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Debt Update June 2011: How Not to Lose Steam Midway Through Doing Stuff

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I have yet to master the art of not losing steam midway through a project.  I’m great at envisioning things.  I can even come up with the next steps I need to take for the idea to happen, and maybe I’ll even take a step or two.  But eventually I start doubting the whole thing and it’s just easier to give up.  It has been a true challenge with paying off debt and sticking to not using credit cards.  Right now, it has been exactly 1 month of not using any credit cards.  I know I can keep going, but I am changing a habit of EIGHT years!  With that said, I’d like to take a little trip down memory lane…

How I First Got into Debt

Even though I had never been much for saving money, I didn’t have any debt through my first two years of college.  I had gotten a credit card my freshman year, but I was paying it in full whenever I used it, which wasn’t every month.  During the fall semester of my junior year, I studied abroad in Spain.  It was one of the best times of my life.  Being somewhere so new and so different was an experience that I can’t replace, and most of my motivation to get out of debt is centered around being financially competent and able to travel again, exotically.  That’s not like exotic dancing, it just means going places without much of an agenda and embracing and discovering its people, its natural monuments, or its little back streets that feel like a scene from a movie.  So, I was exploring Spain and meeting lots of new people.  I played tennis on grass courts.  I walked the entire city during siestas.  I discovered José Ángel Mañas.  I discovered cheap tapas at every bar on the route back to my apartment from university.  I wouldn’t trade any of it!

But I also discovered the cash advance feature of my credit card, and the next thing I knew, I was using it as the most convenient way to borrow money without having to ask for it from my parents or any of my new friends in Spain.  By the time I got back to the US, I had racked up about $2,000 in debt, which is a lot of money for an unemployed college student.  That summer, I had a full-time job and paid off my two credit cards in full.  But I didn’t create any savings and I had already gotten a taste of how easy it was to pull out a card when I didn’t have any cash, or even better, just use a card for everything since I was “getting the points”.  So I used a credit card to live above my means from 2003 to 2011, and I can’t even explain how excited I am that my habits are changing.

Really Tiny Baby Steps in the Right Direction

It’s kind of embarrassing to admit, but I really didn’t get the extent of it until I hid my credit cards last month.  Before that and this new budgeting idea, I never had any idea how much money I had in the bank.  I knew how much my paychecks were and I tried not to spend more than that, which is not much of a budget!  I made budgets for May and June, and I’ll be making my July budget this week.  I’ll make my next post a picture of my July budget.  I haven’t been able to follow it completely, and I haven’t put in money in envelopes for things like repairs and emergencies.  I’m also learning how to control my impulses.  I haven’t been out of the country in two years, and I am really dying to travel.  I have plenty of vacation time saved up at work.  But dropping a few thousand dollars would wipe out a year of hard work.  So I spent all day at the beach yesterday with friends, which felt like a vacation in itself.  I haven’t watched TV in three days, which is also something I do on vacation (not watch TV), so my mind feels relaxed and I can delay the vacation for at least a little while longer!

Reminding Myself of the Goals

I’m motivated to get out of debt and focus on building positive cash flows so that I can provide for myself, my family and good causes in my local community.  I want to make the urban, run-down areas of where I live more desirable and safe, but not just for the very wealthy.  Everyone should have access to open spaces for their kids to play, good schools and colleges so that they can understand the world around them and become critical thinkers (and not unquestioning drones), and safe neighborhoods.  I am not sure how to do all of that, although a lot of my friends share the same motivations and a friend of my boyfriend just started Citizen Good.  I know that if I am spending less hours just taking care of the basics for myself, I can find ways to make change.

June 2011 Debt Update:

Current Total: $38,021

% Change from May 2011: 6.3% Decrease!

Discounts for Poor People: They Do Exist!

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There are plenty of discounts for the rich.  A great post by Genius Types puts it best: “It’s just more expensive to be broke than it is to have money”. So how come there are no discounts for poor people?

As I mentioned in my previous post, the US government is an elite group serving the interests of the rest of the elites.  Because of that, there are plenty of loopholes and advantages for the elite.  But there are still some concessions that they’ve made for the little guy, and I want to make this information as widespread as possible while we all climb our way out of debt.

1. File your Federal Taxes for Free: Even the IRS admits that 70% of all taxpayers have an AGI (Adjusted Gross Income) of $58,000 or less.  The good news is that ALL of those people can file their federal taxes for free using the most popular tax-preparation software.  I’ve used TurboTax, H&R Block and Liberty Tax through the Free File program and they have all worked fine and helped me find extra tax credits and deductions.  Liberty Tax is no longer on the list though, so I would use TurboTax if your AGI is less than $31,000 and H&R Block if your AGI is between $31,000 and $58,000.  The state tax return is almost complete once you’ve filed your federal return, and the state filing is 15 or 20 bucks for most of the programs.

Maybe you’re thinking “I would rather just let someone else do my taxes.”  I don’t want to sound bossy, but if you’re making less than $58,000 annually, you really should be doing your own taxes.  Chances are they are not THAT complicated, even if you had multiple W-2’s, 1099’s, investment income, self-employment or small business income.  All of these tax software preparation programs walk you through each step of filling out your return, and you will save between $50-$250 by not paying someone else to do your return.  Caution: Don’t get suckered in to getting your tax refund in advance with a refund anticipation loan or check (also known as an RAC or RAL)!  This is one of the biggest moneymakers for places like H&R Block (offering them through HSBC), making $130 million from these high-fee checks and high-interest loans in 2010.  They are even banned from offering them in 2011.   With the electronic deposit, refunds are usually deposited with 7-10 days of your filing date.  Unfortunately, the very poorest are always in need of money immediately so it becomes a tempting offer and 10 days seems like much too long.  In that case, tell yourself you filed your taxes a week AFTER you actually did them and wait 3 days or less!

2. Request Low Income Discounts for Utilities: It’s generally frowned upon to ask for a “discount for poor people” at places like Best Buy or Applebee’s, but utility companies provide just that.  A utility is a necessity and not a luxury, and low income discounts are common among power and gas companies.  I know, Applebee’s doesn’t seem like a luxury, but it is more of a luxury than running your refrigerator or having lighting in your home.  In California, you can receive a low income discount on many utilities if you have an income of around $30,000 or less as a single person.  Check out the information for the following low income programs at these utilities in Southern California below.

Southern California Utilities Low Income Discount Programs:

3.  Request a Fee Waiver on University Applications: Look at you, applying to college!  Trying to get an education and take a vacation, to quote Too $hort.  Education is the most important factor in breaking the cycle of poverty and debt, but that doesn’t neccesarily mean traditional education.  You know the best place to start your education?  At the library.  It’s free, there are all kinds of classes all the time, and you can request the books they don’t have to come from other libraries.  But going to college can be useful, especially in a family where no one has gone to college.

Higher education has become BIG business in the US (especially those wily for-profit schools), and four years of college, even at a state university, is going to cost you.  And even before you’ve started paying for your over-priced education, you’ll be expected to drop a few hundred dollars applying to schools where application fees range from $25 to $75.  Besides doing your FAFSA as soon as possible for grants and federal loans, you can request a fee waiver when you are completing your application.  I can’t promise you’ll get it, because while the IRS and utility companies will consider you low income at around $30,000, these fee waivers are generally granted to people with very low incomes.  But it doesn’t take more than a few extra minutes on your application, so give it a shot.

Fee Waivers for University Applications:

4.  Second Mortgage Assistance with Local Government: Developers work with cities to build affordable or low-income housing in a (usually run-down, less desirable) neighborhood, and the city will offer payment assistance to buyers whose income falls within a certain range.   You’ll work with the developer’s lender to get a first mortgage and the city will provide a second mortgage to cover the difference between the purchase price and the first mortgage.  Affordable housing programs can have very different characteristics, with some homes offered at market prices (but with increased assistance from the city), while other programs offer homes at below-market prices.  Not all affordable housing programs are created equal so it is vital to do all of your research.

In affordable housing programs, there are also often restrictions on who can live in the home (typically it has to be owner-occupied for the life of the second mortgage or for a certain number of years) and when the home can be sold. Although these programs are becoming common in a lot of cities, especially in California, they are generally small projects and the buyer interest can outweigh the supply of homes.  It is worth researching if you are interested in buying a home but market prices in your area are out of your price range.  If the programs have finished, call the developer or the city to place your name on an interest list for any future projects, or ask the city to begin the pre-qualification process in case any current buyers back out of a purchase.  the best place to start is the city’s housing authority or community development agency.  Below are just a few in Southern California:

I don’t want you to stay at the bottom forever, but the important thing is educate yourself as much as possible with regards to what’s available and what opportunities exist.  And if they don’t exist, it’s easier to demand changes when we know what we’re talking about!

Sarah Ban Breathnach: Stop Crying…and Go Ahead and Stop Writing Too

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The cover was promising, but I should have known better…

I picked up a copy of Peace and Plenty: Finding Your Path to Financial Serenity from my boss. I had also received The Total Money Makeover and Think and Grow Rich from her, so I had pretty high expectations of this book being full of applicable advice geared towards women, since most books about money management are not.

I think the problem was that I didn’t know what type of woman this book was geared towards. Apparently, Ban Breathnach’s advice is indispensable to women who fill their heads with lavender-scented visions of designer finds and fine furniture, and are constantly comforting themselves with a cup of hot tea. I love tea, but I am not sure what drinking tea has to do with me getting out of debt and managing my money better.  It also doesn’t help that her writing style is weepy and sentimental and I don’t like being referred to as  “sweetheart” from within the pages of a popular finance book.

I won’t deny that I didn’t finish this book. It would have been a waste of time. As one reviewer on Amazon put it, it’s hard to take this woman seriously when she advocates Simple Abundance but she clearly didn’t believe a word of it herself (after blowing through several million dollars from the proceeds of the book on an English estate, an army of personal assistants, and probably about 8,000 pounds of chamomile and green tea imported from remote regions of Asia). Stop talking about tea and tell me something useful.

In any case, I wanted to share some of the most ludicrous passages I found just skimming through this book.  Keep in mind that this book is supposed to be about financial serenity, women and money.

Ridiculous Quotes and Advice from Sarah Ban Breathnach in Peace and Plenty

“If you’ve been crying on and off, dab your face with some [cucumber and chamomile tea rinse], rinse with cool water, and then pat your face dry with your softest towel.”

“Crying jags also leave us headachy.”

“…Gradually we’ll consciously make room in our busy days for restorative indulgences, elegant economies, and other bijou morsels of ecstasy: the charm of home comforts – pocketbook suppers, pin money stashes, or the morale of new curtains.”

“I take a pretty Tiffany-blue eleven-by-fourteen-inch box….Inside are all kinds of things that make me smile – clippings from different magazines…fabric swatches, photographs,brochures, a rapturous curl of salmon-colored silk ribbon.”   (This is what she calls her Contentment Chest, which comes up again soon)

“Be on the search for a pleasing lidded box.”     <———— (This one was my favorite.  Can you imagine?  Someone comes to her for financial advice, and she says, “Hmm, maybe you should be on the search for a LIDDED BOX!  To keep all your bills in!  I don’t have any financial advice, I spend all my money on teas and overpriced shabby chic crap!”

“So this is what I do to snap out of misery while I’m waiting for the tea to brew.  I go to the kitchen counter, where I keep my scrapbooking basket…I open the Contentment Chest and select one magazine clipping.”

“Having special hand towels in the bathrooms and special tea towels in the kitchen fills you with feelings of contentment [….]  You’ll be surprised how much whimsy, style, and elegance you can create with two hand towels.”

Now that I see all these quotes in one place, I am convinced that Ban Breathnach is a complete headcase.  But still, in the interest of kindness: Dear Ms. Ban Breathnach, if you are reading this, you should be congratulated for completing a book.  It is no small feat and one I hope to accomplish myself someday.   I bet you would do great in the romance genre.

When the Other Half Becomes the 1 Percent

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Lloyd Blankfein: I'm in the 1%, how about you?

“We’re the only ones not fighting the class war.” –heard on KPFK radio in a discussion on recent collective bargaining bills introduced in Wisconsin, Ohio and other states.

American Debt Project is both a micro-blog and macro-blog, looking at personal progress on debt and finances, as well as the bigger picture of what goes on around us that might be affecting those personal accounts.  I’m not making excuses.  My boyfriend says everyone talks about the Economy like it’s their cousin.  He has a point.  Have you ever heard:

“I didn’t have a very good year last year.  You know, with the Economy as bad as it was.”

OR

“Nobody knows what’s going on with this Economy.  We can’t really believe anything anymore, you know?”

OR

“The Economy promised to pay me back that $200 he borrowed last year, so I think it’s really turning around.”

You get the point.  I don’t want to make broad-sweeping generalizations of what the “Economy” is doing, but instead analyze some of the trends, statistics and information we all hear.  One of the most disturbing trends that has finally started getting some attention is inequality in income and wealth.  In the United States, those statistics have changed over the past 50 years, and there’s a great article on AlterNet that tells you all about it.

According to the article, the top 1% of the US population earns just less than one-fourth of the nation’s income annually, and holds 40% of the household wealth in the US.  One percent of the US population is just over 3 million people.  In other words, there are 3 million people in the US who own $21.7 trillion in total wealth.  Does anyone else think that’s crazy?  And don’t think that the other 60% of wealth (usually the sum of all assets minus liabilities like loans and mortgages) is evenly distributed.  The wealthiest 25% of US households hold 87% of that total wealth (including that 40% for the top 1%), leaving the other three-quarters of the population, or 230 MILLION people, holding the bag.

Vanity Fair’s Joseph Stiglitz points out in “Of the 1%, by the 1%, for the 1%”, “Wealth begets power, which begets more wealth.”  Our political system is convenient and accessible to this portion of the population:

“The Supreme Court, in its recent Citizens United case, has enshrined the right of corporations to buy government, by removing limitations on campaign spending. The personal and the political are today in perfect alignment. Virtually all U.S. senators, and most of the representatives in the House, are members of the top 1 percent when they arrive, are kept in office by money from the top 1 percent, and know that if they serve the top 1 percent well they will be rewarded by the top 1 percent when they leave office. By and large, the key executive-branch policymakers on trade and economic policy also come from the top 1 percent. When pharmaceutical companies receive a trillion-dollar gift—through legislation prohibiting the government, the largest buyer of drugs, from bargaining over price—it should not come as cause for wonder. It should not make jaws drop that a tax bill cannot emerge from Congress unless big tax cuts are put in place for the wealthy. Given the power of the top 1 percent, this is the way you would expect the system to work.”

It’s a depressing thought, to be sure.  But I know if at least some of the “bottom 99%” are reading articles like the ones above and taking control of their debt and income, then some of the power of that 1% is being reclaimed.  It’s easy to use the Economy as an excuse to do nothing, but as the first quote of this post points out, the other half (which became the 1% while no one was looking) is in action and has no plans to slow down.   Maybe it’s time to take a lesson from them.

 

The Debt Reduction Process: Successes and Mistakes So Far

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I’ve been gung-ho about debt reduction for one year now, and I’ve been really gung-ho about it only in the past month.  I’ve already learned a lot and now is the time to analyze what I’ve done well and what I’m still working on on my way to being totally debt free.  You guys know I’m not perfect right?

Things I’ve Done Well

–Tracking my balances each month: This is pretty simple, and I like seeing what progress I make each month.  I have a spreadsheet that lists my debt balances and my progress on each account for every month, which I updated at the end of the month after having paid all my bills.  I started in June 2010, and since then I have paid two accounts in full (which were a $300 dentist bill and $1700 towards the cost of my Lasik surgery), and I have five accounts remaining to pay off, which are two credit cards, a CareCredit account for the rest of my Lasik surgery, my car and a student loan.

–Canceling my cable television as of October 2010: I have had cable television for most of my life, and always since I started living on my own about 6 years ago.  But the cost of my cable and internet bill had jumped to $100 a month and I didn’t even have a DVR or HBO!  I cancelled my cable and kept my internet service for $30 a month, which has worked out great.  I still watch a ton of television on my computer, so I don’t feel like I am missing out on anything.  Actually, I really need to stop watching so much TV, but that’s another blog.

-Reducing my expenses: This has been a gradual process, but I have really reduced my spending in a lot of categories: shopping, eating out and I even put off a vacation that we had planned for the summer but decided to pay off debt first.

With shopping, it hasn’t been easy because shopping used to be a true pastime, and I would wonder around stores for hours, looking at items and placing them in my home in my mind, imagining myself wearing some piece and looking amazing in it, and other incredibly consumerist fantasies.  But I must be getting older and wiser because it’s been getting easier, and now when I go shopping, I don’t feel this burning desire to buy something, ANYTHING.  From my teenage years on, my mind has been screaming, “I just need to buy something new that feels soft/is shiny/has some crazy patterns and bright colors that no one else would wear but I can definitely pull off!  Yeah! BUY IT! BUY IT!”  I’ve calmed down considerably since then.

I still eat out with friends and family, but I will try to find other activities to do besides going out to eat, and when I go out, I bring cash and don’t go crazy on the drinks and appetizers (but they’re the best part of the meal!).

Mistakes/Missteps along the Way

I can’t do it all, man.  I get lazy.  I get tempted.  And I’m not very good at controlling my impulses.  Here are a few pieces I am still working on.

-Still carrying and using my credit cards: I didn’t ever fully put away my credit cards until 2 weeks ago.  I was still using them for $100 or less each month (usually right before a paycheck, so I was close to budgeting correctly, but still going over).  I had my boyfriend hide them from me and I have been using cash/debit since.

-Creating a monthly budget: I didn’t start the monthly budgeting form until 2 months ago.  I had printed them out in June of last year, but just looked at them and thought, “I could make a budget, but I’m just gonna put all my extra money towards the credit card payments, so why do I really need it?”  But writing it all down and deciding how much to budget for food and other categories (and then putting that amount of cash in an envelope), and trying to stick with it is MUCH different than just telling myself, “Hey don’t spend so much today.”  I am spending less with the budget.

I used the simple 1-page budget on Dave Ramsey’s site, and it has enough detail for me.

-Not fully committed to the debt snowball: I did pay off my two smallest balances first, but then I was splitting my extra money between my two credit cards, when I should have been focusing on just the lower balance card to get it paid first.  I am focused on that account now, and am even making little $20 payments towards the card when I have some extra cash or I get an expense check from work.

-Increasing my income: I am lucky in that I am allowed to work paid overtime at work, and I can be spending all of my free time at home researching new articles for this website, improving its look, and getting the name of this website out in cyberspace.  Looking at the big picture, I really need a position that is a greater challenge.  When I come to work, I like to be busy and have a lot of projects going at once, which has not been the case lately.  Although I really like my job, I need to research what other opportunities are available, and start planning for the future.  I will be documenting that process on this blog as well, because I think we limit ourselves if we refuse to even think about other possibilities for our job or business.

 

Would love to hear what you think…and some lessons you’ve learned!