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spending

I want to be clear on something I feel is important. If you can be responsible with your money there is no reason you can’t enjoy it now and enjoy it later. Responsibility is, and always has been, the key to this equation. When you get a job you are asked to be a responsible steward of your company. When you are asked to babysit you must be responsible for the care of someone else. The same thing goes for how you manage your money.  It is possible to both live well and responsibly.

If you are up to your eyeballs in debt then you need to keep your spending in check and focus on the task at hand. But so many finance writers focus on saving, retiring, and debt elimination. When is the last time someone told you it is OK to spend your money? I want you to know that it is OK when you plan it out and pay in cash.

It doesn’t do you any good to collect a lot of money and sit on it like Scrooge McDuck. If I had a tower of money I could swim in it, it wouldn’t be as much fun as some of the things you can do with it though. I don’t advocate being irresponsible with your money but I want you to enjoy it and your life now and in the future.

The reason I  bring the subject up is a vacation we are planning on taking later this year. It is to one of those all inclusive deals in the Caribbean. I could certainly find cheaper places to go but this is one of our dream vacations. We aren’t talking about chump change either. In all for me, my wife, and two kids we are looking at around $7,500.00 for one week vacation at an all inclusive resort. That includes the food, drinks, activities, and airfare.

A lot of people would balk pretty quickly at a $7,500 vacation. I mean hell most people in the finance community  wouldn’t pay that much for a car let alone a vacation. I am sure there will be some interesting comments about my choice but to me it is worth it. We are going to pay cash for the vacation without affecting our current savings, retirement, or other obligations. Having eliminated the last of our consumer debt it is a great way to reward ourselves for the last several years of sacrifice.

So you tell me would you be willing to pay $7,500.00 to go on vacation and enjoy the now or would you sock it away for the hope of something you might be able to do later?

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I bought a netbook a while back which was easily justified by my recent foray into blogging, or was it. But that made me think about how we always seem to justify our indulgences. My netbook wasn’t necessary because I have my desktop PC which I could have used to write.

Most recently, as in Sunday, I bought the ultimate indulgence an iPhone 3GS. Don’t be too jealous it cost me $217 with tax to pick up this fancy brick. The question though is how, or even better why did I justify this obvious indulgence. When we sidestep our plans at debt reduction or saving we always attempt to justify it some way that makes us believe it is ok because…fill in the blank. I have outlined my thought process for the purchase here and looking at what I wrote I can already see where I am trying to convince myself that this was a valid thing to do with my money.

Lets start with the fact that I am a geek and I love gadgets so I have been patiently waiting for the iPhone to mature to a point where I thought I might actually find use in it. Second, this blog is a lot of work and trying to keep up with everything when on the road, travelling, or working is difficult and I wanted a way to improve my ability to communicate as well as my ability to organize.

My justification

I was able to pay cold hard cash for the phone, nothing on credit and it was saved up out of my “blow” money.

Having a more advanced phone would allow me to be more organized.

Being able to carry Evernote with me allows me better keep up with ideas for my blog.

It is kind of cheaper than a GPS, and is a GPS (without the voice turn by turn)

I can use it to manage my todo lists no matter where I am

After cancelling my wife’s personal cell the monthly cost is roughly the same (she hasn’t turned it on in two months)

Why I shouldn’t have

I didn’t need a new phone, my old one still worked

I should be focusing my excess funs towards debt (I still have that pesky student loan and $217 is almost two payments)

If I was out of debt I should be focusing on increasing my savings

I didn’t need a new phone

Why it is ok, sometimes (AKA Further Justification)

I applaud gazelle intensity and love the quote from Dave Ramsey “Live like no one else so you can live like no one else.” But seriously I am alive today, here, now and I want to enjoy it at least a little bit. I am going to have a second child soon and before I know it my “me time” is going to be even smaller than it is now. I don’t want to spend every day pinching my pennies to try to make a quarter.

I took this opportunity to do something for me that I wanted to do. Everyone needs to have fun every once in a while. Like most vices, when done in moderation it isn’t necessarily a bad thing. I added this heading and then realized all I am doing is piling on the justification to make myself feel better about it. I have had my iPhone now for two days and I love the thing. It is great and the Apps you can add, if used for good, can be great to improve your productivity.

My son has the best answer to the question Why? and I think I am going to use it from now on. So when people ask me “Kyle, why did you buy an iPhone?” my simple response will be “Because I did.”

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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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5 Free Tips to Save Money on Groceries

April 27, 2009

One of the biggest budget busters in our house has to be the grocery budget. With one more child on the way our expenses are certain to increase, here are five free surefire ways to save money at the grocery store: Create a Menu Plan At the end of each week create a menu for […]

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Budgeting 101 – Set Your Budget

April 22, 2009

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. Creating a budget is the first step to financial freedom recommended by most personal […]

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