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: The Credit Card

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.  

4/21/14

Like so many, Phil and I have had our share of credit cards. I got my first card when I was 18 and getting ready to go to college. It was a Capital One card with something like a $300 credit limit. My mom, who like the majority of us believed the myth that we all need a credit card to build our credit, allowed me to apply for it. Don't get me wrong, my mom did nothing wrong here, she didn't know any better and neither did I. We have all been ingrained with the idea that we need a credit score to do anything; it's only recently that my mom and I both have learned that that is not true. My mom did have the wisdom, however, to teach me to use my credit card carefully. I used it only a couple times a month to buy gas and groceries and then always paid it off in full.

Later, when Phil and I got married, we opened a joint checking and savings account with Wells Fargo, and each got a credit card through them. Looking back now, I don't even remember asking for a credit card, it seems like it was just part of the package and we signed away. I don't blame Wells Fargo either, their bankers are just doing their job. And most of them probably believe you need a credit score too. 

We never considered not using our cards, at least not at first. We continued to use them as I always had, buying the things we needed anyway and then paying them off in full every month. We never carried a balance, and we had the "benefit" of getting 1% cash back on all our purchases. That is not a lot, but, we told ourselves, if we were buying it anyway why not make a little money while doing it?

You are probably wondering why, if we always paid off our cards and received cash back, is it a big deal? Why close them? Well, that was our feeling too, for a long time. Actually, until about a month ago. We have known for a while that once Phil graduated we would get super intense and pay off all our debt as fast as possible, and the closer it gets to that time the more excited I am to get going on it (we can't start yet because we don't have an income and need to save everything we can for moving expenses once he starts a new job). We really want to be debt free, and even though we have never carried a  balance on our cards, we came to a realization that to keep using them was kind of counter to our goals. When you use a credit card, you are borrowing money. It doesn't matter if you pay it off right away, you are still borrowing it. And we are done borrowing money. No more. Ever. I don't want to worry about the "what ifs" any more. When you pay for things with money that you actually have, you never have to worry. You never have to worry about paying it back, or interest rates, or missing a bill, or not having enough, because YOU HAVE ENOUGH!

So, we cut up our cards (two Wells Fargo cards and a Target card, I had closed my Capital One card previously) and even though we still have our student loans to pay off, I feel even closer to our goal. 

Money Wise: Becoming Free

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.  

4/9/14

If you couldn't tell already, I love Dave Ramsey. I listen to his podcast nearly everyday, and I always feel more motivated to pay off our debt and be smarter with money. Almost every day on the show he features a "Debt Free Scream" which is when someone, usually a couple, comes on the show and tells Dave how and why they paid off well of their debt and then they countdown and scream "we're debt free!!!!" It's awesome and so inspiring.

One day a couple came on the show to do their scream and Dave started asking them what made them decide to do it. The wife started talking about how she had bought a new car, a really nice new car, and how even though they were paying off their other debt, she was hanging on to that car. She said that she realized after a while that she didn't like what that car said about her. It wasn't really the car itself, it was that she was keeping it because it made her feel good, it was a status symbol and she realized she bought it so that she could look good to others, not because she really needed it. She had made that car more important that anything else in her life. She realized that she didn't like how that idea reflected on her and she decided to sell the car and help her family get out of debt once and for all.

Of course we need things, and its even ok to just have some things that we like and want. But the point that really stuck with me was that it can be so easy to put our things before God. Suddenly a car or a house or some nice clothes or whatever become more important than Him. I think sometimes Christians feel like being rich is bad because then if means you are prideful. But, I don't think being rich is bad at all, its just how you feel about and what you do with those riches that makes the difference.

"Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal: But lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: For where your treasure is, there will your heart be also." (Matthew 6:19-21)

Part of the reason getting out of debt is so important to me is because I don't want to be a slave to money. Some might argue that getting an education is an acceptable reason to go into debt, but even if it is, debt is debt and I just don't want it in my life anymore. When you have debt it can prevent you from doing all the things you would like to to do, including lots of good things like donating to charities, developing skills and talents, and improving your family situation and lifestyle. Money is a tool, you just have to learn how to use it properly.

Money Wise: Living Like No One Else

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.  

4/1/14

My parents never have had a lot of money, so growing up I learned that I couldn't always have everything I wanted. In fact, I never had everything I wanted. But I always had everything I needed. My mom stayed home to raise my brothers and I and did a great job stretching every penny. She was crafty and made our Halloween costumes, birthday decorations, and yummy meals. My dad worked hard to provide for us each day at work, and then came home and worked some more to make our house and yard a home. I have never looked back and wished I had more toys or more clothes or that we travelled to more places. We were a happy family with what we had, even if it wasn't as much as the Joneses.

Now that I have a little family of my own, I have grown to appreciate my upbringing even more. I realize how valuable it was for me to live in a family who worked hard to make do with what we had, and never placed to much emphasis on money (or the fact that we didn't have much). I'm not saying my parents were perfect with money. Now that I'm older and can talk about money with them, I have learned that they didn't always make the best financial choices either. They racked up some credit cards and spent more on things here and there than they should have. But, they still taught my brothers and I to be careful and wise with the money that we earned.

Now, with over $100,000 in debt, my dream is to just have a home for my family like I had growing up. I don't need to be a millionaire. The future is unknown to us and there is no way to know now how much money we have in the future. That is not really important to me, and never has been. I just want enough to have the things we need. It can be hard sometimes to differentiate between want and need. I love to shop. I love to get new clothes and things for our house. I love to sew and buy patterns and fabric. I like to travel and see new places. But those things all cost money, and truthfully, as much as I want those things, I don't need them.

Some may wonder what the big deal is. Why not just live like everyone else? "Make your monthly payments on your loans, get a credit card and charge a trip to Disney on it, finance new furniture, and don't worry about buying new clothes, you deserve them!" Isn't that what we all hear all the time? Well the fact is, I just don't want to spend my life making payments. I don't want to worry about falling behind on a credit card and getting called by debt collectors. I want to own the things that I have in my house. And I don't want to feel guilty every time I put on that shirt that I really didn't have the money for. I don't want to live like everyone else. Its just not worth it. Our goal is to pay off our loans in 5 years, that may sound crazy, but I know that we can do it. Like Dave Ramsey always says, we will have to "live like no one else, so that later we can live like no one else." And we will.

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.