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finance

genie All of the credit for this post should go to Adam over at Your Money Relationship for coming up with this Money Genie post idea.

Basically the idea boils down to what three things about your financial past would you change given the chance.  While I certainly wish there were a Robin Williams esque Genie to grant me three wishes I feel like the choices we make in life improve our future by teaching us important life lessons. With that thought to the side here are the three major mistakes I think I made from a financial aspect.

1.) Buying a Brand Spanking New Car (3 times)

When I was just a young lad, I was painfully forced by my father to pay cold hard cash for my first car. By the way I was the only child I am aware of in my family who was required to front every penny of their first car. I bought my pride and joy for around $1,000 and it was worth every bit of half of that.  It was my car though and I owned it outright.  Looking back it was one of the best things my parents did for me even if it only lasted 1 year.

At the end of it’s first year of life it was acting up so I took it in to the shop to discover it need around $2,000 worth of work to keep it safely running. Not being a total idiot I saw that sinking more money into this car was really just a waste of time and money so I set out to find something new. I wanted a pickup truck so I started looking around, problem was I didn’t have any cash and I had a credit history equivalent to a chimpanzee. I was able to get a fleece (lease for non Dave Ramsey types) on a brand new Ford Ranger. This was the best thing ever, to a 18 year old, so I rolled with it. I knew I wasn’t going to exceed the miles and I couldn’t get approved for loan because I didn’t have credit. Determined not to rely on anyone I refused to ask for consignors so my only option was the lease, and I took it.

Fast forward and my lease is up, I stayed within the mileage which to me was a win. I had two options at that point and they were 1.) buy my leased car at 14% interest, because I still had no credit, or 2.) buy a new truck at 0% interest because, wait I don’t know why the F&*($ they gave me that. Anyway, so I bought a new truck at 0% interest for 5 years, yay me I now own my second truck, still no real backseat but at least I was starting to build credit.

Enter wife and pregnancy! Well it turns out that driving around with a baby in the front seat is now taboo, even though I used to ride in the bed of a pickup with no car seat or safety belt. This meant there was no question but time for me to buy a new vehicle. Given my exceptional track record I went for yet another new car, $21,000 worth of new car. In hindsight this single purchase was my greatest mistake I could have bought a used car and gotten the same rate, I didn’t get 0% and my credit was like gold. Either way I did it. The damn thing is paid for now and I am going to drive it into the ground. So mistake 1 was buying a NEW car. NEVER EVER EVER do it.

2.) Buying My House with 100% Financing at the Peak of the Boom

Prior to me and my wife getting married, we decided we needed to buy a house. We sat down and figured out what we could afford and started shopping around. We decided on a great three bedroom 1300 sq ft home and I bought it. Yes I bought it, it was in my name and using my credit, she wasn’t even involved. We weren’t married yet so it made great sense. This house was less than 90k and cost us a ridiculously low $700 a month in mortgage payments. It was perfect, or was it? We decided we wanted X sq ft, in X area, with X X and X so we started shopping around. We had no intention of actually buying a house, I mean hell our mortgage was less than rent at our last apartment. Unfortunately the second house we looked at had every single option we wanted, every room, every detail, even the right yard.

Because the market was so hot we couldn’t afford to sit on it and we made an offer on the spot for the exact asking price, plus closing.  This was all well and good but we hadn’t even put our current home up for sale. Luckily it worked out and our old home sold within 6 hours of being listed, yeah now that was easy money for the realtor. We chose to put nothing down on the house and take out an 80/20 mortgage, meaning 80% of the value in a traditional mortgage and 20% in a Home Equity Line. Money was pretty much being given out to monkey’s so it wasn’t hard to get this type of deal. Our mortgage payment subsequently increased from 700 to 1400 and put us both on the line for quite a bit of cash. Since we chose to finance the whole thing I couldn’t even sell the house now, with realtor fees, for what I owe. Go figure! Give me a mulligan Genie!!!!

3.) Taking an Interest in Personal Finance Early in Life

My final do over won’t take quite so many words, I just recently really started taking an interest in my financial well being. I was always complacent to allow others to influence and control my future. Luckily I married the best woman in the world and she had us on a course to freedom from debt, even if we never really were/are on the same page. If I had made the decisions in life to be at the helm of my ship at all times I would have never made it so difficult for me today. I owe everything to my wife for getting me started and everything else to this community of bloggers for keeping me going.

Never be complacent to just paying your bills and staying out of trouble. That is where I was, today I am investing 13% in my 401k, contributing to savings, and have only my student loan left as uncollateralized debt. In the very near future I plan to have the student loan paid off and then I will focus on taking my 20% HELOC down to 0%, on that day I will throw a keg party, when I pay off my mortgage I will throw a week long keg party, so stay tuned to this site if you want an invite. 😉 of course it may be 10 years from now.

If I could rub a lamp and have a funny blue man pop out, I would want him to look back and change these few things I did wrong. This isnt’ to say I regret my decisions because everyone of them has slowly forced me to be who I am today. If I had always been provided for I would never appreciate life and happiness the way I do now, I want everyone to remember that as they raise their children in this world. Just because you can afford to, doesn’t mean you should and in most cases you probably Shouldn’t.

Please check back at Your Money Relationship for any additional posts on this topic. I had a ton of fun writing this post and I hope you enjoyed reading it, let me know what your three wishes would be, and why.

Photo: (Hyku)

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Now that you have spent a month tracking your spending, or at least gone back and accounted for a months worth of spending it is time to setup your budget. Next week we will talk about maintaining and reassessing your budget.

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Creating a budget is the first step to financial freedom recommended by most personal finance advocates. There a many ways people go about creating and managing their budgets.  Budget software abounds everywhere from You Need a Budget, Quicken, GNUCash, to Budget Pulse, Mint, and beyond. You can also just use a simple spreadsheet or a piece of paper for your budget.

Budgeting in its simplest form is just creating categories for your spending and assigning yourself a maximum value for that category. A truly complete budget should result in a zero balance of cash for the month, everything coming in should be assigned to a specific category leaving you with no “excess” income. This way you know what you can spend and where you want to spend it. If you spend more in one category you will have to sacrifice in a category somewhere else.

Lets talk a little bit about the categories you are going to use for your budget. Categories you use for doing your budget most likely should not be as granular as the categories you use to track your spending.  Keeping your budget at a higher level keeps your budget smaller and easier to manage as well as ensures you are less likely to go over budget in a specific category.  I think most people give up on budgeting because they budget at too granular of a level and are constantly “blowing” the budget in certain areas.  This leads to discouragement and a feeling of failure that is easily removed by eliminating the pesky budget.  You should be granular but not so granular that you are spending an entire day updating your budget and reallocating funds. So while you may have a dining out budget item, you shouldn’t probably have a dining out: breakfast budget item.

Don’t forget to include your income, you can’t achieve a balanced budget if you don’t include the income as well as the expenses. Use your most recent paychecks to estimate if you are paid hourly, if you are salaried you should have a good idea of what your checks will be each month.

When looking back at your spending for the past month make sure you identify how much you spent on each of the categories you have chosen for your budget. You can use this amount as a basis for how much to budget. Determine how much money you want to go to each category, be sure include your savings and other investments, as well as your estimated income, keep in mind you want to end up with 0 dollars left over.

If you haven’t already you need to site down with your spouse, significant other, or whatever and discuss your budget. You both need to agree to the budget and agree to stick to it. Otherwise you are almost certain to fail, trust me, I know.

If you are interested in a simple spreadsheet for setting your budget moving you can view my GoogleDoc Budget Sheet

Photo: (doublep)

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It is Carnival Round up time again, the carnivals were stellar again this week as always, and nice enough to let me participate yet again. So if you haven’t checked them out yet stop by read the articles, and then tell all your friends how great mine were 😉

The Money Hacks Carnival was hosted at Consumer Boomer this week and my Post on Upromise actually made it as an editor’s pick.

The Carnival of Personal Finance was hosted at MoneyNing this week, it was the 200th one, man that thing , has been around hasn’t it.

StretchyDollar made a last minute scramble to get the Festival of Frugality up this week and did a stellar job, IMHO.

The Carnival of Twenty Something Finances was hold up at Your Money Relationship this week. I just had a thought, I can only participate in this carnival for a few more years… man I am getting old

The 3rd installment of the Carnival of Pecuniary Delights was hosted by the ever so frugal Miss Thrifty. It seems this carnival is really taking off so don’t forget to get your submissions in.

That is it for the week for me, I am hopefully going to take the boat out tomorrow and relax, for awhile. If you haven’t had a chance yet to read my first post in the Budgeting 101 series, check it out I am proud of it and it that takes a lot.

Photo: (Ishrona)

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Budgeting 101 – Know Your Spending

April 15, 2009

This is the first part of a three part series on budgeting I plan to run for the next three Wednesday’s.  I will discuss what I feel are the three critical pieces of budgeting, 1.) Know Your Spending, 2.) Creating Your Budget, and 3.) Tracking and Reassessing. Creating a budget is the first step to […]

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Quit Paying for What You Can Get for Free

April 1, 2009

With the quality and quantity of Open Source and/or free products out there there is very little reason to pay for software that you can otherwise get for free. Another reason to to go Open Source is portability, If you have Mac OSX, Linux, and Window running in your home you are going to have […]

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