Check this out

Looks like I jumped on the Personal Finance Blog bandwagon at just the right time. The New York Times today ran an article featuring the blog of the first PF blog that I ever read: Bloggingawaydebt. She was the inspiration to start this blog in the first place. The author of the article says that “the blogs open a…shockingly canded window on the…finances of American households.” It also mentions one of the motivations for keeping these sorts of blogs in the first place: they make us conscious of our own spending. We worry about letting them down.

Well, I feel the same way. I’m pretty sure that no one reads this very often, but I know that I do, and my wife may (assuming that she’s found this) and this pressure has helped us create and stick to a budget. This first month so far we have been able to pay down 500 in debt. And guess what…the tax refund comes this week and we’ll be able to make a huge dent in the debt. Looking forward to that.

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“66% of those already in debt opting to take on more”

At least according to Moneyhighstreet.com. Tim Moss says that “debt has certainly become the common curse of modern times. Whereas 40 years ago being in the red was considered a last resort, it seems that many of today’s Brist are much more accustomed to taking on debt.”

Why is that? Is it the pressure to keep up with our friends and neighbors, or is it because we want what we see other people have on the TV? Whatever it is, we find ourselves in somewhat of a crisis. I’m wondering if it wouldn’t be a good idea to just get rid of the TV altogether. I read somewhere (I think that it was on the http://www.youneedabudget.com website) that a lot of people feel entitled to have the good stuff, even though they really cannot afford it.

Anyway, the good news is that we paid 400 on our first credit card. Feels pretty good, although I do feel a little as though it was wasted. Oh well…it was wasted several months or years ago when it was first spent. Good for us!

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Payday coming up!

Okay, so after the most recent payday nearly two weeks ago, we reached our goal of keeping 400 in the checking account. Well, we after all required bills were paid, we actually had 411.33 in the account. And since anything over 400 is going towards debt, we paid 11.33 on the student loan. We should have nearly $500 to pay down the student loan after bills are paid this next payday. YES!

On a similar note, we filed our tax return and are expecting our refund of about $5,500 +/- a week from Friday. That should effectively kill the student loan, the scooter, and most of the overdraft line of credit. That ain’t too shabby.

I also told my wife how therapeutic it is to write all this stuff down and concentrate on our new debt reduction activity, so she’s now started a blog. I still haven’t told her where mine is, but it wasn’t too difficult to find hers (it’s linked on under the blogroll). She’s actually a much better writer than I am; it’s pretty fun for me to read her thoughts…almost like reading a journal I guess.

Ok, so here’s the dilemna for the week. I tell everyone I know about this, but my dream job (surprise surprise) is NOT an accountant. Don’t get me wrong, it’s a great job, just not my dream job. If I could choose any job, I would play saxophone in Sting’s band. He is my all time favorite artist – and his band (the Police) reunited for a tour! So what do I do? This is, for me, a chance of a lifetime. However, I’ve dedicated my life to paying off debt. Do I go see the Police in Vegas, or do I forget it, pay down debt, and regret it for the next 30 years?

Allocation of funds

From the Tuscaloosa News:

“The rule of thumb is 35 percent for housing, 15 percent
for transportation, 15 percent for debt reduction, 25 percent for
miscellaneous and 10 percent for savings,” said Andrew Housser, co-CEO
of Bills.com, a personal finance site geared toward consumer
education.The greatest variable in this mix is housing costs, according
to Sandra Shore, a senior counselor at Novadebt, a non-profit
credit-counseling firm.

Budget Category	Bills.com category
Tithing	Tithing	13.2%
Mortgage 1	Housing	28.9%
Mortgage 2	Housing	5.6%
Line of Credit 1	Debt reduction	1.3%
VISA platinum	Debt reduction	6.4%
Loan #2 (Scooter)	Debt reduction	1.8%
Loan #3 (Car)	Transportation	5.9%
Home Depot	Debt reduction	0.7%
Student Loan	Debt reduction	1.8%
Phone & Internet	Misc	5.4%
Gas (Questar)	Misc	4.7%
Grocery	Misc	7.8%
Power (Rocky Mountain)	Misc	1.9%
Water	Misc	1.1%
Car Insurance	Transportation	1.5%
Sewer	Misc	0.3%
Life Insurance	Misc	1.3%
Allowance	Misc	5.7%
Kid’s Lunch	Misc	0.4%
Miscellaneous	Misc	1.0%
Eyecare	Misc	0.2%
Drugs	Misc	0.2%
Hair Care	Misc	0.4%
Car repair	Misc	0.6%
Gasoline	Transportation	1.2%
Kid’s Clothes	Misc	0.6%

Here’s how it translates:

	My %	Bills.com %	Diff
Housing	35%	35%	0%
Tithing	13%		13%
Debt reduction	12%	15%	-3%
Transportation	9%	15%	-6%
Misc	32%	25%	7%
Savings	0%	10%	-10%

I’m assuming that this is talking about the paycheck net of taxes.
That’s some pretty vague guidance…I plugged the numbers in my own
personal situation. So I know that i’m not doing so well with the
savings, but that’s a conscious decision on my part to reduce debt. But
what’s crazy is that I’m at 9% on my “transportation.” This includes
gas, insurance, and car payment. We only have one car, so I guess that
kind of explains it. Do they expect you to have 2 car payments? Eh. I
guess I wasn’t so impressed with the allocation suggesting.

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The Psychology of Spending Money

I’ve always kind of thought that I was addicted to spending money. After a hard day at work (or a tough day at home) a quick trip to the local Best Buy to spend $20 or so sure makes me feel good. Even when I don’t have money to spend, a few quality minutes in the store does a lot to make me feel better. Well, Trent at The Simple Dollar has articulated my feeling EXACTLY.

Those who aren’t reading The Simple Dollar need to…now. Trent writes a couple of times a day (at least) and is very articulate. I’ve learned something each time I’ve read his blog.

Thanks Trent!

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Aack!

I read something on Thursday that I forgot to post about and now I can’t find the source. It was a blogger that stated that the richest people in the US (the top 1%) have accumulated 7% of all the debt. He was saying that getting into debt to keep up with the Joneses is a never ending, viscous cycle. I’ll have to figure out how to find it – it was a GREAT read!

EDIT: Found it. It’s not a blog, and Google is my friend. The Robert Frank at Yahoo comes to some surprising conclusions about the spending habits of wealthy people:

“So the haves are borrowing more to keep up with the have-mores. Those in the 95th percentile to 99th percentile of wealth have almost twice as much debt as the top 1%, as measured against assets. Economists and wealth managers say it’s the single-digit millionaires who are becoming the most stretched, as they borrow to match the lifestyle of even-wealthier people.

The result, says Dalton Conley, a sociologist at New York University who studies status, is even more debt. “What we’re seeing is the top 1% struggling to keep up with the top 1/10th of 1%,” he adds. “And those people trying to keep up with the top 1/100th of 1%. There is a drive by the merely rich to keep up with the obscenely rich.”

Of course, a lot of debt accumulated by the wealthy is strategic in nature, and the Mr. Frank acknowledges this. But if you can’t break out of the “keeping up with the Joneses” cycle while you’re middle class, guess what: you’re not going to break out of it when you’re in the upper class either.

ANOTHER EDIT: Looks like I came up with the same conclusion as the Motley Fool:

“If the multimillionaires still feel they have to overspend to keep up with the ultramillionaires, then this debt trap knows no income bounds. Forget the Joneses. Resist the impulse to buy more than you can afford. Reinforce the lesson that it’s futile to try to keep up with the neighbors by calculating what your extra consumer debt costs you. What happens when you catch up? You’ll just be striving to keep up with the Rockefellers. “

Free Personal Finance Blogs

This looks like a cool idea. It’s a free personal finance blog hosted by mypfblogs.com. It actually could be a pretty big deal.

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Consumer Debt Slows

I read today that Consumer Debt growth has slowed to it’s lowest pace in 9 months.

Growth of revolving debt, such as credit cards, increased $609 million, or 0.8%, to $876.2 billion, after soaring by $9.9 billion, or 13.8%, in November. It’s the slowest growth in credit-card debt since March.

Later on the article states that non-revolving debt (like for cars and mortgages) actually increased at a faster rate since back in August. They theorize that lower interest rates encouraged people to refinance their homes and consolidate their credit card debt. So, if you take into consideration the fact that personal spending has gone down to its lowest rate since the great depression, it makes you wonder what will happen when people inevitably rack up credit card debt again. The Market Oracle has a sobering article on one possible outcome of all this debt:

In truth, the dollar rests on the crumbling foundation of consumerism and oil. The American consumer’s gluttonous appetite for spending has kept the greenback flying high for decades. Economists marvel at America’s lust for electronic gadgetry, the latest fashions, and useless knick-knacks. They call our profligate spending “the engine for global growth”; and indeed it is. No other country in the world is nearly as addicted to binge-spending as the US consumer. As long as he can beg, borrow or steal his way into the shopping mall; the orgy of spending is bound to continue. (Consumer spending is 70% of GDP)

Regrettably, there are signs that the US consumer is beginning to buckle from the weight of personal debt. The Associated Press reported just this week that “people are saving at the slowest rate since the Great Depression… and the Commerce Dept stated that the nation’s personal savings rate for 2006 was a negative 1%, the worst showing in 73 years.”

Additionally, credit card debt has skyrocketed, which is an indication that homeowners are no longer able to siphon easy-money from their home-equity. The nose-diving real estate market has slowed refinancing to a dribble; cutting off the additional $825 billion of cash which was extracted from home-equity just last year.

Clearly, the well is running dry; the housing bubble is hang-gliding into the abyss and there’s nothing Fed-master Bernanke can do to save it from its inevitable crash-landing.

Now, I don’t know the author, maybe he’s a gloom n’ doom kind of guy, but this article certainly gives me pause.

“January Wages Spent on debt”

This was a fascinating read today. Over in the UK, the good folks at www.unbiased.co.uk have declared February 1 “Debt Freedom Day”. They’ve calculated the average “debt freedom day.” (I guess it’s conceptually similar to the “Tax Freedom Day” that we declare over in the US.) It says that in Britain, the entire month of January was spent to pay down the interest on their debt.
According to the article,

“This week the Financial Services Authority said that personal debt levels were among the biggest risks to financial stability in the UK over the coming year. It said that while the evidence was that most people were managing, there was a risk that a sudden deterioration in employment levels or further sharp rises in interest rates could tip many households over the edge.”

It got me to thinking…how much do I have to work during the year to pay down just the interest on my loans. If I don’t include the interest on my house, I’m paying over $3,500 a year in interest, which would take me about half the month of January to pay down. If I include my house, my interest load is $19,127, which takes me nearly 3 months to pay down. That’s JUST INTEREST!

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System Shock?

According to an article in the Guardian, the Financial Services Authority has issued a warning to the city (I’m guessing London, but I couldn’t tell) regarding the economic impact of three areas of concern – any one of these could trigger what it calls a “shock to the financial system:”

• A Flu Pandemic
• Consumer Debt
• Change in the Way the Markets Price Risk

Ms Carlson quoted Franklin D Roosevelt, saying: “The time to repair a leaky roof is when the sun is shining.”

The FSA highlighted nine priority risks, in particular the possibility that a “significant minority” of customers could experience financial problems because of their high level of borrowing. The FSA has found 34% of consumers are having difficulty paying their bills. Many of them live in rented accommodation but the FSA notes that if house prices were to fall, homeowners would no longer be able to use equity in their homes to refinance other debts.

Ms Carlson admitted the regulator had been “rather surprised” by the rise in bankruptcies and individual voluntary arrangements given low interest rates.

“Even at low interest rates people are struggling,” said Lyndon Nelson, head of risk at the FSA.

Fascinating stuff…this is geared toward the economy in the UK, but is it that different over on this side of the pond? What would happen if there was even a modest rise in interest rates and people were unable to comply with even minimum payments on their debt? It just validates the decision my wife and I made to get rid of this enormous burden.

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