Archives For April 2010

       I recently discovered Jacob at Early Retirement Extreme. I’m not sure how I got there – maybe from this post at Monevator – but I’m glad I did.

       Jacob is a bit of an anomaly in our culture – he’s a retired 34 year old, but he’s not rich (based on typical standards). He was able to retire early by saving 70-80% of his income for five years. He did not make a ton of money during that time. I think his salary was around $40,000-50,000/year while he was saving. He simply lived very frugally and saved the rest. Now, he still lives frugally but no longer needs to work to cover his expenses. Despite the fact that he doesn’t need to work, he does – and he makes enough to cover his expenses.

Cheap Living

       Jacob lives on about $7,000 per year. He’s able to do this because he’s learned to live cheaply – especially when it comes to the major areas of most budgets (housing, transportation, food, etc.). He doesn’t have a car, finds cheap/free forms of entertainment, and eats healthy meals with little to no meat. He currently lives in an RV with his wife, but he admits it’s not a necessary choice to duplicate his results.

Should We Retire Extremely Early?

       I don’t highlight Jacob as an example to be followed for extreme early retirement. I don’t think early retirement as a goal in and of itself as admirable or desirable for a Christian. (I also don’t dismiss it as a goal because I can see how God could use a person in this situation for full-time volunteer work or missionary work – a self-funded missionary if you will.) I’m highlighting Jacob and his choices because he offers insights that Christians can use to question the cultural norms and make choices that can lead to extreme generosity.

       For example, Jacob’s views on housing, insurance, and “sacrifice” greatly coincide with my own. (I don’t really agree with him on investing, but that’s irrelevant.) He doesn’t see money as necessary to have fun or live comfortably. He avoids waste. He learns new skills so he can make and do more stuff himself. His approach to living cheaply so he could retire extremely early can be adapted by Christians who want to give generously.

       If you want to get a better feeling for what Jacob did and why, check out his frequently asked questions, about himself page, and about Early Retirement Extreme. You can also see his best posts of 2008 and 2009.

How Can We Use Jacob’s Examples to Honor God?

       What I ask is that you read his articles from the perspective of how they can help you better serve God in your finances. Unless God has a specific purpose for you retiring early, that’s probably not a goal that will glorify Him. But we can use the same ideas Jacob used to enable extreme generosity in our lives by reducing our expenses and questioning the cultural norms. If you find something particularly insightful or helpful on his website, please feel free to share it in the comments below.

       A couple months ago, my wife and I canceled our phone, Internet, and satellite service (via Dish Network) through the local phone company to switch to Comcast. We did it to get faster internet and to cut out the TV service (which we replace by watching online videos). This saved us some money over the monthly costs and provided better Internet service (a big plus for me).

       There were no cancellation fees, and I asked to make sure. I had to talk to a different person to cancel the Dish Network subscription and she explained the return process. (They want the receiver, remote, card, and satellite dish “eye” back to reduce theft of their service. I can understand that.) She said they’d send me a box with prepaid postage and a list of instructions. If I didn’t send the stuff back, they’d hit me with major charges (anywhere from $200 to $500). If I did send it, no charges. Or so I thought…

The Bogus Fee

       I opened a bill in the mail a couple weeks ago from Dish Network. They wanted to charge me a $15 “return fee” plus $0.90 in taxes. Apparently, this is to cover the cost of the prepaid postage for the box to return their hardware. They’re supposed to tell you about this fee when you’re canceling your service, but they never told me. So I called them up to complain.

The Phone Call

       Honestly, I didn’t expect much cooperation since I’m no longer a customer. Dealing with bogus fees is a lot easier when you can threaten to cancel your service or stop being a customer. Not an option for me, so my hopes were not high. Surprisingly, the representative cleared out the charges after I explained the situation and he conferred with his manager. Score 1 for Dish Network customer service.

Don’t Put Up with Bogus Fees

       Here’s my point. Don’t put up with bogus fees. If you get hit with random fees that you’re not expecting (from any service or business), call and complain. Be nice but firm. Patiently and calmly explain the situation, tell them why you don’t believe you should pay the bogus fee, and listen to their response. I didn’t have to haggle much with Dish Network, but it’s not always that easy. Be prepared to keep (calmly) discussing the problem until you get the resolution you want.

It’s Worth Your Time!

       Why do this? Because it will save you money, and it might not take much time. For example, my phone call with Dish Network took a total of 8 minutes. I saved $15.90 by refusing to pay that bill and making the phone call. My time dealing with this annoyance was worth nearly $120/hour. Does your job pay that much?

       It might not seem like much, but a small savings over a small amount of time translates to a high hourly rate. So assuming you have the time, it’s worth your effort.

       What about you? Have you had an experience like this? How did you handle the bogus fees, and what was your outcome? Share your experiences in the comments!

Debt Is Not Evil

April 27, 2010 — 23 Comments

       A while back, I wrote an article titled “Is Debt a Sin?“. I explained that God never condemns those who borrow money, but He provides several cautions against debt. I took a strong stance against debt in that article, but I want to make something clear to you.

       Most Christian financial ministries are very opposed to debt of any kind. There is almost a sense of debt being evil – something that no Christian should be involved with. But the Bible never says that, and God nowhere forbids the use of debt. God warns against the dangers of debt, but there are prudent uses of debt that Christians should consider.

Good Debt or Bad Debt?

       The personal finance world often tries to make a distinction between good debt and bad debt. But that’s pretty stupid. Debt doesn’t have inherent qualities of being good or bad. It all depends on how you use it and why you go into debt. In truth, there are only two kinds of debt: smart debt and dumb debt. That’s really what people mean when they’re talking about good or bad debt.

Smart Debt

       Smart debt is the kind of debt that’s used wisely and prudently to achieve your goals. When you’re reasonably sure you can repay the debt, don’t overextend yourself, and will get a good value for the cost of borrowing, you’re making a smart debt choice. We can use smart debt to buy a home, get an education, start a business, or (occasionally) buy a car.

Dumb Debt

       Using debt to pay for vacations, shopping sprees, or unplanned, unnecessary purchases is never smart. Going into debt we know we can’t afford to repay is dumb. And borrowing money for risky ventures that are unlikely to succeed is just plain gambling.

       But some of the “smart debts” can be dumb as well. Borrowing to buy more house than you need is not necessarily smart. Getting $50,000 in student loans for a degree in a low-paying career field is not very smart. And going into debt to start a business where you have no experience, have done no research, and just have a “feeling” about is flat out stupid.

God Warns Against Dumb Debt

       What you’ll realize as you read what the Bible says about debt is that God is mainly warning against dumb debt. Dumb debt can put us in situations where it becomes nearly impossible to serve God as He desires. It can make us worry, drain our finances, and enslave us to our lenders.

       But using debt wisely as just another tool in our personal finance belt is fine. In fact, it can often be very wise. Without debt many successful businesses would have never started, many people would never own homes, and many would never be able to get the college education that leads to a successful career.

       Obviously, I’m not recommending that you use debt foolishly to start buying everything you want but can’t afford. However, you shouldn’t be completely opposed to using debt either. If you think you’ll be able to repay the debt, don’t get more debt than you need, and ensure you’re getting value for the cost of borrowing, debt can be a good and wise financial choice. But dumb debt will always be dumb – so please avoid it for your own sake.

Benjamin Franklin by cliff1066TM on Flickr       In 1748, Benjamin Franklin wrote a great little letter entitled Advice to a Young Tradesman. It’s packed with wise advice, but the language is outdated for most readers today. So without much ado, here’s an updated version of Ben Franklin’s “Advice to a Young Tradesman”.


       You asked me for my advice, so I’ve written these tips for you. They worked well for me, and they’ll work for you if you’ll follow them.

       Don’t forget, time is money. Let’s say you can earn $200/day. Now if you sit and watch TV for half the day, you can’t count the $3 you spent for cable as your only expense. You’ve really spent – actually, you wasted – $100 besides that.

       Don’t forget, credit is money. If a man is late collecting the money I owe him, he’s giving me the interest that can be earned on it. This extra interest can add up if we’re talking about a lot of money.

       Don’t forget, money can compound. Money can give birth to money, and its babies can give birth to more, and so on. A hundred dollars used well can become two hundred. That two hundred can become four hundred, and so on until you have ten thousand dollars. The more money you have, the more you can make each time you use it well. Then your profits will increase faster and faster. But if you kill the goose that lays the golden eggs, you destroy all the eggs you would have gotten in the future. If you murder a hundred dollars, you destroy all that it might have produced, even ten thousand dollars.

       Don’t forget, that $1,825 a year is only $5 a day. For that small amount (which you can easily waste in time or money) a man with good credit could cover the interest on a personal loan of $20,000. That much money put to quick work by a diligent man gives a great head start.

       Remember this saying, “The man who pays his loans on time owns another man’s bank account.” If you always pay on time and as you promised, you’ll never have trouble borrowing more money. This can be very useful. After hard work and frugality, nothing brings more success to a young man than punctuality and justice in all he does. So never keep borrowed money an hour longer than you promised. A bad mark on your credit history could close the bank for a long time.

       Pay attention to even the smallest things that can affect your credit. If your creditor knows you’re working hard, he’ll give you a break. But if he sees that you’re being lazy and not trying to pay him back, he’ll be demanding you pay him back all of his money tomorrow.

       Your diligent work and long hours will show that you remember what you owe. It also makes you appear to be a careful and honest man, and that will improve your credit as well.

       Don’t live like everything you have belongs to you. Too many people with a credit card make this mistake. To avoid it, carefully track your income and expenses for several months. If you take the time at the beginning to track even the smallest things, you’ll have great results. Here’s why. You’ll see how tiny amounts pile up into larger amounts of money. Then you’ll know where you’ve wasted money and how you can save it in the future with very little inconvenience.

       Here’s what it boils down to. The way to wealth, if you really want to know it, is as clear as the way to Target. It depends mainly on just two things – diligent work and frugality. Waste neither time nor money. Make the best use of both. Without hard work and frugality you’ll get nowhere. But with them, you can go anywhere. The man who gets all he can honestly and saves all he gets (except what he needs to live) will definitely become rich. Provided, of course, that God (whom everyone should ask for blessing on their honest work) doesn’t have other plans for that man.

An Old Pro

       Last month, I posted an update about how my wife and I are raising a cow for beef. This is a summary of our activity and costs for month 8. As always, let’s first check Bambi’s growth. Here he is at seven months old:

Bambi - 7 Months Old

       And here he is at eight months old:

Bambi - 8 Months Old

       Bambi continues to gain weight at a steady rate. He’s up to at least a quarter of a ton now. I’m hoping he’ll reach 1,000 pounds by November, but I’m not sure he will since he’s 75% Jersey. We’ll see!

Costs & Time

       Now that spring is here, I’ve been able to let Bambi graze. While it saves me money on hay, I have to spend a little more time than normal to take him out from the barn along with his grain and water. However, it takes very little additional time.

       As I mentioned last month, we won’t be spending as much from here on out for hay and straw. We still have to buy feed (grain) every month and that will continue until Bambi goes to the butcher. Here are our costs for this past month:

  • Feed – $40.62

  • Time – 9 hours

       And here are our total costs over the past eight months:

  • Cost of Bambi – Free!

  • Castration & Dehorning – $16.00

  • Milk Replacer – $45.54

  • Miscellaneous – $46.87

  • Feed – $241.78

  • Hay – $88.00

  • Straw – $20.00

  • Medicine – $5.00

  • Total Spent – $463.19

  • Time – 72 hours

       After eight months we’ve spent a total of $463.19 and 72 hours raising a cow for beef. Bit of an expensive experiment, huh?

       My idea to clean out Bambi’s pen a little every day helped when I cleaned the whole thing out one Saturday. It wasn’t nearly the struggle it usually is, so I’m happy about that. But now that he’s not eating as much hay and is spending more time outside the barn, I expect the cleaning to go quite a bit quicker.

       A side benefit of mucking Bambi’s stall is the material I get for compost. I suppose I could consider that on the plus side of the equation, but I don’t want to complicate things too much. Compost is valuable and should help in my garden, but it’s probably not worth a whole lot.

       That’s it for this month. If you have any questions or comments, please leave them below. And make sure you sign up for free updates to Provident Planning if you’re interested in knowing what it takes to raise a cow for beef!

       While knowledge isn’t really a hindrance to success, you don’t need to know everything to accomplish your goals. After you reach a basic understanding of an area you want to be successful in, you need to start taking action. Continuing your learning after that point is wise, too. But if you never act on what you learn, you’ll never be successful.

First, Learn the Basics

       This is especially true in personal finance. You don’t have to be a seasoned financial planner to begin finding success. You don’t even need to spend a ton of time to understand the basics. They’re simple. Spend less. Earn more. Save and invest. Be wise and cautious when making purchases (goods, services, or investments). Plan ahead. Don’t pay things you don’t have to (like extra taxes). And so on. A basic education is all you need to start finding success in your personal finances.

       You don’t need an accounting degree to make a budget. You don’t have to be Warren Buffet to start investing. You don’t have to go to law school to get your estate documents in place.

Then, Take Action

       Success in personal finance is not necessarily about knowing all the right answers. It’s about taking action. Those who only read about the benefits of budgeting will never be as successful as those who actually try to make a budget and stick to it. This is true even if the doers are not successful the first time.

       You can learn by reading about the experiences of others – but only so much. Until you start creating your own experiences, the information will just be knowledge in your head. You must start using it yourself!

       Don’t think I’m discounting the value of learning, education, and research. To be truly successful, you’ll have to keep learning. But you can’t get started on the road to success unless you follow a pattern of learning, doing, learning, doing, and so on.

Avoid Danger Areas!

       I’ll end with a few cautions especially true in personal finance. In some areas of personal finance, there are unscrupulous people who will try to take advantage of your lack of education. Insurance, investing, and debt are the most common places you’ll run into this, but you can really find it anywhere. Here’s the key: Before doing something, make sure you’re aware of the possible problems/pitfalls and educate yourself on how to avoid them.

       Here’s an example. In investing and insurance, you must be aware of how advisors and salesmen get paid. If it’s commissions, know what conflicts of interest might exist. In other words, learn how people might try to rip you off and be on the lookout for those techniques.

       Even though there are risks to the learn, do, learn method, you can avoid most major mistakes by learning first about the danger areas and how to avoid them. In personal finance, be aware of those who earn commissions, learn the math of debt, and read the academic research on investing.

Now Do Something!!!

       So get out there and start doing the needed things to achieve success. Stop reading about budgeting and do it! Stop worrying about having enough for retirement and start saving! Stop dreaming of starting your own business and do it! You’re never going to get anywhere until you take action.

P.S. I think I wrote this as much for me as for anyone else. I have the curse of perfectionism, and I must battle it every day. There is no such thing as perfect in this world. Only God is perfect. So I need to stop worrying about doing everything perfectly and just start doing. What about you?

       This article is the fifth in a series on how to get out of debt. If you haven’t already, you should check out the previous articles:

Step 5 – Build a Starter Emergency Fund

       By now you should have created a budget and found ways to cut back and earn more. But before you start putting that extra money toward your debt, you need to make sure you have a basic emergency fund in place. I’m not talking about having six months of living expenses saved up. You need enough to cover basic emergencies while you work on getting out of debt.

       First, realize that you need an emergency fund. If you have an unexpected expense of $1,000 today, where would you get the money? If borrowing is your answer, consider how much that will set you back on your goal to get out of debt. An emergency fund will help you get out of debt faster because you won’t have to keep increasing your total debt every time an emergency pops up.

       Next, decide where you’ll keep the money. Inflation will eat away at your emergency fund if you keep it under your mattress or at your local big name bank. Instead, consider a credit union or high-yield online savings account where you’ll get a higher interest rate. I prefer ING Direct and explain why in my article Where to Keep Your Emergency Fund.

       Finally, set a goal for your starter emergency fund. I recommend at least one month’s worth of living expenses to begin. Dave Ramsey says $1,000 and others have upped it to $2,000. But how much your emergency fund should be depends on your personal situation. In fact, a starter emergency fund with one month’s worth of living expenses may not be enough if your income is unstable or you (or your family) are accident-prone. Instead, you might want to shoot for two or three month’s worth to start.

       Once you have your starter emergency fund established, we’ll go after tackling your debts. Then you can complete your emergency fund depending on your needs. Paying off your debts without having savings in place is quite foolish, so make sure you don’t skip this step!

Get Free Updates!

       If you want to keep getting tips on how you can get out of debt and manage your personal finances well, make sure you sign up for free updates to Provident Planning! I’ll be continuing this series throughout the year while I also explore other aspects of personal finance.

       Have you built up your starter emergency fund yet? Let me know in the comments below!