I picked up a few books the other day: Darwin’s Ghost: Origin of the Species Updated, The Metrosexual Guide to Style: A Handbook for the Modern Man, and The Total Money Makeover: A Proven Plan for Financial Fitness. No, I’m not trying to evolve. These aren’t the sort of books I’d normally read, which is sort of the point.
I’m reading Darwin’s Ghost for the book discussion. I’ve always wanted to read Origin of the Species and this is more or less an updated version of that, although the author seems hellbent on portraying Creationists as complete morons, even to the point of making such ridiculous claims as “All Creationists believe that AIDS is God’s punishment of gays for their evil behaviour.” (paraphrase) I have some faith that the book will get better, though.
I bought The Metrosexual Guide mostly for entertainment purposes and to see what all the fuss is about. It certainly is entertaining, but I have learned a few things such as how to order wine and that I should never cook bacon while naked. (insert bacon grease joke, steve)
Finally, I bought Total Money Makeover because I suck at handling my money. The book was recommended to me by someone wiser than I. There is a lot in the book that is fluff and can be skimmed. That is, one only needs to read testimonials where someone says, “I used to have $78,000 in debt. Now I don’t.” a couple times before one gets the picture. But his basic formula for getting out of debt and building wealth seems wise.
- Build an emergancy fund of $1,000
- Pay all minimum balances on debts, but concentrate on the smallest debt and work your way up. Also called the “Snowball effect.”
- Profit
Tags: Books
November 20th, 2003 at 2:17 pm
Alright Guys-
I know I have not been gone to the book discussions. But that doesn’t mean I am not with you all in spirit.
I just got done reading “A Grief Observed” by C.S. Lewis. Good book. Having dealt with a loss, myself, in the past, I was able to relate with a lot of what Lewis had to say. He mentions similies like death being like getting one of your limb’s amputated. The doctor will eventually put an artificial stump and you will learn to use your leg again. But not as you had before. Very deep. I highly recommend it.
November 20th, 2003 at 2:24 pm
I’ve been wanting to read that book for a while. I’ll add it ot my list…
November 20th, 2003 at 3:10 pm
A bacon haiku (by request):
Bacon is cooking
Jamin is wearing no pants
Oh! He’s burnt his meat…
As for the financial strategy, I like #3, but the first two points are shaky. I’d revise the plan to:
1) Build a cash reserve of n months’ expenses, where n is the number of months you think it’d take to get a new job if you were laid off. This used to be two months for those of us in the computer industry. More than six months of cash reserve is a waste. Cash reserve could be bank accounts or CDs - just something you can get to quickly if needed.
2) Pay all minimum payments on debts, but target *the debts with the highest rates first*. The amount of any particular debt means diddly in the long run. Attacking the higher rate debts first means you lose less to interest in the long run.
3) Profit - by not acquiring more debt, and by living within your means. Better, live as though you made half the income. Use bacon grease from Sunday’s breakfast instead of… (there’s your reference, Jamin)
November 20th, 2003 at 4:44 pm
Actually, the author does say that after you build your emergancy fund of $1,000 you work to extend that fund like you’re talking about, Steve. He suggests you base n on the amount of risk you have. If you’ve been at a company for 10 years and you feel you have very strong job security you might make a fund to support you for 2 or 3 months. If you think you are high-risk, you might extend that a bit, say to as much as 6 months. As for the order in which you pay off debts, yes, it makes sense in a lot of ways to pay off the higher interest loans first, however he advices to disregard interest so you don’t spread yourself thin and for the psychological advantage. Having been working to get myself out of debt over the past couple years I have to agree with him. For myself, there is so much gained when I pay off something. Everytime I pay off an outstanding loan I feel better about my situation and have that much more money per month to concentrate towards the next one on the list. Not to mention the fact that some of my smaller “debts” had no interest at all, so if I ordered them by interest they’d be paid off last. Anyway, surely that point is controversial, so I’d say do whatever works best for you personally.
As for living within my means, that is something I need to work on. I don’t have any credit cards anymore, but I tend to live from paycheck to paycheck and just buy whatever I want at the time if the money is in my account. Which is a pretty sad way to live. I’m trying to change that.
November 20th, 2003 at 9:41 pm
Well, I guess it’s personal taste to some degree, and you can’t discount the boost you get when you finish off a loan. I tend to look at it from a pretty raw point of view: attack what’s costing me the most first. Say you’ve paid your bare minimums for the month. Now you’ve got $100 extra to pay off some principal. Do you use it to pay off a low-interest loan that will be finished off six months from now, or a higher interest loan that’ll take 20 years? Well, if you stick with it, you save yourself many more payments on the 20 year loan by paying it off early, along with losing far less to interest. Your short-term loan is going to be gone in six months anyway, so what does it matter if it’s gone in five instead of six? You may shave *10* higher interest payments off by hitting the big loan. The classic example is making 13 mortgage payments instead of 12 per year; you end up shaving, I forget exactly now, 8 or 10 *years* off of a 30 year loan that way.
That’s just how *I* look at things, though. Whatever you do and however you approach it, you just need to stick with it. Like you said, do what works.
And living within (or under) your means is tough. I know; it’s a constant struggle. That reminds me of one thing you didn’t mention, and I hope is in the book: start saving and investing wisely *now*, while you’re young. Even while paying off the debt; even $50 a month. The 401k isn’t enough (though it’s good for the employer match at least). Putting a little aside now prevents ketchup jug duty at McDonald’s when you’re 85. To pay for your diapers, of course.
November 20th, 2003 at 10:42 pm
Yeah, I’m working on that whole savings things. For so long I’ve lived under the disillusion that I’m young, immortal, got plenty of time, etc. I’ve been realizing lately that no one is going to be there to take care of me when I’m ready to retire. Yeah, I’ve got the 401K, but you’re right, that isn’t enough. What’s amazing to me is how much you can end up with if you put away just a little bit at a time and get interest on your savings, and yet until recently I haven’t done that. Sigh..I’ve just been so foolish with my money. There’s no other way to put it.
November 21st, 2003 at 9:37 am
A young man thinking he’s immortal is par for the course, so don’t sweat it. As for money, in today’s world, kids start getting credit card applications on their 18th birthdays. When I was 18, I certainly had no clue on how to handle my money. It all seemed like free money; just keep making those minimum payments. At one point, I had built up almost $15K worth of credit card debt due to this illusion. I finally wised up, and I don’t carry credit balances at all anymore; a credit card is just a way to write only one check a month for my purchases.
Unless you’re a guy from northeast Missouri living with a roommate and his girlfriend, eating a diet of Ramin noodles and Jello, you’ve probably had money issues of some sort. You’ve just got to avoid the temptations the banks throw out there. And like you said, start saving now.
November 21st, 2003 at 9:42 am
Yeah, Credit card companies have been getting more agressive about targetting teens, which is really pretty sad. I remember it only took a few months after I started college before the credit card companies started calling me convincing me that I would need a credit card for “emergencies” and for building credit. It was all a lie, of course, but a lie that is easily bought. I’m finally completely out of credit card debt, but it took quite a while. There was always some “emergency” going on and I managed to rack up quite a bit of debt. And of course they were always willing to extend my limit each time I reached it. How nice of them!
November 24th, 2003 at 5:05 pm
Good discussion we have here. After I got out of school and “got a real job” I began to get interested about retirement, investment, etc, but it has been a long process. The first thing I did after college is I bought a used car with cash from my savings account, from graduation money, and from the money from the first few work paychecks that I had gotten. I was still living with friends from college, so my rent and utilities wasn’t all that much. After that, I started working on saving money for my school loan. I payed the minimum amount for about a year or to and put all of the extra money in savings….where it kept getting bigger and bigger until one day I looked at it and I was like “I could pay off my school loan with that money”…I took a “Get out of debt class” through an adult education class and the guy was basically preaching “before you get start saving for retirement pay off your debt, or at least down….because by paying off your debt, you have a guaranteed rate of return”…Expecially credit cards. Lets say you carry a 1,000 dollars ballance on your credit card and interest is 10% or even maybe 20% (I don’t keep a balance on my credit card, so I’m not sure what it is). If you pay your 1,000 dollars off that’s basically 100-200 dollars you don’t pay in interest….Now, home morgages are a different story. Most people can’t pay them off in cash. [Note, after college and after my roomates left college I moved back in with my parents and didn't have to pay rent, so that's how I could get away with saving quite a bit of money]. After paying off my school loan that was an extra 140 bucks a month that I didn’t have to pay the government, so I went to the local Edward Jones guy and said “hey, I want to start investing.” He said, “Here’s a form and you can choose X percentage of money you want to invest per month.” I said, “Oh…Ok.” And X percentage is deducted from my paycheck each month. The kewl thing with a 403(b) (since I work at a University it’s a 403(b) instead of 401(k)) is that it is pre-tax…which means it comes out of your paycheck before taxes are applied. So lets say before investing you were making 2,000 per month. Now you are investing 200 per month is going to your 403(b) (or whatever investments you have) and you only get taxed on 1,800 dollars. I’m still living with the parents (because I need a change of scenery with my job…and I’d rather have a different job before I go and get a morgage on a duplex…I’ve applied for a different one and we’ll see what happens). I’ve been doing a little research on IRA’s and the different kinds there are. You might want to look into Roth IRA’s. I need to look at them further, but if I can invest more pre-tax dollars in an IRA I probably will….Letme back up….Before in between my car purchase and paying off my school loan I made an excel spreadsheet of all all of my cheques that I wrote and every single entry from my bank statement that I made with my debit card. I started from the year 1999 and gradually worked my way up until I was current. Every month when I get my bank statement I enter the checks I write and purchases from my debit card into the excel sheet…[My next goal is to do this with my credit card statements...I have been putting that off, but will probably do it during thanksgiving break if I'm that bored] so for example, here are my headings….
check, year, month, date, description (ie doc martins),name (ie steves shoes/the name of the company I purchased it from), class (clothes), amount (120 bucks or something like that), and the newest column I added is “hours of energy” How you come up with “hours of energy” is this…Take the dollars per hour you work and then subtract expensises such as “commuting”, “meals…ie how much you would save if you didn’t eat out at work”,”decompression”,”escape entertainment” ,etc…There’s a better description in the book “Your money our your life” by Joe Dominguez, Vicki Robin. I actually checked it out from the library and liked it a lot, returned it to the library, and purchased it from a bookstore last weekend so I could have it in my library….Once you have everything in excel, you can do a kewl little thing in excell called a “pivot table” (pivot tables are a little hard to explain, so if you want to learn how to use a pivot table send me an email and I’ll try to explain it)….A pivot table allows you to query your excel data in like a table format. You can see how much you spent on gas each month and see where the trend is going. Whew….this is going to be a long message. In the book “your money or your life” they also talked about keeping track of every cent you spend…ie where your cash goes. For the month of October, I used my debit card for the majority of my purchases and then if I had to use cash I wrote it down right after I made the purchase….Yah, it was a pain in the butt, but I found it really interesting to see where everything was going. This will be the second month that I will be doing this. I’ve been doing a pretty good job keeping track of where my money goes, but I’m sure I probably missed a time or two…It’s really fun trying to keep track of money when you go out with friends and have a few drinks or buy a round…but you can come up with a guestimate. The other interest I have right now is real estate. Ie buying a “fixer-upper” 2 bedroom duplex (since it’s just me right now) and fixing it up (hopefully I can con my father into helping me fix up one side and the do the otherside myself) and renting the other side out. I’m still in the research phase in this project….reading as many books as I can get my hands on and talking trying to pick brains of people….Ugh. That’s a long enuf post for now. As you can tell, I haven’t really had the opportunity to converse with too many people about retirement, investing, tracking money, real estate, etc. but I’d like to keep the dialogue going and learn some new things. Okay enough rambeling from me. If you need any clarification on anything just email me and I’ll try to to the best I can to help you out…I’m by no means an expert…just learning a little as I go.
Jason Youngquist
youngqui@mu.org
November 24th, 2003 at 8:00 pm
Thanks, Jason, for the insight. -jamin