My mother is not very financially savvy – and when I try to explain anything to her; it can often times take the better part of an hour. It may be her age or the fact she never had any financial education being a stay at home mom, but I like to try to give her the best info possible. This was a specific instance of that time.

She mentioned that she was heading into an Edward Jones investment rep this afternoon and wanted me to chime in with a few questions to help her make a good decision. Like I said, she is 55 with no retirement money aside from about 20k she cashed out of a universal life insurance policy she had out on my dad that was taking payments out of the equity it had built up.

That’s another conversation, but for this one, we’re focusing on how her conversation went.So the rep called me up and we had a conversation about what my mom had, and what she was doing now, and where she was headed. The first thing he mentioned was that “we need to start making your Mother’s money work for her NOW!” I obviously agreed and mentioned to him, “what funds do you recommend she get in?”

He came back with a handful of loaded mutual funds and I just stopped him in the middle of it and ask him why he wanted to put my mother in loaded funds. He actually was very up front about why. He said, “Clearly because that is how I make my money.”

I agreed and proceeded to tell him that we weren’t interested in his services and thanks for his time. He proceeded to tell me how “scary” and “difficult” and “dangerous” it was to be investing on your own. He said, “There are a lot of pitfalls along the way. Wouldn’t it be nice if you had someone to help you?”

I responded, “Yes, that would be nice to have someone that would warn me about financial advisors like yourself.”

That stopped him in his tracks and my mother took off.

New to the blog? Asking yourself, “what are loaded mutual funds exactly Hank?”

When I say “loaded mutual fund,” I mean a mutual fund that carries a sales load. A sales load is a mutual fund commission paid to brokers like this Edward Jones rep for selling you something you don’t need their help in buying. Sales loads do not benefit you, they benefit, and ONLY benefit the person selling them to you, much like an insurance policy.

Load fees typically range from four to eight percent and the way they are paid varies:

1. Front-end load (usually class A shares) – you pay the sales fee up front to the helpful broker.
2. Back-end load or deferred load (usually class B shares) – you pay the sales fee on your way out to your helpful broker.
3. Constant load fund (usually class C shares) – you pay the sales fees every year and might even have to pay a full load when you sell to the fine person selling you this.

Well Hank, I really like paying extra money for things I can do for myself (joking) what else is it costing me?

Well, think of it this way. By purchasing a loaded fund, you’re starting two steps behind. Let’s use simple numbers, say you bought a loaded fund with $10,000 that carried a 5% front end load. Well, as soon as you sign on the dotted line, you’ve just lost $500, so you’re starting with $9,500.

Think of the same guy that has the entire $10,000 to run on – who is going to be ahead in 1 year? 2 years? You can’t catch up because you’re starting behind. Think of it like an oval race track. If you are both running in the same lane, you are starting 5% of the way behind them, and will likely not catch up.

But Hank, they broker told me that these funds were spectacular and that I should make more from them than a no-load fund. Isn’t that worth it?

If a broker really did tell that to you; you are in a bad situation. Turn and run immediately. Do not pass go, do not collect $200. I can almost guarantee if you give me a loaded mutual fund ticker symbol, I can find a very similar NO-load fund out of the 12,000+ funds out there.

Feel free to contact me if you don’t believe me; I’ll find one for you. How many different ways can a sales guy scare you into buying the fund? Anyone else have some wise lines brokers have used to get you in their grasps and in to your pockets? I think if I wouldn’t have figured it out on my own, I’d still be playing Poker to take care of my retirement.
Photo by: Snap@

Related posts:

1. What Is An Expense Ratio And How Does It Factor In On A Mutual Fund?
2. I’m Ditching My Edward Jones Deferred-Loaded, “B” Shares ROTH IRA
3. What Is A Target Date Mutual Fund And Should I Use It?

Photo by: lyndsey_matthews

Hello Hank, I see you have a Universal Life Insurance policy also. Do you know if it is taxed when I “expire”? Barney from North Carolina

Hey Barney, I actually DO know the answer to that. I checked with my accountant to be 100% sure and he agreed with me that your beneficiary will NOT (99.999% of the time*) have to pay taxes on it. This is the one time I don’t mind having my Universal Life Insurance through Hartford Mutual. I slashed the “investment” piece of the policy and am only paying for the insurance side of it now. Don’t mix investing with insuring. They mix similar to oil and water.

* – The time this doesn’t apply to you is very rare, but CAN happen if you die at the same time your beneficiary and 2nd beneficiary also die. So it is very rare, but possible.

Related posts:

1. Goodbye To My Universal Life Insurance From Hartford Mutual
2. Is Investing In Life Insurance Really “Investing”?
3. Should I Hire An Accountant Or Do My Taxes On My Own?

Photo by: herzogbrMy old man used to tell me, “Hank, you want to find yourself a CPA that will walk you RIGHT UP TO the door of jail, but not let you go in.” I think that’s pretty good advice – take what you can, when you can (legally) because the Government is not going to point it out if you missed it.
Tax season is quickly coming upon us, and there are a handful of things to ask yourself when drilling through this question, right? Well, not really. I think it is a pretty basic formula. It is almost like a job application that you’re hiring for. Look around, ask your friends, and keep an ear to the ground. CPA’s are NOT that expensive. I have a guy that charges $100-$150 to sort through my pages and pages of stuff I get sent in the mail, and magically comes out on the other end with a refund.

But Hank, how do you know he isn’t screwing you over and taking your money?

Well, I’m not stupid, I know the GENERAL amount that I should be getting (or paying) based on my salary, my house, and what I’ve got invested elsewhere – So maybe he is not getting all the break and discounts I can account for, but that is partially on my part. The facts are these:

– He is taking $100-$150 to do the job.
- He wants to keep me as a customer, so he wants to make me happy.
- If he makes me happy, I refer him to others.
- If I refer him to others, he makes more money.
- If he makes more money off me, he’ll continue to try to find tax breaks and benefits for me to keep ME happy so I refer more people.

That is the general outline, and how do I find this said person? Like I said above, I interviewed 5-10 potential candidates and decided if he was a good fit. I LIKE tax deductions and I will take them when I can – I want to get the most bang for my buck and put it to good use.

I used a fairly straightforward approach to interviewing the first round of CPAs that you’re welcome to use:

1. How long have you been doing this?
2. How many customers do you have?
3. Do you like your job? (If he likes numbers, he/she’ll certainly show it)
4. How long do you see yourself continuing to do this? (You want someone that will be around for a while to keep you up to date)
5. Do you email? (I LOVE email and do all 95% of ALL my communication through it)
6. How tightly do you watch the numbers? Is it just you that will see my tax return? (Usually having 2 or 3 sets of eyes helps)
7. Do I have to pay you a yearly fee to do this, or is it one time?
8. Do you give consultations through the year if I request? At a charge? (my guy doesn’t charge for these)

Those were the first basic questions I asked just to get a feel for the person I was hiring. Most of the time the H&R Block tax people aren’t that in depth with the questions; most of the people I’ve talked to (including the one I interviewed) said that the person they used from H&R Block was a 23 year old fresh out of school that had book smart, but not so much tax smart; which isn’t conducive to question #1.

Furthermore, do I even want to bother dealing with the mess? I took American Government 10+ years ago in high school and we filled out our w-2, w-4, 1099, and filed through the mail – but do I remember how to do that? Do I WANT to remember how to do it? Not really. How about stack on top of that the 100ish new laws that went into effect this year, do you know those laws? Do they apply to you? Do you want to keep up on those for $100? Is your time worth that? Not mine.

Everyone is different though, maybe $100 to you is a big deal and you want to try to tackle it yourself online at TurboTax, TaxCut, or somewhere else, and that’s fine too. But my rebuttal to that is: what if you do something wrong? The only person to blame is yourself, whereas for $100 you can have someone to dump the case on when Uncle Sam comes knocking at your door because you claimed 0 and have 12 kids.

If you own a business, there’s 1,000,000 or so more reasons to pay someone to do your taxes. You’re no longer talking about just YOUR salary or just YOUR deductions, YOUR rent, and YOUR student loans. You’re taking on everything a business owner needs to address, and everything a business owner stands to lose if you’re caught in a tax nightmare like an audit. A professional CPA, for $100-$200 could certainly be a shield between a hellacious tax audit by yourself at night, and having someone to put the burden on and you just standby and give info as needed. In my opinion, that alone is worth the $150ish bucks I pay for it.

Related posts:

1. How Much Does Your Accountant Charge To Do Your Taxes? Is It Worth It? Would You Recommend Them?
2. Do I Have To Pay Taxes For Stuff I Sell On Ebay?
3. Does My Beneficiary Have To Pay Taxes On My Life Insurance Policy When I Die?

My brother mentioned setting my mother up with a reverse mortgage over the holiday break, so I thought I would do some research on what is was and if it was a good idea. I had heard of it before and I have a basic understanding of it, but I figured there had to be some sort of catch, as there always is, and there certainly are…

“The HECM FHA insured reverse mortgage can be used by senior homeowners age 62 and older to convert the equity in their home into monthly streams of income and/or a line of credit to be repaid when they no longer occupy the home. The loan, commonly known as HECM, is funded by a lending institution such as a mortgage lender, bank, credit union or savings and loan association. To assist the homeowner in making an informed decision of whether this program meets their needs, they are required to receive consumer education and counseling by a HUD-approved HECM counselor“

1. You need to be under the 62 year old age limit.
2. You need to own your property outright.
3. The house you’re reverse mortgaging needs to be your primary residence.
4. Needs to be a single family home, a 1-4 unit home, a manufactured home, or leased land; ( this just means that when they take your equity in your house out from under you, they need to have a good house to steal, who wants to steal a dump?
5. Reverse mortgage fees can be high, although the fees are often rolled into the loan and not paid upfront. A reverse mortgage can cost thousands more than a conventional mortgage.
6. It’s important to calculate the cost of a reverse mortgage against what you would gain, because once you enter a reverse mortgage agreement, the mortgage company essentially OWNS your home.
7. Reverse mortgages are often seen as a last resort if the homeowner needs cash and there are no other options. (Take this one the most seriously! Not only are you getting rid of the possible last piece of ground a person may own, but you’re betting their home on it.
8. What if you outlive your reverse-mortgage? I couldn’t find anything on this, but it is a valid point. What if you USE you last resort, and then you outlive it? I’d assume the bank then owns your house and kicks you out to go live elsewhere; which isn’t fun at 85 I bet.
9. To reduce their risk, lenders generally limit reverse mortgage loans to amounts that are below their estimate of the property’s full value; meaning that you’re going to get a lesser amount than your house is worth in the first place FURTHERING the idea that this should be a last resort.

Andrew Linden from Australia thinks they should be BANNED.

?Associate professor of economics at the University of Western Sydney Steve Keen, author of Debt Watch, calls them ”the most dangerous ‘innovation’ around in finance” and says any decline in house prices will see lenders and investors bearing significant risk of possible losses.

“I want them abolished. [They represent] a systemic danger to the banking system. [With reverse mortgages] the banks are building in an expectation of continued asset price inflation for the next 25 years,” Keen says.”

Can it work?  Yea, I suppose it can.  It sounds like most of the people don’t even qualify for them in the first place.  Some people just don’t find themselves in the right position to act on it in the first place after drudging through the pre-reqs.  Bottom line as with any investment, RESEARCH your options.  If it IS your last option, REALIZE that it is, and take the proper steps.  Bring along a trusted friend or family member to the consultation.  Most of us look at the reverse mortgage as a detriment to society and squeezing of our senior citizens, but really the lenders are just targeting another audience.  It may not be right for everyone, but to the select few that it is right for, the lenders have a right to advertise to them.

If you’re reading this blog and under the age of 50, well, you’re probably on the right path anyway if you’ve got a plan, at least educating yourself to get a better understanding of what is to come so you won’t make more bad decisions.  It is likely we won’t have to worry about that for ourselves, but if we have parents or loved ones that ARE in that situation, at least you’ll be able to answer/help them answer many of the questions that come up in the lending process.  Keep your eyes peeled and guard up and decide for yourself if it is a good decision.  Prepared financial decisions are usually the best kind to make…

Related posts:

1. Should I Use My 401k To Pay Off My Mortgage?
2. Is the federal government playing puppetmaster with your house price? Are they in cahoots with house value sites?
3. How To Deal With Property Taxes; To Wrap, Or Not To Wrap (In Your Mortgage).

Photo by: dave mcmtSo I’ve done it – after debating for about 2 months and trying to convince myself that I DIDN’T make a bad investment in getting in on this, I’ve come to my senses. I admit it, I made a bad mistake 5 years ago to purchase my Hartford Life Universal Life Insurance policy. Over that 5 year period I was putting in $205.00 per month to be “invested” in ITHAX; not completely invested in it; honestly, I don’t know how invested I was in it. I straight out asked my agent “Is my investment based exactly on the ticker symbol ITHAX?” She responded back with,

“Well, not exactly. It is difficult to explain, but yes, some of your assets are in ITHAX, but we can’t tell exactly how many shares you own at any given time. Just wait for your monthly statement.”

Are you kidding me? First of all, I want to see my investment when I want to see my investment. We’re not in the 1980s anymore. I’m a GenX’er that has grown up with the internet. If I can’t see something online, that’s another hard strike against them.

Photo by: dave mcmt

Furthermore, how is that an “investment” then? Two terms to consider in insurance: SELLING and INVESTING. They are NOT the same word, and shouldn’t even be used in the same sentence generally. You are SOLD an insurance policy. You are not INVESTED in an insurance policy. They should be completely separate entities and treated as such in your net worth and balance sheets. You are SOLD car, home, and LIFE insurance. You INVEST in stocks, bonds, and mutual funds. Don’t get them confused.

Needless to say, she wasn’t completely happy with my choice to opt out of paying her salary each month. But they’ll be like that, they want you to stay in because you’re making them money. Take this number in. My $205/per month I was “investing” with her over the 5 year span made me about -$3,000. Yep, that’s right, that is a NEGATIVE number. I had put in $12,300 over 5 years, and my “investment” is worth $9,292 as of December 1, 2007. If that’s not a bad investment, I’m not sure what is.

I never took the Suze Orman view of Term Life insurance very seriously as for whatever reason I was under the spell of my insurance agent. My agent is a very nice lady; nothing against her (aside from taking my $) but she is just trying to make a living also – I have nothing wrong with that. But I’m out from under that umbrella now and am totally onboard with Suze and Dave Ramsey in the insurance piece.

Photo by: dave mcmt

CubeFarmer has pretty much written the exact same thing about their whole life policy. It’s crap, and Universal is similar. I can’t begin to explain how much I relate to the article. Almost to the “T”. I got in shortly after college because of relatives advice also, and here we are years later. One BIGGER caveat though is that the surrender charge is RIDICULOUS. My 9k investment, if cashed out now to find a new investment/insurance is going to take almost 4k in surrender charges!!! That’s almost HALF of my “investment” in there!

I’ve got an email in with her now inquiring about my options going forward and how to mitigate the surrender charge, but I’m pretty sure it’s similar to the Edward Jones ROTH IRA ladder structure, but stretched out over a longer period, which I believe is 15 years; one thing is for sure though, she’s not getting that $205 payment as soon as I find a decent term policy…

Related posts:

1. Is Investing In Life Insurance Really “Investing”?
2. Does My Beneficiary Have To Pay Taxes On My Life Insurance Policy When I Die?
3. Should I Buy a Loaded Mutual Fund?

Photo by: emdot

Only 0 days 5 hours 2 minutes left until Hanks Holiday Handout drawing!

To make my goal of having my net worth be $1,000,000USD by 2020 I need to have a plan laid out. Yes it will change through the years, My wife and I will get raises; we won’t get the return we’re shooting for with investments in some of the years, but as a base goal if we take our current principal of $75,000 and continue to invest $21,500 per year for the next 13 and that will put us just over the 1MIL mark. That first MIL is the hardest, Pinyo lays it out here.

Where do I find $21,500 per year to invest? We’re currently contributing 10% of each our salaries for about $16,000 per year to our 401k plans, then add in $4,000 each for our ROTH IRA accounts and we’re well over the limit there. We’re planning on bumps in the road, so that’s why I’m giving the $21,500 number. There are a lot of calculations that need to taken into account, but that is the same with any investment plan. At 10% return with those calculations we’re looking at just under 840k, and at 12% that puts us over the 1MIL mark.

We could have a year where we can’t pay contributions to either our 401k or ROTH, but on the same note, there could be years where we’d contribute MORE to those accounts, For instance, we’re planning on trying to bump the 401k contributions up to 15% in 2008 and that would be $24,000 in itself; add in the ROTH IRA contributions and we’re looking at $32,000 invested per year and in 13 years, that will be worth 1.33MIL.

Numbers are numbers – sticking to the path of just getting money in is the key. In 13 years I’ll still be nowhere near retirement, but the first million is always the hardest to make, after that, it is quite ridiculous how fast it grows. In 35 years on this same $21,500 per year at 10% return we’re looking at 8.5MIL. Which is dreaming, and a lot can happen in 35 years, but there is no time like the present to start planning on it!

Time, as usual, is the key piece of this financial pie; variables are always tossed in to make it interesting. As long as we’re putting in the $21,500 we’ll be on a good pace. I’m sure there will be other investment opportunities, more job promotions, more raises, maybe more kids, but staying on this basic path is the key to our specific financial goal. What’s your path?

Related posts:

1. How Much Should I Save Per Paycheck To Reach My Retirement Goals?
2. Shifting Your Investing Mindset During A Recession
3. Weekly Roundup #12 (January 12, 2008)

So after writing about how my Edward Jones ROTH IRA was invested in “B shares” of NFPBX and no response back from my Edward Jones rep questioning him if I could get out without paying the 5% deferred load or reallocate the funds elsewhere, I figured it was time to do something about it, and I have. As of yesterday at 9am, I turned off the faucet to funding that account. We’ll see if he calls me back now.

Either way I wasn’t very happy with the service he was giving me. He’s a nice guy, but it just seems to me like he is selling me a product instead of investing my money, very similar to my Universal Life Insurance policy I was sold on 5 years ago (of which I have also turned off the faucet, more on that later). But an advisor should be someone that is there to ADVISE you of where your money should go to help for YOUR retirement, not theirs. I am confident enough now to select my own funds and choose my own investing path, but it is nice to have someone to ping questions off if I DO have questions and for second opinions.

The personal finance blog network is one resource, but I like to have the option to ask a question to a certified financial planner if I can as well. It’s advantageous to have as many resources in your investing bullpen to help along the way with any decisions. So I will keep the Edward Jones account open for nothing more than to utilize the resource he’s given me; I won’t close the account because he’s not the one holding the bag for the 5% deferred “ladder approach” to investing, it is the actual fund, NFPBX. The ladder approach the Edward Jones rep refers to is that the 5% deferred load on the fund will decrease each year I stay in it, up until the 5th year, at which time my account will be converted into “A” shares and the load will be gone.

His explanation of the reasoning behind this is that “it will keep me honest in my investing, and force me to invest for my future”. Well, duh, I know I need to stay in for the long haul, but I don’t need to be investing in HIS future, nor the futures of the fund managers. I think they’ll do just fine without me. I also don’t mind keeping the cash in with NFPBX because it IS a decent fund; repeat, DECENT fund. I hate the deferred load, and the expense ratio of 1.48% isn’t in my sub 1.0% range, but it HAS returned 16% this year, and I can’t balk at that. But I think I can find better ways to manage the $.

In comes Charles Schwab – Honestly, it is the infancy stage, and I’m sure there may be bumps along the way. But they’ve been nothing but cordial in my journey thus far. Yea, I know, they want me for my money. If I find they’re not doing me a service, I have no qualms leaving them either; after all, I can open as many ROTH IRAs as I’d like if I really feel like it. But I am very happy so far. The one sticker so far I’m dealing with then is the fact that I’m NOT transferring my current ROTH or cashing it out (for $400 via the 5% deferred load is what I’d have to pay to get out now) so I don’t have any capital or $ to be sending to a ROTH right now, so I’m starting with the payments I PREVIOUSLY had going to Edward Jones of $100.

The payments will now be headed towards my new ROTH with Charles Schwab under one of their funds, SWEGX. SWEGX has been doing alright this year and it’s basically a mutual fund of mutual funds because it’s holdings are smaller funds, also held by Schwab. Morningstar gives it a 5 star rating. It has a 0.80% expense ratio that I like, and is a no-load fund. Finally it’s got a 12.4% rate of return so far this year, which isn’t too bad either. We’ll see how it does over the next few months, but as a starter fund and only have 100$ to start investing with, it is going to do the trick nicely I think.

Welcome to the family SWEGX!

Related posts:

1. My Edward Jones ROTH IRA Account Is Invested Nn B Shares – Is That Good?
2. A conversation with a Charles Schwab associate about funding a ROTH IRA and their options for it. (Part 3)
3. Should I Buy a Loaded Mutual Fund?

So I decided to try out Flexo’s monthly expense template, and it isn’t looking too promising for me this month.  I’m doling out more than I am taking in this month.  Off the top, that sounds like it is bad, but really it isn’t TOO bad.  I figured my cash allowance was high this past month, so I had some room to spare since I have $6,000 in cash.  I’ll pay off the $4,300 on the credit card so as not to get a ridiculous fee charged for interest on it, but then I don’t get billed for anything for another 2 weeks.  So I’m alright there.

My expenses can certainly get a trimming though.  This is eye-opening to say the least though, as I KNOW that I’ve been right at breaking even for the past few months, especially after the trip to Australia that pretty much drained the rest of what I had from the sale of my house last year.  That’s ok though because my wife took home less because we bumped her 401k allocations to 10% matching mine, and I’m still contributing to my ROTH IRA at $200/month.  This pretty much smashed the urge to get the new car though – It’s certainly helpful to see everything out on paper to further the need to back away.  That’s maybe the allure piece grabbing me.

I’m probably going to start a new car fund though shortly because my 2001 burb isn’t going to cut it going forward.  I took it in last week to check out a “clunk” it was making and they quoted me at almost $1,900; 95% of that money was for upkeep, 60k lube and maintenance, a few leaky pipes, but ultimately I got out of it and fixed the clunking noise for $108.

So here is the first installment of my monthly expenses (click to expand):

Obviously I can cut down the Retail Store Purchases and Dining Out, and if everything goes as planned, I’m in the market for a raise in a few weeks; I’ll be certain to keep the post up on that one.  It’s pretty ridiculous what the ol’ government takes out each month, but it’s nice to actually see it out on [electronic] paper.  Daycare is a killer, but we get that back when we can write it off at the end of the year, but that takes a good monthly chunk, and we’ve got a GOOD rate!

My wife wants to have another in the next year and good grief that Daycare budget is only going to rise in time; add another kid and it is starting to get ridiculous…

Laying this information out has really been a beneficial exercise and I can get this info from my credit card each month.  I’m going to start doing this monthly from now on to get a better grasp on it so I can realize what we’re spending/saving.  I highly recommend doing this for anyone curious as to what they’re spending $ on.  Do you have a budget worksheet you can work off?

My wife has about $80 in Starbucks that I didn’t account for on here that I’m sure we can trim also!  Anyway, goal for next year is to get these numbers and stick to a budget more strictly going forward.  We’re making money off our investments, but we’re not getting the best bang for our buck because we’re leaking money in other areas when we could be putting it to better use.

Related posts:

1. Monthly Net Worth Update March 2008 (+2.42%)
2. Monthly net worth update February 10, 2008 (+35.68%)
3. Net worth update December 1, 2007 (+5.16%)

Climbing out of debt can be hard, but it is certainly possible. I initially started searching Personal Fianance Blogs a year ago to find a way to climb out of debt myself. RedCouch hosts a blog and isn’t so sure about them, but they’re thriving and helping now! There were not as many as there are now; which is nice because it gives people more view and choices on how to do it, but all the info is VERY spread out. I figured it would be helpful to put all the info in one place to best help folks climb out! This is my attempt at helping those folks that have been in my shoes, and SaveLeighAnn‘s shoes also who climbed out in just 1 year!

So almost 4 years ago on my climb, I moved into my first house, needed to buy first furniture, had a first kid (with one on the way), needed to get a first new car , first car seats, first diapers, the “FIRST” works! But kept my head about it all and this year started to blog a bit about it and prove that it CAN be done! It takes some frugality (which is NOT a dirty word) and planning, but CAN happen if you keep your priorities in order! The blogs out there now are prime examples of people trying to claw their way back into the black. I dug and looked through several in the past year and a few of my favorites were:
MyDebtBlog
OutOfDebt
DebtFree
DebtFreeRenee
BloggingAwayDebt
NullBalance
BryansDebt
EliminateMyDebt
FightDebt
DroppingDebt

Several of the Personal Finance Blog folks have posted about the issue as well and I have gained a good chunk of knowledge from them. Free Money Finance, Get Rich Slowly, and JeffLindsay were a few I gandered at regularly, and the posts they offer are EXTREMELY helpful in digging through all the crap that people keep trying to stick you with when you are that low. It almost seems like companies TRY to kick you when you’re down (in debt) more often than when you climb out because they KNOW you’re trying to find a way out! That’s actually something I thought about also when I was that far in debt; people/companies will prey on you because they know your mentality.

I was watching ol’ Suze Orman last week (not advertising for her, but she does have some things I agree with, but some that I don’t), and someone called her up on her “Can I Afford It” section of her show. There was a guy on it that was asking if he could afford a $3,000 lawnmower. He was $88,000 dollars in debt and I thought to myself, “Is he SERIOUS????, There is NO WAY he could afford that! What would lead him to believe he can???”
Well his rational was that he was already $88,000 in debt and $3,000 more would just put him at $91,000 in debt which woul ONLY be a 3% increase on his debt, and if he was paying off that much anyway, that it would just be a “drop in the bucket”.

Well, as much as I didn’t agree with him, I guess I DID understand where he was coming from. As bad and wobbly of a point as it was, he still believed it. I think that is the mindset of someone in debt. It is like climbing a hill that you can’t even see the top yet. Tacking on another 300 yards at the top, you’re not even going to notice. It’s a bad mindset to be in, but I like to look at both sides of the coin, and yes, I can SEE that side of it, but I certainly don’t agree with it.

My mindset, on the otherhand, I scrimped on EVERYTHING when I was climbing out of debt, I would save $0.88 chili for the next day to only spend $0.44 a day on lunch. Without going into the details of everything I scrimped on, I was very cheap because I KNEW I had to pay off the debt first. Getting-Out-Of-Debt has some good info on saving and getting by cheaply. My path worked with frugality, and a properly goal in mind. Now I don’t have the debt, and pay my credit card off each month to avoid late payments, make all my others on time, because I KNOW I have to stay on top of the debt to stay out of its ugly path! Once the collection agencies start calling you, it is obvious you’re in some trouble. Some info about debt collection can be found @ CaliforniaDebt.

Furthermore, the person that was 88k in debt and didn’t see a reason NOT to go to 91k in debt couldn’t see it like some can. When I think about buying something costing $3,000, I think I’ll be $3,000 in debt, and from 0, that is a 3,000% increase in debt vs. the 3% increase for “lawnmower man”. I imagine that is how he was looking at it, but needed to clear the debt blockade first to realize it was a bad decision. Key point: DIG OUT OF DEBT FIRST!!! You’re most certainly paying the credit card companies to produce MORE credit cards to dig America FURTHER in debt! Stop the insanity!!! Here’s a debt consolidation calculator to help from DebtNation.

Everyone seems to be searching for “tips for getting out of debt”, and thankfully, there are debt-free folks that are out there and WILLING to help! DebtConsolidationStrategy, TheFinancialBlogger, MillionDollarJourney, TheMoneyBlog, DebtLowdown, ZenHabits, Blankenship, and TimeToBudget, all have very good posts that are willing and showing people the best strategies to take. Read them carefully and most importantly you need to THINK before you make that next big purchase because it is NOT the amount you’ll be in debt, but amount FURTHER you’ll be in debt if you don’t pay it off first! After that, it is an easy decision of just finding places to stash your money in your OWN pocket and building wealth!

Good luck!

Related posts:

1. Hanks Weekly Hangouts #22 (March 22, 2008)
2. Weekly Roundup #11 (January 5, 2008)
3. New October 2007 Net Worth Balance Sheet