Tax Rebate Calculator

Over the last several weeks in the media, there have been many questions surrounding the specifics on the tax rebate that President Bush and Congress have put together.

To be honest with you, I have paid moderate attention to the discussion, but I have somewhat assumed that my rebate was not going to be very substantial.

Then, I ran across this nifty little tax rebate calculator at Kiplinger.com. After I ran my numbers and specific information through it, I was pleasantly surprised to find out that I should be receiving approximately $1,800 (probably $900 each for both my wife and myself).

Now, I'm not holding my breath that I'm going to get that exact amount, but whatever amount we do receive will most likely be higher than I ever anticipated.

When we do receive our money back from the government (yes, it's my family's money, not the government's money!), I plan on using it to continue funding our large ER fund - Baby Step 3 on the Dave Ramsey plan.

Hey, You. Get a Second Job! (part 3)

In two previous posts, I discussed the issues surrounding my music arranging business as a second income stream. As the business grew and expanded, the income generation went up to help my family get out of debt faster.


One thing I forgot to mention in this discussion of additional income streams is that my wife also got a part-time job for a period of time (approx. 6 months) to help us get out of debt even faster. When my wife had our first child over 7 years ago, she stopped working outside the home, but when both our daughters were in the same school last year, she had blocks of time in her schedule when she could work a part-time job. My wife probably averaged $350-$400/month of income during this time, but hey, I'll take it to get out of debt even faster! So with my wife working, we had three income streams for a period of time to accelerate our debt reduction.

When you finally get gazelle intense (as Dave Ramsey would say) about getting out of debt, you need to have a serious game plan about generating additional income streams to get out of debt as quickly as possible. The longer you put it off or the longer it takes you, the less likely it's going to happen.

As Larry the Cable Guy says, "Get 'er done!"

Financial Peace University Update (Session 1)

Yesterday afternoon, we had our very first session of Financial Peace University and it has become a huge hit in our church and community!

We currently have 91 people registered to take FPU and 84 people were in attendance, yesterday! What an awesome way to kick off the very first class of FPU at First Baptist, Raytown, MO. A lot of people in the class are already pumped about making some big financial changes in their lives.

The first session/DVD viewing is titled "Super Saving" which deals with Baby Steps 1 and 3 in the Dave Ramsey approach:

Here's a quick summary of The "Baby Steps" (taken from http://www.mdmproofing.com/iym/babysteps.html)

1. Make minimum payments on all your bills. Squeeze your budget until you've accumulated $1,000 cash. This is your beginner Emergency Fund.

You'll never make headway in your quest to get out of debt if you don't have at least a little something to fall back on. That "little something" is called an Emergency Fund, and that's what this first $1,000 is for (or $500, if you make less than $20,000 per year). Put everything else on hold. Make only minimum payments on all your debts; take on a second job if necessary; fore go retirement-plan contributions (temporarily) if you can. Get your emergency fund together first. Get it together fast.

If you already have more than $1,000 in savings, and in anything other than a retirement account, withdraw everything except the $1,000. Use these proceeds for Baby Step #2, regardless of penalty (if the money were in CD's, for instance, there would like be a penalty for early withdrawal).

Once you have accumulated the $1,000 (or $500), keep it someplace where you cannot easily get at it.

It must be available, but not easily available.

It must be available, but not easily spendable.

Why?

"Sometimes," Ramsey instructs, "you have to protect yourself from you."

2. Pay off your debts in order of smallest balance to largest. "Snowball" the payments as you go.

Write down all your debts except your home. (If you're into spreadsheets, something like my DebtTracker spreadsheet will come in really handy here!) Arrange them in order from smallest balance to largest. Do everything you can to pay off the smallest debt listed (take on a second job, or sell stuff if you have to!) while making minimum payments on everything else.

Once that first debt is paid and gone, then "snowball" that monthly payment money: Apply it to the next-smallest debt (in addition to that debt's normal payment) on your list. When that one is paid off, then take that monthly payment amount and start applying it toward your next debt. Get the picture? The more debts you clear off, the more your "snowballed" payments are increasing, and the more headway you'll make — faster — on your larger balances.

Check my Debt Snowball page for a more thorough discussion of this part of the Baby Steps. And take a look at ExcelGeek's Debt Snowball / Rapid Payoff Calculator spreadsheet if you want a kick-butt way to set up and track your Snowball.
What's the rationale behind paying off your debts in this manner? Ramsey writes: "The reason we list the debts from smallest balance to largest is to have some quick wins. sometimes behavior modification is more important than math. This is one of those times." Furthermore:

When you pay off a nagging $52 medical bill or that $122 cell-phone bill from eight months ago, your life is not changed that much mathematically yet. You have, however, begun a process that works, and you have seen it work, and you will keep doing it because you will be fired up about the fact that it works.

One important caveat: If you're working on this second Baby Step and some emergency arises which forces you to spend any part of your emergency fund, immediately stop this step and return to Baby Step #1. Stay there until you've refunded your Emergency Fund in full.

3. Create a full-fledged Emergency Fund containing 3 to 6 months' worth of expenses. Bad luck and rainy days are a part of life. Expect them. Prepare for them.

If you'll keep three to six months' worth of bills and living expenses in a savings or money-market account, then you'll have gone a long way toward erasing the "what if" stress from your life. The emergency fund allows your family to always be ready for whatever life hurls at you. Sure, that Murphy guy might still stop by your residence every so often, but he won't be able to run roughshod over your financial life the way he used to. Ramsey takes the analogy a step further: "Don't forget that the emergency fund actually acts as Murphy repellent."

You must also flip a mental switch regarding your e-fund: It is there for bonafide emergencies. Nothing else.

Ramsey elaborates: "Beware not to rationalize the use of your emergency fund for something that you should save for and purchase. Something on sale that you 'need' is NOT an emergency. Prom dresses and college tuition are NOT emergencies," he says. [Aside: This, of course, is where Mary Hunt's Freedom Account concept enters the picture.]

In any event, get your full e-fund together, and you'll be in a financially-elite class. You won't need your credit cards any longer ... even for emergencies. And the next time your car's alternator detonates?

"What used to be a huge, life-altering event," Ramsey says, "will now become a mere inconvenience."

4. Direct 15% of your annual pre-tax income into your retirement plans. Utilize tax-advantaged accounts such as 401ks and Roth IRAs, if eligible.

Now it's time to get your retirement funds in shape. Contribute the maximum amount you can, your target being contributions of a full 15 percent of your household's gross (pre-tax) income. If you have tax-advantaged plans (401k or Roth IRA, for example) available to you, then exploit them to their fullest extent. If your company matches any part of your contributions, do not consider this as part of your 15 percent. Additionally, do not include expected Social Security benefits in your retirement calculations. "I don't count on an inept government for my dignity at retirement, and you shouldn't either," Ramsey says.

At this point, if you haven't already done so, it is time to begin seriously educating yourself about mutual funds, stocks, and the financial markets.

"Getting older is going to happen," Ramsey says. "You must invest now if you want to spend your golden years in dignity."

5. Take care of college funding. Fully fund Educational Savings Accounts and/or utilize 529 plans.

If you have kids, then you'll have college to worry about. The earlier you start, and the more attention and funding you're able to give to it, the better off you and your kids will be. Since college tuition inflation averages around 7 to 8 percent per year, your investments will need to (hopefully) do better than that. Always use tax-advantaged accounts (such as 529 plans or Education Savings Accounts) to their fullest extent to assist with this. These plans do have certain income limits and other restrictions and/or fees, so be sure to check the fine print before diving in.

Regardless of how you save for college, do it. Saving for college ensures that a legacy of debt is not passed down your family tree. Sadly, most people graduating from college right now are deeply in debt before they start. If you start early or save aggressively, your child will not be one of them.

6. Become financially "ultrafit" and 100% debt-free: Pay off your home early.

For most people, the mortgage payment is the single largest monthly payment they will ever have. Just imagine what you can do with that money when you've paid it off. Imagine how you'll feel when you make that last payment. Round up every spare dollar you can find and put it toward your mortgage, regardless of all the oft-quoted benefits of mortgage-interest tax detectability. (How wise is it to continually pay, say, $5,000 in interest to a bank each year, just so that you won't have to pay $1,500 in taxes to the government? The small minority of folks who own their homes debt-free probably don't mind paying that $1,500 a bit.)

For more comments regarding home, home loans, and their affordability, you might refer to my "Home, Expensive Home" article from Aug. 30, 2002.


7. Get to the point where your money works harder than you do: Build wealth (mutual funds, real estate, etc.), have fun, and give!

With every bit of your debt zeroed-out and your savings tanks on the full mark, you can finally reach for the "pinnacle point" — that moment in your life where your money works harder than you do. What would it be like to exit the Rat Race and live entirely off the returns of your savings and investments? Find out: Invest more, and more, and more. Invest more to continue to grow your wealth. Give more so that you can continue to grow your soul.


I realize that some people view the Dave Ramsey approach as too simplistic, but I believe for the "average" person, this approach makes a lot of sense. If you follow his plan, then over time you will build wealth. At retirement you will probably be in the top 5-10% of the wealthiest American citizens. As Dave mentioned in the DVD yesterday, there's a fine line between hording and saving, so you have to check your attitude your entire financial journey.


Larry

TrafficJam.com

I just found out about a great new site and resource that contains relevant, popular links to a variety of different blogs in the blogosophere.

If you want to read more about finance and investing information, go on this new site and click on that specific category ranking in the upper right 'box' on TrafficJam.com.

Head on over to http://www.trafficjam.com/ and check it out!

Larry

What I'm reading right now - Automatic Millionaire (part 2)

Today, I'm continuing with more excerpts from The Automatic Millionaire.

On page 33-35, I really liked what David says in the following excerpts:

Are You Earning More...And Saving Less?

Over the years, I've watched people I love increase their earnings but often not their freedom. I've got one friend who's worked extremely hard and seen his income go from $50,000 a year to more than $500,000. But while his lifestyle has increased along with his income, his savings haven't...He's succeeding at a level that most Americans can only dream about, but in reality he's caught up in the same rat race as a person who earns a fraction of his salary.

What about you? Chances are that you're earning more than you were ten years ago. But are you saving more? Are you getting ahead or running harder just to stay even. Is your income helping you become more free or less free?

Why Most Americans Have So Little Saved

Aside from the equity they may have in their homes, most Americans really don't have any savings to speak of. On average, most of us have less than three months' worth of expenses in the bank.

Why so little? The answer is simple...most of us waste a lot of what we earn on "small things." I put quotation marks around "small things" because the phrase is misleading. The so-called small things on which we waste money every day can add up in a hurry to life-changing amounts that ultimately can cost us our freedom.

I Owe, I Owe...It's Off To Work I Go

It doesn't have to be this way. Most of us don't really think about how we spend our money - and if we do, we often focus solely on the big-ticket items while ignoring the small daily expenses that drain away our cash. We don't think about how many hours we had to work to earn the money that we so casually spend on this or that "small thing." Even worse, we don't realize how much wealth we might have if, instead of wasting our income, we invested just a little of it.

What I'm reading right now - Automatic Millionaire (part 1)

The first time I read this book was about 3-4 years ago, and I was blown away by the simplicity of the Automatic Millionaire system. I totally believe in almost everything David talks about, but before you implement these automatic strategies, you really need to (at the very least) be completely debt free.

Over the next several blog posts, I'll highlight some specific strategies from the book that are definite "must-dos" for a strong financial future.

On page 32-33, I really liked what David says in the following excerpts:

"...The trick to getting ahead financially, he said, is watching the small stuff - little spending habits you have that you'd probably be better without.

Most people have a hard time believing this. Why? Because they are taught the opposite. We live in a society where it's become almost patriotic to spend every penny of our paychecks. In fact, we often spend our pay increases even before we get them. Merchandisers know this; they run ads every November and December specifically designed to get people to spend their year-end bonuses. Even the government promotes this idea..."
{Larry's comment: hmmm, sounds familiar - ever heard of a stimulus package!}

"Unfortunately, there's a problem with this. If you are living paycheck to paycheck, spending everything you make, what you're really doing is running an unwinnable race.

Here's what the race looks like:

GO TO WORK...MAKE MONEY...SPEND MONEY...
GO TO WORK...MAKE MONEY...SPEND MONEY...
GO TO WORK...

Notice how it always comes back to GO TO WORK. This is the endless treadmill that most people are on. Some people call it the 'rat race.' It's a race in which hardworking people bust their butts, working forty to fifty hours a week or more - and wind up with almost nothing to show for it because at the end of the month their paycheck is already spent.

It's an unfair, vicious cycle, and you don't want to fall into it. If you are already there, you want to get out...fast. When you spend everything you make (or, even worse, spend more than you make), you subject yourself to a life of stress, fear, uncertainty, debt, and even worse - bankruptcy and the threat of future poverty."

Financial Peace University Update

In an earlier post, I mentioned that I am in the process of coordinating our church's very first Financial Peace University class.

Our first class meets this Sunday afternoon, February 24, and I'm happy to announce that we have currently 72 people signed up, and I'm sure we'll have a few more enroll before Sunday! This number just blows my mind, but I know that even more people in our church and outside our church need this material.

The next 13 weeks is going to be an awesome experience, and I'm just blessed to be able to play a small role in Financial Peace coming to First Baptist, Raytown, MO.

Larry

Dave Ramsey Intro Video

I was poking around YouTube today, and I ran across this video of Dave Ramsey. This is a really good introduction or synopsis of the Dave Ramsey plan. I hope you enjoy it.

Larry

Hey, You. Get a Second Job! (part 2)

Today, I continue with my story about my business as a second job.

Even though my music arranging business ended up as a second stream of income, I really did everything backwards.

This was the process I originally went through 5-6 years ago:

1. Had a little bit of debt.
2. Came up with a "great" business idea.
3. Started my business and realized I didn't have enough money to get it up and running in a "big," professional manner.
4. Refinanced our home to get more money out of our house. Went through $2,000-$3,000 rather quickly!
5. Took out a $25,000 personal loan to "pay off" 2 small car loans, a couple of credit cards, and used remaining money (approx. $4,000-$5,000) to attempt to grow my business. My big concern at the time was figuring out a way to lower my payments down to a "manageable" amount and still get some money out to grow the business.
6. After spending all of this money, the business was painfully slow in growing. Many months, I was funding business expenses through my regular income.
7. After many stressful months of this plan not working, my wife and I sold our house, used our equity to pay off half of the debt, and then the next 18 months to pay off the remaining $12,000.

This would have been a Smarter Financial course of action:

1. Had a little bit of debt.
2. Came up with a "great" business idea.
3. Started my business and realized I didn't have enough money to get it up and running in a "big," professional manner.
4. Decided to grow the business more slowly. Educated myself on growing a business through books, mentors, etc.
5. Went out and got a second job with a steady monthly part-time income.
6. Paid off our current debts as quickly as possible.
7. Once the debts were paid, we saved enough money to cash flow my business start-up in a smarter way. The business started to grow; attracted more clients; quit my initial part-time job.
8. We didn't have to sell our house! We still have equity in a home!

Even though hindsight is 20/20 and I wish I had done things the smarter way, I have no regrets in how things turned out. I feel like I learned a lot over the past 3-5 years. I learned my lesson the hard way, and I'll never do "stupid" again when it comes to home purchases, debt, and starting a business.

Larry

Hey, You. Get a Second Job!

Here's a two-step, fool proof way to get out of debt really quickly:

1. Control your spending, by getting on a tight, no frills budget.
2. Go out and get yourself a part time job in order to clean up your mess!

Here's my own lengthy version of my 2nd job story.

Part of the reason my wife and I got into so much debt 4-5 years ago was that I came up with a "brilliant" idea for a business that I could build by leveraging myself with a whole bunch of debt, thinking I could grow myself out of the debt really quickly (kind of sounds like the government!).

You can see my music arranging and typesetting business site at www.mystaffarranger.com.

Anyway, This was a really STUPID mistake, and I don't think the Lord honored and blessed the business (at first) because I was being a horrible steward of His money. When we started doing right things with money (i.e. getting on a tight budget and paying down our debt), the Lord blessed us and I started picking up more and more clients. I started being more and more selective about how much money I was spending on advertising and where I was spending that money.

To make a long story shorter, my business expenses came down and my revenues went up! Any profit that I was making with MyStaffArranger.com went directly toward debt reduction and taxes. I was able to use my part-time business as a "2nd job" to generate additional income and get out of debt faster.

Tomorrow, I'll complete my thoughts about the 2nd part-time job and debt reduction.

Larry

Give me my points and miles!

Over the weekend, I went to a couple of social events where people know that I'm coordinating our church's Financial Peace University class. Inevitably, we end up discussing topics revolving around finances.

One topic that comes up regularly is purchasing items using a credit card in order to gain points or airline miles. For me, using a credit card to get airline miles is not a big concern because my family and I fly once or twice a year. I can't justify using credit cards to get cheaper flights for a couple of reasons:

1. It's a well known fact that if you pay for items using a credit card, you end up paying 18-20% more than if you were to pay purchases with cash. The full amount of the purchase doesn't register with us when we pay with plastic. There's more "pain" when we pay with cash; we feel it more.
2. You put yourself in a dangerous position by trying to "beat the system" with credit card companies. These ruthless companies are known for charging late fees (even if you weren't technically late with a payment) and changing interest rates on their customers. I think people are just playing with fire if they decide to use them, even if you are faithful in paying the balance each month.

It seems to me a better course of action would be to get on a solid budget, use a cash envelope system for purchases, and plan and save for future trips. In the end, I'm betting that you would save more money with this approach than using credit cards to gain airline miles.

Larry

What's holding you back?

I have a question for you today. What's holding you back from making a major change in your life, financially?

Is it the fear of having to sell some stuff that is out of control and totally out of line with your income? Major stuff like houses, cars, and toys, such as motorcycles, boats, waverunners, four wheelers, etc.?

I'll be totally up front with you, getting your financial house in order is difficult! When my wife and I sold our house over 2 years ago, my wife stood in the driveway and cried her eyes out as we finished moving out. For me personally, I rarely get attached to "stuff," so selling the house was a commodity that had equity we could use to pay down debt really fast. I'm also the guy that had to maintain the house, so I was somewhat glad to get rid of it. But my wife was sad because we had 3 years worth of memories of our daughters beginning their lives in that home. The only comforting words for my wife were, "Honey, someday we will have a bigger, better house than this." I still believe that to this day.

If we build wealth and become better managers of our finances, we will be able to afford a house in the next couple of years that is a blessing and not a curse.

So, again, we come back to the question at the top of the post, What's holding you back from making a major change in your life, financially? Change is hard. Making tough decisions is extremely difficult, but the end result is going to be awesome!

What recession?

For the last several weeks, it seems that all over the news there is talk about our economy is in a recession. I personally believe that 90% of this so-called recession is hype and all politically driven.

Here's a pretty standard definition of recession:

A significant decline in activity spread across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income, and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's GDP.

Notes: Recession is a normal (albeit unpleasant) part of the business cycle. A recession generally lasts from six to eighteen months.Interest rates usually fall in recessionary times to stimulate the economy by offering cheap rates at which to borrow money.

If you follow this definition, I don't think you can say quite yet that the US economy is in recession. Has there been a decline in certain sectors? Sure there has been, but the jobless rate is still very low (around 5%) and the GDP still increased, but at a slower rate of 2.2%. If GDP was -1%, then we could declare a recession. We also need more time to determine the growth/slow down rate.

I'll be honest with you, though, I do believe within the next 12-18 months, we will be heading into a possible "Great Depression" period of time. This belief is based on statistical data, financial cycles, and birth/death rates. Check out this article about these concerns.

Larry

How I've been Stupid with Zeros...My Story (Part 2)

In yesterday's Part 1 of my story, I mentioned that three years ago, something major happened that caused my world to be rocked and helped me rethink the direction my family was headed. That event was a church split!

Since my primary vocation is music ministry (I'm the instrumental music director at a large church), I grew deeply concerned about how this church split was going to affect my primary source of income and even my position itself! I started listening to Dave Ramsey's radio program on a regular basis and taking a hard look at our finances, possessions, and debts.

Given the church's situation, I convinced my wife that selling our home would accomplish two purposes:

1. If my position was terminated at some point in the near future, we wouldn't have the added stress of selling a house while trying to transition to another ministry position.
2. We could get a lot of traction immediately on our debt load. With the small amount of equity in our house, we could still pay off half of our personal debt very quickly.

So, we sold our home back in October 2005, moved into a rental house, got on a lean budget, and begin paying off the remaining debt we had as quickly as we were able. My wife even got a part time job for 6 months that helped us get out more quickly. My part time music arranging and typesetting business (www.mystaffarranger.com) started doing better as well, so we had 3 income streams to knock this debt out really fast.

Fortunately, I never lost my position over the church split and the church is slowly healing over the devestation a lot of people caused. the Lord has been kind and gracious to me and my family. I feel that we have actualy prospered during this "lean time" in the life of our church. We went from a net worth of approximately negative $90,000 to a positive $70,000 in only 18 months. That folks, is an incredible turnaround!

So what did we learn through all of this:

1. No consumer debt is good debt. My wife and I would still like to be homeowners once again in the near future, but we plan on doing it the Dave Ramsey way with an emergency fund in place and a healthy down payment for a new home. Then do a 15 year mortgage, and pay that off as quickly as we can.
2. Be focused on the goal! Freedom from debt is definitely achievable. Have a plan in place, and work the plan!
3. Trust in the Lord through the tough times, and He will see you through it.
   

Larry

How I've been Stupid with Zeros...My Story (Part 1)

I'll tell you right up front that my story is nothing compared to Dave Ramsey or others that have done incredibly unintelligent things with money and paid the price. My guess is that my wife and I have been fairly normal, with a debt load that was somewhat manageable, but we never had any margin in our lives. Instead of having a good emergency fund in place, we would have to finance emergencies (through a personal loan or credit cards) and pay those off as quickly as possible. I disliked debt and didn't necessarily want to make payments, but I assumed it was a necessary evil in how we did American finances.

About five or six years ago, I was going through a bookstore and saw this book sitting on a shelf:



Being an avid reader in the areas of business and finance, the title intrigued me, so I purchased the book and read it from cover to cover in just a few short days. I loved the concepts in this book by Dave Ramsey, but I had a problem. I was still holding on to a few financial belief systems such as:

1. You absolutley need to own/finance a house for tax benefits. It's better to be house rich and cash poor.
2. You can grow yourself out of debt without tight controls on spending.
3. Even though you buy used cars at a good price and aren't getting clobbered by depreciation, you will probably still need to make small payments to a finance company in order to have vehicles to drive.
4. Going into debt for a business start-up (and continued growth) is an investment.

So, even after reading Financial Peace, these false beliefs were holding me captive. I continued being slightly house rich and cash poor, financing used vehicles, and trying to grow myself out of debt by going into debt even further by starting a business with a house refinance and personal loan.

Three years ago, though, something major happened that caused my world to be rocked and helped me rethink the direction my family was headed.

I'll fill you in on the details in Part 2 tomorrow!

Larry

Financial Peace University

Over the last week and a half we've been doing a little bit of advertising, but today was our big kick-off when we ran a 1:00 minute preview video in both of our services and I held a preview class. We didn't have an incredible amount of people come to the preview, but I'm confident we are going to have more people at the preview next week.

I'm looking forward to seeing what is going to happen when people within our church body get real about their finances.

I'll keep you up-to-date on how many people we get to enroll and how the class is going.


Larry

What's up with the title of this blog?!

Welcome to my first post of my latest blog on personal finances!

OK, so I know you’re probably asking yourself, what in the world is up with the title of this weblog?! If you’re familiar with Dave Ramsey (www.daveramsey.com) at all, you have probably heard him make the statement, “I’ve done stupid with zeros on the end of it…” What he’s talking about is all the debt he and he’s wife entered into as a young couple. He amassed a 4 million real estate empire and then the banks called all the notes. After struggling for a number of years with bankruptcy, creditors, and a huge pile of debt, he and his wife were finally able to get out and become millionaires again, this time doing it the right way!

Anyway, I just love Dave’s saying and I think it is unique and will draw people to this blog!

Larry