Thursday, January 21, 2010

Results After About A Year...

I started this blog about a year ago in an effort to get my own financial house in order, and also to explore unconventional ways to save on money and live better, with less effort.

It has been a year, and I think a good time to look back on what I have learned and accomplished - and what I need to do to succeed in the future.

In my original posting, I mentioned two things, habits and planning. The first is taking hold, but bad habits can re-emerge if you let them. As our financial situation has improved, we find ourselves becoming more lax about spending and saving. It does take eternal vigilance to keep things on track.

I try, when money comes in, to pay off all bills, taxes, and other debts immediately. I then try to put money aside into tax-deferred savings. In this manner, we don't have a large amount of money "sitting around" and the temptation to spend is less. If you are always "broke", the temptation to spend is a lot less.

On the planning side, our plans continue to evolve. Our main goal is to own less "things", particularly depreciating things, and DO more things. For example, I had a boat that cost me $3000 a year in storage and insurance fees, and I hardly used it five times, or about $600 an outing. A local boat owner offers day-long charters for far less than $500. It makes more sense to hire his boat than to own one of my own. With the savings we have garnered, we plan on traveling more and doing interesting things, rather than spending time maintaining equipment for the sake of owning it.

So what has changed since November 2008 when I started this blog? Let me summarize:

1. Insurance: I converted some adjustable and variable life policies to paid up whole life policies, and cancelled my disability policy, saving $500 a month in cash flow. I cashed out one small whole life policy, saving another $65. I shopped my homeowner's insurance policies saving about $1000 a year overall (four policies). I dropped collision and comp and uninsured motorist insurance from my cars, cutting my car insurance by more than $1500. Total annual savings, about $9200 a year. I was horribly over-insured!

2. Vehicles: I sold my 1948 Willys Jeep for $2000 on eBay, which is what I paid for it. It was a fun vehicle, but we did not use it that much, and tinkering on it, while fun, took up a lot of time and money. Since we have five other vehicles, we really didn't need it. I also re-evaluated our service practices, and realized that with synthetic oils, we could go to 7,500 or even 10,000 miles between changes in our cars. I also made a study of gas mileage on our cars and discovered that driving a little slower would save at least 20% on our fuel bill, and avoid the risk of insurance-wrecking tickets. As I noted above, we sold one boat (at a horrible loss, but that's the market) and used the money to pay down debt. We plan on letting half our five-acre lawn grow out, and then sell our antique tractor on eBay, which will realize cash and save expenses. Cash realized: $35,500. Money saved annually, at least $5000.

3. Debt: When I started this blog, I had a huge credit card debt load, mostly from paying a capital gains tax bill at the last minute, when my accountant fell ill and died (death and taxes, as they say). Worse yet, the credit card company jacked my rate when I paid one month's payment too early, crediting it to a previous month. I rolled over this debt to zero-interest rate credit cards, and started aggressively paying them off. I have knocked this debt down to about half of where it was, and hope to eliminate it, permanently, in the next two years. Our goal is to be debt-free, entirely (even mortgage debt) by the time we retire. No payments, no hassles, no worries. I set up my credit cards to auto-pay the minimum payment every month, so there will be no more surprise rate jackings. The new credit card law, set to take effect in February, should provide additional protections as well. I log on nearly every day, or at least once a week, and check. I also check my credit activities, and use income to pay down this debt first. I also use the freeannualcreditreport.com site to check my credit report every year and make corrections where needed.

4. Tracking Expenses: In the last six months in particular, we have been more aggressive about entering EVERY FINANCIAL TRANSACTION, no matter how trivial, into Quickbooks, to see where the money goes. This will help us plan retirement and also help find areas for savings. It is not easy to do, but using the debit card helps. This type of tracking also makes spending a more contemplative action. Impulse-buying is now a thing of the past, as we tend to think more about purchases, rather than just go "shopping".

5. Income: I have also tried to track my work and try to increase my income. When you are self-employed, the temptation is to goof off. By setting an income goal, I have been able to boost my income by 15% over last year, which is quite a raise considering the economy. I fell short of my desired goal, but still saw an improvement. My partner took on a part-time job which added some money to the pile, but more importantly increased our disposable income. We hope to do the same next year as well.

The net result? Well, last year, we had a negative cash-flow. Credit card debt was accumulating, and that is the "miner's canary" that your personal finances are in trouble. Initially, I thought that there was little I could do to correct the situation, other than to take drastic measures (sell a house, for example). But after analyzing the situation, I realized that a lot of the "must have" expenses in my life were really "not worth having" and moreover that keeping appreciating assets, like Real Estate, was more important than keeping depreciating assets, like cars.

This year, we have a positive cash-flow. While this sounds great, the net effect has yet to be felt on our lifestyle, as we are still paying down debt, and will continue to do so for the next year or so. Once that debt is paid off, the monthly cash-flow requirements will drop even further, allowing us to either (a) work less, (b) save more, (c) have more disposable income, or (d) a little bit of all three.

And that's the point of this exercise - living better while spending less.

Most Americans are programmed by the television to believe that having debt is the way to live better - and they spend the rest of their lives chasing their tails, making payments, and spending more and more of their income on interest.

It's better to be the guy collecting the interest than the guy paying it.

2010 promises to be a better year than 2009, and 2011 better than 2010.

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