Debt Discipline - Page 114 of 133 - How a family of five deals with Money, Budgets, and Debt.

New Car Smell

February 26, 2014 Brian

As I drove my 13-year-old car into work today I heard a news report on the radio that detailed the amount of auto loan debt American’s are carrying. A recent report from TransUnion outlined all of the gory details of new car ownership. Auto loan debt per borrower increased 4.4% to $16,769 in Q4 2013. The auto loan delinquency rate increased to 1.14%. The delinquency rate is defined as the ratio of borrowers 60 days or more delinquent on their loans. Ouch! So of the 60.5 million auto loan accounts, 689,700 people are paying their bills late. The states with the biggest increase in delinquency rates were Michigan, Alaska, and Arkansas, while Oregon, New Jersey, and Delaware posted the biggest decline. I have purchased one new car in my lifetime, a 2002 Honda Odyssey. I can confidently say I will not enjoy the whiff of the new car smell anytime soon.

Depreciation

I believe I will never purchase a new car based on a number of factors. I found some interesting data points at Edmunds website.

Driving it off the lot – Your new car loses 11% of its value the second you leave the dealer.

First 5 years – On average your car depreciates 15-25% per year.

5 year Anniversary – Just about the time you finish paying it off, your car is now worth 37% of what you paid for it.

Considering a vehicle is most likely your second largest purchase/ expense in your budget besides a home why would you ever invest in an item with such a bad return. If you are trying to build wealth a new car may not be for you. If the depreciation data of car values isn’t enough to make you swear off purchasing a new car, how about some advice from experts, in the book “The Millionaire Next Door” Dr. Thomas J. Stanley reveals results from surveys and interview with millionaires. He finds that most millionaires don’t purchase new cars, only quality used cars, typically cars that are 2 years old from private owners and are in great condition. Millionaires have realized that in order to stay millionaires they should not pay full price for one of the fastest depreciating assets you will find. If you want to be a millionaire, act like one.

Our Rides

We are certainly due for upgrades at some point. I’m driving a 13-old-car and my wife an 11-year-old minivan, but we are diligent with maintenance. We have 2 children that will be of driving age with the next 13 months. Once we complete our debt repayment later this year our focus will shift to increase our savings. This may include a car fund to be spent on a quality used car. Fast forward 20 years from now and if we have all of our financial goals met, and surplus to purchase a new car with cash at that time I may change my opinion. Until then I’m sticking with my current plan.

Have you ever purchased or lease a new car and regret it? What’s your plan for future car purchases?

Murphy

February 24, 2014 Brian

As we have worked our debt snowball over the last 44 months we have managed to pay off over $90k worth of debt. Over that time Murphy did show up a few times to try to knock us off track. If unfamiliar with Murphy or Murphy’s Law let me explain it to you. Murphy’s Law states: anything that can go wrong – will go wrong. The origin of Murphy’s Law is open to debate, but many agree that it was named after Edward A. Murphy, Jr. an aerospace engineer who coined the phrase during a failed test in the 1950s. I’m sure you have experienced some Murphy at some point in your life. There is really never a good time to have Murphy stop by, but that is usually the case with an uninvited guest.

Our Murphy

Here’s some of the Murphy we have experienced over the past three and a half years:

Serpentine belt – If not familiar with this belt, it’s basically the belt that drives multiple peripheral devices in an automotive engine, such as an alternator, power steering pump, water pump, A/C compressor, air pump, etc. Mine broke on my drive into work one AM back in the fall of 2010.

Car Accident – My wife was rear-ended on her way to work in February 2012. Fixable damage to our car after deductible, the big issue was my wife was injured. Neck and back issues that after months of treatment required surgery. She is now on the mend and feeling better, not like her old self, but better than post-accident.

Dental Work – My wife has run into recent issues. We let some proactive checkups slip and even with insurance we are looking at a sizable bill.

Dish Washer – It simply just died after about 5 years.

Just this past Friday I went to swap cars in the driveway so I could take mine to work and my wives van started idling strangely, so it’s off to our local mechanic for a checkup. We are picking it up today, and it looks to be a $500 fix.

Avoiding Murphy

There is really no way that I’m aware of to avoid Murphy, life happens and some things are unavoidable. There are a few ways you can prepare yourself for when Murphy does come knocking. The entire Murphy I listed involved spending money, unexpectedly. In years past we would have just used credit cards to cover these expenses, but we are smarter now. We have a plan in a form of a budget, and a small emergency fund that covered the car, dishwasher, and dental work. The challenge for us was the car accident. This was totally unexpected. Our main concern was my wive’s health. Once we knew we had a plan for her recovery, we focused on the financial impact of it. There was a loss of income, and increase expenses. Without the plan, budget and emergency fund Murphy would have gotten the best of us in this case, but with some reworking of our plan, tightening of the budget and security of the emergency fund we were able to prevail pretty much stress-free.

Do you have a plan for Murphy? What’s the worst case of Murphy you’ve experienced?

Interview Series: The Money Principle

February 20, 2014 Brian

This is the ninth in a series of personal finance blogger interviews with fellow personal finance bloggers. Today’s guest is Maria from The Money Principle.

Who is Maria?
Maria: Maria Nedeva, Owner and Mistress Supreme of The Money Principle.

Why did you start your blog?
Maria: I am a bit of a luddite and ignored the internet and all that is to do with it for a long time; except e-mail which, of course, I had started using for work. Surfing the Net? No thanks; I’d rather surf the waves of life. Then about four years ago, we realized that we are in debt; a lot of debt. This shouldn’t have happened – a university professor and a statistician/techie/Internet geek shouldn’t just find themselves in this situation. It did! And made me understand that I can marry the two loves of my life – writing and money – and start learning and writing about money. I asked John (my husband and partner on The Money Principle) what is a blog; he explained but I didn’t really get it. Three weeks later, The Money Principle was born. I learned about money, I wrote about money and I muddled through this blogging lark. Today, we have no consumer debt, The Money Principle has grown rather nicely and we show smart people how to win the Game of Wealth by learning and doing.

What are your favorite Blogs?
Maria:I read many blogs and I discover wonderful gems all the time. But my absolutely favorite will have to be:

Seth Godin’s Blog: I read it every day for inspiration.
The Altucher Confidential: I think I have a blog infatuation in this case; I also think that James Altucher is one of the cleverest, messed-up people I’ve read.
Social Triggers: Because I always learn something I didn’t know when I visit.
Budgets are Sexy: One has to read for the soul as well :).

When did you first become financially literate?
Maria: Very late in life. Three years and nine months ago, to be precise. Before then, I had no interest in money at all – as I’ve said before I didn’t know how much I earn and this is not exactly hard, just needed to look at my pay-slip. Have gone such a long way since then, though, which is the advantage of a good education and curious mind.

What was the last item you regretted purchasing?
Maria: A laser depilation machine. This was three years ago and I still had not mastered the art of mindful spending.

If you died today, would your family be OK?
Maria: More than okay; my family will be positively wealthy. I am still worth more alive, though (or this is what I’d like to think).

What are you teaching (or will you teach) your kids about money?
Maria: I am telling my son the following:

•    If you wish to masterfully manage your money learn how to spend it, not how to save it.
•    Money can’t be spend twice so work out what you really want.
•    Master your wants; there isn’t much you could do about your needs.
•    In your twenties, invest in yourself: get an education, travel, learn about other cultures, live in other countries, try things out and fail. Compound interest is over-rated!
•    Live for today but always plan for the future.

What’s your dream job?
Maria: Best paid writer :).

What is the one thing that can make me very wealthy? (write in question)
Maria: No, it isn’t to spend less than I earn – this is obvious and we are doing anyway. The one thing that will make me very wealthy is to be able to continue to manage my finances as if ‘I need to’ when ‘I simply want to’. This is why it is easier to pay off debt than to build investments; because when you are paying off debt you have to spend wisely, earn more and put away the difference.

Author’s bio: I am Maria Nedeva, the blogger behind The Money Principle where I show smart people how to win the game of wealth by learning and acting. My brand of money management comes with a side dish of logic, analysis and sociology.

Interview Series: Family Money Values

February 13, 2014 Brian

This is the eighth in a series of personal finance blogger interviews with fellow personal finance bloggers. Today’s guest is Marie from Family Money Values.

Who is Marie at Family Money Values?
Marie: I’m retired from a long career in the financial services industry – managing computer projects as a Project Management Professional. But now, I am a writer and a Grandma trying to pass along information and values concerning wealth.

Why did you start your blog?
Marie: I really started it to fill an information void I believe we have. There are many resources available on the subjects of getting out of debt, saving, investing and getting to that millionaire status; but not so many that benefit those who have completed that journey. I wanted a website about wealth to help families maintain and build wealth for generations by helping visitors learn about wealth issues; wealth transfer tools; family structures to consider; and family and business governance concerns. I couldn’t find one, so I started building it.

What are your favorite Blogs?
Marie: I enjoy Spectrum’s Millionaire Corner, Robert Frank’s CNBC Wealth News and many of the blogs who successfully joined the Yakezie network – or are attempting to do so (such as yours).

When did you first become financially literate?
Marie: If by financial literacy we are talking about being solvent, then I have been literate since leaving my parents household back in 1972. They raised me to be a saver. My spouse and I worked very hard for a very long time, saving and investing along the way to reach our financial independence. If we are talking about knowing anything and everything about personal finances, I don’t believe anyone really ever gets there (not even your financial advisor!). Although wealthy by most standards, there are many things I don’t know. I’ve never re-financed a home for instance, and never will as we are mortgage free.

What was the last item you regretted purchasing?
Marie: Most of the ‘stuff’ that now surrounds me. One thing a person learns as they move through live is that things are plentiful and seldom worth what you once thought they were. Money in the bank can be spent in your mind many ways and many times. Once actually spent, you are stuck with the result, and you move on to craving that next exciting item.

If you died today, would your family be OK?
Marie: Financially yes, but I haven’t finished passing along our family history and non-financial legacy yet.

What are you teaching (or will you teach) your kids about money?
Marie: My kids are grown with kids of their own. They do well, but one thing we are attempting is to meet, talk and interact financially across the generations. It is harder than you might imagine to start those conversations and keep them going. I’m teaching my Grand-kids about money in a one week summer camp called Grandma Rie’s Money Camp. I take them off site for a week long sleep over camp and present concepts, activities, practice and information about personal finance and our family’s money values.

What’s your dream job?
Marie: I believe a dream job changes over the course of your life. When I was very young I thought it would be cool to be a scientist, helping people reach other planets. Later, during and right after college, I wanted to be a researcher, exploring the link between mind and body. I thoroughly enjoyed my career as a computer programmer, project leader and project manager – even though I entered it primarily for monetary reward (which it did provide!). Now I’m enjoying my role as a writer, for my own books, sites and blogs as well as for Prairie Eco Thrifter, Broke Professionals and Wealth Informatics.

Will blogging make you rich? (write in question)
Marie: Nope, probably not. There are obviously people who do make a lot of money with their online businesses. To do that, as with any business, takes a willingness to risk the time and money to succeed. I started my sites as lifestyle businesses, not growth enterprises. I expect my online activities to provide some reward (and they do), but not to get me to the level, say, of a Pat Flynn – who makes tens of thousands of dollars a month with his. I’ve been blogging and had online sites since spring of 2010. Many blogs have come and gone in that period. If you are hoping to win your fortune blogging, be aware that, as with any entrepreneurial effort, it takes persistence, time, money and the willingness to step outside of your comfort zone to get big.

Marie at Family Money Values wants to help families understand the potential consequences of wealth. She encourages visitors to take the long view and pull all family generations together to nourish the family legacy and wealth. She is a retired now, but for 25 years was a project manager at financial institutions.

If interested in participating in a future interview, please contact me.