donnafreedman
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Post by donnafreedman on Jan 18, 2011 0:04:24 GMT -5
An upcoming Living With Less column assignment is "Shocking money realizations." For example, have you ever: --Taken bad money advice at face value and learned later how wrong it was? --Sat down and added up just how much those daily breakfast burritos cost per month? --Checked your insurance and found out you were spending way too much but still didn’t have the right coverage? --Plugged your spending into financial management software and found that you were spending $800 a month on food for two people? Help others learn from your mistakes! I'd love to interview some now-wiser folks about: 1. What happened and for how long, and how much it wound up costing. 2. Why this happened: Because “everybody” knows you buy as much house as you qualify for? Because your brother advised you never to pay off your mortgage lest you lose the tax deduction? Because your best friend at work bought a cool car with a six-year loan “so the monthly payments will be lower”? 3. Finally: Tell me how you came to certain realizations, and what steps you took to change the way you used money. This is the part that can really help others who may be in the same kinds of trouble. Note: Full names need not be used if privacy is a concern. If you want to talk about your experiences, please e-mail your contact info to SmartSpending@live.com. And thanks in advance.
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Post by vl on Jan 18, 2011 9:27:20 GMT -5
1. In 2006, I was called to do an analysis on an anchor business in a smaller town. I suspected but could not confirm at the time that this particular sector was telling us of the impending economic collapse. What I found... - the single shareholder/owner was funding the entire business on credit (actual liquid assets = $0 or less). He/she had nearly $1 MILLION in credit card balances alone. Each existing card had taken the interest rate to 30.24%. A "new" card issued just TWO MONTHS before my analysis already had a $260,000 out of $350,000-- outstanding balance! The retailer owed the "brand floor plan" another $350,000 at... are you ready... 1% per month (12% APR) when prevailing rates were 4-6%. He/she had three homes, all cross-collateralized as security AND financed to the 2006 market value or more. He/she owed more in Interest-Only payments per month than I made that YEAR. When the business collapsed, the shareholder/owner's TRUST applied through MY BANK for ANOTHER credit card and was auto- APPROVED for $250,000. Which of course, was used immediately to finance a USA departure. When all the dust settled, We the People took a hit for more than $5 MILLION. I was actually looked down on, for not pulling a "rabbit" out of my hat and salvaging the "relationship" for the bank.
2. I know a family who had a Trust, that voluntarily let their home go into foreclosure and be repossessed by a bank. While the action took course, they put the equivalent monthly installments in the Trust and when evicted- bought the house THREE DOORS DOWN for cash, deeded to the Trust.
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Post by vl on Jan 18, 2011 9:43:18 GMT -5
REAL budgeting... You should know that LENDERS were severed from their careers before most others. A GOOD lender maintains little debt. A GREAT lender knows how to cash flow to create income by leveraging modest amounts of credit to feed a family, pay the house payment and tuition. In order it's: Food, Shelter, Clothing (without charitable assistance or reliance). When there is insufficient income to cover overhead, EVERYTHING you MUST buy needs to be offset by something you can buy or do that will convert to more income or cash flow. One MUST always cover the course taken by paying off the cost first. What this economic collapse has taught us: - working for a regular weekly paycheck isn't as important as having enough cash flow to cover overhead and expenses. - having a day-job means giving up everything else including other means of generating cash flow. - your boss does less for more while demanding more for less from subordinate wage-earners. - no day-job is stable employment unless you have others willing to compromise all else to work for you. - having more pairs of shoes than days worth of savings, food and unused credit limits is-- outrageously foolish. - a heavy investment in commercial sports trivia or large amount of Facebook activity will never pay a single credit obligation.
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NancysSummerSip
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Post by NancysSummerSip on Jan 18, 2011 9:45:04 GMT -5
Donna, I think you've used some of my story before. I was approaching 40 and hit the realization that as hard as I was working, I had money, but I was not saving money. I had no EF, no HSA, no real savings, not much in checking and I was spending pretty much everything I was making. When I got down to considering cashing in my 401K because I was desperate for cash, I knew it was all over.
I sat down in a locked room with paper and pencil and wrote down 26 ways (one for each letter of the alphabet) I could cut down or stop spending.
Fast forward a decade. No more debt, I have savings, checking, an EF, my "someday" fund, checking that is not ever overdrawn, and my retirement funds are intact. The notepad was not the end of the change, just the start. It was not just about saving money, using coupons and not buying. It was about rethinking what money is used for, and how it fits into living.
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Post by bobbysgirl on Jan 18, 2011 9:51:17 GMT -5
You sure know what you're talking about. I would listen to what you say and research it. I can't say this about too many people.
A trust. Gee I wish I knew about that earlier. I'm sure it's more difficult to get away with this strategy now than it was in 2006.
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dividend
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Post by dividend on Jan 18, 2011 11:43:56 GMT -5
In 2009, DBF asked me why he felt like he wasn't getting ahead financially. He wasn't in debt, wasn't struggling, but he was bringing home ~$4k/month and just treading water. He turned over his finances to me for analysis, and we I found some really stupid things :
- he was carrying a $2k balance on a credit card, in the belief that he didn't need to pay it off because it "helped his credit score". - he had just financed a used car for like $7k. - he didn't really use his savings account - he had a "level" where he liked to keep his checking account, for comfort. - he had cashed out his 401k and invested in precious metals. - a detailed analysis of his purchases over several months revealed that he was spending $600/month on junk at the gas station.
We live in a LCOL, so his fixed expenses are at or around $2k/month. He was basically wasting the rest of it.
Flash forward to today. He got serious. Credit card paid off. Car paid off. @12k EF. Savings categories earmarked for things like car maintenance/insurance, vacations, house stuff. An allowance for fun money. Contributing to 401k and just opened a Roth with the intent to max it out. I'm very proud of him. But he was a total bonehead before. When I get irritated at him I still tease him about buying $600 worth of gas station crap.
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gambler
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Post by gambler on Jan 18, 2011 11:54:51 GMT -5
in regards to your #2 in your first post, payed my mortgage off 15 years early and put the amount of the payment into bonds and a saving account which i use to help purchase rental houses. the tax write off in my case did not help much on my primary house but the depreciation on the rentals made a big difference. never had a new car in my life, nor has my wife or kids lose way to much value in the first year. while the payments are lower the payoff is higher and very few cars last 6 years. which brings me to a question, why do people take such good care of their cars(which depreciates) and let their houses ( appreciates) fall down?
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Gardening Grandma
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Post by Gardening Grandma on Jan 18, 2011 13:14:37 GMT -5
Donna, I've looked for your articles on the new site at Bundle, but can't find them. Can you post a link?
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❤ mollymouser ❤
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Post by ❤ mollymouser ❤ on Jan 18, 2011 14:38:51 GMT -5
In July, 2007, I opened our monthly power bill and nearly keeled over: $1,027. YIKES! After looking at our power bills, analyzing our electricity use, and considering the fact that I was trying to cool a 2600 sq ft house with a then-28 year old air conditioning unit ( with some of the highest electricity rates in the country), I realized that we needed to drastically alter our approach to energy usage. So I read up on everything I could find about energy use, "energy vampires," keeping cool without relying on air conditioning, hanging laundry to dry, etc. Our July 2010 power bill was $142.69 In fact, none of our 2010 month power bills was over $200. How did we do this? Through energy conservation, intentionally using less power, being very mindful about the use of major appliances, and by relying on breezes, the whole house fan, ceiling fans, and heat-blocking film on the windows (plus things like closing blinds and changing light bulbs.) And while our friends and neighbors are still complaining about $500+ power bills, we've happily cut our usage so that we could use that money for things we'd rather spend it on.
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Deleted
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Post by Deleted on Jan 18, 2011 14:50:02 GMT -5
Molly you reminded me of my $250 hydro bill. In June! This from a regular $60 bill. It doesn't get that hot here in June. It turned out that my water heater was leaking fast enough to keep the heater part running steady but slow enough that I still had hot water for dishes and showers. Of course I didn't get that bill until July, so July's bill was just as bad. That $500 really hurt. It was a rented water heater too, so getting it replaced cost me nothing!
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Deleted
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Post by Deleted on Jan 18, 2011 15:27:57 GMT -5
Ok, your water heater story is scaring me, Later. We had to replace ours a couple of days ago. It, of course, began leaking when the whole city was closed down for the snow storm. Two days later everyone had gone back to work except teachers and plumbers. I still don't understand that.
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domeasingold
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Post by domeasingold on Jan 18, 2011 15:30:48 GMT -5
Molly you reminded me of my $250 hydro bill. In June! This from a regular $60 bill. It doesn't get that hot here in June. It turned out that my water heater was leaking fast enough to keep the heater part running steady but slow enough that I still had hot water for dishes and showers. Of course I didn't get that bill until July, so July's bill was just as bad. That $500 really hurt. It was a rented water heater too, so getting it replaced cost me nothing! Please forgive me for asking, but why would you rent a water heater?
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doxieluvr
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Post by doxieluvr on Jan 18, 2011 15:39:49 GMT -5
Molly you reminded me of my $250 hydro bill. In June! This from a regular $60 bill. It doesn't get that hot here in June. It turned out that my water heater was leaking fast enough to keep the heater part running steady but slow enough that I still had hot water for dishes and showers. Of course I didn't get that bill until July, so July's bill was just as bad. That $500 really hurt. It was a rented water heater too, so getting it replaced cost me nothing! Please forgive me for asking, but why would you rent a water heater? I am glad you asked.
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Deleted
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Post by Deleted on Jan 18, 2011 15:58:49 GMT -5
Molly you reminded me of my $250 hydro bill. In June! This from a regular $60 bill. It doesn't get that hot here in June. It turned out that my water heater was leaking fast enough to keep the heater part running steady but slow enough that I still had hot water for dishes and showers. Of course I didn't get that bill until July, so July's bill was just as bad. That $500 really hurt. It was a rented water heater too, so getting it replaced cost me nothing! Please forgive me for asking, but why would you rent a water heater? The people that owned the house before me rented it. It was only a few dollars a month so I stuck with it....ya know, I don't know how it compared to buying one.
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Bob Ross
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Post by Bob Ross on Jan 18, 2011 16:51:33 GMT -5
I sat down in a locked room with paper and pencil and wrote down 26 ways (one for each letter of the alphabet) I could cut down or stop spending. Did you end up selling the Zebra?
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NancysSummerSip
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Post by NancysSummerSip on Jan 18, 2011 17:22:11 GMT -5
LOL, Bob!
No, I would like to have a yard sale, but DH hates the idea. I actually did it by chaning the way I spend (haircuts every 6-8 weeks instead of once a month), no more brand or store loyalty, taking better care of what I own, and when I do buy, make sure it's a long-lasting classic and not a fad item, visiting thrift stores before department stores, and learning to love leftovers, freebies and samples.
The funny part was: I always had direct deposit. It does not help if you can get to the money. I've learned to put money into accounts NOT in a brick-and-mortar bank, and not to have checks or a debit card for those accounts. I've started smaller savings tricks, too, such as saving spare change every day ($158 last year) and putting aside $5 for every laundry day (it's our vacation fund). It's not the amount you save; it's the discpline you have in saving, and recognizing that the money fairy isn't coming to the rescue.
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Frugal Nurse
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Post by Frugal Nurse on Jan 18, 2011 17:23:29 GMT -5
never had a new car in my life, nor has my wife or kids lose way to much value in the first year. while the payments are lower the payoff is higher and very few cars last 6 years. which brings me to a question, why do people take such good care of their cars(which depreciates) and let their houses ( appreciates) fall down? What kind of cars are you driving that don't last 6 years?!? Kias? my little 2002 Ford Focus is 9 years old and going strong (ok, it needs and alignment, but all cars need that). and not having a car payment every month is AWESOME!
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NancysSummerSip
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Post by NancysSummerSip on Jan 18, 2011 17:30:08 GMT -5
I had a Protege that lasted 10 years. Ditto my Accord. I would still have the Protege if not for the moron who hit it. I see no reason not to take care of a car. Frugal's right...love the no-payment option!
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domeasingold
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Post by domeasingold on Jan 18, 2011 18:06:33 GMT -5
I swear to GOD, I never heard of renting a water heater. Do they do that at Rent-A-Center?
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Elderkind
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Post by Elderkind on Jan 18, 2011 18:28:29 GMT -5
Eight years ago I paid $3K for a 5 year old piece of junk Contour that I was assured by a member in the family was in tip top shape. After a year, the thing fell apart and over the next year I spent about $7K fixing it before I gave up and bought my current car which I absolutely love. I had it checked out by my mechanic before purchasing. I still want to beat my head against the wall when I think of the $10K hit I could have avoided if I had listened to my gut instead of my family...
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rubyslippers
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Post by rubyslippers on Jan 18, 2011 19:10:32 GMT -5
NancyinFL: Your story is very similar to mine except for the part about using the alphabet. Only suspecting, but not actually seeing on black and white where all the money leaks were, helped me devise a written budget. It's been tweaked many times and still I'm looking for ways to do better. I never knew it could be so much fun to see my savings grow or to feel relief when something happens that I need to dip in to my emergency funds. I like the creative approach you took to change your finances.
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Artemis Windsong
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Post by Artemis Windsong on Jan 18, 2011 19:58:10 GMT -5
Two people I know decided to change their gas pickup trucks from gas to diesel. End result was the new deisel in the old pickup with all the changes cost more than a brand new diesel pickup.
One of the two could not own a car newer than 5 y.o. or whatever that SS requirement is. He could have put his old body on the new chassis.
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motherto2
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Post by motherto2 on Jan 18, 2011 21:29:56 GMT -5
I too had the typical Cinderella type story about waking up one day and realizing I had dug myself into a hole and I was eligible to retire in just 10 short years. I had recently separated from my second husband, and when he walked out the door half of my income walked also. I had two kids with my first husband, the oldest was graduating that same year and the other 3 years behind. We had made some stupid financial decisions, and I was stuck holding the debt bag with a lot of it. I happened upon a book at the bookstore (totally by accident) and purchased it. Talk about my "aha" moment! The good news is, I put to use a lot of what was written in that book, and I was able to do away with all of my debt except for school loans (first husband has to pay half of those loans, so I won't be paying them off early). He seems to think that after kids graduate high school and leave for college the college fairy takes care of all of the financial needs (insurance, medical expenses, other non-usual college expenses, cell phones, food, etc. etc. etc.). And my mortgage. Fast forward 3 years, and I have both kids in college (although the oldest is in the Army but has one more year of college to finish after her training), I have a little on my cc from buying new appliances but that will be paid off in February, and I am paying extra on my mortgage. I have an EF that is almost fully funded, I have money for my nonrecurring expenses (association dues, DS life insurance, clothes, etc.) so that when the money is needed, it's there. And my mortgage will be paid off as well as all the school loans by the time I'm eligible to retire in 7 1/2 years. How awesome is that? And I have all of the people on these boards to thank. I've learned so much and continue to read the tidbits and stories to stay motivated.
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Deleted
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Post by Deleted on Jan 19, 2011 9:18:27 GMT -5
I swear to GOD, I never heard of renting a water heater. Do they do that at Rent-A-Center? I'm Canadian, but most people here rent their water heaters. It's about $15/month now. You rent them from the same places you buy furnaces and water heaters from. Ok, we may have found one of my "never questioned it" things. Over 14 years I'd say I averaged paying $10/month. So I paid $1680 for the water heater...oh crap!
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NancysSummerSip
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Post by NancysSummerSip on Jan 19, 2011 9:25:32 GMT -5
Ruby: I still have my original list, and like yours, mine's been tweaked a lot. And that's a good thing, because circumstances change and budgets are not made of cast iron. I've written on the subject on my own, and I've stressed the fact that it's important to use a budget as a guideline, not an ironclad do-or-die method. And to also budget in some fun.
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Frugal Nurse
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Post by Frugal Nurse on Jan 19, 2011 9:49:24 GMT -5
Wow I'm in the "never knew you could rent a water heater" camp. You learn something everyday....
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Post by readsalot on Jan 19, 2011 9:58:00 GMT -5
We used to rent a water-softener because it was here when we bought the house, but I've never heard of renting a water-heater either.
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Post by maxie on Jan 19, 2011 10:21:25 GMT -5
We rented the water heater when we moved in because the former owner rented it. In the three years we rented it, the heating units had to be replaced twice (very hard water), but that was included. Then when the company phased out it's rental unit, they just said it was our responsibility. When the entire thing had to be replaced, it was still under the warranty, and was replaced for no cost. I'm glad we don't rent it anymore, but it seems to have worked out for us.
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ModE98
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Post by ModE98 on Jan 19, 2011 15:47:24 GMT -5
Leave it to our northern cousins to rent a water heater. In 87-1/2 years never heard of it in the States. Maybe it might be something for northern Maine?? Seems like something perhaps someone who lived out in the woods in a cabin might possibly do. Oh well, to each h/h own.
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Post by neohguy on Jan 20, 2011 12:19:46 GMT -5
Never conduct large cash transactions with anyone except at a bank.
Many years ago, a friend of mine who owned a small trucking business, decided to sell one of his rigs. A buyer showed up on a Saturday afternoon and agreed to buy the rig for 19k. He returned a few hours later and paid my friend with cash. The title was notarized and the buyer left with the truck. Later that night, two men (not the buyer) kicked in the door. They threatened to torture and kill my friend and his wife if a large sum of money was not provided. They made it clear that they knew he had 19k in the house. My friend turned over the money. He and his wife were tied up. An arrest was never made.
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