Wise Money Matters - Get Out Of Debt and Finally Enjoy Life

So my wife got up at 4am to do a lot of her Christmas shopping on Black Friday. While this was fine with her, I chose to avoid the stores as much as possible on Black Friday. I only went to Sears because we needed a new washer and dryer and they had a great deal on a set. I did however find out about some unexpected deals as a result of Black Friday.

Open box discounts

One of the interesting things about Black Friday is that a lot of people buy more than they really needed to because of such “great deals”. I’m of the line of thought that it doesn’t matter how great the deal is. If you won’t use it, even free is too much.

Anyways, due to this phenomenon, a lot of people return items immediately after purchasing it. Since the product is then considered “used”, the product usually has to be marked as such which then gives a discount to the person who buys the product.

I was in Best Buy last weekend and saw a whole lot of open box discounts. Apparantly TV’s tended to be in high demand on Black Friday because about half of their selection had open box deals. Some of them were display models as they were trying to bring in the next years products but many were simply returned items.

We walked away with a $2000 46″ Sony HDTV for only $1300. Granted, it did have a little nick in the bottom right corner but the display worked perfectly. I personally think that a small nick is worth $700 in savings. Since my budget was originally about $2000 anyways for a new TV, this freed up my budget for purchases elsewhere.

After Christmas sales

The day or two after Christmas is a great time to get discounts. People will be returning things en masse. It’s a great opportunity to get good deals on things. If you are looking for extra specials, this would be the time to do your shopping. Just make sure you set yourself a budget on what you are going to spend so you don’t fall into the trap of buying crap simply because it’s on sale.

November was a really big month for my family. We made several changes to our lives which should improve our financial future. Here’s a brief recap of some of the ideas and strategies I implemented in order to improve my life.

We downgraded our house

We were living in a 2000 sq ft home which was backed up to National Forest. It had granite counter tops, stainless steal appliances, A/C (which is rare in this area) and many other wonderful upgrades. To say that the home was gorgeous is an understatement. I had the house built myself and spent a lot of time making sure that the house was perfect to my standards. We decided to sell it.

Now we are living in a 1500 sq ft manufactured home near the train tracks. Now before everyone goes nuts about manufactured homes, this one was built in 2001 and manufactured homes are actually quite popular in my area. In fact, the planned community I now live in has held it’s value better than most of the fancier and nicer homes in this area.

While the home itself is nice, it’s relatively basic. I’ve got standard kitchen cabinets and counters. Most of the appliances are decent but they are fairly basic. We are getting a brand new washer and dryer on Friday but everything else is simple and standard.

Why did we do this?

It’s simple. I wanted to reduce debt. Here’s a list of the payments I was making.

• $800 Primary Mortgage
• $200 HELOC (which we were only paying interest)
• $265 Car Payment (we only had 1 car)
• $200 Various School Loans
• $100 Credit Card (This wasn’t the minimum payment, but we were implmenting the Debt Snowball idea)

We originally put our house up for sale because our income barely exceeded our expenses. I eventually got a new job which significantly increased our income. We decided to continue to keep our house on the market and sell it to eliminate debt. With the new job, we couldn’t carpool anymore and therefore would need an additional car payment. On top of that, I now commute 45 minutes to work each day. Due to the location, the old house required closer to an hour commute. This helped shave off some driving time.

What are our debts like now?

• $680 Primary Mortgage

That’s it. Everything else is paid off. We have no more school loans, no more car payments, and no more credit card. We also paid cash for my wife’s new car. We were able to do this primarily due to the fact that I built the house immediately before the housing boom. I got a great deal on building and gained over $100,000 in equity when I sold it. Obviously I can’t expect everyone to be in a similar situation to myself, but if you are, this plan might be something worth looking at.

We didn’t go completely debt reduction happy.

We did set aside $10,000 for discretionary spending. We needed some new furniture and a new TV as we sold the old TV with the old house. In reality, we could have managed without a TV for a while as well as without some of the furniture we are wanting, but we had the money and decided it was fine to treat ourselves a little.

The plan for the future

Now that we have significantly reduced our debts while increasing our income, it’s time to focus on paying off debt. We have decided that we will live off of my paycheck. Bills, entertainment, clothes, etc, will all come strictly from my paycheck. This is in preparation for us eventually having kids. We both want my wife to be a stay at home mom and therefore we will need to get used to living off of my income alone. All of her income will go directly towards additional principle on the mortgage.

By my estimations, we should have the mortgage paid off completely in 4-5 years depending on children. We could do it in 3 years if we buckled down and really stuck to a strict budget but we both agreed that we wanted to increase our standard of living a little therefore we are going to be putting a little less towards the mortgage.

Our plan is that after the mortgage is paid off or we have kid #3 (whichever comes first) we will be looking at moving into a slightly larger house or buying some land with the intention of building on it. Either way, this house is a great stepping stone towards getting a nicer home with little or no debt.

My recommendations

I highly recommend living in the smallest home you can possibly handle. Pay off that home as quickly as possible and then move to your next home. The tax benefits are not that great compared to the costs. This is my financial plan for the future and I’m sticking to it.

Well, it’s Thanksgiving today here in the United States and it should be a reminder of how grateful we should be to be alive and well. On such days I recall when I was living in Honduras in Central America. We had our own maid who did our laundry and cleaned our house. Just before we left to move back to the United States, we decided to go to her home and give her all of the extra cash we had on hand that we didn’t want to convert to US dollars as well as a bunch of furniture and extra stuff. She lived with her family of 8 people in a little 10×10 shack. The gifts we gave to her probably ended up being more than 1 year’s worth of income.

When I think of that time, I realize how good we really have it. Even if the economy is down and times are rough, it really only means I can’t buy the newest DVD’s out or I have to eat out less. In the grand scheme of things, such things are so insignificant. When I think of people who are working hard simply to survive, my situation is quite good.

We all need to stop and really think about how great we have it. Even if you are facing foreclosure or a recent layoff, you are likely better off than 90% of the poeple in 3rd world countries. I thank God for the blessings he has given to me.

God Bless and Happy Thanksgiving!

This is a guest post from Brad Johnson who writes about investing at InvestingFirstSteps.com.

Leverage is a common topic these days, although many people really don’t know what it is. Ultimately, leveraging is the act of using borrowed funds to increase your exposure. If that sounds bad, it’s because it can be.Basically, if you borrow money to invest in the stock market, you are putting yourself in a leveraged position. When you buy a home, you are leveraging yourself. To do these things, you are using other people’s money to make an investment. Hopefully that house will appreciate and your risk will be good, but you may be wrong and that can be disastrous.

Whatever you’re doing is magnified by leverage. If you’re right, you will make far more money, and if you’re wrong, you will lose far more. The current crisis in the financial sector is a perfect example of leverage gone wrong. By making bad investments and not valuing them properly, the banks put themselves in a position where not only were they highly levered, but also the assets that they were borrowing against were rapidly losing value. It would be essentially like if you invested in gold, then used the gold that you had invested in as collateral to buy more gold. When gold starts losing value, your financial position unwinds quickly.

You can see the dangers of leverage when it comes to investing, which brings us to the real point of all this when it comes to your personal life. When you purchase things you can’t afford that aren’t investments, you’re putting yourself in a levered position with no potential upside. If you go out and buy a flat screen TV on your credit card, you know that TV is going to decrease in value. You’re guaranteeing that you’re making a bad investment, and you’re levering yourself to do it.

The same goes for automobiles. With rare exceptions you know your car is going to decrease in value, so you have to be practical about what kind of car you buy. You aren’t buying the car as an investment; you’re buying it to fulfill a need, namely transportation. It’s going to decrease in value, so you have to keep your purchase within your means.

Even something more viable as an investment-like a house-needs careful scrutiny. The more you borrow, the more risk you’re taking on. I think it’s fairly easy for most of us to tell that houses are not guaranteed to increase in value. So when CJ is looking at buying a house, he isn’t maximizing his leverage. He’s looking for what gives him a potential upside, solves his need for housing and doesn’t expose him to too much risk. If he were to maximize his leverage in this purchase, he would make bundles of money if the housing market went up, but it might be a catastrophe on the downside.

It’s interesting how many of us lambaste greedy CEOs for leveraging themselves to take huge risks in the housing markets, when we’re leveraging ourselves to guarantee failure. How many of us decry the greed of Wall Street, when the investments they made at least had the potential to pay off? Meanwhile we put ourselves in the same financial circumstances with no potential upside. While debt has its place in a wise investor’s toolbox, be very wary of its use.

So with the Christmas season coming upon us very quickly, I’ve been shopping around for gifts for people. I sometimes wonder whether I should get someone a gift card or not and it’s a big dilemma for me.

Is it rude?

There is a part of me that thinks buying a gift card is a cop out gift. It means I didn’t spend the time to think about what they would want and search for it. It’s basically saying “I don’t really care about you but I had to get you a gift anyways.”

Is it the perfect gift?

The other side of me thinks that this is the ultimate gift. It allows the person receiving the gift to get whatever they want. I don’t have to worry about getting the wrong size clothes or getting something that someone else already got them. they can choose whatever they want.

What do you think?

I know I love receiving gift cards because I can buy what I want but I also find I appreciate actual gifts more than gift cards when I receive them. But I’d love to hear your comments about what you think about gift cards. Is it a cop out gift or the perfect gift?