Bit by bit. . . . .

Today is payday!! And today, I was fortunate enough to receive two checks, one from my day job, and one from my night job. The entire "night check" went towards my credit card (aka 'emergency card') debt, leaving me with a grand total of $171 to pay off! This, I know, I can do before the end of the month.

Technically, I could send the money now and get rid of this last little bit of consumer debt. However, I'm going to be away at a professional conference the week after next, and since the university doesn't hand out advances on travel funds, I'll have to cover my meals and transportation with my own money, and receive the reimbursement after I return. I want to have a cushion of cash in my checking account, so I'm not tempted to use my "emergency card". Invariably, when I travel for business, I end up spending more than the university per diem rate, and that would end up sitting on the card until the following month when I could pay it off.

Anyway, I'm ecstatic to be $171 away from my goal, almost exactly a year after I began my frugal experiment! In December, I'll need to start thinking about how to use that 'extra' money. I know I'll start putting money back into my 403(b) retirement account, and I know I'll pad my emergency fund, but the real question is whether I should start making at least the interest payments on my gargantuan student loan debt---right now, the interest is accruing and being added to the principle, so I'm basically going into more debt by not paying at least the interest. . .

Call me crazy, but. . . . .

I find it difficult to feel much sympathy for the wives of husbands who work on Wall Street, who have seen their incomes shrink significantly. For example, in this LA Times article, one woman's husband was making $400,000 a year ($200,000 base salary, and, I presume, $200,000 in bonuses). Now he's down to "just" $200,000 a year. No bonus, poor guy.

Am I seriously supposed to feel bad for people who were earning---on one salary---more than I'll make in ten years?? I'm usually not this snarky on this blog (I'm plenty snarky in real life), but $200,000 is a ton of money. If you move out of your giant house with the giant yard in the great neighborhood, and maybe trade in your giant cars for one efficient one, and consider NOT spending $500 on a 3-year old's "back to school" clothes, perhaps, just perhaps, it won't hurt so bad.

Now, I know everything's relative. My salary is pretty good, and my income is actually right at the median for Portland when I include the earnings from my second job. I've got it pretty good, in spite of the crazy fun I've had with credit cards in the past (one more month to the Big Payoff, folks!). There are people out there who would look at my life and think it's pretty luxurious, frugality notwithstanding.

Truly, though, I don't think I can stand to read too many more articles about Wall Street wives (or employees, or whatever) who were making upwards of $200,000 and more a year, who are now forced to (gasp!) clean their own houses and make their own meals.

There. That's my rant. I hope to be less snarky as the week goes on!

Overheard on the Max. . . .

A woman having a conversation with her seatmate about her husband, who was laid off months ago, and hasn't been able to find a job since. She talked about the "tight market", meaning that even though he has years of experience (in what, she didn't mention) he's not receiving many responses to his resume.

She commented that she hadn't been sure they could live on just her salary, and that they were making drastic changes in what they spend money on. It appears that they're 'making it', for now, but if her partner doesn't find a job soon, they could be in trouble.

It was interesting to hear this firsthand account of the troubles that Oregonians (and Americans) are facing right now. As I wrote on Tuesday, I feel somewhat insulated from economic woe because I work for a large public university. Barring a complete meltdown in the government, my job is fairly safe.

My eavesdropping emphasized (for me, at least), the reality that folks are struggling. They're losing jobs they've held for years. They're having a lot of difficulty finding other work. Hopefully, this new economic reality will force all of us to think twice before pulling out the credit card and making unnecessary purchases; especially when that credit card might be needed for a true emergency sometime in the future (I wish they were called 'emergency cards').

An interesting response. . . . .

Finally, big-name economists are saying the 'R' word. Recession, that is. In fact, after months of wondering "whether", we now seem to be asking "for how long"? I was surprised to learn that my own state, Oregon, is one of 27 now considered to actually be in recession (there are 14 more 'at risk'). Perhaps because I work in public education, I've not witnessed much in the way of layoffs, and therefore, I thought Oregon was doing relatively well (as compared to, say, California).

So, now what? I suppose we go back to our tips on 'how to survive a recession'. Basically, paying down debt and not adding any additional debt is key. But there seem to be others who are taking a rather extreme view of the current economic environment. For example, in this article about a certain Seattle-ite named Atash Hagmahani (which actually is a pseudonym), who is buying nonperishable food in bulk, and generally preparing for an economic emergency he terms the "Greater Depression".

According to the author of the article, there is a small but potentially growing number of Americans who are heading into survivalist mode, what Jim Rawles calls a desire to "secure basic emergency resources that he terms “beans, bullets and Band-Aids.” And I thought I worried too much!

Now, I personally take a more moderate approach to our difficult economic times. As you know, I'm slowly paying down my credit card debt, and will begin increasing my savings by the end of the year. I don't really believe we need to be hunkered down in our houses with a year's supply of rice and beans. However, the article did contain one paragraph that illustrated the benefit that can come of recession, which is quoted here:

"In the last three or four years, Atash Hagmahani has led his clan away from what he calls their former “yuppyish lifestyle.” They no longer eat out, cook most meals from scratch, and rarely drive their one car. They also are all learning practical skills — such as sewing, nursing and wielding a gun for self-defense."

Now, if the current recession means that people are spending less on needless luxury items, saving more, and learning to make do with what they have, I'm all for it. We've lived far too long on credit, and while it will take time for our economy to move from dependence on how much we spend at the mall to other sources of growth (alternative energy, anyone?) we as individuals and as members of our communities can start making important, wallet-enhancing changes at a grass roots level.

Crazy for credit. . . .

I got home in time for the last half of a national news program on TV, and heard this very interesting quote:

"Consumer credit helps the economy the way getting drunk helps make a party more fun"

I wasn't quick enough to note the economist who said this, but I thought it was brilliant! It completely illustrates the danger of having a bit 'too much' fun at a party, and having pay for it the next day in the form of a raging hangover. I think we, as a society, are now past the point of partying, and are in the midst of a mighty hangover!

In attempting to track this economist down, I came across an article on MSNBC that discusses the 'American Debt Nightmare'. This article, at the outset, makes two very important points:

1. We rely on consumer credit now more than we ever have in the past. On average, we spend a whopping 14% of our disposable income on credit card payments! That's a huge number! Say your disposable income (what's left after paying taxes) is $2,000 a month; if you're an average American, almost $300 of that would go to minimum credit card payments!
2. Since Americans are clearly living way beyond their means, relying on credit cards to meet basic needs, our savings rate is miniscule. In fact, the savings rate dropped to less than 1 percent last year. How can we ever expect to reach financial independence by relying on credit cards and a savings rate that is flirting with zero percent?

This article continues by presenting 'real person' interviews with Americans who are now beginning to feel the pain, especially since credit is now drying up. One couple had their $40,000 equity line of credit frozen. Granted, it sounds like they're going to be just fine---they simply won't be able to renovate their basement this year---but it must have been quite a surprise to learn that their $40,000 'cushion' had suddenly disappeared.

This story and others simply serve to remind me that credit isn't really money---it's sort of imaginary. If you're relying on imaginary money to shore up your finances during hard times, you're putting yourself in danger. It's a sad commentary on the state of the economy, but I wonder how many of these people will remember the lessons they've learned once we're 'back in the black' financially as a country?

A frugal confession. . . .

So, with the colder weather and the looming threat of rain on many days, I've returned to my Max (lightrail) commute. This keeps me warm and dry, and is quicker than the bus from my house; I get to work on time each and every day, and arrive home a little earlier in the evenings, which is nice.

However, there is one thing about the Max that also holds my interest. Each morning and evening, I pass an Oregon lottery sign, which indicates how much the current lottery winnings are (today, it was $25 million). This generally sets me off on musing about what I would do with that kind of money. Assuming, after taxes, I came away with half of $25 million, my usual fantasies involve paying off my own mortgage and those of my family members, waving 'buh-bye' to my student loan debt, buying a reliable car, and traveling my tush off. Sigh.

Although I haven't bought a lottery ticket in ages (they don't fit into my frugal budget), I often feel a twinge of guilt about even fantasizing about winning the lottery. Do I really need to be a multi-millionaire to be financially independent? NO. It sure is fun to think about, though!

As usual, I came across a relevant article that discusses the many ways those of us earning an average income might be sabotaging our ability to become "millionaires" in our own right (or, at the very least, financially independent). Here are some examples of habits or beliefs that might be hurting your finances:

• Needing to drive a fancy new car. I've often made mention of my 13 year old clunker. I still drive it because a) it runs (mostly) and b) it's paid for. I do still fantasize about a shiny new car, but my long-term financial goals simply don't include a car payment at this time.
• Starting too late. I regret not saving and investing from the first day of my first job at the age of 16, but I also like to remind myself that at least I eventually started.
  
• Not appreciating the value of learning. I often feel like I've been in school since I was 5, and actually, that is kind of true. There have been very few years in which I wasn't pursuing some sort of advanced degree. And hopefully, all of that work will pay off in terms of higher salary and more leisure time.
• Needing a large house. One of my first posts discussed a conversation I overheard on the Max, in which a man was talking about his giant house. This is one area where my attitude has changed. Rather than striving for a larger house, I would love to get into something smaller, more energy efficient, and more importantly, cheaper!

I'll probably continue to lose myself in fantasies of winning the lottery, but will keep in mind the knowledge that it is within my power to create a financially secure life without winning millions of dollars!

There is some good news. . . .

So, every time I think that the economic news couldn't get any worse, I click on another story that just makes me sick. I am a chronic 'worrier' (so much so that I have a library self-help DVD in my house right now entitled "WORRY"). However, based on a couple of comments from readers of Finally Frugal, I realized that we can probably find some good news in all the bad.

For example, some people are keeping things in perspective and doing just fine, like Marci:

"What's the worst that can happen? I could lose all my money, my IRAs, my PERS, and SS, and my job. I think I'll still be ok. The house is paid for - and my bare bones emergency budget is under $400/month, under $300 if I defer the property taxes for up to 4 yrs.. I don't think all the pieces of the pie would get lost at the same time. Therefore, I'm just not going to waste time worrying."

In response to my post about sending a $1,000 windfall to my credit card company, 'Melanie' had this to say:

"Way to go FF! Those "three check months" can be a real boon - I managed to eat up nearly that much student loan debt in just a few years by throwing every tax refund, "third check" and found dollar I could find at it. I'm now down to under $6k. Have faith, you're on the right track and I'm cheerin' you on."

This got me thinking: one of the things that keeps me motivated about paying off debt are the stories from other people about their journey toward financial independence. I LOVE hearing about folks like Melanie who have succeeded in doing just what I'm attempting! Someday soon, I'm going to compile a list of posts from across the blogosphere that highlight and celebrate people who are either close to meeting their debt-free goals, or have actually gotten there.

Here's an example of the type of story I'm talking about, posted on The Consumerist, and entitled: Reader pays off $14,330 in 20 months with our tips. This is a wonderful story, not just because it's a motivator, but because this reader shares her personal strategies, month-to-month, that enabled her to get out of debt.

I guess in the end, I can choose to focus on the gloom and doom, or I can choose to focus on getting myself to a place where I can say: "I'm ok", like Marci, or where I can say that I've paid off most of my student loan debt, like Melanie has. And then maybe my story will help others get motivated to pay their debts, and so on, and so on. . . . .

Better late than never. . . .

In scanning personal finance websites, I'm always sucked in by titles that suggest that the author can help me survive this 'economic downturn'. Although I think I'm in fairly good shape now---assuming I don't lose my day job---I'm still not feeling totally comfortable with my day-to-day financial life. I think this is primarily because I'm a news junkie, and reading about 300 or 400 or 500 point drops in the Dow make me jittery, regardless of my miniscule retirement investments.

The articles that make me incredulous are the ones that purport to tell Americans what to "do" with their money, now. The little voice at the back of my head always asks , "what money"? Perhaps because we're hearing the worst-of-the-worst news day in and day out, I imagine that no one has any extra money to invest.

In any case, I definitely lean toward articles that give commonsense advice to people who may already be in financial difficulty, but who, with some discipline and hard work, can weather the storm and come out of this crisis without losing any more money than they already have. With that in mind, here are some ideas gleaned from recent articles that resonated with me:

• As painful as it may be, take stock of your financial situation. List your debts---all of them---as well as your income. Take a close look at how much you're spending on a daily, weekly and monthly basis, and compare that to how much you're bringing in.
  
• Pay the most important bills first, if you have to make a choice. What's more important? Paying the cable bill or the electricity bill? I'd say electricity, personally.
• Call those credit card companies, and ask for a lower interest rate. This has worked for me on multiple occasions---they're not going to offer this to you, so you have to be the one to ask.
• Speaking of credit cards: STOP using them! Unless you've got a major emergency, those credit cards need to stay in a drawer at home.
• Pay more than the minimum on your debts. Due to my second job, I'm able to pay much more than the minimum on my credit card---plus I throw any additional income toward my credit card debt. Because of this (and the fact that I canceled cable, my gym membership, and other 'luxuries') I will hopefully have my last credit card paid off by November!
• Speaking of second jobs, consider getting one. Although my second job only brings in about $600 a month, this has been instrumental in getting my financial house in order. An added benefit is that it lowers my stress level when considering a job loss (this isn't going to happen, but I'm a worrier. . . .)

Although I started doing most of these things almost a year ago (!!), even if I started tomorrow I would be better off than if I never began at all. To paraphrase a popular quote:

"The best time to fix your finances was yesterday. The next best time is today."

Americans are finding frugality. . . . .

Granted, they're finding it out of necessity more than anything else, but it's interesting all the same. A New York Times article is predicting that this holiday season will see fewer Americans buying big-ticket items for their families. This, of course, is seen as hurting the economy. I lean toward the opinion that our economy needs to rely less on Americans' use of credit to purchase more and more stuff, but on manufacturing, technology, and exports of our goods and services to other countries.

I'm thinking about asking my family if we can have a gift-giving 'moratorium' this holiday season. Or at the very least, a limit on how much we spend on each other. I know that over the years, my parents have sought to give bigger and better gifts, always trying to outdo the giving of the year before, and I would estimate that at least 90% of that giving was driven by credit cards, not by cash.

How about all of you? Do you intend to spend less this season than you did last year? Why or why not? Do you have any creative ways of giving gifts that don't require huge outlays of money?

$1,000 lighter. . . . .

My credit card debt, that is! I sent off my electronic payment to American Express yesterday, and although it hasn't shown up on my online statement yet, once the payment is processed I'll owe a bit less than $550 to AMEX. It's a fabulous feeling!

I'm going to keep my emergency fund just where it is at $1,600, and try to send a bit more to AMEX this month from my regular pay (I just realized that in October, I'll receive three checks---rather than two---from my night job). That way, I'll still have a shot at killing my credit card debt by the beginning of November.

Another little bit of help I'll be receiving is the fact that I was offered a promotion and small raise (15%) from my night job! I just completed my first timesheet with the new pay, and although it's only a $2/hour raise, it really does add up!

I can finally imagine a time in the near future when I can breathe a little easier each month when the bills arrive---without my credit card debt, I can build up my emergency fund and then start working on that behemoth of debt: my student loans. I get tense just thinking about the $55,000 I owe to Uncle Sam, but I suppose if I can work at it little by little I'll eventually take care of it.

Continuing to watch my spending habits and learn more about frugal living strategies will help me keep my budget in line with my goal: to be debt free!