance denies coverage and I have not had 20 years time to accumulate $1.2 million dollars?

In my dream world those that have had a total money makeover build wealth at unprecedented levels and give, serve and help those in need at such a level that we put the government out of business. People, not the government, should help people. But we don’t live in that world (yet). We live in a world where, according to a report in the Wall Street Journal, 70% of working Americans live paycheck to paycheck, insurance companies scan through documentation of paying clients in efforts to deny coverage and the most destitute among us look to an inept government for their well being. Something has to change. We the people need to get on a budget, destroy our personal debt and live below our means. As a nationwide movement this would give us the financial muscle to be in a position to help others.

Obviously I do not have, nor would I contend to have the answers to solve our national health care dilemma. If I were to get smacked with a multi-million dollar medical bill without insurance coverage I would be sunk and either forced to choose between receiving medical care along with filing bankruptcy or going without medical care. The best advice I can give you is this: Make the best choices you can with the options we have available. I carry a 30 year term life insurance policy that is 10 times my income so that in the event of my death my wife can pay for funeral expenses and invest the remaining funds to replace my income. I do my best to stay healthy through my lifestyle choices and go once a year to a general practitioner for a routine medical checkup. As I do not have chronic illnesses, I carry a High Deductible PPO health care option to keep premiums low and carry an emergency fund of 6 months worth of expenses in the event of emergencies. I have short and long term disability insurance provided to me through my employer. This is my financial plan of attack against any medical disasters.

But yes, Michael Moore’s Sicko did its job. I am now looking over my shoulder, wondering if I have a major medical disaster, will my insurance provider comb through the details of my life and find a reason to deny me coverage? Moore’s right, maybe there is a better way…

My Brief Point of View on Capitalism

A good friend from church recently passed along to me an interesting publication. Knowing that I am always interested in all things personal finance, I appreciate this friend thinking of me and passing along the publication. I won’t share what publication it was but its thoughts and viewpoints emphasized something that I am going to delve into today.

At first glance the objectivist in me jumped out and said, “Stop reading this socialist propaganda! IMMEDIATELY!” But I respect this friend and actually am inspired by this person’s genuine care and concern for others, on an individual level as well as societal, so I read through the publication with an open mind and heart. What I began to see is that there are many people within my own city that are hurting.

They let loan providers teach them about student loans, they let workers’ unions teach them about “fair wages” instead of living below their means, they let mortgage lenders teach them about borrowing to pay for their homes and they let credit card issuers educate them about responsible buying habits.

The result is exactly what we have been aiming for. The Wall Street Journal reported that 70% of Americans are living paycheck to paycheck. So on a mass scale when a recession has hit us like it has over the past five years (depression anyone??) it should not come as a surprise that when the national unemployment percentages slightly rise along with the price of gasoline that we as a people are unprepared to weather the storm.

With debt hanging over our heads, inadequate liquid emergency savings and steady retirement contributions not being made consistently during our working lifetimes, we the people are not being fiscally responsible on a personal level. One aspect that troubled me from the periodical is that the result of my country’s extended recession, is that a small segment of my fellow Chicagoans are using this time of learning to instead launch an all out assault on capitalism.

Now while I could write a thesis hundreds of pages in length defending capitalism, for this space I will restrain myself to a paragraph. Capitalism, at its core is about bringing a product and/or service to the marketplace and being compensated according to a fair market value. For my employer I provide my services and skills to fill a need they have. In return they pay me tokens of appreciation called a salary. Over the past five years, with that salary, I have become debt free, regularly contribute towards retirement, have a 6 month liquid emergency fund and have insurances in place to protect myself and my family from catastrophe without help from our inept government. Between myself and my employer exists a mutually beneficial relationship. If my employer found my work to be sub-par or no longer economically viable to employ my area of expertise, they would fire me. If I felt my employer were paying me an unfair wage, I would fire them.

Now look, if you are hurting financially I am not mad at you. I want to inspire you to pull yourself up, bootstrap and show you that you can thrive economically regardless of your household income amount. But to those that condemn the very system that presents an opportunity to climb and ascend the socio-economic ladder, all I can do is shake my damn head in disappointment. This is the greatest land the world where opportunity abounds in every direction. No it’s not easy to work like an animal at a few different jobs you’d rather not do and scrimp and save as you budget for the first time, work your debt snowball and build up savings just for emergencies. But the financial foundation that comes from sound planning and thorough execution is the most rewarding when it comes to finding your own financial peace. But until you stand up and become intentional with your money, the lack of it will always haunt you like a curse.

My Well Spent Emotions

I think if you were to corner anyone who has personally known me at any point throughout my life, and you were to ask them what is one of my biggest personal character flaws, I believe that they would unanimously say, “He can give the impression that he just doesn’t care.” Conveying empathy has been something I have been intentionally working on as of late. Admittedly, I have kept from developing a lot of meaningful relationships in my life as a result of the defense mechanism I developed as a youth to keep everyone at a distance. So for the most part I tend to keep conversation light, even with people that I know, almost instinctually ensuring I keep most people at an arm’s length from really getting to know me and vice versa.

But as of late I have been trying. I have been trying to convey my thoughts and feelings to friends and family in a meaningful way that grows and strengthens the relationships. I shared with a good friend from church that his good heart and caring soul is an inspiration in my life. I have been more intentional with my wife on telling her what she means in my life. And this past weekend I even gave one of my brothers and my sister a call to catch up on life, something I need to do more than just around the holidays.

It does feel great to be connected and plugged into other people’s lives. But it can be exhausting, especially since I have spent the majority of my life avoiding being apart of other people’s lives. The rollercoaster of emotions and real nature of life, as I’m finding, wear me down when I care about others. In just the last week alone one relative of mine and her husband lost their expected baby, another relative is going through a divorce and a good friend broke his nose.

Sending condolences to one, being a listener for another and waiting at the hospital with our friend, all of it has put me in a place that I have avoided for a long time: being present and vulnerable to others. And though emotionally draining for everyone involved, being there to support others is something I want to become second nature.

In a bigger picture kind of way I see it this way. Life is a rollercoaster of highs and lows. I almost feel like cleaning up our own financial lives is the easy part. I mean the plan I have been following is pretty clear cut in its steps and procedures: get an emergency fund, snowball the debt, invest 15% for retirement, save for kids’ college and pay cash for a house. On the life side though things aren’t clear cut. We can’t anticipate or even envision the thought of losing a child, the loss of a relationship or the loss of our physical well-being (even for the short term). But I can promise anyone reading this that I will continue to be more intentional to care and love on others, whether hurting or not, because that is the kind of person that I want to become.

My Election Night Recap

I’ll start with this. Whether it was Obama or Romney that won last night, neither has the ability nor capacity to influence my personal journey to prosperity. Sure, Obama’s policies will raise my taxes (I am not a high income earner but will be forced to contribute 3% of my income for Obamacare, and my fellow Americans will also) and Romney’s policies would have lowered my taxes. But at the end of the day it is my decisions and actions to eliminate debt from my life, have an emergency fund, prioritize retirement and a cash purchase for a home, invest with long-term time horizons in mind with quality investments, make well informed and fiscally responsible choices with insurance options and live below my means, that has allowed me to confidently carry on with my march toward a net worth of one million dollars and climb the socioeconomic ladder.

With that said my votes here in Illinois got thoroughly thrashed. For the top 2 topics of concern within my state, I voted for Mitt Romney and to amend the State Constitution to modify the approval process to expand public employee retirement benefits. In Illinois 2.9 million people voted Obama to 2 million for Romney, and the amendment to the state constitution failed as the 3/5 majority required to pass the amendment was not reached. So the people have spoken: Higher taxes for all and the state (Illinois at least) can continue approving pension increases that they can’t afford with incredible ease… Awesome! Simply awesome!

Looking forward we will have the fiscal cliff to enjoy as well. Now I am not all doom and gloom, but it will be entertaining watching Obama fight with the House who will fight with the Senate about what to do with the edge of the cliff approaching. I’ll lay it out simply: Neither side will meet in the middle to negotiate a deal, we will fall off the cliff and the market will drop in Q1 2013. Which is why it is even more important for me to stress to you to invest with long time horizons of at least five years. We can’t control the short term stupidity of our government but we can count on American businesses, as a group, surviving and thriving over long time horizons.

I do find it disheartening to see the Dow down at about 2.5% right now.  I would have sworn up and down that following an election night in which victory was clear for either candidate that the market would have responded positively the morning after. But as my wife lovingly pointed out to me last night, (loosely paraphrased) “Now businesses know the environment they will be facing for the next 4 years. They will be getting taxed at higher rates and Obama’s policies deter their strategies to grow and hire in the US…The market will be down tomorrow.”

Damn, she was right.

But I want to end on an uplifting note, not one that makes it look like my puppy was taken out back and shot. So I’ll end with this. Upward economic mobility is alive and well in this country, regardless of which doofuses we have in elected offices all across this country. It’s not easy. It’s been hard to make the conscious choice to live below my means, payoff $80,000 worth of debt in 3 ½ years, prioritize savings and say no to myself in the short term. But it’s been worth every second to rely on myself for my well being and create financial peace within my life. I believe with every ounce of my spirit, that each and every person out there can be a fully functioning six cylinder engine. By having an emergency fund, paying off debt, saving for retirement, saving for college and living below our means, we all have the opportunity to achieve financial security regardless of what is going on in the world around us.

My Mission Trip 2012: Homestead, Florida

Last week I travelled down to Homestead, Florida which is about 30 miles away from Miami, Florida to volunteer with an organization called Sembrando Flores. According to the organization’s mission statement,

“The mission of Sembrando Flores is to reduce the spread of HIV/AIDS in the communities of South Dade by addressing substance abuse, mental health, poverty and violence, using a public health, faith-based, compassionate care model, providing free services.”

The focus of our group’s trips was to help with a monthly event called, “Test Miami.” At these events residents in a high-risk area are offered free HIV, STD, glucose and blood pressure screenings. To help encourage residents to attend the event, the first 75 people screened received a free bag of groceries. All who were screened also received for free lunch on-site and clothing.

The day before the event our group canvassed the neighborhood armed with flyers to help promote the event. I was nervous and uncomfortable at first. The high-risk area was impoverished and it is a far cry from the normalcy that I am used to in my north side Chicago neighborhood. I was surprised, relieved, and oddly felt blessed that the residents in the community were so receptive to talk to us and learn about the event. I did not receive a single cold shoulder and everyone I approached could not have been more welcoming. The unease I felt when we began was immediately wiped out by the openness of people within the community. People I met shared their stories, talked about their neighborhood, and thanked us for being there. I was then and I still kind of now, am at a loss for words.

People are in need of help and we do not have to go outside the borders of the US to see it. I don’t intend to get political, but one of the heartbreaking things to me when walking the neighborhood was that at first people thought we were representing political groups and were there to van people over to voting polls. What I find repulsive is that political groups, who are supposed to be “helping people,” only venture into these at risk neighborhoods when they want something from the community à their vote. That is pure exploitation and it sickens me.

For me I do not venture into at risk areas to exploit anyone. For this mission trip, add to that any missions trip I go on, my goal is to help people help themselves. With the testing being offered by Sembrando Flores, the concept is that people in high risk areas become empowered with information about their own personal health, and if diagnosed with anything from high blood pressure to diabetes to aids, within 30 days the organization sees to it that the individual begins treatment for their condition.

It was a moving experience to be a part of this program and see an amazing organization like Sembrando first hand. The day of the event was just as moving as our group saw up close the needs of people in the community. A free bag of groceries and free clothes went a long way for these residents and their gratefulness completely moved my soul. As I continue on my journey on financial peace road, I am certain that volunteering, helping others and giving in a meaningful way for others, will be a core piece of how I want to utilize my time, talents and resources.