Living On A Dime

Tag: debt

  • Paying Cash For A Car?

    Paying Cash For A Car?

    Paying Cash For A Car?

    Elaine From Massachusetts asks:

    “Given the fact that more people are traveling further for better paying jobs — How does your concept of purchasing a car cash apply? I travel a total of 100 miles a day round trip for work. Travel time is about 1 hour 15 minutes peak times and when it snows it can take over 2 hours. YES, a new job closer to home would be ideal but close to home does not have anything but small mom/pop stores and Wal-Mart / gas station/ Auto Zone/ Home Depot/ Sears…. no big companies that pay like HP, EMC, 3Com or Verizon. The current truck I am driving has 250,000 miles. It is TRYING to make it through the winter.. Help!”

     

    Mike: Hi Elaine,

    We try to purchase used cars in good shape for cash. Generally, we shoot for around $5000 for a car with 50K miles or less. We have not always had the cash, and in that case, we’ve bought the $5000 car using a zero percent credit card. We don’t recommend that because you still have to pay for it eventually and using credit just delays the inevitable. If you do use credit, I’d still bite the bullet and pay it off as fast as you can even if you get a no interest loan.

    Regarding your question about long traveling distances, there are only two options that we can see. Either expect to pay a lot for traveling expenses or move home and work closer together. We used to live in a remote area in rural Idaho. I drove 100 miles each way to work and it was 70 miles to the nearest town where we could go shopping. There weren’t many places to work in the town of 400 where we lived and most of those paid only minimum wage. Eventually, we had to move to a city where we were closer to jobs.

    If all of the workplaces are far from home and the shopping is far from home, it seems like the easiest way to reduce traveling costs is to move closer to the city where you work.

    Alternatively, you could develop a web business or some other home business, but beware that web businesses take just as much work as any other business and take time to set up before they make money. The “up” side is that if you’re living in a house that has been in your family for 7 generations, you can keep your house and also reduce your traveling cost.

    I may have misunderstood the question, but whether or not you have a new car does not seem relevant to your driving distance. If you want a more fuel efficient car, you can buy a gently used car with cash and be way ahead on your costs rather than buying a new car. When we did the math, we figured that buying a brand new car to save money was not a good idea. If you want a new car and you are willing to pay for it, go ahead and get one. If you don’t need to save money and you really want the car, that is a choice that you are free to make.

    As far as costs, though, consider this: If you buy a new car for, say $25,000, you will pay substantially more than the $25,000 cost if you get a car loan (because interest and fees add additional cost). If the new vehicle gets gas mileage twice as good as a $5000 used one, the amount you spend on the price of buying the new car will far exceed the amount of gas money saved over the life of the car, not to mention the higher insurance and license tag costs.

    If we were in your situation, I’d start looking for a good deal on a used car in good shape that I could hopefully buy with cash by the time the truck goes to truck heaven. If you look at a lot of cars and if you check them out carefully, you can get a better deal than you might think. If you don’t know anything about cars, enlist a friend who does to check it out for you. When you think you’ve found “the one”, you can pay a mechanic to check it out for you to make sure it is in good condition. This usually costs around $50.

    For us, we would continue to buy used cars if our income was higher and then use the extra money to pay off any debts or invest the savings in something permanent like real estate.

    Just to be clear, don’t feel like you need permission to buy a new car if you want one. If you can afford a new car and are prepared to pay for all of the costs, go ahead. Our point is that financial matters are all in a balance and in order for everything to work out, all of the money you spend has to work out to less than all of the money you bring in.

    If you do decide to buy a car new, don’t make that decision based on the fact that a car salesman says you can get a loan. Make sure you do the math and feel comfortable with the cost. The salesman wants to make money and it’s not his problem if you have trouble making your payments.

    I hope this helps!

          -Michael

    For more easy and practical ways to save money and get out of debt, check out Dig out Of Debt and learn more about how to keep more of your money.

     

    photo by: amagill

  • When Should You Buy A Newer Car?

    When Should You Buy A Newer Car?

    Michael from Wilmington, NC asks: When should you get rid of an old car that is paid for and buy a newer one that would hopefully have less maintenance cost. I am assuming the new car would be paid for outright without credit expenses.

     

    Michael Answers: That is a good question. We recommend buying cars outright with no credit debt and then driving them until they die completely or until it is no longer practical to keep them. When we buy cars, we like to pay cash and we generally pay $2000 to $6000 for the newest low mileage used car when can find. Our last two "new" cars were a 1991 Buick Skylark we bought in 1998 with 50,000 miles for $2500 and a 2000 Ford Taurus station wagon with 59,000 miles we bought in 2004 for $6000. We paid more for the Taurus because it was only four years old, it was in really good shape and we thought it was worth paying a little more for the car Tawra and the kids would be using regularly. (We also hoped it would last a little longer than some of our previous buys).

    When we buy a used car, we usually choose well enough that it needs very few repairs in the first year or two. Generally, we expect to pay regular maintenance costs (new tires, oil changes, brake pads, etc.) no matter what car we drive, so we usually don’t count those expenses as "repairs". We will continue to drive the car, making regular repairs until we begin to get the sense that its life span is coming to an end. When we do have to make repairs on a car, we consider it reasonable to spend several hundred dollars a couple times a year to keep it going. This might include replacing a water pump, doing major brake work or general engine work.

    Usually, a catastrophic repair (like a new transmission or a new engine) is the death nail for one of our cars since our purchase price for a replacement is usually low. Occasionally, we will fix a catastrophic repair if the car rarely needs work and if we have not had the car very long. Here’s an example where we did that:

    Once we received a used car as a gift from family after I crashed a car on an icy road. Two weeks later, the transmission failed. Since the car was new to us, didn’t cost us anything and seemed to be OK otherwise, we went ahead and spent $2000 to fix the transmission.

    Most of the time, a car needs only occasional repairs, but over time, the frequency of repairs increases. When it seems that the number of repairs is on the rise, we try to figure out whether or not we think it is a trend. If so, we think of the car as "on its way out" and stop making unnecessary repairs. If we have decided that a car is "on its way out" and it requires a single repair over $500, we will usually consider it dead and replace it. If the car that is a short timer needs several lesser repairs over several months that begin to add up to a lot of money, we will usually get rid of it and get something else.

    We had a 1991 Buick Skylark that was a good car for a long time. We originally bought it for $2500 in 1998 when it had 50,000 miles on it. Until 2004, it needed only occasional repairs, so we didn’t feel too bad if we had to put $300 into it from time to time. In 2004, the repairs seemed to come more frequently and we began to think that the car would need to be replaced soon.

    We still continued to do regular maintenance, but avoided spending a lot of money on repairs that were not critical. We got a crack in the windshield that was a little bit annoying, but since it was only around the edges and Kansas law did not require us to replace it, we decided not to repair it at the time. Again, we were pretty sure the car was on its way down hill. The heater started to occasionally smell like anti freeze which made me think the heater core was going to fail in a year or two. We started to notice that the paint was peeling from the rear fenders, but because we didn’t think the car was going to last a long time, we decided not to re-paint the car. We still made some regular repairs, but eventually, the car had a brake failure that was difficult to put a price on. We had already spend $500 in the previous 3 months for regular repairs above general maintenance and it appeared that the brake problem could cost another $300-$400. At this point, we decided that the white car had exceeded its useful life, since we would have spent $900 in just a few months if we repaired it and we would still have had a car with a cracked windshield, a dying heater core, peeling paint and other problems that we had not yet discovered.

    You will want to consider where your car is in it’s useable life. If you want to keep your expenses low, always remember that a car’s basic purpose is to get you from place to place reliably. You can keep more of your money if you’re not driving the car to impress other people. We usually try to keep the cars looking presentable, but we normally go for clean "plain Jane" cars that run well. All major systems should work well. We live in Kansas, where the temperatures are often over the 100° mark in the summer, so we think that Air Conditioning is a must. When we lived in Colorado, we considered it more of an "option".

    When it is clear that a car no longer fulfills it’s basic purpose: to get you from place to place reliably within a reasonable budget, it’s time to get another one.

    You are wise in considering a newer "used" car when you replace an older car. Usually, you get the best buy on a car that is new enough to need few repairs, but old enough to be relatively inexpensive. You have to shop around to make sure that you find a good used car with no signs of trouble and it is wise to have a mechanic check it out of you don’t know much about cars.

    We try to stick to cars with 60,000 miles or less that appear to have been well maintained and cost between $2000 and $6000.

     

    For Readers considering buying "New":

    Brand new cars cost more than they are actually worth, so it’s best to let someone else take the financial hit of being the first buyer of a car. Some people buy brand new cars expecting to "save" on maintenance costs and repairs, but all cars require occasional maintenance and repairs and parts for new cars tend to be more expensive.

    The "white car" cost us $2500. We drove it for 8 years, so it cost us $312.50 per year. We averaged $300 per year for repairs, so our total cost for the car was $612.50 per year. Thats PER YEAR, NOT PER MONTH. A similar car purchased new costs $446 per month. That is $5352 per year or $26,760 after five years of payments. Buying used, we saved $4852 per year or $24,260 for the entire cost of the car.

    If you still think the new car is worth it, don’t forget that the new car will cost you more in insurance and registration fees and after two years, you will probably be putting money into repairs on top of your monthly payment. It’s something to think about.

     

    photo by: twodolla

  • Don’t Buy In! Part 3

    Don’t Buy In! Part 3

    Don’t Buy In!, Part 3
    Read part 1 here and part 2 here.

     

    So What’s the point, you ask? What can I do about it?

    • Don’t buy in! Don’t listen. Reduce your exposure to a runaway stream of information. Don’t just rock along in auto pilot. Think about what you’re doing.
    • Any information going through your mind that isn’t relevant to your life merely causes mental clutter which causes stress. If you’re stressed, chances are you have this problem.
    • Turn off the news! You don’t need to know every detail of what is going on in the world. I have found that not following the news has greatly reduced the stress in my life. Yes, it is sad when a child drowns half a continent away, but unless I know the child or his family or unless it is reasonable to think the same will happen to my child, why do I need to know? It is just a cause for needless stress. It is important to be informed before you vote, but you can easily do some intentional research about the candidates shortly before an election rather than follow the daily barrage of news coverage.

      "What if something happens that I really need to know about?" You will always know people who will tell you things you absolutely need to know. On September 11th, my brother in law called to tell me to watch the news. Keep in contact with your neighbors. If something happens in your neighborhood, they will tell you. Then, if you want to know the details, go to the most reliable source of news you can find and seek out only that story.

    • Don’t watch so much television. This is important especially if you watch a lot of high stress television. Police crime dramas, abrasive TV talk shows and "He Said, She Said" reality shows will raise your stress levels. Too much of any kind of television time bleeds away hours of your life that you may later wish you still had.
    • When you feel the urge to buy something, stop and ask yourself if you’re being brainwashed or if you really need that thing you want to buy. Chances are if you have to have it RIGHT NOW, it’s an impulse buy. Put it off for a while. Weigh the value. I have found that if I delay a purchase, I almost always realize that I don’t need or really want it.
    • When someone tells you something that seems important, don’t just believe it, especially if the information causes you anxiety or has some impact on your belief system in general. If it is important, verify the information with a reliable source. I wish I had done this more in college, when I for a time believed unquestioningly the lies that some professors told me, even while they encouraged me to challenge beliefs for which I actually had solid evidence.
    • Don’t "surf" the Internet because you’re bored. When you go to the Internet, make sure you have a purpose: You want information on a particular topic or you want to play a game or buy a song that gives you encouragement. If you just surf, though, you are just finding information to clutter your brain which will compound your stress.
    • When too much information causes stress, it is expensive. Stressed people usually smoke, eat too much, develop various addictions or simply seek medical attention that they may not have otherwise needed. All these things cost money that stress free people don’t feel compelled to spend.
    • When too much information causes stress, it adversely affects your health. Spending the majority of your time under a high degree of stress leads to all kinds of medical problems that make life unpleasant and will probably lead to an early death.

     

    Is it really that important to be "plugged in"?

     

    Update: Reader Question – Why are there ads on this site?

    Originally, this story ended here, but we received a couple messages from readers who found it strange that there would be ads in a story that speaks to the down side of advertising. We wondered before we published it if the story would generate some letters to this effect. Here is a little clarification for those of you who wondered:

    Advertising itself is not "bad". Advertising does serve to inform consumers who may be interested in purchasing a particular product that the product is available. That is why I said that you need to consider the value of something before you buy it. Is this something that is really going to make your life easier, save you money, or give you some real enjoyment in life? The point is that you have to be careful that you don’t let advertising direct your every decision in life.

    If people have information to share, whether it is news, information about products or simply an idea they’re trying to promote, it is perfectly OK for them to try to get that information to the public.

    People need to make money in their businesses. Advertising is a good way for them to do that. It is unrealistic to think that a company will be able to provide things for "free" if there is no way for them to get paid for the time and resources required to do the work. Not many of us would devote a significant portion of each day working hard for free when there are bills to pay.

    It is self destructive for you to purchase things that you don’t need with money that you don’t have. When you purchase something out of fear, envy, anxiety or anger, you’re not buying it because you need it. It won’t solve your emotional problem. It will just make things worse by increasing your debt and cluttering your life with things you don’t need.

    The next time you think about buying an item, ask yourself, "Do I really need this? Will this item really improve my life?"

     

    Now… If you’d really like something to help you change your life , may I suggest a great cookbook? ;-)

     

    A reader’s response to this story:

    "Hi! Just a note, where I live (Folsom, CA) the Albertsons grocery store installed TELEVISIONS at the check out line that was streaming advertising disguised as helpful information, but selling groceries! It never ends!" Lisa M

     

    Read Part 1   |   Read Part 2   |   Part 3

     

    From: Dig Out Of Debt

     

  • Don’t Buy In! (Part 2)

    Don’t Buy In! (Part 2)

    Don’t Buy In! (Part 2)
    (Read part one here.)

    TV ads are, as a whole louder than ever, often using fast paced tense music to make you feel like there is an urgent reason you need to watch this commercial. Even though there are laws designed to prevent television broadcasters from playing commercials louder than shows, commercial producers know how to mix the audio in such a way that the commercial sounds louder without appearing louder to the broadcast equipment. Have you ever noticed that many commercials have the sound of a telephone near the beginning, even if a phone doesn’t play any part in the "story" of the ad? That’s because production companies know that the sound of a phone ringing will cause most people to unconsciously respond with urgency to the ringing of a telephone.

    Even magazines are in business to sell you advertising. Oh I’m not talking about the tabloids with "too good to be true" advertising that is so obvious to most of us. I’m talking about the magazine where you read a story about some new gizmo that the "reviewer" in the magazine seems to think is the greatest thing out there. Many of the magazine articles that appear to be written by impartial reporters singing the graces of various products are actually advertisements, commissioned by the companies that sell those products, written by advertising agencies and provided to the magazines as "stories" designed to make you think that some regular Joe out there liked the product so much he just had to recommend it to you.

    If you still haven’t heard enough, think about the news. When you watch, listen to or read the news, do you ever ask yourself whether or not the information that you are getting is true? Most people never question the news. If you’re in your mid 30s like I am, you have probably heard that news is impartial, that reporters are supposed to report the news without interjecting their own opinions. That’s what the editorial pages are for, right? Though this would be a great way for the news to work, it is not the reality.

    Recently, there was a story on the news at one of the major stations here in Wichita called "Family Fears Africanized Bees Could Be In Kansas". The story told of a family in Southern Kansas that thought a hive of bees in their back yard might be killer bees. According to the news report, the lady that was stung had been close to the bees before and had never been stung until the date of the story. Because the lady got stung, the couple assumed that they "may" be killer bees. The news report implied that this was a reason for concern for people in Kansas with this new threat. The reporter did not put an expert on camera attesting to the likelihood that they were killer bees. There was nothing in the story to suggest that the bees were killer bees except that someone got stung. Wow, does that mean every time I’ve ever been stung by a bee that it was a dreaded "Killer" bee?

    Come to think of it, why are killer bees called "killer"? When we lived in Texas, the news talked about "killer" bees coming to Texas. Now, more than a decade after the killer bees arrived there, I wonder why there aren’t thousands of people falling victim to this deadly plague. Considering how few people die from killer bee stings, I wonder why the media doesn’t do more stories about being killed by meteors falling from the sky. Still, there are many people who get stressed out seeing stories like this on the news for no good reason.

    I say all this to make the point that news operations make their money from advertising and in order to keep you watching, newscasters have realized that it is easiest to keep you watching when you are constantly afraid of what will happen if you don’t see the news today. Just like with advertisers, people in the news business are trying to sell you something. Because of this fact, you only see the news that is likely to make you want to keep watching and to tune in for every newscast. This means that you get a distorted view of the real world because of "selective coverage" that tends to portray the world as a place with dangers waiting to attack you with every decision you make in life. Also, because many reporters are young with very little practical life experience and because reporters have only a few hours to develop the story, broadcast news is full of errors.

    The bee story is a great example because many people hear a story on the news and begin assimilating the information as if it is factual. Even if you are a reasonable person, repeatedly hearing someone profess ridiculous things can make you question what you believe. Joseph Goebbels, author of the Nazi propaganda campaign against the Jews said that "if you tell a lie often enough, it eventually becomes accepted as the truth."

    There are all kinds of other circumstances where people are trying to sell you something: The college professor who misleads his students because the real facts don’t support his political agenda, the auto mechanic who tells you the wheel is going to fall of your car if you don’t pay him $500 to flush the radiator, the electronic store representative who tries to sell your grandmother a high end stereo VCR when you have told him that she only has a 13 inch television that doesn’t put out stereo sound and on and on…

    Read Part 1   |   Part 2   |   Read Part 3 – What Can I do about it?

     

    photo by: jurvetson

  • Don’t Buy In!

    Don’t Buy In!

    Don't Buy In! How To Avoid The Trap!

    Don’t Buy In! How To Avoid The Trap!

    Did you know you need a new cell phone? Did you know your car is trash? Did you know you’re not pretty enough, you’re overweight, you wear outdated clothes, you need to eat healthier and you need two large pizzas? If you didn’t know that, brace yourself because that’s just the beginning of your troubles — or so say the messages bombarding virtually every one of us every day.

    Do you realize how much advertising you are subjected to each day? There are ads on television, ads on the radio, ads on the Internet, ads in the paper, in magazines, along the side of the road and on other vehicles. There are ads in virtually every business you walk into each day and there are ads all over your house. The next time you go to Wal-Mart, pause at the front door and take a careful inventory of all the advertising you are exposed to in that one location. There are hundreds, possibly thousands of print ads competing for your attention there. Wal-Mart radio plays a constant barrage of advertising trying to influence you to buy something. Many of the items available for purchase practically cry out to you to purchase them through advertising on the packaging. Even if you are the queen of frugality, you cannot help but be influenced by this daily barrage of advertising.

    What many people don’t know is that the basic purpose of advertising is to persuade you to buy something you didn’t know you needed before you saw the ad. The message isn’t usually, “Hey, if you have a few extra dollars, you might enjoy this product.” The typical advertising message you hear really says something more like “Even though you never needed this product before, your friends and family will reject you, you will encounter daily torment, you will discover that you have no value as a human being and that you will probably die if you don’t buy this product right away!”

    As competition for your attention gets more and more fierce, you get bombarded with more and more types of ads and more intense ads. It is like standing in the middle of a crowded group of people where each one is yelling at you trying to get you to pay attention to him. As time goes on, the whole group begins yelling louder and louder because each person is trying to out-shout the rest of the group.

    Have you noticed an increased intensity in advertising during your life? I remember when grocery companies first used advertising on the back of register receipts. Then, one day, the store added mini-billboards to all of their shopping carts. Then they added advertising to the shopping basket carrels in the parking lot. At the time, those seemed like innovative ideas. Now, they just get lost in the “muck” of advertising. Recently, I was filling up my car with gas in Colorado and discovered that since I was last there, the gas station added video screens at the gas pump so that they could hit customers with a fresh barrage of advertising during one of those rare moments of near silence that many of us ever get. I heard today that a company is now trying to sell grocery stores on the idea of advertising actually printed on the conveyor belts where you set your groceries while you wait your turn in line. I don’t know who will be the first company to actually believe that that will be an effective way to make sales in a spot where customers are already overwhelmed with so many competing messages. At our grocery store, we are already assaulted with messages from tabloids and magazines with headlines designed to suck us in with the shock value. There are ads on the little dividers we put between our groceries and those of the next person in line. Is it really necessary to add yet another layer of mind “noise” to our lives?

    I already mentioned that the purpose of advertising is to persuade you to buy something you have never needed before. Did you know that the main purpose of the media is to sell advertising so you have more urgency to buy something you have never needed before? Oh, you thought that the purpose of television was to entertain and inform you? Think again! Television shows are only produced to act as the “sugar” to get you to take the bad tasting medicine. You may wonder how I came to think this way. I have a four year communications degree, having majored in Radio, Television and Film. The principle that television and radio shows exist as a means to get people to watch ads was a major concept in the Radio, Television and Film program.

     

    Read Part 2 – Advertising is Just Part Of The Problem

     

    photo by: jurvetson

  • Should We Sell Our House?

    Should We Sell Our House?

    Rebejay from Vancouver, Washington asks:

    Is it better to sell the fancy house, pay off all debt and rent until we can purchase a more affordable modest home? We may have enough equity to accomplish it all and not rent. We are tired of the rat race and want to send our kids to a Christian School. We both work and can make the debt payments – just tired of being a slave to them. I want to simplify. We want to pay it all off and have the burden lifted. Also worried about housing market crashing…

     

    Tawra: I would say go for a modest house and get out of debt. Even though our culture tells us we should have everything, there is no reason that we need all of the "stuff" that the popular culture says we should have. The reason they says we need the "stuff" is supposed to be to make us happier. Clearly, it doesn’t sound like the fancy house is making you happier, so sell it, and the sooner the better. I would do everything possible to sell it and buy the modest one right away. We have not had good experiences renting and unless you plan to live in the rental for a number of years, renting would mean that you would have to deal with moving twice in a short time period which is exhausting and costly. Once you sell the fancy house, you shouldn’t have a problem getting a mortgage on a more modest one unless you lose big money selling the fancy one or unless your credit has been negatively impacted since you got the mortgage on the first one.

    Once you get the more modest home, try to pay the same amount you’re currently paying for your house, allocating the difference in your old payment and your new payment to the principal. If your fancy house costs $1500 per month and your new house costs $1000 per month, pay the extra $500 to principal on the modest house. Make sure you indicate on your mortgage payment coupon that you want the balance to go to principal so that you pay it off faster. You be surprised how quickly you can pay it off over-paying the principal and since you can make your current payments, you can keep paying the same amount and eliminate your debt completely.

    I would do everything possible to get TOTALLY out of debt. Most people don’t consider a mortgage a debt, but it is. Once it is paid off, you will be able to use all of the money that you currently use for housing for something else, like the Christian School you mentioned. Not only that, one day, you will want to work less. Hopefully, you will not become disabled, but it does happen and it would be easier to have the flexibility of having no debt.

    Regarding the housing market, it is a reasonable concern, but in most (but not all) areas the values will increase eventually even if they go down for a few years. Still, if you pay off your house completely, you won’t have to devote time to thinking about it. Go with your instinct!
    Tawra

     

    photo by: taberandrew’s

  • Frugal Living – Is It Too Time Consuming?

    Frugal Living – Is It Too Time Consuming?

    Is Frugal Living Too Time Consuming?

    When people ask me about getting out of debt, they often ask “Doesn’t frugal living take quite a bit more time than not living frugally?” Of course, doing work yourself does mean you spend more time doing certain things, but frugal living also means that you will spend a lot less time and money working to pay someone else to do it. Many people work more hours to pay someone else to do a job than it would take them to do it themselves. Of course, if you make a million dollars a year and have no manual dexterity, this article is not for you.

    Here are some practical frugal living examples based on my own experience with a family of 4. Because your household income is probably not the same as mine, some things that make sense for me will not make sense for you. I suggest that you read my examples and consider your actual costs.

    Example #1: Buying clothes- One great way to save money on clothes is to go to garage sales. This seems very time consuming to many people, but it really isn’t. In the summer, I usually spend 3-4 hours every 2 weeks (May – September) going to garage sales. That may seem like a lot, but if you compare that to how much time the average person spends shopping at the mall, it really isn’t any longer.

    Example #2: Meals- Frugal living can really save you money and stress when it comes to meals. I usually average an hour and a half each day preparing and cleaning up from meals. Compare that to going out to eat: It takes the typical person 20 minutes to drive to the restaurant and 20 minutes to return home. That is 40 minutes. Then you spend 15-20 minutes ordering and waiting for your order. You are now up to one hour. If you plan an hour for eating, you are up to two hours total. Don’t forget the 2-3 hours you had to work to pay for it! This assumes an income of $30,000 per year and a $40 family meal.

    If you go to fast food restaurants instead, you could cut your time down to 40-50 minutes and 1-2 hours working to pay for it.

    If you stay home and cook, it will cost you 15-30 minutes preparing the meal and less than $5 paying for it. I’m not saying that you should never eat out but, that if you do it regularly, it will cost you a lot more (in time and money). Is it really worth it?

    Example #3: Buying a car- If you buy a new car with $500 a month payments for 5 years, you pay $30,000. Let’s say you earn $30,000 per year at your job. If you assume 25% income tax, you must earn $40,000 to pay for your $30,000 car. This means that you have to work 1 year and 4 months for no other reason but to pay for that car. Is it really worth working over one year just to pay for a new car? If you decided to buy a $7500 car instead, you could afford to take a vacation from work for a year. Haven’t you been saying you need more free time? (If you didn’t get that, get out your calculator and do the math. This is important.)

    Always consider the hidden costs, too. Would you feel more inclined to buy a security system for that $30,000 car? How much will that cost? Are the parts more expensive for the $30,000 car when it breaks down? Trust me, your new car will still break down almost as much as a used car. Ask my brother…

    Be very careful when you start saying things like “Doesn’t frugal living take too much time?” or “I can’t seem to find time to be with my husband or children” or “I don’t know where to start saving.” Often, those are excuses that you have created to ease your guilt. If you think about it and do the math, living simply will give you more free time. If you’d rather not, you can always keep spending money and wishing you had more family time. It’s your choice! But take heart- if you have read this far then you get and A+ for taking the first step and trying!

          -Tawra

    For more easy and practical frugal living tips to help you save money and get out of debt, check out Dig out Of Debt and learn more about how to keep more of your money.

     

    photo by: Robbert van der Steeg

  • How to Live Debt Free – Debt Free Living Tips

    How to Live Debt Free – Debt Free Living Tips

    Have you ever wondered how to live debt free or if it was even possible? Jill shares some thoughts about the freedom that comes with debt free living. (more…)

  • Where Do We Begin To Catch Up On Debt?

    Where Do We Begin To Catch Up On Debt?

    Leslie from Rhode Island asks:

    Where do we begin to catch up on debt when we are behind three months on every day living such as mortgage, car payments, and utilities and IRS payments?

     

    Jill: It is hard to give specific answers to your question without knowing more details about all of your finances. Here are some general suggestions about a couple of things that you mentioned. Some of these ideas may seem drastic, but if you are three months behind on everything including the IRS then you need to take a very honest and serious look at your spending habits.

    In order to catch up on past due bills, you not only have to live within your income, you have to live below your income. It may be painful, but you have to figure out how to live below your income at least long enough to pay the past due bills and then to keep current on all of your bills.

    If you can’t keep up with your mortgage, then no matter how much you love your home you may have to sell it for something less expensive. The same goes for your cars. You could try to get by with one car. That may not be as impossible as it sounds. My son and his wife both work and often only have one car. She found she could switch to evening hours at her job for a while until they could get another car. One spouse may have to take the other to work for a while. This may not be convenient, but declaring bankruptcy isn’t really handy either. Besides, if you declared bankruptcy and still spent more than your income, you’d end up with the same problem all over again. You could also sell you cars and get less expensive/used cars with smaller payments.

    Cut back on utilities as much as possible. There have been times where I couldn’t run my air conditioner or I just used it when it became unbearable. Notice that I said unbearable, not uncomfortable. There’s a difference. Stop watering your yard. If your lawn dies, it dies. What would you rather have? Bills that are paid, no financial stress and a dead yard or lots of debt and stress and a nice green yard? I know it seems like there is no way out but it really is doable. Remember, you can’t spend more then you earn. Start thinking about each item you buy. Is that item really a need or just a want? Most Americans have a difficult time telling the difference between needs and wants. Do you really NEED it or do you just WANT it?

    Cell phones are still a biggy. I was talking to a woman who was frantically trying to keep the creditors at bay. She said I just don’t have another place to cut back. I said what about your cell phone. Boy the look of horror on her face. We all insist we need a cell phone and they are nice especially in an emergency but that isn’t the reason most of us have them. We have Smart Phones because they are a fun toy for us to play with and to use to interact on social media. You can get an inexpensive little phone that doesn’t have all the bells and whistles to use for an emergency.Here’s a new concept for some to try – visit with your neighbor or friend eyeball to eyeball instead of texting all the time. Much cheaper then paying for an expensive phone. I know, I can’t believe I even suggested such a thing but hey if your are really serious about saving you will do it.

    If you often wonder where all of your money goes or if you need a more frugal mindset, check out Dig out Of Debt and learn more about how to keep more of your money.

     

  • Should We Declare Bankruptcy?

    Should We Declare Bankruptcy?

    Is Bankruptcy Our Only Way Out?

    A reader writes:

    My husband was a lawyer for 4 years before going to seminary and becoming a minister. Now with living on his severely reduced salary as a pastor the student loans seem like they will never be paid back. Is going bankrupt our only way out? (We still owe over $250k.)

     

    Tawra: I know this must be difficult for you. This is a touchy subject for some but it’s a question I get a lot. No, going bankrupt is not the only way out.

    Bankruptcy is intended to help people who end up financially strapped because of reasons beyond their control, like catastrophic medical expenses or the death of a spouse. Bankruptcy can be a good thing for emergencies, but I don’t think it is ethical to claim it for “poor planning”. I understand that it may feel like this situation is beyond your control, but it is actually the result of choices that your husband made. Even if he made those choices before marrying you, if you married him knowing about his debt, you accepted that responsibility with him.

    I believe that when you take out loans, that you should not be able to claim bankruptcy on them. (In fact, you can’t get out of student loans through bankruptcy, so if they’re student loans, you have no alternative but to pay them.) You signed the note saying you would pay back the loan. The banks, credit card companies or other creditors are not responsible if you decide to change careers. If you claim bankruptcy for expenses you no longer choose to honor, it is really lying (because he promised to pay it back) and stealing (because if he stayed in law, he would have been able to repay it, rather than to make the credit card companies and their customers responsible for his decision to change his mind).

    What can you do? That is a lot of money to owe and I can understand how overwhelming it must be, but it is your responsibility to pay it back. There are several options in your case:

    Your husband could go back to being a lawyer, earning lawyer’s pay and and spending only a pastors expenses for several years, paying the balance to debt until it’s paid off. This is probably the fastest and easiest way to pay it off. If your husband is serious about preaching, he could practice law and preach part time until the debt is paid.

    Your husband could work part time as a lawyer and part time as a pastor.

    He could continue as a full time pastor and get a part time job on the side.

    You could get a job. If your kids are small and still at home then you would need to get a job during your husband’s off hours so you don’t have to pay day care.

    Do any on the side jobs you can. Can he mow lawns? Can you do ironing or child care?

    It will take a long time to pay it off but you can do it. I do think that if your husband is a pastor then he needs to pay off the debt because he is the leader of a church and it is his responsibility to set a good example to his congregation. Ministers are not perfect, but God does require a higher standard from them. I believe that if God has called your husband into the ministry, God will make a way for you to pay off the debt without having to declare bankruptcy.

          -Tawra

     

    photo by: squeakymarmot

  • Tawra’s Debt Reduction Story, Part 2

    Tawra’s Debt Reduction Story, Part 2

    Tawra’s Debt Reduction Story, Part 2 – "The Rest of the Story"
    (written in 2005)

    Most people know our story about paying off $20,000 in 5 years on an average $22,000 annual income. If you haven’t read it, read it here.

    Since then we have had more debt and paid it off/are still paying it off. Here is the rest of our story: When we lived in Idaho, Mike ended up working a job 100 miles from home. Because his new job was so far from home, we decided to sell our house intending to move closer to his job. We had the house on the market for 3 1/2 years while living in Idaho (from September 1996-January 2000). Mike got laid off from his job in October 1999. In December 1999, despite the layoff, we paid off our debt, the last of the original $20,000 .

    Mike looked for a job until April 2000. He couldn’t find one in the area and we couldn’t sell our house. We finally decided to leave the Pacific Northwest and move to Manhattan, Kansas to be closer to my brother. He and his family lived 2 ½ hours away in Wichita and needed help remodeling their home. We had to leave the house in Idaho vacant and hope that it would sell eventually. (Mom was still living in Idaho and she was also trying to sell her house to move back to the Midwest.) Until it sold we had to pay $400 a month for the house, even though we didn’t live in it.

    The rental market was not good in the small Idaho town and renting the house would not have come close to paying the mortgage and expenses. We paid for our moving expenses from Idaho which came to $2,500 and included deposits for our rental house in Kansas and other related expenses.

    At that time, we had two kids, one and two years old. For a while, we were stuck with two house payments: $400 per month for our house in Idaho and $500 monthly rent in Kansas. Mike worked a job making $9.00 an hour so, of the $1500 we earned each month, almost three quarters went to making house payments. We had $600 left for everything else.

    Mike’s county government job didn’t have health insurance benefits. We did get some WIC for 9 months and put the kids on state medical for a few months but we didn’t get any other assistance. Our house finally sold in 2000. We sold it for $12,000 less than we paid for it because we realized that it would probably cost less to take the loss at that time than to keep paying the mortgage and getting further into debt. We had to write a check to the buyers for $8,000. To say it made us sick to our stomachs is an understatement!

    When mom sold her house, she lost $25,000, so our loss wasn’t as bad as it could have been. We survived for a year on $1500 a month and then $1700 a month until Mike got a better paying job in April 2001 at a TV station in Wichita, Kansas. He was getting $28,000 per year then. We were praying very hard that we would be able to find a house to buy so we wouldn’t have to rent again.

    The two rental houses that we had from April 2000-April 2001 were horrid, but with two house payments, we could not afford better. It was so incredibly stressful living in houses that the landlords didn’t want to maintain. Our family was also very sick much of that time. Not long before moving out of the first rental, we discovered mold growing around a pool of water in the crawl space under the house. In the second house, a six inch baseboard fell off the living room wall one day and the back side was covered edge to edge with black mold. God was so good. When Mike got his job in Wichita, we found a 1600 square foot two bedroom house in Wichita that had been recently remodeled. It was even the exact colors that I wanted on the outside!! It’s funny because God really does give us the desires of our hearts!

    We didn’t have a down payment and we had $10,500 in debt so we had no clue how we were going to buy it. We soon found out that there was a new program that helped people get home loans for 0% down and roll closing costs into the loan, so we bought the house. We were so excited to have our own place again! Our moving expenses from Manhattan to Wichita were $1,000.

    Over the next two years, we had several other large expenses that we couldn’t afford. Mike’s job was not working out well and he was frustrated that he wasn’t earning as much money as we needed. He wasn’t sure he wanted to stay in the video business anymore because the financial outlook for video producers in Kansas wasn’t great. He opted for career counseling which cost us $1,200. Our washing machine and refrigerator both died shortly after we bought the house. Total cost $1,000. Both of the cars needed major repair work in one year, which cost $2,500 more than we had.

    When baby #3 was coming along, we bought another house with more bedrooms for about the same price. Almost immediately, the refrigerator died in it, costing us $900.00. We got all that paid off ($17,000) in August of 2003 and again had no debt except out mortgage.

    Then in December 2003, one of our cars needed a repair that would have cost more than buying another car. We bought a used Taurus station wagon on Ebay for $6,000, financing it on a credit card at zero percent interest. After our 3rd child was born in 2003, we incurred major medical bills because he had food allergies that went undiagnosed for a year. We spent $3,000 while we were trying to figure out what was wrong with him. We also had to pay cash for all our prescriptions (Thank the Good Lord for Canadian drugs ;-) because our insurance didn’t have prescription coverage.We were paying about $300 a month cash for prescriptions. If it wasn’t for Canadian pharmacies, we would have had to pay over $800 for the drugs here!

    We are currently working on getting the car and medical expenses paid off. We concluded that our problem hasn’t been overspending; it has been lack of income. There is a point where you can’t "cut back" any more and you just have to make more money. Our family has been "under – resourced” as one of our readers put it. We are working on that part so that we can include unexpected costs in the budget. So here is a summary of the rest of the story: $17,000 paid off between 2000-2003 $8,000-Loss on house sold in Idaho $1,200- Mike career counseling $2,500- Moving expenses to Manhattan, KS $1,000- More moving expenses to Wichita, KS $1,900- Washing machine and two refrigerators $2,500- Car Repairs We paid off this $17,000 on an average $28,000 income from 2000 to 2003. Gross Income 2000-2003

    • 2000-$16,000
    • 2001-$26,000
    • 2002-$38,000
    • 2003-$34,000

               ——————-

    Average 2000-2003 annual income: $28,500

     

    We didn’t pay off the debt as fast the second time for several reasons: Our medical expenses did go up around $500-$1500 depending on the year. We also had the baby on special formula that cost over $200 a month for one year, because of his food allergies. When we moved from Idaho to Kansas our:
    Utilities went from $75 to $200 – up $1500 a year

    House payment went from $625 per month in Idaho to $800-$900 per month in Kansas – up $2100-$3300 a year, both because of a stronger house market in Kansas and because our family was larger in Kansas Food went from $125 to $250 – up $1500 a year We also have purchased more convenience items than during the first big debt payoff because I have been sicker than usual for the last several years. We didn’t buy a lot of convenience stuff, but we did buy more $5 dinner take out from the grocery store and a few things for the house to “make life easier”. These costs did not add to the debt, but they did make the debt payoff take longer than before.

    Our debt as of Summer 2005: This is what we still have to pay off: $6,000- Most recent car replacement $3,000-Extra medical bills (June 03-Jan. 05) By the way, in case you’re wondering why we haven’t received much income from the book business, it is largely because I am only able to work a few hours a week on it because I am chronically ill and, unfortunately, books don’t sell themselves. We are making changes to the publishing business and hopefully we will be able to make more income from it. Anyway, that is the rest of the story. Tawra

    Update 2010- at this point we are completely out of debt except our house, which we are working to rapidly pay off in 3-5 years. Mike is currently working full time for Living On A Dime. It is doing better, but he still works 2 other part-time jobs to bring more income. Tawra

    From: Dig Out Of Debt

     

    photo by: Alan Cleaver

  • Breakdown Of Debt Reduction

    Breakdown Of Debt Reduction

    We have said that we paid off $20,000 debt in 5 years on an average income of $22,000 per year. Here is an accounting of the debt (over and above our regular bills) and the payments that we made to eliminate the debt. If you’d like to know how we paid it off, here is our debt reduction story.

    Debts

    $3,000 -Mike’s credit card debt when we married
    $2500- Cost of moving to Texas
    $2500- Cost of moving to Idaho
    $2085- New transmission for our car
    $500- Cost of repairing cracked head on the car
    (These two repairs occurred when we were in Colorado (1200 miles from home) and needed the car to get home.)
    $2500- Purchase 1991 Buick
    $7,200- Out of pocket medical bills from the birth of our daughter.

    Total debt incurred $20,285.00

    Income for years 1995 through 1999
    1995- $19,382.00
    1996-$17,530.00
    1997-$19,646.00
    1998-25,444.00
    1999-$26,509.00
    Total Average income over 5 years $21,702.00

    Debt Payments

    Monthly

    1995- $100 month – $1200/ year
    1996- $100 month- $1200/year
    1997- $100 month= $1200/year
    1998-$300/ month=$3600
    1999- $300/ month= $3600

    Total- $10, 800.00

    Extra

    $1,000.00- gift when BJ was born
    $1,200.00- gift when Elly was born
    $3,000.00- cashed in for Mike’s retirement
    $700.00 sold Geo Metro
    $601.00-1996 income tax return
    $1830.00- 1997 income tax return
    $688.00-1998 income tax return
    $2359.00-1999 income tax return

    Total- $11,378.00

    Total Debt Payments- $22,178.00 (includes interest)

    photo by: Alan Cleaver