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I finally got the social network I have been working on up and running.  Please visit the site  www.my5k5k.com sign up and begin the challenge today.  Come back here and give me feed back to let me know what you think of the site.

Time Value of Money

Would you pay $14,000 over the next six years so you could have $930,000 at retirement age?  This seems like a simple enough question to answer, but the reality is few people will. This past week I have been studying the time value of money and it has been grueling learning the mathematical equations to solve the various questions related to these concepts  but there is a huge lesson to be learned here.  The earlier you begin saving money, the less you will have to save to reach a larger total. 

The following analogy will help illustrate this point.  Assume that you had two nephews that used all of their money from birthdays, holidays, and chores and they both decided to save their money.  The first nephew (Nephew A) began saving at the age of eight and he decided to save for only six years, stopping at age 13.  The other Nephew waits until age 18 to begin saving and he saves for only five years.  Neither nephew ever saves a dime again and lets the money grow until age 65.   Both assume a 9% return on investment over the life of the investment.

Nephew A   Age 8              Nephew B  Age 18

Year 1      500                      Year 1     2000

Year 2      750                      Year 2     2000

Year 3     1000                     Year 3     2000

Year 4     1250                     Year 4     2000

Year 5      1500                    Year 5     2000

Year 6      1750                    

Total Invested $6,750        Total Invested $10,000

Nephew A would have a total of $1,266,170 and would have only invested $6,750 while nephew B would have a total of $1,174,600 and would have invested a total of $10,000.   Nephew A is clearly the wiser of the two investing nearly four thousand dollars less and having nearly $100,000 more saved at retirement.  This illustration goes to show how beginning your savings early can make a huge difference in the long haul.  Now if this is the case why wouldn’t we begin saving for ourselves and our children as early as possible.  (Usually because we are figuring out how to get out of debt and we don’t have the money to spare initially)  Also, why wouldn’t our government initiate the investment and simply set us up on a loan repayment of sorts to repay them for the initial investment of $6750?   I would even pay $10,000 during my first six or seven years earning an income (18-24) for the opportunity to receive 1.2 million at retirement age.  Am I crazy or does this make more sense than contributing to a broken system with little to no hope for a future distribution.

Putting Financial Education to Work

My last post I spoke of the beginnings of my financial education.  The most important part of any education is what you do with what you have learned.  My experience of spending more than I made, using credit to finance my wants, and allowing the perceptions of others to influence my purchasing decisions contributed to my near miss with a financial disaster.  I had to undo and relearn habits that I had created and that had been created by the environment around me.  That process was a tough adjustment socially, but now that I am on the other side it was well worth it. 

I began the process of getting out of trouble by changing my mind set first.  I stopped caring what other people thought about where I lived, what I wore, or what I drove.  Their opinions of me didn’t pay the bills that I had to pay.  That was the hardest part of the entire process of getting out of debt, changing my mindset.  After I had accomplished that I saved enough money to cover my highest deductible(s).  For us that was about $1500.  This was money that was set aside so when we began paying off debt, if the car broke down, or if we had to replace and appliance, or if one of the kids had to go to the emergency room our plan to pay off our debt would not be derailed. 

We raised the $1500 by having a huge garage sale.  We sold everything we didn’t need.  I also sold guns I hardly ever used and military uniforms that I no longer wore.  Some of these things had some sentimental value, but I was determined to be out of debt and I valued peace of mind and security for my family above all other things. 

While we were saving the $1500 we listed out all of our debts from the smallest pay off amount to the largest.  There were some balances that only totaled $120 and we knew that we could pay them off in about a month but we listed them anyway.  We then began the process commonly known as “snowballing.”  We paid off the smallest debts first, then worked our way up the list to the next largest.  We paid the minimum amount on all of our other bills and focused any excess amount on the smallest debt, once we paid off that debt we rolled the payment to the next one on the list.  It was the quick wins, marking the name of the company that we were making payments to off of a list that gave us the next mind set that we could actually do this.  We also began to plan a date when we could be free of consumer debt. 

We eventually paid our way out of debt completely.  We later purchased another house, after we had saved a considerable amount of money and purchased a “fixer upper.”  We bought the house cheap and we didn’t care what other people thought about what we were living in.  We knew how we were going to fix the place up in time, not on credit this time.  We saved and paid cash for a 700 sq ft addition to our house, built a new front deck, put hardwood floors down in the house, and replaced the heating system and the roof, all with cash.  In the mean time I decided to leave my high paying corporate career and took a 50% cut in my pay and returned to education. All of this was accomplished because we took control of our lives financially. 

How has/could taking control of your finances affect your life?

The Beginnings of my finanical education and the last taboo

Please forgive the long post.  There is about an eight year time period I try to cover in a few paragraphs.

 

As I mentioned in a previous post, I am currently working on my certificate in financial planning to become a Certified Financial Planner.  My interest in financial planning did not come about by an early interest in money and financial planning, rather by living life and making choices good and bad.

My wife and I married young at 18 years old.  We bought our first house at 19.  I joined the Marine Reserves and began going to college working on a degree in education.  In addition to the home we purchased we financed both of our cars and had student loans to pay for our college, the beginnings of money in the real world and building our credit I guess.  My wife finished college first, then I did.  We were doing okay, not poor, not wealthy by any means, just okay.  We had our first child and decided that my wife would stay at home.  I left education and took a job with a large retailer and we moved to North Carolina.  We were only in NC about seven months when I was re-called to active duty by the Marines is support of Iraqi Freedom.  This was the beginning of my reality check in financial education.  We did well financially while I was on active duty since we had an allowance for housing, food, and health care was paid for in full.  In the process of being re-called I was required to complete a will.  We were supposed to list our assets and liabilities and honestly didn’t know how to determine which was which.  I had always been impressed with myself because I could talk shop with real estate agents and assumed I knew what constituted a smart home purchase because I knew what “curb appeal” was, or I felt knowledgeable when speaking with the banker because I understood the importance of debt to income ratios.  The reality was I wanted to appear knowledgeable on the surface and hoped someone else would be looking out for my best interests. Wrong.

After I got off of active duty we moved back to my home state and purchased the house of our dreams.  We also had our second child.  The home was purchased on some “creative financing,” though I don’t blame the bank, we should have know what we were getting ourselves into.  So, we were in our new home with our daughter and new son trying to float a house payment that was nearly 50% of my take home income, two car payments, at least three credit cards, and our student loans.  Do you see the disaster around the corner?  We shoud have.  Things were fine for about 4 months, then the company I worked for discontinued a travel allowance I had been receiving.  I had used that allowance to help qualify for the loan.  I knew immediately we were in trouble.  I began to read everything I could get my hands on related to personal finance.  I re-joined the Marine Reserves to temporarily increase our income.  We then began a process where we eliminated nearly $18,000 in debt in less than a year.  We didn’t use an equity loan on our home, or a loan consolidation company.  We created the mess, and we took it upon ourselves to fix it.

So that is where my interest in personal finance began.  As I worked my way through the mess I was mad at myself for not seeking earlier in my life to learn more about money, obviously I was going to earn an income, so why didn’t I do more to find the best uses for it.  My passion for educating and helping people has manifested itself through personal finance and I am finally talking more about this and trying to find ways to reach out and help others feel empowered and take control of their own lives financially.               

It has been said by many that money is the last taboo.  Most people will discuss sex with their children, co-workers, or friends before they discuss money.  I simply don’t understand why.  We all earn it, we all make mistakes, so why can’t we learn from each other?  Do you feel comfortable discussing your finances, or lessons you have learned with money with others, or is it still a taboo, something that you feel is best left unspoken?

Positive Feedback is Encouraging

I spread the word about my blog when I became very discouraged with our current national economic blunder and our lack of regulation in the finacial industry.  I have been a “closet blogger” not letting any of my family or friends know that I had started a blog, in fear that no one would read it and it would fade to me speaking to an empty room with no one listening.  Since I sent out an email letting everyone know I am blogging I have had a lot of hits and some emails from complete strangers (that’s great) telling me that they appreciate this blog and the purpose of my writing.  Thank you all for the support and encouraging words.  Especially you Mom!  Another huge thank you to a friend Curtis Mock who as been a great source of information and encouragement.  Check out his blog at www.curtismock.com. Please keep posting and sharing.  Discuss ideas or topics you want to dissect and I will do my best to keep up with this thing.  Stay tuned for an exciting opportunity that I am putting together to call people to action in their lives in both their personal health and their personal finances.   Thanks again for reading.

 

Chett

Housing Crisis Orchestrated By Our Government Paid For By Its’ People

I have tried to remain positive in light of all the doom and gloom news regarding the financial sector.  I know the media would rather report the negative aspect of all things, because it generates the highest ratings.  Where are the days of news being true journalism?  The time when a story broke and a group of people investigated, without political agendas and reported the news to the people.  We have heard so much about this housing crisis, but so little about what caused it or what could have stopped it, other than general information that could be picked up in coffee shop talk.  It is frustrating to learn that 3 1/2 years ago the writing was on the wall as seen from a Business Week article from February 2005.  Furthermore our own government was well aware of the looming danger in the housing market in the middle of the bubble in September of 2003.  The government created yet another commission that did nothing to hedge the damage that was being created by two of the largest housing lenders in the U.S.  In fact, Barney Frank, who  recently denied that he tried to placate the emotions regarding the housing crisis, stated in 2003 in a NY Times article that, ”These two entities — Fannie Mae and Freddie Mac — are not facing any kind of financial crisis,” said Representative Barney Frank of Massachusetts, the ranking Democrat on the Financial Services Committee. ”The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing.”   This type of governmental mismanagement shoud send us through the roof.  We work entirely to hard for our money to allow the government to be so reckless and then push the bill on us.  I am tired of the politicians waving the American Dream in front of our face during election time and then snatching it away every time the lobbiest and special interest groups come along.  The real question here is how can we be informed and ensure the individuals that are representing us in government are making decisions that will serve our best interests?  What are some positive steps that the average American can take to feel in control of our own government and in the decision making processes that affect our everyday life?  How have these recent events changed you and your willingness to contact your elected representatives and senators?  Will you become more politically active in light of these recent events?

Learning the Ropes

I have enrolled in courses to begin my CFP (Certified Financial Planner) certification.  I have a great desire to educate others to become more financially independent.   This desire started about four years ago, but I haven’t had the time to pursue it until recently. I am unsure of what road this will take me on, perhaps I will remain in public education and teach personal finance in high school (which is required for all graduating seniors in the state of Missouri,) or move into traditional financial planning, consulting type work, or possibly something entirely different.  I simply know that I need the professional background to gain credibility with potential customers.  I am interested to hear about anyone that has began an education process without a clear end point or job in mind.

Finding my Voice

This is my fourth blog entry and I am working to find my voice in writing.  I teach 4th grade and one of the subjects I teach is writing.  I tell my students one of the most important aspects of “good” writing is an author that has found their voice and knows how to communicate and reach their audience.  I am a talker, and in most social settings I don’t have a problem mixing with others and expressing my personal voice through spoken words and expressions as I audibly speak.  But, as I write I wonder if my words come across as genuine and real, or if my discussions turn to essay like propositions.  I hope as my blog develops I will find or become comfortable with the voice I am developing through my writing.

How do you define “middle class?”

My wife and I both teach and our combined earnings exceed $50,000 but not above $100,000.  We budget, clip coupons, worry about the rising cost of raising our family, and we often wonder if we are setting aside enough money to ensure a comfortable retirement for ourselves. If the title of this blog is life in the middle class it seems only appropriate to define middle class.  That is a challenge all by itself.  Economist and sociologist alike have tried to define and classify this group for the past 60 years, yet there is still no common agreement.  Wikipedia offers a broad definition of middle class giving an income range from $25,000-$100,000 per household income.  It is commonly agreed though that the middle class account for nearly half of the population of the US.  We are a large group that has the opportunity influence economics, politics, and nearly any other aspect of society.   I think middle class is relative to where you live and what type of income is needed to provide a reasonably comfortable lifestyle.  How do you define middle class and how would you classify yourself?

How do you rate your knowlege of personal finance?

About four years ago my wife and I went through a tough time financially that began an awakening financially.  I am college educated and considered myself to be knowledgeable financially, yet we were in deep in debt and at risk of losing our house.  I learned (or didn’t learn) about personal finance from my parents.  My dad, a mechanic, and my mom, a supervisor in a factory, did not talk a lot about money growing up.   They did what they could to help us get by, and we never wanted for anything it was the typical house hold of the times I suspect. Only when it was nearly too late did I realize my knowledge of personal finances hovered somewhere around a 2 on a scale of 1-10.  Now I would consider myself about a 6.  Not a 10 by far, but a long way away from where I was.  What would you rate yourself, and if you became awakened how did it take place?