Motivation

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The sun isn’t so big…On Friday, I talked about perception and how different people see and interpret things *very* differently.

Yesterday, I went on and on (and on) about the headache Countrywide is giving me over the cancellation of Private Mortgage Insurance.

Putting things in perspective, or just perceiving my own problems from a different perspective, if the $85/month I’m being charged for PMI is the biggest financial burden I have going right now, I can’t really complain about much…

It wasn’t that long ago that my minimum credit card payments were over $500. Finance charges alone were adding up to $250/month?!

This is a mere $85…

I think that the reason I’ve had such an issue with it is that it’s my only remaining expense for which I get nothing in return.

It truly is money out the window. Kinda like that storage unit I rented for over a year

Jim Cramer of Mad Money fame…For much of the day yesterday, the headline on CNBC’s website read, “Wall Street Hangs On As Credit Crisis Hits 1st Year”.

My first thought was, “Has it really been a year?

I don’t really remember all of the non-stop doom and gloom reporting starting until well into the fall. Looking through the PIAC archives, I didn’t really make mention of a “credit crisis” until March of this year when I wished the Fed would stop screwing around with interest rates in a feeble attempt to control things that were never in their control anyway.

So, since it has apparently been an entire year, I thought I’d go back and reflect on how far I’ve come (or gone) since then. You know, with the economy in free fall, home prices dropping, and credit apparently impossible to acquire, how have things gone?

Back on July 31, 2007, we were in the midst of having $26k worth of work done on our house. In fact, I’d just written the check for the final payment on the project.

Heading into August, my net worth had dropped 12% for two consecutive months. Ouch.

Not exactly how you want to start off a recession… though no one was calling it that back then. Still, in hindsight, one would have assumed I was headed for disaster. It’s like I stumbled before I even reached the gate…

My credit card debt was riding high again hovering at $18,820 — some at a high interest rate. All of my debts combined totaled $147,627.

But things weren’t spiraling downward. Not to my knowledge, at least…

A few months passed, the media started talking up foreclosures, the “crisis” word was thrown around, and Jim Cramer went ape on the live television.

Later, the government would send me a check that I didn’t really need, a bank I’d never heard of would fail, and more people would lose their homes — a friend included (though they totally deserved it.)

So now, one year into this “mess”, my debts only total around $115k.

That’s down $32k from 12 months ago.

No, I didn’t even cheat by filing for bankruptcy or something. No government assistance either. No freebies at all — well, except that Stimulus Check, but I didn’t ASK for that…

I’m pretty proud of the pace that I’ve maintained…

And at this rate, I’ll take a credit crisis, recession, mortgage-meltdown, or whatever other name they have for it today any time.

Sure, my 401k has remained pretty stagnant for the past 12 months, but that’s long term stuff anyway. Doesn’t affect my day-to-day finances at all. Warren Buffet has long said that he doesn’t care about the next quarter — it’s the next 20 years that really count. I’ll have to agree with him on this one.

Work hard, stick to your guns, and don’t try to cheat the system. That’s what I did. That’s also what others in my situation (i.e. doing just fine) have done too.

By doing that, none of this mindless doom-and-gloom reporting has really mattered in the short run. If anything, it’s lining us up to be in an even better situation once things turn around…

If you’re interested, here’s the CNBC link to the story I took the headline from.

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It feels like it’s been months since I last accomplished a financial goal. In fact, it *has* been months. It’s getting me down.

I eliminated $28k+ worth of credit card debt way back on March 27 with a $508.13 payment to Chase Bank.

Seems like forever ago already.

There is a light at the end of the tunnel, though, for my next target — eliminating the PMI I’m charged each month on my mortgage bill.

Private Mortgage Insurance (PMI) – PMI is extra insurance that lenders require from most homebuyers who obtain loans that are more than 80 percent of their new home’s value. In other words, buyers with less than a 20 percent down payment are normally required to pay PMI.

PMI plays an important role in the mortgage industry by protecting a lender against loss if a borrower defaults on a loan and by enabling borrowers with less cash to have greater access to homeownership. With this type of insurance, it is possible for you to buy a home with as little as a 3 percent to 5 percent down payment. This means that you can buy a home sooner without waiting years to accumulate a large down payment.

Under HPA, you have the right to request cancellation of PMI when you pay down your mortgage to the point that it equals 80 percent of the original purchase price or appraised value of your home at the time the loan was obtained, whichever is less. You also need a good payment history, meaning that you have not been 30 days late with your mortgage payment within a year of your request, or 60 days late within two years. Your lender may require evidence that the value of the property has not declined below its original value and that the property does not have a second mortgage, such as a home equity loan.

I’ve got $1448 to go before I hit the magic 20% number when I can request that it be dropped. This will result in a $1k+ savings each year for me.

Right now, I’m sending $150 towards principle every Monday. My monthly mortgage payment knocks off $210 each month (increasing $5 each month). And to make each monthly payment a nice round number (it makes the checks easier to write), I also send an additional $45 that is applied directly to principle.

I’ve already paid the mortgage for June so the numbers for the rest of the month are pretty simple to calculate. There are 3 Mondays remaining this month, so subtract $450 from the total.

$1448 – $450 = $998

I’ll mail in the next mortgage payment (which is actually due August 1) in the first week of July. That will take at the very least another $255 off the total sum. The 4 Mondays in the month will total $600.

$998 – $255 – $600 = $143

On the current course, I’ll complete this goal on the first Monday in August. That isn’t very far away.

But July happens to be a 3-paycheck month for me, so providing that our upcoming vacation doesn’t go way over budget and property taxes on our vehicles don’t kick my butt, I’ll likely send in an extra $500 (or so) in July to really break past the magic number before submitting my request to Countrywide to have the PMI dropped.

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Well, I made a big mistake this morning… See, over the past few years we’ve had some major work done to the exterior of our 100+ year old house. New roof, new siding, new doors, some repaired brickwork, a new porch, basically — short of an addition — we’ve done it all.

But one thing has been neglected — the detached garage. (insert scary fanfare here)

Though it’s a two car garage and that would indicate that it was built in the 70’s or 80’s, I’d venture to say that it was actually built in the 1940’s based on the knob and tube wiring throughout which I disconnected in the summer of 2007. It was probably a huge status symbol back in the day.

Now? Not so much.

It’s a junky looking thing. An eyesore. A 400 square foot wood framed rectangle built on a slab with cheap, dented, and rusting metal doors, a boarded up window (where the roofers tossed a brick on to my BMW), tons of peeling paint, and crumbling asphalt shingles. As you may have guessed, it’s not nice to look at.

To its credit, it does have really nice copper gutters which, unfortunately, the previous owner painted. Really, it doesn’t have much going for it. The elephant in the, um, yard.

It’s dirty and old. One bay has the BMW in it. The other bay has a couple of lawn mowers, a snowblower, my airplane, the garbage can, and an assortment of other lawn tools. There is no possible way we could fit another car in there.

Right now, we have 3 cars. Once we have children, I’ve a feeling we’ll even have four cars. Ridiculous, I know. Growing up, I remember when we only had one car and it got the job done — now, for some reason, I feel the need to have four… It’s hard to justify. Impossible, really. I digress…

So, obviously, I’d like a larger garage — something that, at the very least, could fit all three of our vehicles, and if possible, all of the lawn equipment as well. We’ve got enough property to expand, and if need be, we could always add one of those pre-made sheds they bring over on a wide-load truck for the lawn equipment. I don’t really like those, but it would certainly free up some space.

So I did the Google and typed in “3 Car Garage“, you know, to get a few ideas. And the ideas were definitely there…

Check this beauty out:

3 Car Garage

This could totally work. I mean, honestly, it would be nicer than my house, but at the same time, it wouldn’t overpower the house either.

I hate that, you know, when you see a raised ranch style home being towered over by its garage. This is unquestionably a large structure, but my house (which isn’t a raised ranch) would still be an entire story taller — and it’s in the same style as my house with the gabled roofline.

Basically, it works. I can picture it already.

Zoning, however could be a problem… I’ve heard horror stories about people trying to build two story garages in town. It’s one of those things were it can only be done if you know a guy, who knows a guy, who knows yet another guy.

Price? Well, obviously that would be a problem as well.

I’ve no idea how much something like this would cost to build, but when I put my mind to something, I usually get it done.

It kind of reminds me of how in high school I joined Columbia House to get 12 CD’s for a penny without even owning a CD player. Just the fact that I had a CD collection made me feel the need to save up and buy a CD player — which I eventually did.

Relating to the present, I’ve got three cars… See where I’m going with this?

The main problem I foresee is sticking to this goal long enough to be able to afford it — either way, something like this can’t possibly be realized for a number of years, if ever…

It’s okay to dream though, right?

Alexander OvechkinI didn’t get much done this weekend. Motivation isn’t quite at an all time low, but it’s not far off either.

I’d had plans to spend some quality time updating the blog, but it never happened.

I ended up playing an NHL video game instead — for hours. I’m a little embarrassed to admit it, but according to the computer, the last time I played was back in October which makes me not feel so bad.

Jumping on the bandwagon, even though they’ve been eliminated from the real life playoffs, I played as the Washington Capitals.

Sometimes I wonder how I found the time to even play video games in the past… By past, I mean like over 10 years ago. Seems I never have that time anymore and I have no idea what I’ve filled it with.

I’d also planned on cleaning up the curbside on the far end of the property.

See, we live on a corner, so there’s twice as much ‘street’ to clear which entails picking up all of the leaves, sticks and plain old debris that lines the curb. Basically, you want to get as much up yourself so that when the street sweeper (eventually) comes by to pick up all of the sand that’s been spread on to the road over the winter, it leaves the pavement bare for the entire summer.

Yesterday, my wife and I did manage to get out there and get the job done.

Apparently the teenagers across the street from our open lot prefer Taco Bell and Marlboro smokes. Shocking, huh?

How do we know this? Well, our curbside is apparently their late night trash can. It’s also their overnight parking space for some reason even though the family paved their entire front yard (yeah, it looks, um, ghetto) and has plenty of room for all of their run-down vehicles.

In hindsight, I should have put the pieces of their broken glass water pipe on the hood of their mother’s car, but I just threw it out. She strikes me as the type of woman who’d pat her kids on the back for that sort of thing.

Really, who paves their entire front yard??? It’s a single family home with a parking lot for a front yard?!

I hope they move.

Soon.

We’d also planned on getting the basement, um, well, decontaminated. The issue we have down there hasn’t exactly gotten worse, but it hasn’t gotten better either.

Thursday night we went out and purchase some kitty litter — and I can I just say, that stuff is a bargain! Really. I’ve never had the pleasure of spending so little money at Walmart for something so heavy that I had to struggle on the way out to my car.

The plan was to use the litter to soak up the pooling water — something we’d planned to do this past weekend — but it didn’t happen.

Friday, my wife, she does all the talking, called a local plumbing company to have them come out and take a look at our sludge problem. They’ll be stopping by tomorrow (Tuesday).

The good news from the call is that they confirmed that it was apparently pretty common for the kitchen plumbing not to be connected to the city sewer line in favor of a dry well.

That explains the plumbing that I see in the basement. It also explains the hole I covered with a big rock in the back yard — that’s the dry well and thankfully not some sort of outdated “little house on the prairie” septic tank of some sort like I’d originally worried.

The bad news is that the plumber also told her that, to him, kitchen wastewater is more foul than toilet wastewater. My take is that it was a warning shot meaning that this is going to cost us more than if we had a “real” sewage problem.

I don’t know why, but for some reason, I don’t consider the kitchen sink water to be sewage, but holy crap, it freakin’ stinks…

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Hmmm… I think I made a wrong turn…I’m discombobulated. I had a plan that I stuck to

And it worked!

Just a few weeks ago I paid off all of my credit card debt, $28k worth, on that plan.

Then, somehow, I ended up with dollar signs in my eyes.

I started sending even more towards my mortgage principle with the prospects of paying off my mortgage in April of 2014. I said I’d wait until May to get this started, but I started already to get a jump on things…

Then I started sending more towards savings seeing my $10k goal this year as *finally* possible.

I even thought up a way to send more towards my auto loan to finish it off too — even set-up a recurring e-payment just this week to get that one moving too.

All of these sound like good financial moves.

But I spread myself too thin. Way too thin.

In the now distant past, I had 5 credit cards with roughly $5k on each one. I was paying them all down aggressively — for a few years. Yes, the balances were falling, eventually I had them all down to around $4k each.

Progress? Yes, but it still felt like I was spinning my wheels.

Balances weren’t really falling. Finance charges weren’t falling. The balance in my checking account was the only real thing falling at a decent clip.

But once I set out targeting one thing at a time, I was knocking stuff out in a matter of months.

When I started with a real plan back in October, I still had three of those original credit cards. Coincidently, all three had a balance hovering around $5k.

With a real plan in place, the first card was wiped out by the end of November. The second was gone in January. And the third and final balance was gone a couple days before the end of March. One, two, three…

Now it’s April.

Today was my first paycheck since becoming credit card debt free. My auto loan balance sits at roughly $6670.

Eh, what’s that, like 3 months until it’s paid off?

Well, that should be the case…if I’d stuck to that original plan.

I hinted at it earlier this week, but I’ve come to realize that my current priorities are definitely backwards. I started attacking the mortgage ahead of the auto loan and that was the wrong course of action.

In an attempt to compensate, I overstretched myself.

So from here on out, again starting in May (for real this time) so I can catch my footing, the auto loan comes first, then the mortgage (until PMI is eliminated), and then savings.

With the summer season coming, and lower utility bills as a result, the combined monthly budget for these goals will remain $2000.

Best of all, this strategy still makes achieving all of the 2008 goals possible by year’s end.

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Moment of ClarityHow did I find myself in this situation? How did I dig a hole this deep? And how on earth did I climb myself back out?

With tomorrow being a payday, the lull in my debt repayment plan is finally coming to a close. I’m pretty excited as it will give me the funds to be able to pay off the very last of the credit card debt. For good.

I was thinking last night about how and when this whole journey started…

I’ve always kept track of my finances dating back to 1997 when I opened my first checking account. Problem was, I only kept track of my checking account.

It wasn’t until after I’d bought my house in 2002 that I started to keep a detailed record of my credit card use. In the past, I’d always known what my balances were, but I never really kept track of how they got as high as they did.

In May of 2004 that changed. I put together a spreadsheet that listed all of my open credit cards with columns for the balance, the interest rate, the amount I paid for each specific month, and the amount I spent for each specific month. I still update it monthly and reference it all the time.

At the time, the running balance was $22921.42. It was time to start getting serious.

Or not.

Five months later, even though I was paying back at a clip of over $1250 per month, the balance had ballooned to $26145.56. I was headed in the wrong direction, but now I finally had visual proof of how wrong a direction it was.

I set up my first auto-payment in October of 2004 to start rapidly paying down an MBNA card that I no longer used. By February 2005, I’d wiped out a $3500 balance. At this point, I’d never even heard of Dave Ramsey, or snowballing, but I was essentially following his plan.

With one card out of the way and off the spreadsheet, I very foolishly opened a new account and used a balance transfer to partially take out the next target on my debt payment plan. In the long run, and even the short run, this line of thinking backfired. Instead of one bill for one card, I now had two bills for two cards and both had sizable balances.

I plodded along for the entire 2005 calendar year. In the end, I’d wiped out three different credit card balances but my total balance was still $18479.20.

Grand total for the year, I’d sent the credit card companies $26983.29 but my total balance had only fallen $6743.62. Finance charges didn’t make up the “missing” $20k. My own excessive spending did.

This is where I failed. While I had a solid plan to pay down debt, I didn’t have a plan to stop accruing it.

The next year didn’t get any better. I still hadn’t figured it out. I stepped up my repayment plan but still found myself deeper than when I’d started. By March of 2006, I was carrying $24184.37 in credit card debt all at rates higher than 17.99%.

My minimum payments were nearly $500 per month.

My monthly finance charges were exceeding $250 per month.

By this time, I was sending $3k every month towards Chase, MBNA, and Bank of America but was only treading water. I couldn’t understand it.

In May of 2006, I *finally* figured it out. Spending was my problem.

I decided that my last big expense on the credit cards would be an engagement ring. And with that done, it was time to start eliminating the balances. No tricks. No gimmicks. No balance transfers. Just huge weekly auto-payments.

And you know what? It worked!

By January of 2007, I’d wiped out all of my personal debt and only had a balance of $8962.39 on a business card. Things were definitely looking bright, but as with all things in life, a setback was on the horizon…

Unable to get a home equity loan (which turned out to be a blessing) because of our insurance situation, we took out a $12k loan at a high 15.5% rate to finance our roofing project. Six months later, we would finance over $20k of our siding project using credit cards.

Before I knew it, I was back over $20k in debt again. That’ll take the wind out of your sails.

But there was a big difference this time. Spending was, again, the culprit, but this time, they were more intelligent purchases. And this time, I had a plan, already implemented, to pay them off quickly.

It was also around this time that I decided that just eliminating credit card debt wasn’t good enough. It was time to really build some wealth at the same time.

I remember what sparked that vividly. I had been reading various PF blogs pretty regularly at that point, but never really “connected” with any of them. I dunno, none of their numbers seemed real or obtainable to me. Just interesting reads with some good financial advice here and there.

A co-worker had just purchased their first home. Financially, I wouldn’t say that I looked up to this person. Morally? Definitely not. I don’t even really admire their work habits. But they did mention how it “sucked” to have taken over $35k out of savings to make the down payment.

My jaw hit the floor. That’s impressive. Didn’t see that one coming. Total shock. In all honesty, yes, I was jealous.

I’m a guy who’s checking account rarely exceeds $2k and has virtually nothing in savings. I’m still that guy. But I’m not going to stay that guy.

See, I admittedly have a bit of an ego. I keep it pretty well sheltered, but it’s there. There is no way I can just cruise along in life the way I have been when people like my coworker have managed to save up that kind of money. No way.

Things were going to change. And they did. Immediately.

I took my repayment plan up a notch.

I took all but one of my credit cards out of my wallet.

I increased my 401k contributions, twice.

I finally looked into Dave Ramsey’s snowball plan and implemented it.

I started paying down my mortgage, first with an additional $25 per week, then increasing it to $125 per week plus a $25 biweekly payment from my wife.

Now I don’t have $35k in savings yet. I’m not even close.

But by the end of this week, I’ll have less than $7000 in non-mortgage debt and $0 in credit card debt.

Even with the additional mortgage payments and increased 401k contributions of late, my current pace still exceeds $2000 in debt repayment per month. Best of all, spending is not longer the problem it once was.

Doing the math, I’ll de debt free by the mid-summer.

And then the savings will commence.

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401k Nest EggAs of market close last night, the balance on my 401k is down $4600, or 7.25 percent, so far this year.

Dollarwise, that’s not really very much, but when you look at the percentage, well, the six-figure gains and losses you see occasionally on some NetworthIQ profiles start to make a little more sense. It’s all about the number of shares/units.

While annoying, neither number, the $4600 nor the 7.25%, really concerns me though.

I think a big part of it is because it (the market) truly is a level playing field. My holdings are pretty diverse, so my balance has generally paralleled what the markets have done.

The most comforting factor? It’s not just *my* 401k that’s tanking — it’s pretty much everyone else’s too.

The bright side is that my contributions usually go in right in the middle of the month, for this month I’d guess it’s lining up to be “deposited” this Friday.

With that in mind, I hope the market continues to fall so I can grab another monthly contribution’s worth at a discounted price.

Even chugging along with a -10.25% rate of return for 2008, things still look pretty good.

The market will turn around sooner or later, and right now, later is just fine by me…because the more I’m able to buy at a discounted price, the better off I’ll be in the long run.

Six-figure monthly swings, here I come!

(okay, maybe that’s thinking a wee bit far ahead…)

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