Success Warrior: The Blog That Embraces ADHD

ING's Christmas Present

I just received an interesting email from ING.  For Christmas, I can get a loan with an additional 1/8th of a percent off of a home loan.  I can also give this gift to someone else as a Christmas present.  Nothing says Merry Christmas like going into debt by a couple hundred thousand dollars. 

Christmas spirit can now be yours at a reduced rate.

Anyone want a home loan or refi?

You want some SWB small print on this?  This isn't on the coupon.  This is just Success Warrior's take on this wonderful deal.

They are going to give you an 1/8th percentage off but I'll bet you that the Fed lowers the interest rate by 1/4th on the 11th.  ING is willing to cut you in on half that break but you have to act fast.

The Fed will probably cut another quarter percent off on January 22nd too.  And again on March 4th. 

But if you act now, you can lock in their great discount price.

Operators are standing by.

Act now because this deal won't last.

Don't forget to take my presidential poll.

Weekly Meeting: Lots of Little Bits

We had our weekly meeting last night.  We thought about skipping it because Tia has a bad cold and I'm coming down with a cold.  I hope it doesn't get as bad as hers.  She was miserable last night. 

We went through the basics of the meeting and didn't follow up with much discussion like we usually do.

I check all our accounts each week and put the numbers down for us to review.

Have you heard of Universal Default?

If you haven't, you will.  Even if you weren't a reader of this blog, you would eventually hear about this little scam that's going on in the credit card industry.

Here's the deal.

If you pay one credit card late, all your other credit cards can increase their interest rate on you because now you're a higher risk.  This can happen even if you have never made a late payment to the other cards.

Make one late payment to one card and the interest on all your cards might go up.

One oops.  One, "No, I didn't send it in.  I thought you paid the Visa bill."  One mistake by the US Post Office.  One . . . well, you get the idea.

Is that scary or what?

I think it's a sign.  No, not a sign of greed.  A sign that the credit card companies feel that they have people by the short and curlies.  This is blatantly unethical and the word "lame" doesn't even come close to stating what kind of excuse they are using to raise interest rates on people.

The bottom line is that nearly every agreement has a little line where they can change your interest rate with 15 days notice.  Sure, you agreed to pay 12% interest when you got the card but at any point they can raise that rate as long as they give you two weeks notice. 

I think it's a sign that the credit card companies believe that they have consumers trapped.  Obviously, anyone with the ability to get out of an interest rate hike is going to.  No one is willingly going to stand for that.  But where will they go?  Transfer the balance to another credit card?  It's going to be the same story.  Refinance your house to get the equity to pay off your credit cards?  Not in today's housing market? 

The bottom line is that they are doing it because they can.  People have sold their financial soul to the devil and the devil gets to do what he wants.

There is an answer. 

The plan can work slowly if you like

To make this plan work, the bottom line is that all you have to do is not borrow money again.  Don't get loans and especially don't use credit cards.  It's been a while since I've mentioned credit cards so I'll probably have to do a post on them soon.  Credit card companies are getting more predatory every day.  You have to free yourself from them.

If you don't want to make the sacrifices that we've made, you don't really need to.  We put all our extra money toward our debts but you don't have to do that.  You can spend it on anything you want.  If it scares you to go without, then don't go without but only buy what you can afford.

The thing about going without for a little while and putting the money toward your debts is that you free up more cash on a monthly basis.  Think about how much more money you would have each month if you didn't have any credit card bills.  What if you didn't have any car payments?  What if you didn't have a house payment?

My wife and I are probably going to take a couple months off from paying things down as quickly as possible after we have paid off the student loan and the car.  All we'll have left to pay off is the house and we're going to reward ourselves by seeing what it's like to live without the debts that we've paid off and have the extra cash just laying around.  Then we'll get to work on the house because there is going to be so much freedom for us when that's paid off.

The other benefit to going as quickly as possible is the tens or hundreds of thousands of dollars that you save in not paying interest.  The less interest you pay, the more money YOU have.  A simple fact that most people just don't seem to realize.

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By popular demand, I have started a new blog about events in my life.  The first post is about a chat I had with Don Rickles and can be found at http://successwarrior.typepad.com/chronicles

A tool for people with mortgages or are going to get one

I have looked around now and again for a mortgage calculator that I like and I finally found one.  So I'm going to share it with you.

http://www.apimagazine.com.au/calculators/mortgage/

This calculator will show you how much your monthly payments will be including your insurance and taxes.  It will show you how much interest you're going to pay if you just make your house payments.

Under that is the part that is eye opening.  You can put in an amount that you want to add to your house payment each month and it will tell you how much money you'll save and how much quicker your house will be paid off.  This calculator has a couple features that I haven't found on others.  You can add the extra money at any point in the calculation.  If you have been paying on your mortgage for 3 years, you can tell the program to start adding extra money at month 37 and note how it changes things.

It also has a pretty blue and green graph.  =)

Here's a couple quick examples but I really encourage you to go to the site and play around yourself. 

If you have a $200,000 mortgage at 6% and you pay an extra $100 a month from the start, you will save $50,000 and pay off the loan 5.5 years early.

If you can pay an extra $250 a month from the start, you'll save $91,000 and pay it off 10 years early.

Just about everyone can get to the point where they can pay these amounts.  In fact, most people with houses can probably get to where they can add an extra $1,000 a month to their house payment.  Play with the calculator and see if that doesn't encourage you to put some extra money where it counts.  Paying a little bit extra saves you thousands of dollars and years and years of your time.

Reversing the flow

I think this year is going to be a good year for my wife and I, so let me throw out a disclaimer to start things off.  I don't post this blog to brag about what we are doing.  Anyone can do it.  In fact, that's the reason that I post this blog.  If my wife and I can go from where we were and succeed with this plan, then just about anyone can do it.

Okay, let's get on with it.

I have a 401k through my employer.  I'm not really a big fan of 401k's but that's a personal thing.  That being said, my employer does a 50% match and there is no way that I'm going to turn down 50% free money.  Even if I take a 20% hit to get the money out when I quit, I'm not going to find a place where I can absolutely get that kind of return on my money so I put in the max that they will match. 

That money also earns interest or at least it should.  One of the things about my plan is that we are trying to change our life from paying interest to earning interest, even by just a little bit.

It didn't work out that way for the quarter ending in June of last year.  I got my statement and my money had earned me -$1.47.  I lost a buck and half in interest.  Even putting money into a 401k, I was still paying interest.  Now with the 50% match, I'm not going to quit.

I didn't get a statement for September for some reason.  I wasn't worried about it but it does mean that I didn't have any information to report to you at that time.

I got my statement for the quarter ending in December and the market has turned around.  Last quarter my money gained $198.52.  How cool is that?

Yes, it's not that much.  $65 a month hasn't change my life today.  It does however fit the philosophy of the plan and that's important and over time the interest is going to have a huge impact on my money.

Interest is a powerful force in this world and you get to choose whether it works for you or against you.

Here's a different way to think about your money

I had this thought last week and now I want to share it with you.  It's not completely valid but there are several reasons that I want to share it with you. 

First, it is a great illustration and may help people see their money in a better way.

Second, a couple of days after I had this thought, an odd thing happened.  I didn't tell anyone this thought as I was still thinking about it.  I had never read this before so I was contemplating its usefulness.  My wife came home a couple days after my initial discovery and told me a story.  Someone at work was talking to her about money and while listening, my wife had the exact same thought.  That kind of serendipity means something.

Third, I'm going to include this when I compile all this information into one spot so this gives me a chance to think out loud, a rough draft of sorts.

The thought that occurred to me and then to my wife is simple and probably not original even if I haven't seen it before.  It's this.  Add up all the interest rates that you are paying.

Add up the interest rate from your house, your cars, your credit cards, and anything else that you have that carries an interest rate.  If you want to have an idea of where your money is going, add them all up.  It doesn't have to be exact.  Round the numbers off and add them up.

The object of the game is to be paying at the very most 0% interest.  You want to get to the point where you are being paid interest but for now, let's aim for 0%.  How close are you to paying no interest at all?

My wife and I are at 21% and that's 21% more than we would like.  But when we look around, there are people who are paying more than that on just one credit card.  Yikes!  And they have several of these cards.  Double Yikes!

Make a commitment today, if you haven't already, to start reducing the total amount of interest that you are paying out.

Looking ahead to 2007

My wife and I had our weekly meeting last night and I'll give you some of the highlights.  It had been a couple of months since our last meeting so there was quite a bit to go over.  We usually meet each week but we put everything on hold for the holidays.

One of our biggest goals for this year is to reverse what I call the financial inertia of our money.  Essentially, we want to stop paying interest and start earning interest.  We are going to work on both goals at the same time during this year.

To slow down paying interest, we are going to pay off my student loan and the car loan.  That will leave us with just a house loan which we will start paying extra payments toward.  Every payment to principle lowers the amount of interest that you pay for the rest of the loan.  I'll be talking more about this in the future.

To start getting more interest, we are going to do a few different things.  I'll continue to put in the max amount that my company will match in my 401k.  It's a percentage and I'll be getting a raise this week so that amount will go up.  We are going to move most of our saving from our bank where it's earning a whopping .7% interest to ING where it will be getting 4.5%.  We are going to start investing in mutual funds and stocks.  I will also continue to play around with Prosper which probably won't make tons of money but I think it's valuable for now.

We reviewed our goals and changed a lot of the dates that we are aiming for.  Most of the dates, we moved closer.  For instance, we previously had that we wanted to be completely debt free by the year 2016.  Last night in looking over everything, we decided that we could probably do it by 2010. 

We reviewed our daily activities to remind ourselves of the small things that can be done daily that will help us.  Every week, we pick one that we think is the most important to work on for the next week.  This week we picked "Monitor Expenses Daily".  We want to make sure that we get out of "holiday mode" right now.

We usually review our weekly spending next but we haven't been keeping track so there was nothing to review this week.

We looked at what's coming up in the next week as far as appointments go.  I have a meeting with the HR director and my wife has a couple of appointments.  Nothing financial but we keep track anyway so that we both know what's going on.

We have a miscellaneous notes section that we left blank this week.

Next is to list everything that we didn't get done from last week which was left empty because we didn't have a meeting last week.

The next section is things that we want to bring up next meeting.  This is for things that wouldn't or can't be done in the next week and so won't be included in the "Weekly To Do" list.  We left it blank last night but I remembered something today that we were going to do in January so I have added "Review FICO" to bring up in the next meeting. 

The last section on the page is the weekly to do list.  We put down that we will invest $100 and move our savings to ING.  We also put down a couple of non-financial things down.  We list everything for the week, again just so that we can stay on the same page.

When that was done, I shared a sketch of a floorplan for a house with my wife.  I drew it last summer and we looked it over and made some small changes to it.  We are going to be moving in a few years and will probably build a house.  I'm drawing the house that we would like to live in.  Whether we are in a position to build it or not is still up in the air but we have found that magical things can happen if you have a clear picture of what you want.

Bad credit? No credit? No problem!

In fact, that's probably how some lenders prefer it.  After all, that means they get to charge you more since they are taking on more risk.  They probably relish the small nicks to your credit.  It's a fine line of course, as most things in life are.  How much on a credit report is just a mistake and how much shows irresponsibility with money?

We ended up paying an extra 1% in interest on our last house just because the bank could do that.  My ex completely and utterly destroyed my credit to what some would say was nearly beyond repair.  But my current wife and I set about repairing it and the lender was quite surprised to see just how much we had repaired it.  All our payments were on time, errors had been taken off my report, and a fraud watch put on because it appeared that for a while my ex continued to include my name and social for credit applications. 

Still, when it came time to tell us what our interest rate would be, it went something like this.  "Here's the current interest rate.  See this on your report, we are adding a quarter percent.  And this too.  This one here is going to cost you half a percent.  So your final interest rate is 1% higher."

Now, understand that they were going to give us the loan.  And understand that it meant they thought we were going to pay it back.  And understand that, in fact, they thought we could pay more than the asking price because a higher interest rate means a higher payment. 

They knew we were going to pay and the charged us for being a "higher risk" just because they could.

This loan officer was very nice, saying nice things and using KY while he bent us over, but we promised to never be in that position ever again if there was any way around it.

Tomorrow, I'll tie this back to Prosper.com.

Crossing "The Line"

I have mentioned it before but I thought I would talk a little bit more about the line.  The line I'm talking about is the line between paying interest and earning interest.  Obviously the goal of this plan is to get us to the point where we are earning interest . . . exclusively.

Like most lines, there is a broad gray area.  In reality, most people aren't doing just one of these activities.  It isn't an either/or situation.  Most people are paying interest and earning interest.  The problem of course is that they are paying more interest than they are earning.

The object of the game is to change that and then eventually get away from paying any interest at all.  We need to get to the point where it's normal to not have debt.  Right not, no one thinks twice about using a credit card because "everyone does it."

If all your friends jumped off a financial cliff, would you jump too?

It's not even so much about peer pressure but just a sense of "that's how things are."  It has been ingrained in our culture.  We need to ungrain it.