How I don't overspend on a CC

As I drew up a complete budget, I've tracked my spending for 2007, detailed all money spent on a CC or cash, and finally I understood what my percentages are. I realized why I always say people can use a credit card but not overspend if you are controlled. Because we have a built in control using our budget. What?

Well I've realized that 55% of our income is gone pretty much before we see it. Then another 30% is gone to housing, a conscious decision. So 85% of our income is gone before we have a chance for it to really be seen even as cash from auto-debits. It is invested, saved, gone to bills.

So I have 15% of our income to really play with in our checking account. We now take home less than what we did when we were both graduate students and making 1/3 of what we make now! Crazy! Of that 10% goes to fixed monthly bills. Bills which we've agreed to pay and decided is important to our lives. So we spend 5% of our income a month as choose in "fun".

Our 10% includes things like homeowner's dues, car insurance, car tax, electricity, cable/internet/phone, natural gas heat, cellular phone plan, pet health insurance and food, and blow allowances. The electric and gas are on budget billing with it's respective company so I use that amount and it works out well.

Now some of these bills are auto-debited on a credit card, but they are budgeted as a fixed amount. So I have 10% of monthly fixed obligations, which can be decreased if we lost our jobs and needed to tighten our belts, such as cable, internet, etc, but which we have deemed currently as important and necessary to our current lifestyle.

Strangely it's even how I ranked them in our budget unthinkingly. Our budget goes Income, pre-tax savings/deductions, taxes, after tax savings/deductions, fixed expenses, and variable expenses. Everything I mentioned goes in the fixed expenses with the mortgage, property taxes, insurance.

Food, eating out, entertainment, fun, personal care, clothes, etc are all variable amounts. I get 5% with which to prioritize my spending. These are charges on the credit card. I have a dollar amount monthly with which I can spend on whatever categories I see fit. I have "budgeted" amounts but I don't have to stick to them as long as I stick to the monthly 5%.

I realized this is something we've done since forever. This is how we've always budgeted and paid CC in full. We never really have had a lot of variable expenses. Most of our expenses have been "pre-set" even if paid for by a credit card. We view them as a monthly obligation and not "our" money.

During my 2 month cash experiment, all our fixed bills were still paid by credit card or auto-debit. Nothing changed except my 5% was in cash. It made me way more frugal in a negative way, because I refused to buy groceries then ended up spending more $$$ to compensate afterwards to restock the pantry. A more appropriate behavior would have been to just use the cash naturally and grocery shop every week instead of trying to go 4 weeks without shopping (I spent less than $100 for 3 adults in a month, it was ridiculous). I also specifically did not eat out because we didn't want to spend the cash.

But now that I have my cash data, my budget percentages, I realize that I don't have a real problem overspending because I don't have much money to overspend with. I consciously have $X/month. I know I have $X going to savings for specific target funds (tuition, property taxes, etc) and those funds are untouchable.

Because of this I don't have large CC bills. On average probably $1k/month including all fixed expenses charged and variable expenses. But my budget busters come when we pay for DH's tuition on a credit card and slam down $25k/year (but at 5% back who wouldn't use a credit card?).

So while CC aren't making me rich, they are helping with my frugal behavior. So I guess this is my personal plan on how not to overspend on a credit card. I have a lot of fixed expenses, hence 95% of my income is gone before I can have fun. I do realize that part of my fixed expense are for fun and it's ironic I only consider 5% fun money.

My plan is to one day have 50% fixed expenditures and 50% fun money. But I'd have to make a lot of money to do that!

Cars...do they define you?

Forbes just had an article called "What your car says about you to the opposite sex." I had to laugh when I read the article. I found it very funny and interesting. It gives a new perspective on how car makers are researching the demographics of their buyers to better tailor their cars.

I wonder are people really impressed by a fancy car? If I were single and dating, would I look and care? I am pretty sure, that if I were single I'd still be driving my car. My DH would be in a fancy car for sure, after all, he commented what he saves in for my retirement would pay for a car. But I'd keep my car and hope a man would pick me and my corolla. I wouldn't mind a man driving a Porshe if he really did make $400k/year and saved a good portion of it. That would impress the heck out of me, someone who has worked hard, saved, and can enjoy the fruits of their labor. Especially if they started out young.

But of course, you won't know this until much later in the relationship. You'll have no idea if the car is leased or financed. All you'll know is whether the guy is driving a nice car or not. Much like figuring out if they have debt.

So I guess I'd have to go pick another corolla driver. Boring, safe, reliable, and cheap. Because people who are more into cars pick Hondas, those who are cheapskates picker the Toyotas!

Owning my couch

Today I own my couch. I paid off the last $244 owed on it. I decided to pull the trigger. It was time to be free. I don't know that it really feels different. But at least it's owned. Now if only owning your brain was so easy.

Next up? Gotta pay my taxes. We usually owe a little, but in January I always make a rather large payment to the state to get us within the $1k no penalty area. I continued to do this again, so I think we might owe like last year $100 or so.

Declaring Bankruptcy?

Since I ranted already today, I thought I'd continue with declaring bankruptcy. On the savingsadvice message board, there is a woman choosing to declare bankruptcy. I'm okay with that because she has a lot of bills she cannot seem to pay.

However, she writes about declaring bankruptcy here, but in her post she says "At this point my expenses are really low – cell, student loan, cable bill, food, braces and riding lessons for dd, that’s it. I bring in more than enough to pay all those, pay myself (envelope system) put some in retirement and still have some walking money. So right now I’m doing so much better than I was a year ago. I really have to thank the hard hitting members of this board for that. It was difficult to face my debt, and hard to admit, but I’ve taken quite a bit of advice here, working the second job last year really helped also. "

Um, how can you declare BK when you still have cell phone, cable, braces, and riding lessons? That's a lot of fat in a budget. I am really upset that people like this can just declare BK and buy whatever they want obviously, live a pretty nice lifestyle (I don't have riding lessons), and still walk away?

Excuse me? Where's the personal responsibility for paying back bills you charged? Or paying off a care you choose rather than repossessing it? Where's the responsibility to pay back bills you ran up (medical, dental, etc) than just getting rid of them in BK?

Sorry but if still have cable, cell phone, riding lessons, etc, you aren't doing everything possible to pay off debt. And it's not the CC companies, doctor's office, etc fault. It's pretty obvious it's the person's lack of integrity.

Longer car loans...

Here's an article about a couple who got a 7 year car loan. The couple were a little worried about taking on such a long obligation, but they couldn't pass up the offer. They were able to get under $700/month car payments.

The article says that people are no longer just buying more home, but more car as well. The average car loan is now 5 years and many more are written for longer. Also the average amount of car loans has increased 40% to $30k.

So is it the car companies fault? Perhaps they should stop making nice, expensive cars. And perhaps they should stop giving out loans. Or maybe people like the Posts, should step back and consider the debt before just leaping on it.

The couple bought a Ford Truck for $44k. They rolled over $9500 owed on their previous truck which they hadn't paid off into this new truck.

But they aren't the only ones, another woman in the article Cindy Gerhardt did the same thing. Except she has done it with multiple cars, rolling what she owed from each previous car into another successive car. So now she owes at least $15k more than the cars are worth. Her monthly payments are more than her mortgage. And she's unable to sell both cars and get a loan for a single car and the difference she owes.

She says the car dealerships never said no. That they kept giving her loans, I wonder did she ever wonder how she was driving nicer and nicer cars continually? Did she ever wonder how she drove a nicer car than someone who earns 2-3x what she does? I am guessing it just seemed like a normal quality of life for her. She drove cars she thought she could afford, but never stopped to consider if she could.

I wonder do you just see the monthly obligation and think great, I can handle $600. I know we would never be able to buy a car and say great $600. So I don't quite understand how it's so easy for people to do so. And think you can afford your luxury car. If you make $40k/year how do you buy a car that costs more than you make in a year?

Debt Free or Free of Fear?

In Dave Ramsey's baby steps, step 7 is being completely debt free including the house, and being able to fully enjoy your money. It's living like no one else because you are debt free. Wow what a concept!

But I've pondered this and I being a scientifically minded person, I'm not sure if I'll ever convince myself or DH to retire our mortgage early. Meaning I don't know if DH and I would ever prepay our mortgage. We agreed our mortgage would be retired the month we retired, but any earlier is not necessarily part of our long term financial goals. So we might never be debt free until we retire.

But does that mean we won't be financially fit or at peace? I don't know. I have mulled this over a lot, bouncing ideas off of my DH and debating just rushing to prepay a mortgage. And that's how we came up with being "free of fear." What does that mean?

We discussed it, and I think I'll be free of fear when we have enough money in taxable accounts to pay off our mortgage and generate enough income to live. According to my calculations that will likely be by our mid to late 40s. So though we'll still be carrying a mortgage we'll be in a position to pay it off ASAP in case of emergency while still being able to live.

Have I made peace with not being debt free? Definitely, so instead I'm working harder at achieving financial freedom by being financially savvy enough to save my extra mortgage payments instead of spending it.

Most people prepay the mortgage because they lack the discipline to save the the amount and invest it. I could potentially fall into that category, however, I am a firm follower of automatic investing. I plan my budgets backwards setting savings as a line item before any other expenses including my mortgage/rent, etc. So I would do the same thing for saving my "mortgage overpayment" and investing it.

Another non-millionaire...

Another post by the Millionaire in the Making Series, featuring the Magtibay family. This family has a geat income, lives in a low cost of living area, and appear to have the ability to save a lot of money. Currently they have $180k in 401k, $23k in IRA, $14k in 529, $81k home equity, and only $3k cash at 38 and 36 years of age. They make $115k/year and have a mortgage of $252k.

First major problem is the Magtibays have very little cash on hand to overcome any difficulties. They used their entire cash savings to purchase a home. This is a bad idea. If either lost their job or became disabled they have no taxable savings to tap to fall back on.

Second, they don't fully contribute to their Roth IRAs annually. This is a fantastic retirement tool while their incomes still allow them. Also they can easily afford to maximize their 401ks with such a high income and low mortgage, but they don't. Why?

Because of problem three. This couple unfortunately loves new cars. So much so they lease new cars every 5 years. Currently they are leasing a Nissan Altima and Pathfinder for $850/month. Honestly if they would just own and keep a car, that $850/month could easily be diverted into retirement/college savings.

According to Money Magazine, the Magtibay should be millionaires by the time they are 50. However I don't think with the lifestyle they lead this will be nearly enough to cover their spending. They'll have to continually generate income to cover a new car lease. Perhaps this couple with degrees in finance need to reconsider their finances.

Income versus Frugality...

If your income suddenly doubled would you keep the same money habits or would they change? If your income suddenly decreased by 50% would you change your money habits?

This question came to mind last night over dinner. I mentioned buying the Entertainment Book to our roomie. I suggested giving it away to friends as a Christmas Gift. It's $30 and a great deal for couples to go out to eat because most of the coupons are for Buy One Get One Free meals.

Anyway, roomie says most of his friends aren't frugal. They would never use a coupon. They aren't concerned about money. The average income for where live is $100k. Thus most people can easily afford a very nice lifestyle.

Truth is does your income affect your frugality? I think that it does a little, in the sense that you worry less about money. However, I think naturally frugal people still pay attention to spending more than they need to. These frugal people would never pay full price for an item they can get on sale. However, the increased income would allow them to buy a better quality shirt, car, or item than they previously would have. That I think is a trait of frugal people, buying the best quality they can afford.

Unfortunately not all people who are frugal do so by choice. And not all people who spend lavishly can afford to do so.

Hence do you think you're frugal for your income? Or not?

Do I need a FICO score?

Do I need a FICO score? Should I be worried about it? Is it important?

No you do not need a FICO score. At the same time maybe you should be worried about it. And it could be important.

What does that mean? Well it means that if you do not feel a FICO score is important then you don't need one. If you do not want to finance a car, house, or purchase then a FICO score means nothing to you.

However, you should be aware of potential repercussions of not having a score. Currently many potential employers will pull your credit reports during a routine background check to determine how trusthworthy you are with money. This might not be important in some fields more than others such as if you handle money like working at a bank or doing accounting for a company. This could lead the employer to determine if you are likely to embezzle money. Or if you are in research and development at a company, are you likely to sell secrets due to debt? Also some companies use it as a measure of responsibility. If you are a person who pays their debts on time, could imply that you will be responsible at meeting deadlines at work. I've talked with friends in Human Resources and these are a few of the reason they look at a person's credit report/score.

Another reason a FICO score could be important depends on your age. If you are 60, nearing retirement and not planning on financing another home then perhaps it doesn't matter. But if you are in your 20s, 30s, or 40s, and considering moving up in home and still need a mortgage, then it's definitely worth considering. Now people comment all the time about getting a manual underwriter.

However there are two things against manual underwriting, one only a few specific companies do it. So this limits your options about getting a mortgage. If like myself a company is paying for your purchase and you can choose from 3 banks, would you really pay closing costs at a manual underwriter or would you have taken the free closing costs from the company? Second, the rate from a manual underwriter even for the "best" rating is never as good as someone with stellar credit shopping around. Why? Because competition for the mortgage is less so the loan company doesn't need to give out the best rate. I've asked multiple brokers about this and they all say the same thing. It costs more to manually underwrite a loan so they can charge more.

Another reason a FICO score could be important is that it is currently being used for evaluating your risk in car insurance. It's only one factor but not having a score could cause higher rates. Also it determines in many states whether a deposit is necessary to start utilities. The companies want to know what sort of risk they are taking supplying you with cable, internet, or phone.

But do you really need a FICO score? No. Can you live happily without worrying about it? Yes. Just pay all your bills on time and a stellar score will naturally follow. Personally still being in my 20s I definitely am concerned about my score and I do plan on buying more homes. I also probably will move and get another relocation package. So I will have to use again the bank chosen by the company. And I'd rather get a great rate than stuck with a mediocre one because of principals of avoiding debt.

Rich versus Wealthy...

So on a message board someone asked what's the difference between rich versus wealthy? Rich people spend their money in 1 generation, maybe 2 if they are lucky. Wealthy people pass it on for generations building upon it. I thought interesting way to look at it. This was referring to the press article about Britney Spear's spending habits.

Spears is just another star spending lavishly. However the question arises how long can she keep up this lifestyle? The really rich person is probably the one managing her money and writing her a check. Hence she's rich, but the other guy is probably wealthy.

To further the example her ex-hubby K-Fed made $500k last year in endorsements but only grossed $7500 after expenses. How does he maintain the lavish lifestyle? He had got $22k/month in spousal support and $15k/month in child support. But soon that will end and what will he live on? Another case of being rich, but not wealthy?

Is that an adequate description of rich versus wealthy?

Review: Debt Consolidation Site

I said I'd write an unbiased, objective review of the Debt Consolidation Care Website. First of all this is a website for people who are in debt and attempting to get out of debt. This website does not appear to be associated with any financial "guru" or celebrities like Suze Orman, Dave Ramsey, David Bach, etc.

They provide a service where they help people to get out of debt. The first way they do is this by suggesting that people consolidate debt through them. This is supposed to lower interest rates and make the monthly debt payment more manageable. This appears to a standard service. Because I am not consolidating any debt, I did not attempt to try out the program.

The second part of their website, is the forum discussing debt. The forums covers a broad range of topics including getting out of debt, bankruptcy, and getting loans after ruining your credit. The topics in this area seemed well organized and easy to follow. It appears that many people have a lot of experience in dealing with creditors and how to pay them off. This area also appears to give support to those getting out of debt. This area does not however suggest cutting up any and all credit cards, etc. Rather it stresses getting out of debt but not being critical of those still using credit.

The third part of the website is blogs of people getting out of debt. The blogs do not appear to be the typical blogs I enjoy visiting, but I'm sure there are many blogs which would be helpful for those interested in reading blogs about digging out of debt.

Fourth, there is a section to read about how to get out of debt under articles. I really liked this section and felt there was a lot of information well organized into topics. Also the calculators for determining how long it will take you to get out of debt and how much to pay is easy to use.

Overall this is a very easy to use website. It looks like it could be supportive of those getting out of debt. It might be a starting point for those looking to improve their financial situation.

Dental Update #3...

To summarize, I refused to pay $350 for a cancelled dental appointment in July. I have sent back proof about changing insurance, I have sent proof the dental office was not eligible for coverage with my new insurance (they are but OUT OF NETWORK). I called and reported them to the insurance company, and it turns out they have been reported multiple times for violations of misleading people to get work done when it wasn't covered.

I have written two more letters saying I'm not paying it. Got another 3rd letter saying I'm responsible for the $350.

What are my options? My DH says to keep saying I'm not paying. This time to explain the cost of the cancellation was way above the reasonable guidelines of the state. They were deceptive, which they were but refuse to acknowledge. I also reported them to the state dental office, but hey they obviously don't care and have been reported before.

Can they send it to collections? How will this affect my credit? What are their recourse? Should I offer to settle for $50?

Is Credit Necessary?

A Guest post by Lemony, a friend from a message board. She submitted her thoughts on credit, Dave Ramsey, and whether a score is important.

I'm a big fan of Dave Ramsey's Total Money Makeover. His no-nonsense get-out-of-debt plan is something that can work for the average Joe. While my husband and I were in Canada we paid off $70,000 worth of debt in two years on an $85,000/year salary using Dave Ramsey's method, which we had tailored to our own needs. We cut up most of our extraneous credit cards, we used cash money to buy things, we planned for expenditures in advance and we invested a good portion of our wealth.

Then we moved to America and everything changed.

My husband was offered a lucrative position at a big American company and we thought it was a dream come true. We figured the big move next door would be as simple as going on an extended vacation. But we were horribly mistaken. We've been here a year and the messes keep piling up. We're constantly having to file new paperwork for USCIS, the DHS, the IRS and whatever governing body happens to call on us for kicks. Our biggest problem thus far, however, has been that necessary evil called CREDIT HISTORY.

Being Dave Ramsey followers we figured credit history was unimportant. That credit cards
themselves were unimportant. We were woefully mistaken. Because we have no credit history in America, getting any kind of service has felt impossible. We had to put down $500.00 as a security deposit on our electricity service, $1, 000.00 as a fee for our cell phone service and $2700.00 down on our apartment rental, just as some examples. We still haven't gotten those fees back. We just bought a house and had to pay fees to the mortgage lender to check our Canadian history. We still couldn't get the best rate. If we had an American credit history it would never have been a concern.

Our one saving grace was a local credit union who offered us a credit card when we first moved here. The reason they gave it to us, they said, was because they had a good history with my husband's employer and they trusted that company's employees. So, thanks to the big American company, we got one little Visa card from a small local bank. There are no special features of this card. It's just a standard 18%, no annual fee Visa. But the fact that they report to the credit bureaus has given us a shot at being recognized as real people, with honest intentions to consume huge quantities of American merchandise, and then pay for it. We use our little Visa card whenever we can. We pay in full and then we use it again.

I still adhere to most of Dave Ramsey's basic principles - don't spend more than you earn, save for your future and give, give, give. But the cash cow that made him famous - the Stop-Using-Credit-Cards-Completely mantra he pushes - just doesn't work for the little guy. It's horribly unfortunate, but its true.

I still adhere to most of Dave Ramsey's basic principles - don't spend more than you earn, save for your future and give, give, give. But the cash cow that made him famous - the Stop-Using-Credit-Cards-Completely mantra he pushes - just doesn't work for the little guy. It's horribly unfortunate, but its true.

Debt Perspective?

Okay I was just thinking how funny it is I'm sitting feeling guilty for owing $1194 on my 0% credit card for my couch. I just paid $350 today because $230 was old couch sale and $100/month I determined each month is a bill. Yes it's a debt and it bothers me more now that ever having previously used a 0% CC. Probably because I'm blogging about it and it makes me feel like I'm cheating.

Then I sat back and questioned what the heck am I doing worrying about $844 of CC debt? I owe close to $500k between my mortgage and student loans. Can you see the disconnect? I owe close to half a million dollars and I'm sweating owing $844 on a couch?

Where is my perspective? Why am I not more worried about the mortgage and student loan? Why am I not killing myself over those two debts? I owe 2x the average mortgage of the US. I read many blogs about people complaining about their CC debt and I have mortgage more than 4x what someone owing $100k does. And I'm not frightened out of my mind?


This thought stumped and bothered me a lot. I nearly keeled over when I realized the impact of what we owe. We owe more than most people's CC debt, car loans, student loans, and mortgages combined. I think it's the fact that everyone is so focused on not having "bad" debt. That they forget that a mortgage is debt as well. That we don't own our house, we're just renting it from the bank. That we are using borrowed money to further our educations. Sure those are suppossedly good debt but it's still debt.

So anyone paying off debt will probably be crying out against my 0% CC, while cheering my enourmous mortgage as "good" debt. As necessary debt. How crazy is that?

I'm hopeful that things will get better and we'll be able to pay off our student loans before the interest ever hits. I'm saving money to maintain our home properly and our cars. I am using this blog to keep from getting "incomtitis" and adjusting our lifestyle to what our income is.

I guess I'd love to live large one day and who konws when that will be. But we're moving there one saved dollar at a time.

Mortgage Mess?

The mortgage industry is in shambles. In a story they feature 4 families in mortgage trouble. Are they really victims? Or do they have a case of wantitis? Where they want the better things in life NOW!

Are the lender predatory? Yes. But is it entirely their faults? No way. These people probably need to take a look in the mirror and acknowledge their desire for new cars, larger homes, etc. The first family refi their home to pay off two new SUVs. The second family wanted a home but didn't care to sell their trailer first. The third family were renting but the landlord selling the home caused them to rush to buy anything. Thus all three families knew they were getting Adjustable Rate Mortgages (ARM) but none cared. They only cared about getting into the house, then once they were in, suddenly the payments were unaffordable. The fourth family was the only one which claimed they thought they were getting a fixed rate mortgage but it was switched on them at the close.

Um, hello? If you know you are getting an ARM, how can you be a victim? If you know what your payment is and you accept it, and are told it will change why do these people move forward with buying the home anyway? Is it because they just have to have a house now???

I have to admit the first time we bought a house in 2002, we were wet behind the ears. We did it behind our parents back and without telling anyone so we had no advice, no experience, no wisdom given to us. We were fortunate to have a wonderful RE agent who guided us to buying a house within our means. She agreed with our "parameters" for purchasing. She even guided us to a 30 year fixed loan, discussed with us about putting a 10% down payment, and closing costs. I realize looking back we didn't get the best rate or best closing costs because we used a mortgage broker she reccomended instead of a bank, but he was honest.

I wasn't happy with the mortgage we ended up with I think it was 6.25%, 30 year fixed, with no points but it was decent. After that I learned how much cheaper banks/credit unions are. And with our credit scores we could have used either. However we did have a problem with DH's visa status, hence a mortgage broker was willing to put us with a subprimer lender get circumvent the J-1 Status. We weren't married (yes another stupid mistake) so our loan was difficult to push through. When we refinanced with Washington Mutual we took DH's name off the loan.

Anyway we knew what rate we were getting and though it wasn't perfect we ended up better than expected. Thus I feel these people are unfairly crying "victim". How can they really claim to be victims when they chose to purchase homes they knew were expensive? Or were refinancing a house they could afford into something unaffordable?

We've become a nation of wantitis. We want to constantly keep up with the Jonese, without ever considering we don't have the means to.

A disturbing trend...

Twice in one week very strange experiences happened. Something that makes me wonder about the trends of debt in the US. I once wrote that it my CC would have to be pried out from my cold dead hands. I still think that, but I'm wondering if Americans aren't getting worse about CC debt and we shouldn't be forced to take basic money management classes in high school and college?

First we went out to dinner on Friday at a Chinese Restaurant. It was a nice place, pretty reasonable $30 for the two of us. Anyway we were sitting next to this family of 4, who I think were travelling. Anyway they were out of money and had trouble paying for the bill. They began to ask the waiter (who didn't speak english well so we helped to translate), to split the bill on to 3 CC and put down some cash. The cash from was from their two children. The conversation was rather startling, that they could only charge $10 on this card, then $10 on another card, and $10 on another card and $20 in cash. It was very confusing. I thought well maybe they overspent on vacation, but still it was bit surprising.

Then last night I was waiting to pay for my groceries in the express line. It was surprisingly busy, but the woman in front of me couldn't pay for her groceries. She also split a $14.07 bill on to $5 one CC, $5 next CC, and $5 cash. It took forever and the cashier was grumbling a bit because she swiped more than just 2 cards which did not go through before finding cards that worked.

These two experiences were eye-opening. What is going on? I don't recall the last time I saw someone splitting the cost of something on different CC. Or even trying to put things on a CC which was rejected. Personally I rarely notice so I wouldn't know if it were a debit card versus a CC (who can really tell because debit cards are used as CC a lot when you are given a choice). But is abuse of CC getting worse? Are people spending more than they have?

House Payoff versus Large Savings???

OMG. My best friend from childhood lost her job yesterday. Of course she was in the mortgage industry and did sub-prime loans. So these past 5-6 years she has been rolling in the money. Fortunately my nagging did some good. We're like sisters, she's an only and well I'm closer to her than my own siblings. We've known each other pretty much since birth.

What you say? In college my best bud use to be deeply in CC debt and ran up a ton of bills. However since she meet her boyfriend 3rd year in college, he cut up her CC and made her pay them all off. Since then she never abused CC again. I also nagged her about savings, starting her retirement, and putting money aside. So I told her how to invest her retirement money and stuff and got her turned onto coupons for makeup.

Anyway I was a bit worried but my nagging worked. She can live for 3 years at least at her current spending habits without changing a thing because of her money in the bank. A nice $100k. Yes! So while she'd rather not touch her savings, she can not work if she chooses.

I'm hoping she instead chooses to go back to school and retool her career. Right now what would have happened if she had followed Dave Ramsey's advice and put that $100k on her mortgage and only had 6 months of living expenses? Well she'd be desperate to find a job and her mortgage payment would still be there because her mortgage would not be paid off, only the amount of time shortened. Right now she's in the position of choosing a job. And pretty much any job she works at will supplement her savings, and she's getting unemployment. Plus her BF is picking up some slack on the household bills.

But what would most people do? Do they really pay off their homes? I realize we're in unique situation of buying $500k townhouses, but still money in the bank buys time to choose a job without stressing as much. I'd personally rather have 3 years of potential job hunting and retooling than going back to work within 6 months. Plus it's longer if you trim the budget.

How long could we live 6-12 months depending on how frugal we are. I'd really like to have more cash, but we keep spending our "savings" right now on school. It's eating up $30k/year which we would be saving otherwise.

Moral of the story? Stockpile cash until you can pay your mortgage in full, otherwise you tie up too my liquidity in the house. I guess overall it's personal choice. Will you choose to tap an EF for something like home repair or would you have saved cash and touch that and leave an EF basically for sacred things like death and job loss?

Following Dave Ramsey...

I was mulling over someone's comment on a message board, how when they reached Baby Step 6 - paying off the house, they felt that squeezed tight in the budget. They felt as though their lifestyle was worse than it had been before. They couldn't put a finger on why, but did suggest that it was due to the extra savings.

I think that Dave Ramsey does an excellent job getting people to pay off debt. BUT what many people probably think is once they pay of the CC, student loans, HELOCs, etc and only have a mortgage then they will be rolling in the dough. Basically after Baby Step 2.

Where's the disconnect? Well there are probably two reasons for this, one during baby step 1, 2, and 3, following Dave Ramsey, you aren't saving 15% for retirement. That's 15% gross, not net. Right there that's a huge chunk of money.

Second big chunk of money saving for sinking funds. Those are things like replacing a car, home repair, vacations, etc. Those things you didn't do or put off in baby step 2, are now back with a vengence. So all the money once used for snowballing is now turned to saving for things a person in debt never had the cash to pay for.

I've found that living responsibly is hard. It's a lot easier to charge and live with free money. It's so much harder to save. But that's my reasoning why after Baby Step 2 the money doesn't appear to be so free.

CC debt Forgiveness?

I question the ethics of "settling" with a CC company. As someone who always pays my CC in full and has not paid CC%, maybe I don't understand what is going on. But it really started to bother me on the WIR message board, when someone mentioned trying to settle with a CC company to forgive their debt.

They felt unable to pay the debt back in full and would like to pay less than what they owe. This did not sit well with me. I do not understand how someone can chose to do this. I do understand at least the CC gets something back instead of nothing, ie the person files bankruptcy. But how can people feel it's okay to buy things they cannot pay for?

Also I don't believe it's entirely interest they are paying. There obviously was charges for things they purchased. Perhaps it was just a meal eaten or something intangible. But where do you draw the line? Do people settle for the amount they charged at least? Or is everyone else left holding the bag who uses CC?

Sofa Debt...

Yes we bought a sofa. In fact we went with a sofa which I did not post about before. Instead we bought a microfiber sofa with a chaise, so a slightly smaller sectional sofa. In the picture, it's a loveseat with a chaise, but we chose to 3 seater sofa so an extra 30". This will fit perfectly in our living room.

We bought it a week early but will get the sofa tax free in anticipation of tax free day. So we saved $60. We also used a coupon I had for $100 off the sofa which made it an even better deal. The original price of our sofa was $1092. Then we added on scotchguard treatment/5 year warranty for $103 making our subtotal $1195. Then delivery was $99 and tax should have been $59.75.

But with the $100 coupon we got free delivery and tax free because of the state law. So $1195 for a sofa seems like a deal to me. We also got free financing for 1 year 0% APR. Okay, now again DH wanted to just pay it off but I decided it was okay. And yes I've already set the money aside. So I may pay it off though at the end of the year when I cash out some stocks, or next week depending on csco, but for now I think we're fine.

So now I just increased our debt by $1195. I wonder if this is me treading the path of debt? To be honest I already feel the weight of the debt across my neck, but I still continue down the path. I wonder what a year will bring? I may not be able to take it and may end up just paying it off asap.

But it really is all about behavior, not the debt. I've financed stuff before on 0% CC and I often think about it and want to pay it off. But I discipline myself to pay $X every month and it's paid off 1 month before the date. Done this 6 times, and it's all the same. Guess it's like money already spent, but it's still weird feeling.