From Total Money Makeover

Excerpts from Total Money Makeover by Dave Ramsey (2003) - interesting how this book defies most of the conventional wisdom that it is important to borrow to build wealth.

If you will live like no one else, later you can live like no one else. (If you make sacrifices now that most people aren't willing to make, later on you will be able to live as most people will never be able to live.)

If you keep doing the same things, you will keep getting the same results.

Myth: Debit is a tool and should be used to create prosperity
Truth: Debt adds considerable risk, often doesn't bring prosperity, and isn't used by wealthy people as much as we believe.

Car lease is the most expensive way to operate a vehicle

• 98% of leasing is done on new car, which loses 60% of its value in first four years
  
• creating unneeded business expense for tax write off is bad math

Debit is not a tool; it is a way to make banks wealthy, not you.

You should be far more worried about the danger of using credit cards than the danger of being robbed while carrying cash. When you spend cash, you spend less.

Insurance

1. Auto / Homeowner - choose high deductibles to save on premiums
2. Life - 20 year term - 10x income - never use as place to save $
3. Long Term Disability - buy through work at fraction of cost; cover 50-70% of income
4. Health - #1 cause of bankruptcy is medical bills (#2 is credit cards)
5. Long Term Care - if over 60, buy

Must have will.

We destroy our finances by buying stuff we can't afford to try to make ourselves appear wealthy to others. If you are using $ to impress others, this has to change before you can get on a real plan to fiscal fitness.

You must use a written budget every month.
If you aren't working together as a couple, it is almost impossible to win.
Once a budget is agreed to and in writing, don't do anything with money that isn't on that paper.
If something comes up in mid-month that causes budget to need changing, call emergency budget committee meeting. You can change budget (and what you do with $) only if:

• both spouses agree to change
• budget is still in balance - if you increase spending in one category, you must reduce spending somewhere else.

Baby Step One: Save $1,000 as Starter Emergency Fund (liquid available cash - must be easy to access - not in mutual funds). The emergency fund is not for buying things or for vacation - it is for emergencies only. A well planned budget for anticipated expenditures and an emergency fund for truly unexpected can end cycle of dependence on credit cards.

Baby Step Two: Start the Debt Snowball to become debt free, except for your home. Pay off smallest debts first (so you have some quick wins). Most important step in Total Money Makeover. Stop borrowing!

Baby Step Three: Finish the Emergency Fund so you can cover 3-6 months of expenses:

• something 'on sale' that you 'need' is not an emergency
• beware of using the emergency fund for something that you should save for then purchase
• emergency fund is not for wealth building. It is to protect you against storms, give you peace of mind and keep next problem from becoming debt.
• with an emergency fund, what used to be a huge, life altering event will become a mere inconvenience

Baby Step Four: Invest 15% of your before tax gross income in retirement. Growth stock mutual funds:

1. Growth (mid cap equity)- 25%
2. Growth & income (large cap blue chips) - 25%
3. International (foreign / overseas) - 25%
4. Aggressive Growth (small cap, emerging market) - 25%

Baby Step Five: Save for kids college

Baby Step Six: Pay off home mortgage early

Baby Step Seven: Build wealth

Myth: It is wise to keep home mortgage to get tax deduction
Truth: Tax deductions are no bargain

Myth: It is wise to borrow all I can on my house (or continually refinance for cash out) because of great interest rates, then I can invest money.
Truth You really don't make anything when the smoke clears

Myth: Take out a 30 year mortgage and promise to pay it in 15 years so if something goes wrong you have wiggle room
Truth: Something will go wrong
If you take out a mortgage, pretend that only 15 year terms exist.

Myth: It is wise to use lower rates offered by ARM or balloon mortgage if you know you'll be moving in a few years anyway.
Truth: You'll be moving when they refinance

Myth: A home equity loan is good to have instead of an emergency fund.
Truth: Emergencies are precisely when you don't need debt

Use money for:

1. fun
2. investment
3. give - the most fun you will ever have with money

More on web at Total Money Makeover and Dave Ramsey.

Side income vs. Full / Time income

I've only earned about $300 in 4 months of work, so while I've enjoyed earning revenue through eBay, it hasn't generated the results I hoped for. Meanwhile, conditions at my full time job have deteriorated to the point where only my boss and I remain in a department that was once 7 people. So with a choice between replacing my full time revenue source (which may be in jeopardy as more restructuring will definitely come in the new year) and earning some extra money on eBay, I will need to focus on my career right now.

In the past, I've usually been forced into job changes when my employment ended. This time, it really needs to be my decision. (If I wait too long, it may end up being otherwise.)

However, my wife has suggested that we partner with someone who can get things sold on eBay more quickly, which seems like a good idea. Posting books for resale is simple since stock photos are often available and shipping is also easy. But selling other types of items takes more time to photo, resize and upload and also take longer to pack for shipping.

Our home refinancing in early November took some of the pressure off, but we clearly don't want to use this money to make up a difference between revenues and expenses. My wife's business has also ended the year strongly. But it is clearly up to me to do something about a work situation that seems to continue to be getting worse, not better. Staff that have been hired during my two year tenure have already departed. I had hoped that things would improve with time, but it's getting a bit embarrassing that I'm still there.

My wife and I also still hope to take the plunge into investment real estate. Despite the recent slump in home prices, there are clearly some areas in the US that are still worth investing in. Having read the books and attended seminars, we just need to get started.

As we approach the end of 2006, we still have quite a distance to cover on the road to financial freedom. Let's all make 2007 successful, both personally and financially and, most importantly, by maintaining good health and peace of mind.

Update on eBay status

Recently having some problems with my digital camera - suddenly puts a white spot on many of my pictures of things I'm trying to sell. From a book I scanned in Borders recently, perhaps I need a tripod and / or light box. As I move away from selling only books where I can simply enter ISBN numbers, I need to be able to reliably take pictures of my merchandise.

Also exploring some of eBay's tools such as Turbo Lister (also recommended in a book) to try to speed up the process. While I've been able to sell about half the items I put up, I usually only have a handful of items up at a time, which makes it hard to make any significant income.

My wife thinks I need to be able to bring in $500 a month to make this worthwhile, but so far my proceeds after several months is only in the $200-$300 range. Fun hobby, but that's not why I started doing this. Is there a way to speed up the pricing decision, e.g. checking previous and current sales to find out what an item has been listed at?

In addition, I sold my first item internationally - to Singapore. I didn't really intend to sell to any country, but somehow one of my items went up that way. Fortunately it was an easy item to ship, but it definitely took a bit longer to figure out the international shipping items. Guess this does open things up to a much wider audience, though.

Wishing everyone a joyous and peaceful Thanksgiving.

Some helpful thoughts from an old book

Often I bypass looking at a money book that is several years ago, figuring that its concepts are probably out of date. But in 1999's Your Money Matters: 21 Tips for Achieving Financial Security in the 21st Century by Jonathan Ponds, I found many ideas that are still very relevant:

1. Spend less than you earn. People who don't get in the habit of living beneath their means - saving regularly - will never achieve financial security.

2. Wealth is created by owning individual stocks, owning investment real estate or starting a business. I've already done well with mutual funds, have decided that starting a business is not my thing, so investment real estate seems like the right option for me. Ponds says its 'one of the best ways for average people to create a lot of wealth.'

3. Money needs to be distributed between necessities, luxuries and saving for the future. Persuading yourself that you really need something is often the end result of convincing yourself that some luxury has become a necessity. We also like to think that we are saving for the future, but most likely we are not saving enough.

4. Live beneath your means - but don't unnecessarily deprive yourself. This can be challening, as my wife and I have discovered.

5. Arguing sometimes with your spouse about money is inevitable because spenders are usually attracted to savers. Even if one partner tends to handle most of this area, the other person shouldn't be left in the dark. Until about a year ago, my wife was content to let me handle everything but this changed while she found out that we were consistently spending more than we were earning (see item #1 above).

Finally, in order to spend less than you earn, you have to learn to be happy with what you've got. If you can be happy with what you already have, you will find it easier to save the money to make investments that will give you financial security. This doesn't mean that you resign yourself to your current financial situation; you still strive to advance in your career, earn more money and invest better. As long as you feel deprived, you will want to acquire more 'things.' More things won't make you happier but more things could make it difficult to achieve financial freedom. Seems contradictory, but true.

Happily, I purchased this book at a library book sale for $2.

Bumps on the Road to Financial Freedom

It's been a while since I've posted. Family and marriage issues have made it hard to stay focused. Although I've continued to have some success on eBay, but it's hard to see much return when you're only putting up a small number of relatively low priced items.

Meanwhile, money has proven to be a major stumbling block at home. Although things are starting to get better, we're still not making enough revenues each month to pay our expenses. We've tried to cut our expenses, but not enough to shift the balance. I'm also hoping that a higher paying job will help eventually, but it's taking some time for that to happen.

Always on the lookout for personal finance books I haven't yet read, recently I found one entitled First Comes Love, Then Comes Money: Basic Steps to Avoid the #1 Conflict in Marriage While this isn't the only issue my wife and I see a bit differently, it's easily the most frustrating. Even if we succeed in balancing our budget, hopefully reaching the point where we can also put something away for retirement, we've taken a very painful route to get there.

Get Rich Slowly also has a wonderful post on marriage and money.

Today my wife and I have refinanced our home for a larger loan than we originally took out four years ago. The new loan amount is still relatively small compared to the appraised value and will hopefully give us a bit more breathing room while we continue working on improving our cash flow.

Saving Money at Restaurants (or not)

Saturday night my wife and I and our resident student from Japan dined out at an Italian restaurant on Arthur Avenue, Ann & Tony's. We've dined there previously and have had really good food. As a bonus, they participate in the Rewards Network that we belong to which offers 15% discount on participating restaurants. We just have to register our credit cards online, but otherwise the restaurant never knows we are getting a discount.

Dinner entrees were reasonable, in the $15-$20 range and included salad. Across the street from the restaurant we had noticed a cafe where we planned to go for dessert. But our plans changed when the waiter brought over the dessert tray - it's always harder to resist when the choices are placed in front of you and described in detail. I selected a brownie sundae and we encouraged our visitor from Japan to try an Italian cannoli. (Having a great view of the Mets on a large screen TV also encouraged me to stay in the restaurant longer.)

Two desserts and coffee ended up adding about $20 to the bill including tip (less the 15% discount). When we stopped in at the cafe afterwards, they had desserts at a considerably lower price. Even more frustrating, we left the restaurant before the Mets began their rally to go ahead of the Dodgers to win the game.

To keep our expenses under control, we're trying to keep our dining expenses to a minimum and be selective about the eateries we visit. But when it comes to dessert, I guess you have to break the rules once in a while.

A Report on Progress So Far

When creating this blog a month ago, my objective was to find ways to generate more revenue, focusing on three major areas: real estate investment property, tax lien certificates and eBay. I dedicated specific time in my schedule where I would focus on these strategies, such as an hour in the morning before getting ready for work and at least 1/2 day during the weekend.

So far only eBay has shown results. I've now sold four items, including an autographed book for $100! I have many more things to put up for sale that I haven't posted yet, but have focused on books so far since it's so easy to put them up. The next step on tax liens is to actually attend some auctions (maybe some of this can be done online?). As far as buying investment property, with all the recent publicity about the housing market, seems like this will be more difficult unless I pick my locations carefully.

I have also followed several other personal finance blogs, many which I talk about here. It's encouraging to learn from others who are on the same path.

My blog updates lately have been less frequent, but I'm trying my best to keep at it, even if my posts are brief. Sometimes life gets in the way, but I'm doing my best to make sure I do something every day to generate revenue. Since I've been putting up items on eBay for three day auctions, it's important to keep adding new items regularly since not everything will sell.