Money Wise: The Budget

Note: I originally wrote this and other posts about our finances on a personal blog but have decided to share them here. The original date the post was published is shown below.  

5/11/14

People don't usually like the word "budget". Usually it has a negative connotation of some sort, kind of like "diet". But having a budget doesn't have to be a negative thing. In fact, when you really figure one out, its sort of freeing.

We started using an online budget tool called mint.com shortly after we were married and continue to use it today. You create an account that you then can link  all other financial accounts to so you can see everything in one place. We see our checking and savings accounts, Roth IRAs, HSA, and student loan accounts. You can also create a budget each month so you can view it regularly and easily keep track of where your money is going. Mint will list all of your transactions and then you can assign them to different categories so that they fall within your budget.  It has been a great tool for us. 

That all being said, it has taken time to really learn how to create a proper budget. For a long time I had budget categories, but I mostly just looked at where I had spent money after it had already been spent, rather than telling our money how it would be spent beforehand. That is the key. You have to start each budget before the month has started, determine how much your income will be, and then assign every dollar to a category. It can be hard at first, sometimes you have expenses you don't expect, but after a few months you start to get a pretty good idea of how much you will spend and what you will spend it on. 

Some people may feel that planning how much you can spend on each category (ie: clothing, eating out, groceries, etc.) will be limiting, but as we have started to efficiently budget I find that I feel a lot less guilty. For example, when we didn't plan ahead how much to set for clothing that month I would buy things but then always feel guilty for spending the money, even if it was something I needed. Now I know exactly how much we have agreed to spend so as long as I stay within that amount I don't feel guilty at all. 

Creating an efficient budget (together! If you're married) is really the first step to taking control of your money. Once you start that, your debt-free future starts to become a little clearer. 

Money Wise: More on the Credit Cards

Note: I originally wrote this and other posts about our finances on a personal blog but have decided to share them here. The original date the post was published is shown below.  

4/24/14

I'm not an expert on credit cards, but I have learned a few things in the past couple of years that I think are really important. First of all, how often do we hear the words "credit score"? Like every single day, right? Society seems to think that having a credit score is one of the single most important things an adult can have, or maybe even that it makes you an adult. Lets blow away the smoke shall we?

First of all, nobody needs a credit score. Ever.

You often see or hear commercials that say things like "low credit score? no credit score? no problem!" Its important to clarify here that a LOW credit score and NO credit score are NOT the same thing. Car dealers and pay day loan sharks and such want you to think they are, but they are not.

A credit score keeps track of your ability to borrow money. Thats it. So if you have a high credit score it means you are good at borrowing money. If you have a low credit score it means you bad at borrowing money (make late payments, default on loans, etc). If you have NO credit score, it means you don't borrow money. I have already established that borrowing money is not the way to go, so not having a credit score is actually a good thing! Really! It means that you pay for things with money you actually have.

But you are all thinking, wait! What if I want to buy a car?! What if I want to buy a house?! I need a credit score. No. You don't. Unless, you want to borrow money in order to buy that car or house (although houses are a little different and I will address that below). See, that's the problem most everyone in this country is facing. We are told we need to borrow money so that we can get a credit score so that we can borrow more money so we can buy things we can't afford. (No, we can't afford them. Remember, if we could afford them, we wouldn't need to borrow money in the first place).

So, what is the solution? Well, if you never get a credit card and never take out a loan you will never have a credit score. Which means you wont be able to buy a car you can't afford, so you will either have to save up until you can pay cash for that really nice dream car, or you will have to buy an old beater until you can get something better. As for a house, well it would still be best to save up and pay cash for a house too. But, if that isn't realistic (as it probably isn't for most people) you do have another option. Thanks to Dave Ramsey (of course) I now know how to get a mortgage without a credit score. It's called manual underwriting. It's what people used to do before credit scores became the norm. Yes, you still have to have a good down payment, a job, and proof that you have been in good standing with your bills (such as rent, electric, water, etc), but hopefully that would be the case anyway. My understanding is that not all lenders know how to do this anymore, so you may have to look around a bit, but now you don't have to go take out some loan just so you can get a loan...

Isn't it freeing knowing that you don't need a credit score? It sure is for me. 

Money Wise: More on the Debt

Note: I originally wrote this and other posts about our finances on a personal blog but have decided to share them here. The original publishing date is shown below.  

3/26/14

Even though we knew it wasn't good to have debt, we didn't really feel it was all bad either. It just seemed like a necessary evil. However, we are both naturally frugal and so didn't spend a lot of money on other things and always tried to live within our means in other areas of our life.

Phil felt that he needed to go to graduate school to progress his career, and I supported him. He was working at a local company as a buyer while I finished my degree. Once I graduated he planned to start a masters program. He decided that an MBA would be best and so started preparing to take the GMAT. This is where some of our sense of frugality was misplaced. We didn't want to fork out the money to pay for Phil to take a real GMAT prep class (it was around $500 if I am remembering right) so we paid something like $90 for him to take an online prep class which ended up being pretty useless. At the time we just thought we were saving money (ironic isn't it?), but we realize now that spending the money on a real class probably would have paid off in the end.

Phil is smart and has always done well in school, but isn't a great test taker (on standardized tests, that is). He took the GMAT several times and never got a great score, which really limited his options on where he could go to grad school. However, he had international experience and spoke Chinese which opened the door to Thunderbird School of Global Management, a private college in Arizona. Thunderbird was ranked #1 in International Business, and all we read about it convinced us that it would offer Phil some good opportunities to get a better job. The only downfall? Tuition and fees would total around $100,000.

We should have seen that number and turned and ran the other way. Was an MBA really worth that much? Was it really the only way to get a better job? No. Of course not. But for some reason we didn't feel the weight of having that kind of debt hanging over our heads. Its not that we didn't talk about it. We did. But ultimately we decided it was ok. We agreed we would pay it off as quickly as we could and it would be ok. We convinced ourselves that it was our only option.

Looking back now, we did have other options. Phil could have continued to work for one more year and taken a real GMAT prep course to try and better his score and increase his options. Had we stayed in Salt Lake I also would have had some better job opportunities (one that I really wanted but turned down because we were moving to AZ) and could have worked full-time and saved all of that money. Even if Phil hadn't been able to improve his GMAT score, he probably could have done an executive MBA program at the University of Utah at night and continued to work full-time. We could have cash-flowed his entire program, paid off the loans we already had, and been debt free.

Hindsight is 20/20. We made our choices and chose to come to Thunderbird and take on the debt. That is done. There is no point in dwelling on the past. But, I hope that others might learn from our mistakes. The truth is, it was easier to just get loans than to do a little work. We wanted instant gratification. Phil was tired of his job. I was ready for a new adventure. We didn't want to have to wait until he improved his score, or we had saved more money. We didn't want to stay in our same tiny apartment, or be stuck in a job that wasn't very fun.

But that is the problem with society today. We all want things right NOW. And we can get them...if we borrow the money. But, like others, we have learned the hard way that sometimes (maybe all the time) its worth it to wait. Its worth it to work. Its worth it to not have debt.

Money Wise: The Debt

Note: I originally wrote this and other posts about our finances on a personal blog but have decided to share them here. The original publishing date is shown below.  

3/24/14

We were married in December 2010 and Phil already had just over $10,000 in student loan debt. We made our monthly payments, but didn't make much of a dent in the debt. Someone gave us The Total Money Makeover as a wedding gift and we both started reading it a few months into our marriage. We liked its teachings and agreed with the principles. We started using a website called Mint to manage our various checking and savings accounts and to create a monthly budget. We still use Mint on a regular basis. At that time we also increased our loan payments by en extra $100 a month, but we both felt too scared to really attack the debt and pay it off. We wanted to save our money for future expenses.

The truth is, Phil never should have taken out those loans in the first place. Had he planned a little better, he could have worked more and paid for school in full with his own money. We were able to pay for my schooling without taking out any more loans. But at the time he really didn't see or feel anything wrong about it. Everyone was getting loans, he did too. 

We are all in control of our decisions, but society really does have an influence on us. College has become so much more expensive that it used to be, even compared to just 20 or 30 years ago. I remember my dad talking about how inexpensive school was (relatively speaking) when he was in college. He would work hard all summer to save up and then pay for a full year of school with his earnings. Student loans didn't even really exist, and certainly weren't the norm. Now, the government guarantees student loans, and they aren't bankrupt-able (meaning even if you file for bankruptcy, you still have to pay your student loans, unlike every other kind of debt) so it makes sense for schools to increase the cost of tuition and encourage students to get loans because then they get more money.

Phil and I are wiser now, we see through this scheme. But it has taken us a while to get here, and unfortunately $100,000 more in student loan debt. Despite our reading and budget making, we still made the decision to come to a very expensive graduate school and take on more debt. Over the past two years we have really come to realize how burdening debt can be and are ready to be free from its weight on our lives. We still have a long way to go. This is just the beginning of our journey.