A Non-PF Related Post -- Hoping The Best Re: Gustav

This post has nothing to do with personal finance. I just wanted to post a good-luck charm in hopes of warding off Gustav.

(Illustration courtesy of Yara's Photostream.)

Teru teru bōzu (Japanese: てるてる坊主; "shiny-shiny Buddhist priest") is a little traditional hand-made doll made of white paper or cloth that Japanese farmers began hanging outside of their window by a string. This amulet is supposed to have magical powers to bring good weather and to stop or prevent a rainy day. "Teru" is a Japanese verb which describes sunshine, and a "bōzu" is a Buddhist monk (compare the word bonze), or in modern slang, "bald-headed." Source: Wikipedia.)

My August Debt and Net Worth Progress Report

Here's my progress report for August 2008:

MY DEBT

	Starting Debt	Last Month	This Month	Difference
Private SL	$49,528.99	$49,136.14	$48,863.52	$(272.62)
Fed'l SL	$55,852.68	$55,712.03	$55,594.28	$(117.75)
CC	$13,610.75	$13,277.00	$12,943.59	$(333.41)
Car Loan	$9,779.33	$9,248.78	$8,500.50	$(748.28)
TOTAL:	$128,771.75	$127,373.95	$125,901.89	$(1,472.06)

I was feeling really great about the $1,400+ progress I made towards eliminating my debts until I realized that I paid $446 in interest last month.

Had I not had any debt and saved $446/month in my ING account (APY 3%) for 77-months (i.e., the amount of time I plan to take to pay off my debts), I would have $37,768!

Rather than feeling depressed, sorry and angry at myself, I've decided I am going to let it motivate me to pay off my debt sooner!

MY SAVINGS

Last Month	Current Savings	Difference
$2,955.73	$3,157.28	+$201.55

My total cash position for August is $6,237.51 but $3,080.23 is earmarked for future spending (he he), leaving me with $3,157.28 in my net cash position. I seem to be on track to saving $3,400 by 12/31/08. What's depressing is that this won't even cover 1 month of my current expenses. :-(

The progress on my cash position has been slow and tedious thus far. I hope the lesson I learn from this is that since it is so difficult to save $100, I shouldn't waste my money on frivolous stuff.

But ohhhhh... how I would love to replace my Motorola Razr cell phone with an iPhone...

MY NETWORTH

LastMonth	Current	Difference
($3,106.57)	($571.99)	$2,534.58

It's nice to see that my networth is going up despite still being in the red.
The biggest return on my money was from my debt reduction. For every dollar I paid towards my debt, I increased my net worth by 76.7 cents.

The returns on my investments were less stellar: For every dollar I contributed to my 401k in August, I increased my net worth by 16.4 cents. My investment account, on the other hand, got hammered. For every dollar I contributed to my ESOP, I lost $3.48 of my net worth!!

The only positive I can see with respect to my retirement account and ESOP account is that I am dollar-cost averaging. When the market rebounds (whenever that may be), I should see the benefits, so I shouldn't despair so much.

The breakdown of my net worth can be seen here.

I Survived on $6.75/day for Food in August!

As discussed in my prior post, my budget doesn't include any provisions for groceries, food, gas, clothing, toiletries, etc. Instead, I’ve allocated a $500 lump sum per month on my American Express card to pay for non-fixed expenses.

My American Express bill just ended its billing cycle for August and it totaled $796.20.

Of that amount, the following items do NOT count against my budget:

• $334.47 for 30,000-mile car service: Thankfully, I had the foresight to earmark $25 from every paycheck for this expense since February, so I had $400 saved to pay this expense. I charged it on my Amex rather than paying cash so that I can earn Membership Rewards for future vacations.

• $92.44 for reimbursement for food and gas during business trips: I’m confident that I will be reimbursed before the end of September when payment is due.

The result? Budget – Actual = $500 - $369.29 = $130.71 under budget!

Here’s the breakdown of my August expenses:

• Groceries: $209.38: This includes food, toiletries, cat food/kitty litter, etc. This is $6.75/day, folks!

• Entertainment: $12.00 for movies. I caught a couple of matinees on the weekends where the ticket only costs me $5-$6. I also took my own water and popcorn. (Did you know movie theaters allow outside food now?)

• Gas (Non-reimbursable): $121.01

• US Postal Service: $12.95

• Misc: $13.95: I bought a clay paw-print kit. I’m a bit concerned that my geezer cat, MJ, doesn’t have much longer to live. I wanted his paw print as memento.

As you can see, I spend very little on entertainment since I’ve already justified my extended-basic, digital cable and high-speed internet cost as a fixed monthly “entertainment” expense. I also borrow a lot of books, CDs and DVDs from the library.

With respect to food, I’ll write about my survival tips in next week’s post.

This is what I plan to do with the extra $130.71:
• $35 will go into my Emergency Fund
• $5 will go into my Christmas Fund earmark
• $5 will go into my Pet Care Fund earmark
• $5 will go into my Miscellaneous Fund earmark
• $25 will be earmarked towards my Costco renewal fee (due October)
• $50 will go into my Vacation Fund earmark
• $5 will be “cash”

I know, I know. I should be using 100% of the $130.71 to pay down my debts and/or to fund my emergency fund. Actually, I consider my Vacation/Miscellaneous Fund as a back-up of my Emergency Fund. In the event of an emergency, I’ll tap my Vacation Fund or my Misc. Fund if my EF is insufficient. Unfortunately, that “emergency” is looming in the horizon since I could get laid off at the end of the year….

Anyhow, next week, I’ll give my tips on how I made it through the month on $6.75/day.

Until then, have a great Labor Day Weekend, y'all!

Will Recycle for Beer and Chips

I recycle my newspapers, cans and bottles because I want to preserve the Earth’s natural resources. Who am I kidding? The real reason I recycle is because: (a) I’ve already paid for the darn bottles and cans through the CRV (California Redemption Value) tax and I want my money back, and, (b) because I need some “mental therapy money” to buy junk food and beer. (Nothing soothes a broke, irritated soul like beer and potato chips.)

This month I netted $8.61 from 2-month’s worth of recyclables. Was my time and effort worth a measly $8.61? You betcha.


First of all, it was virtually effortless to keep the cans/bottles separated from my trash. As for the newspapers, I just let it collect in the back corner of the room away from my line of sight. (What I can’t see won’t bother me.)

I am very fortunate to have several recycling centers from which I can choose. For my most recent adventures in recycling, I walked my bottles to the local supermarket that has a mobile center on-site. I was carrying almost 7 lbs, so this brisk 2 block (one-way) walk gave me some badly needed exercise.

Since the mobile recycling center doesn’t accept newspapers, I took my newspaper to another site that is approximately 3.5 miles away from my apartment. Since I’ve already calculated that my car burns $1 worth of gas for every 6 miles I drive, the cost involved to recycle my newspaper was only 60 cents or so. I also did this en route to work so I didn’t need to make an unnecessary trip.

One of my friends commented I shouldn’t bother since my time is worth so much more. Really? It only took me about 15-20 minutes at the recycling center to get my money. I don’t think sacrificing 15-20 minutes during my free time (that I would otherwise be spending watching TV) to earn $8.61 is worthless. The fact that I’m also doing something good for the environment is a great karmic bonus.

And I'm happy to say, I did buy a 6-pack of beer and 2 bags of junk food for only a buck, thanks to my recyclables.

Should I Sell My Diamond Earrings to Pay Down Debt?

I’ve been reading Dave Ramsey’s Total Money Makeover to see whether I can get some ideas to help me pay off my debts faster. I’m still on Chapter 7 but I can already see that I won’t be having a Total Money Makeover anytime soon. (Maybe a Partial Money Makeover. More on this in my future posts.)

One of his recommendations for getting the debt snowball rolling is to sell items. I looked around my apartment and discovered the sad truth – I accumulated $13,000 in credit card debt and I have a lot of junk.

But I did find one item that may fetch some dough – my 1 ct, diamond stud earrings. Looking at eBay, I think it’ll fetch somewhere around $800-$1,000.

It’s not quality jewelry, but it’s the only decent piece of jewelry I have, so I can’t bring myself to sell it. Even if I used the net sale proceeds to pay down my debt, it won't make much of a dent in my $127,000 debt. I’m currently paying significantly more than the minimum amounts due on my debts and I already have a debt elimination plan that I am determined to complete in 6.5 years.

On the flip-side, if I sell my earrings, I will immediately pay down my debts by about $576-$720 (after taxes) and I'll save the monthly premium for the jewelry floater on my renter’s insurance.

I want to ask my readers, if you were me, would you sell the earrings to pay down debts?

Carnival of Personal Finance #167

One of my favorite blogs, Broke Grad Student kindly listed my recent post The Silly Savings Game I Play in its Carnival of Personal Finance #167.

Here are some of my favorite articles:

Student Scrooge identifies other characteristics one should look for in selecting a savings account in Online Savings Accounts - Is Rate All That Matters? I'm glad Scrooge also recommends ING, as do I.

In her post A Healthy Budget, Wide Open Wallet analogizes a healthy budget to a healthy diet. I also think that a healthy diet is necessary for a healthy budget too.

Brip Brap provides snarky, tongue-in-cheek ideas on how to make passive income in The Truth About Passive Income. I'm glad he mentioned #7, though, because I've been thinking about doing so for quite a while.

In Riches Do Not Equal Prosperity, Clever Dude responds to a particularly harsh comment. I like and agree with his conclusions.

I'm also happy to read that Living Almost Large is a "pretty messy person in general" in her post, Wallet-Neat or Messy?

Why Would This Financial Planner Recommend FreeCreditReport.com?

In this money make-over article in the Los Angeles Times, a financial planner recommended that her client "check her credit report twice a year online at www.freecreditreport.com." (Note: The video below does not reference this recommendation.)



If this financial planner is worth her salt, she should have pointed out that FreeCreditReport.com is run by Experian and charges $14.95/month until cancelled. Why didn’t this financial planner tell her client that everyone is entitled to a free credit report every 12 months from each of the three major agencies through annualcreditreport.com?

She could have also advised her client that she can request one report from one of the credit bureaus every 3 to 4 months. This way, the client can check her credit report throughout the year for free through the official site. (For example, the client can request one credit report from Transunion in August, one from Equifax in December, and another from Experian in April.) This client certainly can’t afford to have $14.95 charged against her credit card every month.

I hope this was a typo and the Los Angeles Times issues a correction. If it’s indeed a typo, this confirms why FreeCreditReport.com’s marketing is misleading at best.

If this wasn’t a typo, this financial planner gave horrible advice with respect to this one item. This makes you wonder whether “financial planners” are worth their fee, doesn’t it?

Shifting Debt Around Is Not "Paying It Off"

I recently asked my friend, “DP”, how he was dealing with onerous student loan payments. I was shocked to learn he paid it all off. I asked what was his spectacular debt elimination plan? His answer: "I refinanced my home."

DP sympathized that because I didn’t own my own home, this "debt elimination" solution was unavailable to me. DP also seemed proud of his financial prowess since his interest payments were now tax deductible. (DP’s income exceeds the threshold for student loan interest payment deductions. As is the case with me.)
Excuse me? This is one of my biggest pet peeves: people claiming they “paid off” something when in reality they only shifted one debt to another. Why do so many people believe that by shifting their consumer debt into their mortgage, they’ve somehow “paid off” that debt? They often justify this move by saying their non-tax deductible consumer debt is now tax deductible.

Am I wrong to think that DP is actually losing money due to his “debt solution”? I was curious so I crunched the numbers. Let’s assume he and I both have $104,848 in student loans.

Based upon my snowball debt elimination plan, I expect to pay off my student loans by December 2014. My tax deduction during this period is $0 and I would have paid approximately $21,029 in interest (for the student loan portion only).

I’ll assume that DP rolled his student loans into a 15-year or 30-year mortgage with 6% APR. (For simplicity’s sake, and in DP’s favor, I’m also not calculating the refinance costs.) On the extra $104,848, he would have paid $54,410 and $121,454 in interest respectively. According to this mortgage tax calculator, his tax savings is approximately 4%. Therefore, his net interest payments on his refinanced student loans after the tax deductions are taken into consideration are $52,234 and $116,596, respectively. (This is, of course, a guesstimate since I don’t know what DP’s federal and state tax rates are. I’ve assumed a 25% federal and 9% state tax rate.)

Ummmm…. Am I missing something here? Does the appreciating value of a home somehow negate the difference?

Either way, I guess next time someone suggests I buy a house so I can “pay off” my student loans, I will know better.

The Silly Savings Game I Play

I play silly "games" to ensure that I save something every month to put towards my emergency fund. The games often don’t make sense and are inefficient, but somehow, it’s been working for me.



1. "Earmarks" Are Not "Assets"
As you can see from my net worth chart, my "cash" position is listed as $2,955.73 (as of 7/31/08). This is not the total balance in my savings, though.

I currently have 5 savings accounts at 5 different banks. The balances (as of 7/31/08) are:
Credit Union: $111.78
Wells Fargo: $303.14
Bank of America: $359.39
ING Online: $3,152.05
Citibank Online: $2,019.09
TOTAL: $5,945.45

The reason why I haven’t used $5,945.45 to calculate my net worth is because $2,930.23 of it is earmarked for future spending. Some of the earmarks are for fun stuff like vacation, Christmas and "miscellaneous" spending. Other earmarks are for irregular expenses like car-maintenance/repairs, pet care, etc.

If the money is earmarked for spending, it’s really not savings, is it? That’s why in my balance sheet, I only use my un-earmarked savings as my "cash" position. I’d rather see my true savings balance rather than a yo-yo balance on my net worth balance sheet every month.


2. Earmarks Don’t Accrue Interest
Most of my earmarks are saved in my ING account because it pays the highest interest (currently 3% APY). Although the ING account allows me to create sub-accounts for my earmarks, I haven’t used this feature. I’d rather manually keep track of the interest accrued every month on my spreadsheet. This is because I want my interest to accrue only to my true savings, not my earmarks.

For example, I have $895 earmarked for the purchase of a new laptop. The laptop earmark accrues approximately $2 in interest every month, but I apply it to my emergency fund, not to my "laptop fund". My "laptop fund" will have $895 in perpetuity until I spend it.


3. I Keep Multiple Savings Account
I keep multiple savings accounts because the FDIC only insures up to $100,000. Since I intend to save more than $500,000, I’ve decided I need multiple accounts.


That's a joke. The real reason why I keep some of my money in low interest bearing accounts (i.e., Bank of America, Wells Fargo) is for accessibility. As much as I love my ING account, it takes about 3 business days before money can be transferred to and from my ING account. (This is another good reason why I park my earmarks in my ING account. It gives me a "cooling off" period when I see something I want to buy.)

But this lag time in transferring money may pose a serious inconvenience in a true emergency. I figure if I maintain the minimum balance in the BofA and WF accounts, I’m really not losing much interest on that money.

The Citibank Ultimate Savings Account has a slightly lower APY (currently 2.75%) than ING, but again, I keep a chunk of my money there for accessibility.


4. I Live One Pay-Raise Behind
This year, I got a nice 5% raise. (In this economy, 5% is GREAT!) After I bumped up my 401k contribution from 13% to 15% of my pre-tax income, my payraise netted me $34 extra per paycheck. I know it's small, but I put the $34/paycheck raise into my emergency fund, rather than increasing my discretionary spending for this year. Next year (assuming I don't get laid off), I'll increase my standard of living by $34/paycheck and bank next year's raise (if any).


5. Automatic Deposit, Transfer, Re-Transfer and Inter-Bank Transfer
This is the crazy and inefficient part of my monthly savings plan. Every paycheck, I have $15 deposited to my Bank of America checking account. On the 15th of every month, BofA transfers $25 from my checking account to my savings account.

Here’s the inefficient part: I then re-transfer the $25 back to my checking and then transfer it to my ING emergency fund account.

I know I should just cancel the automatic transfer between my BofA accounts and just set up an automatic deposit into my ING account every month. I haven’t done so because I haven’t figured out how to cancel the automatic transfer feature on BofA’s website. I’m also too lazy to go a branch or to call a teller. (I’m also too lazy to instruct my employer to adjust my automatic deposit.)

After all of this transfer madness, there’s $5 “left behind” in my BofA checking account every month. (There’s $20 left behind on 3 paycheck months.) I’ve let this excess sit in my non-interest bearing checking account to create a “spending cushion”.

Stupid? Yes. Inefficient? Yes. But the point is, if you have an automatic transfer from your checking to your savings every month, you're guaranteed to save something. In my defense, this scheme guarantees that I will save at least $25 for emergencies and still have some “fun money” left over every month.


6. Round-Up for Payments and Round-Down for Income
This doesn't necessarily count as "savings" but when I balance my checkbook, I always round-down my paychecks and round-up my payments.

For example, if my paycheck is $1,500.59, I enter "+$1,500". But If I make a payment for $100.08, I always calculate "-$101".

The pennies and cents add up pretty quickly. My best friend claims this method allowed her to save up approx. $10,000 over several years. I admit I haven't seen that great of a success but it's definitely given me a comfortable spending cushion of $120 that I can tap in an emergency.

Why It Sometimes Shtinks To Live On A Budget

I'm currently in the beautiful California Central Coast wine country on a business trip and I'm writing this post from my hotel. I arrived too late yesterday evening to visit wineries but I expect to be done with work early today and my flight doesn't leave until 7 p.m. What's the problem? Even if the winery tours are free, the tastings probably aren't and I probably won't be able to afford to buy any wine. (Even if the tastings are free, I always feel cheap not buying anything.)

I currently only have $29 remaining in my Amex budget (for food and incidentals) to last me until the 26th. On second thought, I guess I could still afford to buy an inexpensive bottle that costs less than $10. But the bottomline is, I have to be very mindful of what I could afford at all times.

For example, last month I attended a conference in Las Vegas. My colleagues took in shows and gambled. Thankfully, Vegas had plenty of free stuff that I could do, but I still wished I could've played some 7-card stud poker at the Mirage.

I'm very sorry for the whiny tone of this post. I do feel very empowered that I'm telling my money where to go rather than wondering where it went by budgeting. (Thanks John Maxwell for this wonderful quote!) But it still sucks that my budget is telling me I have to forego some fun....

Planning for Retirement When Social Security Goes Belly-UP

I was cleaning piles of paperwork on my desk and found my 2007 Social Security Statement. Apparently, the Administration didn’t have enough time to update my statement since it listed my 2007 income as $242. So I went to the Social Security Administration’s website to check my estimated benefits.



I’m estimated to get $2,408/month when I retire at 67, or, $2,994/month when I retire at 70. (In case you’re wondering, the present value is only approximately $686/month and $758/month respectively.)

Initially, the SSA takes pains to point out that those are just estimates and the actual figures could differ. Who cares? I’ve heard that Social Security will run out of money some time in 2040, just in time for my retirement! Ha!

Worse yet, pessimists argue that Social Security could run out of money within the next ten years. Optimists, on the other hand, argue that Social Security won’t ever run out of money.

Call me a sour puss, but if I had to bet on the federal government administering a bucket of money efficiently and responsibly, I’d rather err on the side of caution and assume I won’t be collecting any Social Security, ever. That being said, I need to plan accordingly and I’ve laid out the following retirement planning goals for myself.

1.) Contribute the Maximum Possible to My 401K
In my prior post, I discussed various reasons why I wasn’t reducing my contributions to attack my debts more aggressively. The potential insolvency of the Social Security system is another big reason, since I won’t be getting a pension.

2.) Contribute the Maximum to my Roth IRA
The Roth is critical since it’ll give me tax-free money in my retirement. Although I don’t expect to be in a very high tax bracket in retirement, it won’t hurt to have some money I can withdraw without having to set aside a portion to pay Uncle Sam.

Additionally, since the Roth is a tax-free (versus a tax-deferred) investment vehicle, it’s also the perfect account to invest in tax-inefficient investments like REITs (real estate investment trusts) and gold ETFs.

Right now, my priority is to pay down debt and save for an emergency fund, so funding my Roth IRA has taken a backseat. But I try to contribute a little bit of money into my Roth IRA every year, even if it’s as little as $490.

3.) Contribute to a Taxable Investment Account
The taxable investment account is another form of a tax-deferred account since I won’t incur any tax liabilities until I sell my stocks and ETFs. Additionally, if I’ve held the stocks for over a year, I would only have to pay taxes on my earnings at a favored capital gains rate. (I realize that this tax favored treatment of capital gains may change, depending upon the new administration that gets voted in this year.)

Since I don’t have time to monitor individual stock performances, my investments in my taxabale account have been of the “buy-and-hold” variety, using low-cost ETF’s. I’ve started with $1,000, allocated equally between a foreign large blend ETF (ticker: VEU), a total stock market ETF (ticker: VTI) and an inflation-protected bond ETF (ticker: TIP). (I modeled my starter investment portfolio after the Margaritaville Portfolio created by Dallas Morning News’ columnist, Scott Burns. When I have more money to invest, I plan to diversify my investments a bit more.)

4.) Buy Long Term Care Insurance When I’m 55 or So
As you can see from my blog title, I don’t expect to procreate. That means I’ll need someone, other than my kids, to care for my chronic ailments in my old age. (Wow, this is depressing.)

According to Parade Magazine’s February 17, 2008 article, “on average, a home health aides costs $19/hour; an assisted living facility is $2,968/month; a private room in a nursing home is $206/day.” Medicare and Medicaid rarely (if ever) cover these costs.

Parade provides these recommendations:
• Buy from a company that has top financial ratings;

• Avoid policies you need a paycheck to pay for. You must be able to afford premiums after you retire;

• Don’t buy more insurance than you need. Few people require lifetime benefits. The average stay in a nursing home is just 2.5 years and 43% of residents stay less than 1 year;

• Don’t choose a policy solely on the seller’s recommendation.

Another good source for information can be found at AARP’s website.

5.) Buy An Immediate Annuity When I’m 65
It’s bad enough that I won’t have a pension and I’m probably not going to be able to collect any Social Security. But my genetics, ethnic background and my gender all point to a long life. This creates serious concerns that I will outlive my retirement funds.

Ideally, I’d like to get an income stream that will replace the Social Security payments I (probably) won’t be collecting. I’ve estimated that it would cost me about $200,000-$250,000 to purchase an income annuity when I’m between 65-70. (I haven’t really thought this through, but I’ll probably need to tap my 401k to pay for this. I should also remember to purchase the annuity when the interest rates are high.)

The good news with an income annuity is that I’ll get income for life. The bad news is that it won’t be adjusted for inflation like Social Security.

With all that said, am I being paranoid? Maybe. But I'd rather be prepared than sorry.

Eating For Free At Restaurants

The best way to eat for free at restaurants is to "dine and dash". Just kidding.
I was cleaning out my coupon envelope yesterday and found an expired e-coupon from Gordon Biersch Brewery offering me a free meal with purchase of an entrée for my birthday. I realized that when I signed up for various restaurant e-clubs, I had foolishly been honest about my birth date. Come every June, I get various offers from restaurants for free meals/desserts or discount coupons. Every year I use maybe one or two of them and let the others go to waste.

This got me thinking, when I join these restaurant clubs, why don’t I just stagger my birthdate so that I get a freebie or discount from a restaurant every month? This way, I can take advantage of the offers throughout the year rather than being overwhelmed one month of the year.

I should also remember not to sign up at once. Often times, these restaurants will give me a freebie or a discount on my sign-up “anniversary” date.

Here are some restaurants that have great birthday club offers:
Red Robin: Join e-Club For Free Birthday Burger

Wienerschnizel: Free Corn Dog

Black Angus: Free Steak Dinner

Pick Up Stix: Free Wok Combo for Signing Up

Daphne’s Greek Café: Free Combo Meal Coupon on Birthday

TGIFriday’s: Free Appetizer for Signing Up

Of course, I could just go to a restaurant and tell the server it’s my birthday. More often than not, I’ll get a free dessert with no questions asked. :-D

Guaranteed Return On Your Money!!

Lately my net worth has been swerving up and down more violently than a rollercoaster. This is largely due to the fact that most of my assets are tied to the stock market (i.e., my 401k, Roth and my investment account).

When the market’s up, my net worth is close to $0. But when it’s down, my net worth is seriously in the red.

This article depresses me. My net worth at my age should be anywhere between $100k to $360k.

If it weren’t for my debt, I’d be well on my way regardless of market performance. I now understand why financial advisors say that debt reduction is the only guaranteed return on your money. I need, need, need, need to get rid of my debt!

In my earlier post, I concluded that I will continue to contribute 15% to my 401k rather than reducing it to 6% to accelerate my debt repayment. I will continue to do so since I currently have the opportunity and ability to save so much.

As you may know, I expect to be laid off at the end of the year. I also do not expect to make as much as I do now in my next job. If that’s the case, I plan to continue with my current debt repayment plan and reduce my retirement contribution instead. (Sigh…)

My 77-Month Debt Elimination Plan

I sometimes watch the Dave Ramsey Show on TV. On “Debt Free Fridays”, Dave lets callers scream, “I’m debt free!” on air if they’ve eliminated all debts (except their first mortgage). Some of his callers eliminate their debt in super-human time. One caller retired his $100,000 debt in a little over 2 years. (That’s $4,000/month in after tax money!)

Up until now, I’ve been paying more than the minimum on each debt, with really no rhyme or reason as to why I'm paying that amount. But starting August, I’ve decided to attack my loans using Dave Ramsey’s snowball method.

Using the snowball method, I expect to pay off my entire debt (approx. $127,373) in 77-months!

I don’t know whether I can follow through with the plan since I expect to be laid off at the end of the year. I just need to remind myself that I need to be flexible enough to adjust my plan to fit my circumstances.

Nabbed by Bad Karma???

In my most recent post, I was debating whether to make a side trip to see my best friend during a business trip. I was having very cheap thoughts about pocketing the excess mileage (and food) reimbursement without seeing her.

As it turns out, I did visit my friend. The mediation I attended ended early (around 3 p.m.) and on a very good note.

I'm glad I caught up with my friend. Over the past year, she'd undergone massive surgery for breast cancer and she had just recently returned to work. I was relieved to see she was recovering very well. It was great just to sit around and chit chat idly about the little going-ons in our lives.

Later that evening, my friend, her husband, another pair of friends and I went to an awesome middle eastern restaurant. I requested a separate check since my portion of the dinner would be reimbursed by my company. I also ordered appetizers (a plate of stuffed grape leaves) and dessert (a tray of baklava) that I shared with the entire table.

Anyhow, during my drive home, I saw that the traffic light at an intersection turned yellow. Driver's Ed taught me that "yellow" meant to slow down to stop, but my mind told my right foot to "punch it"!

I pulled into the intersection while it was yellow, but I have a feeling it turned red immediately thereafter. I also have a nagging suspicion that the traffic camera nabbed me although I couldn't tell whether the camera lights flashed.

According to this article, the citation could cost as much as $400! Sigh.... If I'm issued a ticket, this is probably the karma I deserve for (a) having cheap thoughts associated with visiting my best friend and (b) putting food I shared with my friends on my business account. So much for my plan to use the $98 excess mileage reimbursement towards my Christmas fund....

The Effect of Gas Prices on Friendship

I’ve been thinking a lot about the financial costs of friendship lately. It’s no secret that I live on a tight budget. So lately, I’ve been doing some pretty sad cost-benefit analyses to determine whether I want to spend time with my friends.

When my friends suggest that we meet at some place other than my home or my work place, I mentally calculate, “How much extra in gas will this cost me?” (I’ve concluded that for every 6 miles I drive, I spend $1 in gas. This doesn’t even include wear and tear or insurance costs.)

My best friend lives 104 miles away and it’ll cost me $34 just to visit her. Tomorrow, I will be driving to her city on business and I’ll be reimbursed approximately $142 for mileage. I’ll need to set aside $44 to cover the extra gas for the trip, but the remaining $98 will be “gravy”. Sweet! I’m hoping to stash most (if not all of) the entire $98 into my Christmas fund.

I am pondering whether I should stop by my friend’s place on my way home to catch up. Since I’ll already be in my friend’s area, the extra gas to drive to her house will be de minimis. But I know this get-together will cost something, especially if we go out to eat.

Do I stash the entire $98 or do I get together with my friend? I’m leaning towards not getting together since I currently only have $148 in my Christmas fund and I’m seriously behind.

My Most Painful Cost Cut - Literally

As part of my cost-cutting measure, I’ve concluded I needed to eliminate manicures, pedicures and other “aesthetic” grooming from my budget. Actually, as explained below, I haven’t eliminated them completely.

I used to go to an aesthetician to get a Brazilian wax. This service used to cost me $58 (i.e., $48 plus $10 in tips). Since this is no longer deemed a necessity and does not fit comfortably within my budget, I decided to do this myself in the privacy of my own home.

I purchased a $9.99 box of Sally Hansen’s Brazilian Wax kit and here's what my adventure in home Brazilian waxing was like:

First of all, the instruction says not to microwave the wax jar for more than a minute. I don’t know if my microwave is too weak, but it took at least 5 minutes to melt the wax completely.

I was then concerned that I made the wax too hot, so I tested the wax on my wrist. The wax was so viscous and sticky that it left a trail of spider-web like strings everywhere. To eliminate the stickiness, I rubbed baby oil (included in the kit) everywhere on my hands and hard-surfaces.

I sat bare-butt on my newspaper covered bathroom floor, in front of a mirror and lamp. It looked like a b-grade, horror movie gynecological exam. According to the instructions, I was supposed to use the supplied wooden tongue depressor "to spread a layer of wax over a small area, leaving the wax thicker at the end for better grip." The instructions said to "gently lift up" the edge of the wax with one hand, keep skin taut with the other, and then yank the wax strip off.

In reality, the wax was so thick that I could only spackle it in messy clumps. Since my hands were also greased up like a horny teenage boy, I couldn’t get a good grip on the wax. As I tried to pull the wax off, my fingers kept slipping, so the hair removal process was a series of painful yanks, rather than one swift movement.

I still managed to remove the frontal area relatively quickly. However, the further south and deeper down the crevasse I ventured, I had to contort my body into unholy positions. It also didn’t help that the wax kept hardening up so I had to make a couple of bare-bottomed trips to the kitchen to re-microwave the wax jar. (Thank heavens I live alone!)

I won’t go into gory details, but in the end, I was neatly groomed with bits of wax stuck in areas where the sun don’t shine. I saved about $45 for my pain, time and trouble.

Was it worth it? I guess it was, since I’ve done this twice now!

A Word To My Accidental "Readers"

Although this blog is open to the public, I haven’t told anyone about it and I haven't advertised it either. After all, there’s nothing to brag about here and I want to remain anonymous. I probably won’t have any readers unless someone accidentally stumbles upon this and finds it interesting. (That’s a laugh since I imagine that anyone who reads this would be bored senseless.)

I don't know why I address my non-existent "readers" in my blog since this site is more like my own personal diary.

Anyhow, if you've stumbled upon my humble site, welcome, welcome, welcome.

My TMD and HSA

Last year my dentist found a cavity in my top-left wisdom tooth and recommended that I have it pulled. Being an anti-dentite, I haven’t had it done.



Since about a couple weeks ago, I started experiencing serious pain in my left jaw. I was concerned that I would need major dental work (i.e., oral surgery to extract the wisdom tooth). Truth be told, I was more worried that I'll have to pay major out-of-pocket expenses and that my health spending account (aka "Flexible Spending Arrangment" per IRS) wouldn't have enough money to cover it.

Before I go on, I have to sing a little praise about health spending accounts. Every November, when I make changes to my company benefits, I elect to contribute $20 per paycheck towards my HSA on a pre-tax basis. When the new year rolls along, I will immediately have $520 (i.e., $20 x 26 paychecks) in my account that I can use towards qualified medical expense at any time regardless of the amount I’ve actually contributed!

The draw back to the HSA is that it’s a use-it-or-lose-it plan where I’ll forfeit any money I haven’t spent by December 31. The HSA still is a great deal since my taxable income is reduced by my contribution and my out-of-pocket medical expenses are paid with pre-tax money!

I visited my dentist today and as it turns out, I was diagnosed with temporomandibular disorder (TMD). The causes of TMD are presently unknown but emotional stress is often cited as a cause of TMD (and teeth grinding).

As I’ve said in my prior post, I expect to be laid off at the end of the year. I didn’t think that I was too stressed about this but apparently I am.

The bright side of this all is that all I need to treat my TMD are Advil, a warm compress, soft food and time. No money out of my HSA or my pocket! Yeay!

Biggest Future Unknown Financial Threat – Health Costs

I plan to retire when I’m 67 although I'd like to downshift my career when I hit 55 or so. But what if my health deteriorates before then? What will also happen to Medicare? What if I’m underinsured/uninsurable due to a pre-existing disease?

For retired couples today, Fidelity is recommending a reserve of $225,000 just to cover medical costs! Assuming a present day cost of $113,000 for a single person and a yearly 4% inflation rate, I’ll need to have $365,000 saved by age 67 to cover medical costs alone!

I’ve concluded that in order to ensure wealth, I also need to be more proactive with my health now.

Here are some of my health goals:

1. Maintain An Appropriate Weight
Check. I’m 5’1”, 105 lbs and my BMI is 19.8. The ideal weight range for someone my height is 97.9 – 132.3 lbs.

Additionally, I’m also pear shaped with a waist-to-hip ratio of 0.74.
This means I have the lowest risk of heart disease and diabetes. Sweet!

2. Get Immunized and Tested
Semi-okay. I go to my yearly check up with my gynecologist. I go to my primary doctor to get a flu shot every year. I go to my dentist and optometrist yearly as well. When I used to test my blood glucose regularly (before the meter ran out of battery) and my blood glucose was always normal.

I’ve never been tested for cholesterol and don’t know when I got my last tetanus/diphtheria shots, though.

3. Eat Fewer Salty Snack Foods and More Fruits and Vegetables
Needs significant improvement. Given the choice, I’d be eating potato chips, beer and ice cream for dinner every night. I hate salads too.

I found that this health goal is easier to accomplish by eating from the 14 Super Foods.

At present, the only items I’m eating regularly on this list are: tomatoes, grapefruit, soy and tea. 4 out of 14 is not good at all. My shopping list should start including broccoli, spinach, carrots, blueberries, yogurt, chicken, salmon, oatmeal, nuts and beans.

4. Exercise
Complete failure. I’m, shall we say, athletically challenged. I need to get back into the habit of walking at least 30 minutes a day. Thus far, I probably walk 30 minutes a week.

My FICO Score

When I last checked my FICO score in 12/07, it was 699 and labeled “fair”.

FICO's comment about my credit score was:

"This is generally recognized as a good score, and a wide array of loans and credit products will likely be available to you, often at attractive rates. Most lenders will view consumers with a score as high as yours as an acceptable risk. Even so, remember that lenders often incorporate other information into their decision process, in addition to the FICO score, so you might be offered different rates or terms by different lenders. Nonetheless, most lenders agree that scores such as yours indicate an acceptable level of risk."

My score was hammered by 7 negative items and a high balance on my credit cards. A note about the 7 negative items: My private student loans are considered 5 separate installment accounts even though I make one payment to one lender every month. Hence, when I’m late on my private student loans, I get 5 negative marks at once. This really steams me.

The 7 black marks on my FICO scores are:

Private Student Loan #1: 4/03: 90 days overdue; Presently current

Private Student Loan #2: 4/03: 90 days overdue; Presently current

Private Student Loan #3: 4/03: 90 days overdue; Presently current

Private Student Loan #4: 4/03: 90 days overdue; Presently current

Private Student Loan #5: 4/03: 90 days overdue; Presently current

Macy’s: 11/03: 30 days overdue; No current balance

Federal Student Loans: 4/03: 90 days overdue; Presently current

2003 was clearly a bad year for me. What’s done is done. I can’t wait for 5/1/2010, when most of these items will fall off my credit report.

In the meantime, I’ve eliminated $6,366.50 in credit card debts since 12/07. Additionally, since the passing of time reduces the significance of the late payments, I hope my FICO score will improve to about 720 by year’s end.

My $8.70-A-Day Food Budget

Readers may notice that my budget doesn’t include typical items like groceries, gas and other discretionary items like entertainment, clothing and vacation.

Groceries (including non perishable items like toiletries and household items), gas and discretionary items are included in my $500 Amex budget since I purchase everything with that card.

I’ve estimated that I fill up my car twice a month and it costs about $65/tank, or $130/month. I try to limit my food/discretionary spending to $270/month so that I can put aside the excess $100 into my vacation fund.

That leaves me with $8.70/day for groceries and entertainment. I’ve pretty much had to give up my 3 biggest loves: fast food, potato chips and beer.

Forget about going to movies, since it is now a luxury I can't afford. I also don’t drive anywhere on the weekends unless necessary.



I’ve successfully stuck with this budget for the past few months but it’s been so hard.

I try to see this as a blessing in disguise since it is forcing me to eat healthier. But I still often go to sleep wanting to stuff my face with burritos and beer.

To Save or Pay Down Debt?

This is the million dollar question for most people in debt: Is it better to pay off the debt as soon as you can, even if it means not saving? Or is it better to save while you retire debt? If so, how much should you save?

I, of course, did something totally irrational for the past 7 years: I saved for retirement while incurring additional debt, and put away nothing in my savings. (At least I have a decent nest egg though.)

The best common sense advice I received was: I should save until I have at least $500-$1,000 in my emergency fund and contribute up to the company match in my 401k (i.e., 6% of pre-tax income). After basic necessities (i.e., food, rent, utilities) are paid, I should use the remaining money to pay off debt exclusively.

Sounds reasonable. Is it really better for me to reduce my contributions to 6% and use the difference to attack my debts? I was curious, so I crunched the numbers to resemble my current financial reality as closely as I can.

For simplicity’s sake, let’s suppose I earn $100,000 and I’m in the 19% federal tax bracket and 9% state tax bracket. (Let’s also assume that I’ll be in the same tax bracket regardless of whether I contribute 6% vs. 15%. This isn’t realistic, but I’m simplifying here. Work with me.)

Let’s assume I have $127,000 in debt with an average APR of 6%. (THIS is depressingly real.)

I am currently contributing 15% to my 401k and paying approx. $1,900/month towards my debt. Under this scheme, it would take me approx. 82 months to pay off my entire debt. Total interest paid: $27,001.

Now let’s assume I reduce my 401k contribution to 6% and apply the additional $540/month towards paying down my debt instead. I will be out of debt in 60 months and I will have paid $19,811 in interest. Total interest savings: $7,190 total. Since I will be out of debt early, I also have the ability to save the $2,440/month that I was paying towards debt. Assuming a 5% return, I will have $53,382 saved after 21 months.

However, let’s not forget the compounding opportunities that I would give up by reducing my 401k contribution from 15% to 6%. Using a very conservative 5% return every year for 60 months, I gave up $36,619 in my retirement account by reducing my contributions.

So what’s the finally tally? By contributing 15% to my 401k, I will save $12,600 in taxes (over 5 years) and will earn an additional $36,619 in my 401k. By contributing 6%, I will get out of debt 22 months earlier, save $7,190 in interest, and have the opportunity to save an additional $53,382 during the 22 months.

In this scenario, I do indeed come out ahead by reducing my 401k contribution and using the extra money to pay down debt. But I’ve also used assumptions that were leaned in favor of reduced contributions. For example, the scenario assumes that I will use the extra money exclusively to pay down debt. It also assumes that once I pay off my debt early, I will put the money I was paying towards debt into savings. (Yeah, right.)

What influences my decision more importantly though, is that the stock market is currently declining. If I reduce my 401k contributions now, I fear I am losing a great dollar-cost averaging opportunity. For this reason alone, I’ve decided I will stick with the 15% contribution.

But what about savings? I’ve always heard one should have at least 3 to 6 months of expenses saved in liquid funds. (Suze Orman recommends 8 to 12 months!) Although $1,000 will likely cover most emergencies, I would probably need more since I'm likely to be laid off in December.

So what is the optimal amount I should save every month in my “rainy day fund”? I don’t know. But at this point, all I know is that I can comfortably put away an additional $100/month into my EF. If I used the additional $100 to pay down debt instead, I’ll only shave off 6 months off my final pay-off date.

On the other hand, if I save $100/month with 3% interest, I can save an additional $8,953 during the 81 months I hypothetically need to pay off my debt. (When my debts are all paid off, this should cover approximately 3 months of my living expenses.) Since this will give me a greater peace of mind during the repayment period, I've decided to contribute to my EF bit by bit rather than using the money to pay down my debts faster.

In summary, my current financial plan is: 1.) contribute 15% to my 401k, 2.) pay $1,900/month towards my debt, 2.) save an additional $100/month in my emergency fund.

The Evils of Negative Amortization

Lately I've been addicted to reading other people's PF blogs like Sallie’s Niece or My Debt Blog. Like me, they are also struggling to pay down onerous student loans. It's a bit depressing that I'm 10 years older than these bloggers but I haven't made any more progress than they have in eliminating my debts.

Where did I go wrong? Ahhhh... I fell for the easy lure of student loan forbearances. After graduation, I sought (and received) many forbearances and the interest kept accruing.

I'm truly embarrassed to admit that I never understood the concept of "negative amortization" despite the fact that I graduated with an Econ degree. (I graduated from undergrad in 1994. Yes, readers, I'm a slow learner.)

Just to illustrate, I graduated from a second-rate law school in 1998. (All of my student loans are from my legal education.) My original balance on my private loans in 1998 was $47,325. What's my current balance? $49,136.14 as of 7/31/08!! Although it's been 10 years since I graduated, I'm $1,811.14 over the original balance due to negative amortization.

Since I kept shoddy records, I'm not sure how much I'm behind in my Federal Student Loans. But I'm sure it's also in the thousands.

Don't get me wrong. There were times when I REALLY needed the forbearance, like when I was laid off in 1999. But other times, I just wanted to free up money to play. The bottomline is, I should have used the forbearance option sparingly and only in emergencies. I didn't and as they say, I'm paying the piper and robbing myself of financial security. One of the many life lessons I had to learn the hard way. Sigh....

My Come-To-Jesus Moment

Debt never really bugged me. I figured so long as I can make my minimum monthly payment, I'd have plenty of time to pay it off. I never had a budget. I thought I could afford anything that was within my credit limit. Of course, I have nothing to show for my profligate ways. (Well, nothing of monetary value, anyways. More on this in future posts.)

My thinking changed when my company announced its first round of layoffs 2 years ago. I survived 2 rounds of layoffs but I knew my present employment is on borrowed time. In hopes to control my debt, I applied for an American Express Clear Card but was rejected due to negative items on my credit report. (More on this later.) How embarrassing!

In early 2007, I calculated my monthly expenditure and discovered my total minimum payments were $500 over my take home pay every month. I tried taking on a second job as a telemarketer for a timeshare. THAT didn't last for more than a month.

My only other option was to withdraw $6,279 (contributions only) from my Roth IRA, sell 40 shares of my company stock (valued at $9,326) and withdraw $1,395 from my savings. I was fortunate enough to have $17,000 to pay down my credit card debt, which totaled nearly $36,000 at the time. To increase cashflow, I also stopped contributing to my 401k for over half the year.

As painful as this was, it was even more depressing that I still had $19,000 of credit card debt remaining. Worse yet, I had less than $1,500 in my emergency fund (EF).

I then created a rudimentary budget and discovered the following:

• It will take a freakin' long time to save $100 for "fun money" when I actually have to pay off debt, not incur additional debt and save money for my EF
• I will only have $8.70/day for food and other incidentals like moisturizer, toilet paper
• I won't even have one month's expenses saved by the end of 2008

I despair when I think how long it would actually take to pay off all this debt. How much longer can I live like this???

My First Attempt At Blogging

Okay. I'm a complete idiot when it comes to computers. I've never blogged before and this is my first attempt. I'm sorry if my blog looks very amateurish.

I think the only other topic on which I am a bigger idiot is my personal finance. I'm 36, female and single. As of 7/31/08, I'm $127,373.95 in debt. I don't own my own home. I only have a little over $3,000 in an emergency fund. Since I have no kids, I really have no one to blame but myself for my predicament.

My sole source of pride is my 401(k). Although it's taken a beating in the market recently, I currently have approx. $95,000 saved up. I really can't take full credit for this, though, since I'm having my contributions automatically taken out of my paycheck. According to this article, I'm pretty much where I need to be, maybe even better.

Speaking of automatic contributions, I'm also pretty happy with my taxable investment account too. I enrolled in my company's ESOP plan and so far I have approx. $8,000 in my account because of it.

All told, my net worth is negative $3,000. (See, Shtinkykat's Net Worth.) I know I shouldn't let this affect my self-worth but it does. I guess I'm blogging to purge my financial demons and create a path of debt-free prosperity. If anyone is reading this, wish me luck!