My Debt Blog

Finally after months of waiting, weeks of speculation, and days of checking our account, the 2008 Economic Stimulus check finally showed up in our account this morning. I know other PF bloggers out there have been waiting on theirs too, so if you haven’t got it yet hold tight.

We received a flat payment of $1200. Half of this will go to our vacation, the $300 that was taken from the EF to fix my car is going back, and we will work $300 into our budget to help us tackle some debt. The government of course wants us to go out and spend it, but we recently purchased an HDTV so I think we already have done our part. This money is nice to receive but is not necessary to our economic stability by no means. I’m glad we didn’t spend this money on something before we received it, because it may have never came.

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I’ve seem some crazy news stories about fraud before, but nothing like this. A friend sent me a story on a convicted felon who spent $3.2 million in 3 months. So how did he do it?

When we buy things like cars or property, we need to prove our identity to do so. This guy used a copy of a driver’s license and social security card which was faxed in his dealings. He had started out small buying 4 trucks, ATVs for his toy hauler, then got daring and a Dodge Viper, finally houses and land all totaling $3.2 million.

This loser got caught when he tried to buy an ATV and business required original documents. He claims that his brother gave him permission to use his credentials to buy things. How low do you have to go to drive up this much debt on a family member? The brother refers to him as a “thief, crook and slime ball” which I would happen to agree with.

Sadly though this guy doesn’t feel he did anything wrong. He got eight years in prison and his brother has to clean up the mess on his credit report. This kind of thing is exactly why it is so important to have identity theft insurance and do annual checks on your credit reports.

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The mainstream news media never ceases to amaze me. Recently the New York Times published an interactive chart on their website, All of Inflation’s Little Parts which is a visual representation of consumer spending and inflation.

Below is the breakdown of what the average consumer will spend their income on annually. I took note on some of the areas that peaked my interest:

• Housing 42% It puts 2.4% for vacations in this category for some reason. Meanwhile home owners spend about 24% of their income on their home.
• Transportation 18% Gas prices are 5.2% of our annual income, which is up 26% so we’re only paying a quarter more for gas. If you break that down, it’s about $550 more a year on 40k income, that’s $45 more per month. There’s way too much hype and panic over gas prices.
• Food and beverages 15% Adding 2 categories together, this thing shows the average consumer blows 5.4% of their income on eating out! This might have something to do with the health care costs going up.
• Health care 6% The skew in this graph is that prescriptions are 1.5%, doctor and hospitals make up 2.6%, yet we only pay 0.5% to health insurance? Maybe I’m looking at it wrong but health care costs are something that needs to be taken seriously.
• Education/Communication 6% College costs up 6% which is near twice the average inflation rate. If my generation is Gen Debt from large student loans than what generation will my children be stuck in, Gen BK?
• Recreation 6% Cable makes up the largest single component of this area at 1.2%. The media obviously can’t report this to you because they need you to watch them lie to your face and work up your emotions.
• Apparel 4% This area is a bit sexist because the women’s categories are broken up into a few things, and men has about 5 or 6 categories. Both sides are 1-1.5% but they make it look like women spend more money in this section.
• Miscellaneous 3% Obviously tobacco products take up the largest slice of this area at 0.7% on the average consumer. If a person making 40k a year stopped smoking, they would have an extra $280 a year to save or invest. Again this could be related to the health care costs too.

Feel free to look at the chart and let me know what you find interesting.

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This is a few days behind, but better late than never. If you haven’t noticed already, I did a reset on my Debt-O-Meter to show start balances from March on credit card, student loan, and house debts and the change in April. Payoff priority is obviously in that order for obvious reasons and tax purposes too. I’ve updated my NetworthIQ chart too, which took a straight dive downward. So instead of my net worth actually turning positive in April, our combined net worth is in the negative by six figures.

We got a lot accomplished in April though paying off over 6 grand in debt. A combination of using my bonus from work, our income tax return, and just pure focus on getting this stuff done was our motivation. I’m very pleased to say that we went from 12 credit cards to just 5 (originally I thought it was 4) which is huge. As we start to tackle these other cards, it will take larger payments to knock them down faster. I would like to see our credit card debt reduced by at least $500 a month, that would put us at 20k come the beginning of 2009. We have to get rid of our credit cards before we even think about tackling the student loans, so paying them off quickly is important.

I don’t know how big of an impact on debt we’ll have in May due to my car breaking down and having to replace funds in the EF. We’ll get through this and move forward slowly, but at least it isn’t going backwards.

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Well after having the issue with my car, I cannot stress how important it is to have an EF. I’m not sure if I ever commented on the EF before, but I’ll explain my views on it.

Characteristics of an Emergency Fund:

• Baby EF If you’re just starting out, like getting out of debt, have a starter emergency fund in place. It has been recommended that $1000 should be sufficient. If you have a family, it would be wise to double or triple that starting out.
• Full EF Maybe you don’t have debt or just completely paid off all your non-mortgage debt, time to save. A good emergency fund contains 3 to 6 months of expenses, not income.
• Emergency! Don’t rush to this money like it will make your problem go away. Sit on the issue at hand and see if you can get through it without having to resort to the money. If it won’t happen, at least you have this money sitting there for it. Christmas is NOT an emergency either, it comes every year in December people.
• Inve$tment? Too many people think they should take this money and invest it to make money on it. This money isn’t for investing, it’s insurance for when life happens. Don’t tie it up in a CD or bonds, a money market will do. Keep this cash liquid and accessible to access it when you need to. It will rain and you’re going to need an umbrella.
• Rebuilding Maybe avoiding the emergency situation was too much to handle, and you had to use it. Now that things are back on track, replace the funds that were used back into the EF. Avoiding this crucial step and leaving the EF underfunded could become a problem later.

There are a lot of cases where you might need this money. Covering the deductible on medical insurance, sudden job loss, mechanical breakdown (like a car?), death in the family, and the list goes on. As I stated before this money isn’t sitting there like a savings account you can go blow on Christmas or a vacation. You set the money to the side and forget about what else you could be doing with it. People just starting to get out of debt often skip this step. The reason it is there is to avoid having to borrow money in the event of an emergency. Why would you fix one problem by going into debt thus creating a new problem? The EF is there to avoid trepidation and ease the situation at hand. You know as they say: People who fail to plan, plan to fail.

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Last night I wanted to run an errand, and my car wouldn’t start. At first it was confusing which quickly turned into frustration then anger. I could hear the ignition switch kick in the starter, and the starter was turning over normal but the engine wasn’t firing at all. Not even a choke or a cough, no fire. At least the car is sitting in my driveway and not the side of the highway.

For the most part it sounds like I am at the mercy of a mechanic. I’ve got to get it to them, towing it there is going to run some money anyway, and then hopefully it will be something easy for them to spot. I’ve narrowed it down to spark or fuel. Either the spark plugs are bad or my fuel pump isn’t functioning. Either case I could be looking at $200-500 in parts and who knows how much in labor to replace stuff. What is sad is this is the first major breakdown my car has gone through. I change the oil regularly, check my fluids, change air filter, and don’t beat on the car by quick acceleration or hard breaking. Sometimes things break though so this is just part of life.

Hopefully this won’t be a huge setback, but I will most likely be part of the EF to handle this car issue. This is exactly the reason everyone should have an EF! I’m glad my wife has a job now too and we don’t have to go through this battle scraping by my income alone. Debt reduction could be limited this May, but my asset doesn’t have much value it doesn’t work.

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