So far, none of these questions have been as challenging as we thought.  I know this because Dana mentioned that we should do this more often (I wish I had a recorder because she proposed that we do this once a quarter, 4 times a year).  I gave her, in my best Moe Syzlak from the Simpsons voice, “Whaaaat?!”   Dana, we need you blog about this.  We’re calling for you.  Dana! Dana! Dana!

"Whaaaat?!"

There are some minor challenges that we are facing.  Here are a couple of mine and how I am dealing with it.

Haircut- I have been doing well getting my haircut when I needed one instead of way after the fact.  I know this because my hair stylist doesn’t question me when I ask for a 2 guard on the sides (“You know, Bryan, a 2 guard is really short.  Are you sure you want me to use it?  It will look much different than it does now.”)   I was supposed to get a haircut 2 weeks ago.  Now, I am looking at another two weeks unless I find a free haircut somewhere.   I am really starting to get shaggy. 

• Dana is good at a lot of things, but giving a haircut is not one of them.   After a botched haircut attempt while we were living in Germany, it is an unspoken rule that this is not an option. 

Dry Cleaning – I really want to get my shirts dry cleaned, but I must wait.  Instead, I am doing a couple of things that will keep me distracted until February. 

1. I am wearing sweaters on cold days.  I realized that I may be wearing them too much when I tell people at the office how I am saving money by wearing sweaters and they simply say, “We’ve noticed.” 
2. I have increased my golf shirt usage on not as cold days.  Just by wearing a golf shirt one additional day per week is saving 20% in dry cleaning. 
3. Believing that I will iron.  I have had 5 shirts sitting on a chair downstairs handpicked to be ironed out by me.  Those shirts haven’t moved all month. 

So, if you see a guy walking down the street with wrinkled clothing, ratty hair, and smells like sweaty Polo Sport deodorant, don’t jump to conclusions and think that he is homeless.  He could be on a monthly spending fast.

ING checking or savings-  If you have been reading this blog at all, you know my heart, for savings accounts, lies at ingdirect.com.  

Money Market Funds-

You will see Money market funds in your brokerage accounts.  Money market funds are large pools of money invested in short term notes and historically return amounts that mirror the Fed interest rate.  With the Fed rate at 0-.25%, it is no wonder why money market funds are returning close to nothing.   If all else fails, you will know a money market fund by its price: constantly $1.00 per share every day.

Like I said before, you will not get rich from these funds (though you will not lose any money either.) 

Here is a list of some popular Money Market Funds:

Where Would I Not Put It?  CD’s. 

CD’s historically earn more interest than your traditional savings or money market.  However, I would currently advise against buying CD’s for a couple of reasons.

1. There are excessive fees if you need to access your money for an emergency when you are invested in a CD.
2. Interest rates are at historically low rates, which can’t go any lower.  Buying low and selling high is good for stocks, but buying a CD at a low rate locks in that low rate.  When interest rates rise, your CD rate remains the same.   It was only 2 years ago when an average money market savings account was making 5.00%.  With the economy gaining traction as well as our unprecedented government spending, I am expecting these rates to go back up (and then some) sooner before later. 

That being said, I don’t want to be locked in a 1.5% CD for more than 6 months at a time. 

Stocks

Your emergency fund and your investments are to perform different functions.   Stocks will be good for investments, and that step will come soon.  In the meantime, there are two main reasons not to invest your emergency fund in stocks.

1. Stocks fluctuate.  A lot.  I want to buy stocks low and sell them high.  When there is an emergency, there is no choice when to sell.  It’s now.  I want my emergency fund to remain constant, even if I feel that I am missing out on higher potential returns. 
2. Stocks take T+3 days to settle.  T means today and 3 means good business days.  MLK, Presidents Day, Memorial Day, and Labor Day are good business days for me (I work in the financial industry and have these days off)  but are not good business days for getting your money out of stocks.  Take for example, you sell your stock for an emergency on a Wednesday (T), that money is not available to withdraw until next Monday (+3) or Tuesday if there is a holiday.    Add another couple of days to get your hands on the money and you are at a full week.  Your emergency fund should be more accessible than that. 

Mutual Funds

Like stocks, there’s a time and place for mutual funds, but your emergency fund is not the place for them.   

Where do you invest your first $1000.00 and your emergency fund?

This is an excellent question and first of all, awesome job on the buffer of $800.00!  This hunk of money will follow you through each simple step and get you where you want to go, financially speaking, very quickly. 

Under some circumstances, I would say go ahead and sell your company’s stock.  In most cases, I would advise you to hang on to this stock and stay focused on paying down the debt with your $800.00 buffer money. 

The only time I would say ‘sell’ is when your company stock options carry a considerable portion of your overall  portfolio (more than 10%.)   Even then, I would add those proceeds to a retirement account.  If you decide to sell, you should consult your stock option custodian or your accountant on the tax implications. 

I ran the numbers, (did you think this answer would come without an Excel spreadsheet?) and the benefit of $1000.00 would shorten your payout time by about 1.5 months and save you about $125.00 worth of interest.   Though these benefits are nice, I would prefer to keep the $1000.00 where it is. 

I would, however, use your tax refund to pay down your debt.  There will be a day when your tax refund can be used for more ‘fun’ things, but right now you are in the red intensity zone.   Take the whole refund and apply it to your debt.

Also, the same applies if you are getting a bonus from your employer (in my best Napoleon Dynamite voice, “Lucky!”)  If you are in the red intensity zone, apply this directly to your debt.  

Keep up the intensity and the buffer zone.  Great things are in store for you.

1. A spending fast slows us down a little bit, which is always good after a hectic holiday season.  Buying ‘things’ will not make us happy.  Spending time together makes us happy.    This helps to keep things in perspective and encourages us to find ways to have a good time without spending money. 
2. We will save a projected additional $1200.00 in January doing this fast.  Even if we give in and spend $200.00 in January, it’s an additional $1000.00 saved.  The first simple step in the JAM Program is to save $1000.00 as soon as possible.   Red level intensity means doing whatever it takes to get the $1000.00 ASAP, and we are proving that this can be done (and you can actually have fun with it.)
3. Click here for my 3 main motivators for following the JAM Program. 

Here are my three main motivations:

Do what you are called to do 

Most of us will have to work 50 years, from 20-70, so you might as well do something you like and do something that you are good at. 

When in you incur debt, you become a slave to the lender (Proverbs 22:7).  If you are in denial about this, let me ask you a question.  How much of your paycheck goes to paying debt?   What if you lose your job; does your debt go away?  You are still a slave to your lender until it is paid in full. 

Is God calling you to do something or to go somewhere?   Is your financial situation holding you back?  “Sorry God, I can’t start this ministry in (fill in the location) because I’ve got this debt.”  By the way, saying “No Lord” is an oxymoron. 

Financial freedom also allows you to work in a job that you like.  If you are living paycheck to paycheck, you really don’t have a choice on how much you like your job because you can’t afford to step away and find something else. 

I have been there.  You know, that knot in your stomach that you feel on Sunday night when you hate your job?  I lived with that for a long time.  That feeling goes away when you like what you do.

Find what you are good at.  This took me a long time because the ‘good at’ list was so short.  Now that I know what I am good at, I can now look at job postings to see if they fit my strengths.   Artistic ability is not my strength, so I need to trash my Project Runway application for next season. 

Change your family tree

You actually can do something about it.  No matter what your parents or grandparents did (or didn’t do) with their money, you can change your family’s financial legacy.   There are some things I can’t control, like my unbelievably great looks or the guy who cuts me off the on ramp on the Interstate.  I can, however, control my family’s financial future by the decisions I (and my wife) make. 

There’s hope:  according to the book, The Millionaire Next Door by Dr. Andy Stanley, 80% of all millionaires are first generation.  These are people who have decided that enough is enough and are living proof that something can be done to change it.  Millionaires do a lot of things that may surprise you, like drive new cars and wear flashy clothes.  I would highly suggest reading this book. 

You may not realize it now, but your entire family will get on board once they see you.  Parents who are serious about changing their lives get instant buy-in from their children.   Those kids will want their own savings account and will want to do this right along with you.  Now you are starting to change your family.

Give

If working in your strengths and changing your family tree isn’t enough reason to get going ASAP on changing your financial life, consider the giver you can become. 

Being able to give adds a whole new purpose to your work and to your life.  My wife and I have been tithing since college.  This was back when we were making a couple of hundred dollars a week.  Paying 10% ($20.00 a week) wasn’t too painful.  Now that we make more, this habit has continued.  We would consider it painful not to tithe now.  

I would challenge you to tithe no matter what phase and step you are in.   Actually, read Malachi 3 and God challenges you to test Him with your tithe.  No other place in the Bible says for you to test God, so He must be pretty serious about it. 

Too much Bible talk for you?  You can still give your money to charity or an organization that is near and dear to your heart.  I challenge you to send money to a place that feeds hungry children or houses orphans.  I guarantee you that it will add a whole new element to your life. 

Are you motivated now?   Let’s begin.

Red Level Intensity- We are going to run, not walk, out of debt.  Personally, my only regret with getting out of debt is that we didn’t do it faster.  You are not going to keep up the intensity level forever, but for a time, you are going to cut your expenses to the bone.  Do not let sleep to your eyes (Proverbs 6:4) 

When we were crushing our debt, I was working full time, cleaning part-time, and studying for my MBA.  It only lasted for 6 months, but this period changed the course of our finances. 

Red intensity means cutting your all of your frivolous expenses.  Yes, I mean some phone features, your dining out, and yes, your extended cable TV (Gasp!)   You can resume these when you get to Phase 2 if you’d like. 

If you are a beer drinker, this is your Keystone Light/Natural Light phase.  If you are a shoe shopper, this is your Payless/Rack Room Shoes phase.  Like I said, we’ve been there, and this won’t last forever.  If you are thinking to yourself, “There is no way I am going to live like this” go back and reread the motivation and ‘enough is enough’ post. 

The more intense you are in this phase, the quicker you will get out and start drinking better beer and wearing better shoes. 

Yellow Level Intensity- Whew, you are now out of the red storm.  Yellow intensity looks a lot better.  All of the money you have been wringing out of your budget to knock out debt in phase 1 is now going to roll into your Phase 2 steps. 

Note: If you are coming out of Phase 1.  Celebrate!  Do something special.  But not so special that it knocks you back into Phase 1.  Steak tastes much better when you haven’t eaten it for a while. 

Yellow intensity means that you take the spending discipline that you have developed in the red zone, but ease up a little bit.  Go out to eat once in a while (make sure your ‘once in a while’ isn’t 5 times a week.)  Use an Entertainment Book for your dining.  We typically spend $20-$25 after tip (and I tip well, 25-30%) when we go out with our Entertainment book (that’s two entrees and two drinks.)   We are not eating steak, but still enjoy ourselves out and about.  We eat out 1 time a week, on average.  Another night, we get pizza or Subway for dinner. 

Your beer can upgrade now to Bud/Miller Products with an occasional Samuel Adams, if it’s drastically on sale.  You can now get your shoes at DSW (if it’s on sale or in the clearance rack) and overstock.com (if your feet are not picky). (NOTE from Bryan’s Wife: Bryan is so frugal that he doesn’t realize that the ”D” in DSW means discount and Overstock.com is also discounted, so all items are technically on sale.) 

Green Level Intensity- Congratulations.  You are now starting to live the good life.  You have been living in the red and yellow intensity zones for a while now (“yes, Stewie, a WH-ile”), so don’t completely forsake the habits that you’ve created.

The challenge in this phase is that the money that you have been rolling into each new step is now parked in Phase 2, Steps 2 &3.   With 25% of your income locked in retirement and savings, you will need to come up with extra money to roll into Phase 3. 

The key to this phase is to increase your earnings while maintaining a moderate lifestyle.  This will create your extra margin to place into paying your house off early, paying for your kid’s college, and your investing/giving. 

You now have an emergency fund and you are paying yourself first with 15% going to retirement and 10% going to savings, an extra portion will go to your phase 3 step.  The degree to which you budget after this is up to you and your situation, as long as you only spend what you have, i.e. do not borrow from your 15% or 10% or, God forbid, borrow on a credit card (I just felt my blood pressure rise.)  

With your leftover money, you can now budget for premium German Hefe Weizen and buy whatever shoes you want (hopefully, within reason…they are only shoes.)