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The Debt Snowball Method Is Not the Best Way for Everybody to Pay Off Debt

Corey —  December 13, 2010

That's a big snowball...       Dave Ramsey is well-known as a proponent of the “debt snowball” method. And because of his popularity, many personal finance writers tend to recommend that strategy for figuring out how to pay off your debts (with some exceptions). The idea is that you pay off your debts in order of the smallest balance first. As a debt is paid off, you tack on the payments you were making on previous debts to the next one in line.

       The problem is that many people (including Dave) tend to recommend this as the best strategy for everyone. And they have good reason – because you get a few quick wins at the beginning, many people tend to stay motivated enough to pay off the rest of their debts. The theory is that psychology wins out over mathematics. But the flaw here is that not everyone is psychologically motivated in the same way.

Not Everyone Needs Quick Wins to Stay Motivated

       The assumption behind recommending the debt snowball as a blanket strategy for debt payoff is that most everybody needs some quick wins in order to stick with something. And I agree that this is true for the most part. People tend to give up easily on a goal if they don’t see progress. The debt snowball method sidesteps that problem by giving you some apparent progress very quickly.

       But not everyone is motivated by quick wins. Some people, like me, want to know that they are making the right decision mathematically. That is, they want to do something because it’s the best way – not just because it feels good. When it comes to paying off debts, the debt snowball method is mathematically inferior to paying off your loans in order of highest interest rates first (the debt avalanche method, as some have called it). Even Dave Ramsey concedes that the debt snowball is not mathematically best. Assuming you stick with it all the way through, highest interest rate first is always the fastest and cheapest (least amount of interest paid) method for paying off your debts.

       Let me give you a quick example. Assume you have the following debts:
 

  • Debt 1: $2,000 – 13.00% interest rate – $60 minimum payment
  • Debt 2: $5,000 – 20.00% interest rate – $150 minimum payment
  • Debt 3: $10,000 – 4.00% interest rate – $100 minimum payment
  • Debt 4: $17,000 – 16.00% interest rate – $510 minimum payment

 
       This seems like a reasonable mix if Debts 1 & 4 are credit cards, Debt 2 is a store credit card (after the promotional period expired…), and Debt 3 is a student loan. Assuming you continue paying only the minimum payments, it’ll take you 10 years and 2 months to pay off all this debt.

       Now let’s say you have an extra $300/month to put toward paying off your debts. If you use the debt snowball method, you’ll pay them off in the order I listed them (1, 2, 3, then 4). It’ll take you 3 years and 1 month to do and you’ll pay a total of $6,990 in interest.

       But if you pay off the highest interest rate debts first (debt avalanche), it will take you 3 years even and you’ll pay a total of $5,996 in interest. You’ll get out of debt one month quicker than the debt snowball method AND pay almost $1,000 less in interest! That’s enough motivation for me, and I’m sure there are others who would prefer it as well.

If You Need Quick Wins, You Can Still Use the Highest Interest Rate First Method!

       Proponents of the debt snowball method insist on its psychological boost as being key to its success and popularity. It’s the only reason to push it harder than the smart method (highest interest rate first). But it’s not a very good reason because it’s not exclusive to the debt snowball method.

       If you need quick wins to motivate yourself but you don’t want to follow a mathematically inferior method (that is, a stupid method), then you can create your own psychological motivation by setting milestones for yourself. Plan to celebrate when you’ve paid off $500 in debt, $1,000, $2,500, $5,000, and so on. Recognizing your progress and celebrating it can give you a boost and help you keep going without paying more interest than necessary.

Another Problem with the Debt Snowball

       Personally, I think the debt snowball method tries to cover over a deeper problem inside that needs to be dealt with. If you can’t control your emotions enough to make a smart, rational decision in your finances, you risk falling into the same traps that got you into debt in the first place.

       The debt snowball doesn’t force you to deal with this issue until later if ever. Even it’s gradual benefits (quick wins first followed by a slower pace to the finish) can be replicated by combining the highest interest rate method with personal milestones. So even its psychological benefits are limited.

Most of All, I’d Rather You Be Successful than Right

       Although I would never personally use the debt snowball method, I would rather you use it than not if that’s what you need to successfully pay off your debts. If you can’t sufficiently motivate yourself with personal milestones so you’ll stick to the highest interest rate first method, then you might not follow through with it. And even though it’s mathematically the best method, it’s not going to be very good if you don’t finish.

       What I’m trying to say is that the highest interest rate first method isn’t the best for everyone either. And even though I don’t know why not everyone can use it, I’m willing to admit that it may be better to use something else. I’ve even suggested that you might want to pay off your debts in order of highest stress level first. The best method for you is whatever gets you to your goal – being debt free.

       But it is important to realize that you’re paying more and taking longer if you use any method besides highest interest rate first. That fact is enough to make the debt snowball method absolutely wrong for some people because they want to know they’re making the best, most rational choice (even if they’ve made mistakes in the past). So don’t assume that the debt snowball is the best method for everyone just because it works for Dave Ramsey, or some of his “followers”, or even you. It’s all going to depend on each person’s particular psychological makeup.

(photo credit: kamshots on Flickr)

In Debt, Psychology , , , , ,
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Free Spreadsheet to Track Business Expenses for Schedule C

Corey —  December 10, 2010

Crunching Numbers for Your Small Business       Recently, I had a client ask me for a spreadsheet to help her track her business expenses. I put together an Excel spreadsheet with columns for all the information you need to track business expenses for Schedule C. I also put together a guide to help her know which categories to choose for each item so it’ll correspond to the tax return. I made all of this general enough so I can use it with other clients, and I thought some of you might find it useful for your own businesses.

       Before I get into explaining the spreadsheet, let me just add that you’ll still need to have records like receipts and bank statements to back up the expenses you claim. If you want to learn more about recordkeeping requirements, I’d recommend reading IRS Publication 583 and Publication 463.

Free Spreadsheet for Tracking Your Business Expenses

       To use the spreadsheet, you’ll need to have Microsoft Excel, Microsoft Office, or Open Office (which is free!). I thought about uploading it to ZohoSheets, but I’m not sure if the conditional formatting will work on there.

       You can download my free spreadsheet for tracking your business expenses by clicking here or on the picture below. (Try right clicking and selecting “Save as…” if it tries to open inside your browser.)
 

Free Spreadsheet to Track Income and Expenses for Schedule C

 
       You’ll see three tabs. Ignore the “Categories” tab. I used it simply for formatting the drop down list on the “Income and Expenses” tab. The other two tabs are pretty straightforward. “Income and Expenses” is for tracking…income and expenses. “Mileage” is for mileage.

       There are 365 rows in each of the tabs you’ll be using. If you want to add more on the “Income and Expenses” tab, simply highlight the entire last empty row and hit Ctrl+c. Then highlight the rows you’d like to copy it to. From the ‘Edit’ menu select ‘Paste Special’. Be sure ‘All’ is selected, then click ‘OK’. The reason you need to do it this way is so the conditional formatting will be copied over.

Income & Expenses

       To track your income and expenses, list each item/transaction separately on the “Income and Expenses” tab. If you buy several different things at a store, group them by category rather than lumping them together. Put the date in column A. Choose a category for each item in column B (according to the definitions below).

       If you choose “Other Expenses”, then column C will change from black to white. You’ll then want to type in a subcategory for that item in column C. Try to use the same subcategories for similar items as much as possible and don’t make them too specific (just enough to make it clear what it is) – it will make tax time easier. You can use the other categories as an example for how broad/narrow to make your subcategories.

       In column D, enter a more detailed description of the item so you will be able to match it up to a bank statement or receipt if necessary. Finally, enter the total in column E if it’s income or column F if it’s an expense. The final column will update automatically.

       Here are descriptions of how you should use each category. It’s long, but it will help you track your expenses in a way that will fit right into your tax return. That will save you time and money, so take a little time to understand these categories.
 

  • Income – Assign this category to all sources of income. Although there are some types of income that would be considered “other income” on Schedule C, you’re likely going to need help from a professional if that’s an issue for you. I’d recommend reading through the instructions for Schedule C (particularly page 4) for more information. Actually, you should read through it anyway.

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  • Advertising – Include advertising and promotional costs like print or media ads, business cards, mailers, brochures, signs, pens, and give-away items with the company name, samples, or freebies to promote your business in this category. Also, include any sponsorships like buying an ad in a high school sports program to promote your business.

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  • Car & Truck Expenses – You can deduct actual costs for operating your car or truck in your business, or you can take the standard mileage rate ($0.50/mile in 2010). If you choose to take the standard mileage right (and you’re eligible to do that), then the only thing you’ll include here are your parking fees and tolls. If you want to deduct actual costs, then include the cost of gas, oil, repairs, insurance, depreciation, or your tags here. For most people, it’s simpler and better to just go with the standard mileage rate.

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  • Commissions & Fees – If you pay any commissions or fees to non-employees, include them here. Things like sales commissions or finder’s fees would be most typical.

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  • Contract Labor – If you hire a contractor to handle something for your business, put the cost in this category. The key is that they can’t be considered an employee. This depends on the nature of your relationship with the person and relative control over their work. Get advice if you’re not sure how to handle this.

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  • Depletion – This probably won’t apply to many people. It relates to using natural resources within your business (like timber or minerals).

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  • Depreciation & Section 179 Expense Deduction – If you buy a major item for your business, you can write off some of the cost each year (depreciation) or write it off all at once (Section 179) with limitations. Keep good records of what you buy and how much business use it gets. This area can also get tricky, so read those instructions for Schedule C and get help if you need it.

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  • Employee Benefits – This only applies if you hire employees. In that case, you’d include things like health, life, or accident insurance premiums here. You’d also include dependent care, education assistance, adoption assistance, employee rewards, and any other benefits you pay your employees. It would not include benefits for yourself.

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  • Insurance – This covers insurance for your business and for the operation of your business – not your personal insurance. Examples would be liability, fire, theft, robbery, flood, hail, volcano, etc. Also, note that it doesn’t include your health insurance as that goes under adjustments to income if you’re eligible.

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  • Interest (Mortgage or Other) – This includes interest on loans to finance your business, credit card interest and fee charges for business expenses, and interest on a loan for property used in your business. Separate it out depending on whether it’s mortgage interest or other (anything else).

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  • Legal & Professional Services – Fees for tax advice, tax preparation, legal advice, and so on go here. But for tax prep you can only include the cost of preparing the Schedule C, C-EZ, SE, 4562, 8829, and accompanying worksheets because they are directly rated to your business. Your tax preparer can help you figure this out if you use one.

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  • Office Expenses – This covers office supplies for your business: ink, paper, toner, pens, staplers and staples, paper clips, folders, postage, and so on.

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  • Pensions & Profit-sharing Plans – This will only apply if you have employees and offer these benefits. If you do, then you should already know what’s required. If not, you need to hire a professional.

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  • Rent or Lease – You have two choices here. One is for leasing a “vehicle, machinery, equipment” and an option for “other” (like payments for an office rental, rental of other spaces for storage, and anything else that doesn’t fit in the first choice). These can get complicated depending on what you’re renting or leasing. Be sure you know the rules or get help.

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  • Repairs & Maintenance – This one refers to cost of labor, supplies, and any other items that do not increase the value or life of your business property (stuff you use in the business). So you’d included the cost of fixing something that broke or the costs of maintaining it. If you did it yourself, you cannot pay yourself and then deduct the labor. If you replaced whatever broke with something new, you need to put that under a new purchase – depreciation/section 179 for a big item, office expenses or supplies for a small item.

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  • Supplies – Use this to cover other small items you use in the business that don’t fit in office expenses. If it’s a higher ticket item or something you’ll use for more than a year, it will need to go in the depreciation/section 179 category.

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  • Taxes & Licenses – This category includes certain sales taxes, real estate and personal property taxes on business assets, licenses and regulatory fees for your business, the employer’s share of Social Security and Medicare taxes for your employees, federal unemployment taxes, federal highway use taxes, and state unemployment or disability taxes. This can also get complicated so be sure to check on the rules if this applies to your business.

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  • Travel OR Meals & Entertainment – Travel means you were away for business purposes at least overnight. it could apply to something like a convention, seminar, or visiting a client as long as it’s business related. It can even include cruises if they meet certain requirements (still has to be business related like a conference or something). Meals and Entertainment must have a business related purpose, and entertainment can only count if you’re actually able to get some business done with the client (it can’t be so distracting as to make doing business impossible). There are some other specifics you need to understand before claiming any of these, so definitely read up on the rules here.

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  • Utilities – You can only deduct utilities directly related to your business. The full cost of a cell phone for business use only or the portion of your cell phone bill attributable to business use would go under this category. Any other utility expenses would also go here (gas, electric, oil, etc.).

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  • Wages – If you have employees, you’ll put their salaries and wages in this category. Do not include your own wages/salary here. Also, you have to reduce this amount by any employment credits you claim. If you’re going to hire employees, you better know what you’re doing or be ready to hire a professional to help you.

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  • Other Expenses – Anything that doesn’t fit in one of the above categories goes here. Assign a subcategory that is not too broad or too specific (see any of the others for examples). Items here have to be spent for your business, and they need to be things that are ordinary and necessary (useful) in your particular business. As long as it’s reasonable, you don’t need to worry too much about it. But if you’re going to push the envelope, then make sure you can prove its business use or seek help from a tax professional for verification.

 
       Got all that?! You’ll probably need to read over it a couple times and think about your situation to see what you need to remember the most. If you really get stuck, don’t be afraid to hire a good tax professional for help. It’ll be more than worth the penalties you could face if you’re wrong!

Mileage

       Tracking your mileage is a little more straightforward. Enter the starting mileage on your car in cell C1 at the beginning of the year. At the end of the year, you’ll enter the ending mileages. If you use two different cars, keep track of the starting and ending mileages for each car.

       Record each trip separately. You can combine round trips into a single entry if you like – just make it clear in the description. Enter the date in column A. Enter the total mileage driven for business purposes in column B. Enter your destination in column C and make it specific enough that you can recalculate the mileage in the future if needed. It’s a good idea to enter the starting point and destination to make this easy.

       If you make multiple stops in one trip, I’d separate out each leg of the trip. For instance, you go from your home (where you run your business) to Bob’s house, then from Bob’s house to Susie’s house, and then from Susie’s house back to your home. Assuming Bob and Susie are both clients/customers, I’d do three separate entries:
 

  1. Mileage from my home to Bob’s house
  2. Mileage from Bob’s house to Susie’s house
  3. Mileage from Susie’s house to my home

 
       It might seem silly, but it will be a better set of records than a single entry that says “home, Bob’s, Susie’s, home”.

       Finally, include the business purpose of the trip in column D. It doesn’t need to be extremely detailed, but it needs to be clear enough to show that it’s business related. This will vary depending on your particular business, but it should be pretty simple to figure out. Don’t forget to include trips to pick up supplies for your business. You don’t have to be earning income to count the trip.

Using This Spreadsheet for Your Taxes

       By using this spreadsheet to track your income and expenses by category, you’ll make tax time a lot easier (for you or your tax preparer). Easier means less errors, less time, and less money to spend. With a little Excel know-how, you can easily sort your income and expenses by category and quickly come up with the grand totals needed for your tax return (using a copy of your original file, of course…). Keep this spreadsheet along with copies of your bank statements, receipts, and invoices, and you should have easy access to your records if you ever need them.

Business Use of Your Home (Home Office Expenses)

       I didn’t cover the expenses you can deduct for the business use of your home (home office expenses) or include it in my spreadsheet. The reason is that this can get complicated and the rules are very specific. In fact, unless the area you use for your business is exclusively used for business, you don’t need to be thinking about taking this deduction. You won’t qualify. If you can take this deduction, you’ll need to read up on Form 8829 and the requirements elsewhere.

Complicated Businesses

       If your business is complicated, this free spreadsheet probably won’t work well for you. If you keep an inventory and sell stuff you produce, you’ll need to track cost of goods sold as well. I didn’t include that here because that adds even more complications. It’s not a difficult concept to grasp or item to track, but I just didn’t include it here. You can easily add another tab to track that if you need to.

       But honestly, if your business is more than slightly complex, you can really benefit from hiring a tax professional to help you out – at least for the first couple of years. Study your tax returns, read the laws and rules, and you might be able to handle everything yourself. But be sure you really understand it because the penalties can be severe if you try something fishy.

Questions?

       If you’ve got any questions, leave them here in the comments and I’ll try to help you. If it’s an insanely complex question, don’t be surprised if I tell you to go hire a professional. And finally, please remember that this is all general advice. Your particular situation could require a different approach and I can’t know that without having all the relevant information.

(photo credit: Crispin Semmens on Flickr)

This article was included in the Best of Money Carnival.

This article was also included in the Festival of Frugality.

In Taxes, Work , , , , ,
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Personal Finance Bible Study: Work (Part 9 of 15) – God Wants Us to Rest

Corey —  December 8, 2010

       With all this talk about how God calls us to hard work, you might begin to wonder when you’ll ever get to rest. Despite the fact that God does call us to work hard and avoid laziness, we are not to forsake rest and relaxation when it is needed. God knows that we need rest and He knows that many people may not rest when they need to. We can get caught up in our work sometimes and forget that we need to take a break in order to do our best. This is one reason God has commanded us to rest.

God Commanded Rest

       When God instituted the Law for the Israelites, one command that we find numerous times is to keep the Sabbath. God commanded the Israelites to rest for several reasons, but we’re going to look at two main reasons. First, God wants us to remember that it is He who sanctifies us.

       Moreover also I gave them my Sabbaths, to be a sign between me and them, that they might know that I am Yahweh who sanctifies them.

Ezekiel 20:12 (WEB)

       God wants us to remember that it is He who created us, who cares for us, and who sanctifies us. We cannot accomplish what God has done by means of our own work. By taking rest and remembering the Lord, we can keep in mind the power and providence of God.

       Another reason God commanded the Israelites to rest is because He knows we need to rest. Left to ourselves, we might work every day of the week in our attempt to secure our future or seek after the things of the world. But in the process, we’ll exhaust ourselves and strain our families. We can see the effects of overworking in the lives of workaholics. Stress, poor health, and struggling families are all caused by working too much. God wants us to take rest so that we can be refreshed and avoid these difficulties.

       12 Observe the Sabbath day, to keep it holy, as Yahweh your God commanded you. 13 You shall labor six days, and do all your work; 14 but the seventh day is a Sabbath to Yahweh your God, in which you shall not do any work, you, nor your son, nor your daughter, nor your male servant, nor your female servant, nor your ox, nor your donkey, nor any of your livestock, nor your stranger who is within your gates; that your male servant and your female servant may rest as well as you.

Deuteronomy 5:12-14 (WEB) emphasis mine

       I won’t say more about our need for rest because we’re going to look at it in more depth in the next part of this series.

The Sabbath Was Made for Man

       God’s command to the Israelites about keeping the Sabbath was very serious, but in their zealousness for keeping the letter of the Law they forgot the purpose of the Sabbath. When the Pharisees saw Jesus’ disciples picking grain on the Sabbath and accused them of breaking the Sabbath, Jesus made the purpose of the Sabbath clear.

       23 It happened that he was going on the Sabbath day through the grain fields, and his disciples began, as they went, to pluck the ears of grain. 24 The Pharisees said to him, “Behold, why do they do that which is not lawful on the Sabbath day?” 25 He said to them, “Did you never read what David did, when he had need, and was hungry — he, and those who were with him? 26 How he entered into God’s house when Abiathar was high priest, and ate the show bread, which is not lawful to eat except for the priests, and gave also to those who were with him?” 27 He said to them, “The Sabbath was made for man, not man for the Sabbath. 28 Therefore the Son of Man is lord even of the Sabbath.”

Mark 2:23-28 (WEB)
This passage is also found in Matthew 12:1-8 and Luke 6:1-5.

       Jesus explains that God created the Sabbath for man and not the other way around. We are not here just to keep the Sabbath – as if that is our sole purpose for being created. God created the Sabbath so that we might have rest – rest that we need to refresh ourselves to do the hard work He has called us to. In all their arguments about what it meant to keep the Sabbath, the Israelites forgot why the Sabbath was created in the first place.

       We see this same kind of legalism and loss of vision today in arguments about which day should be celebrated as the Sabbath and what should or shouldn’t be allowed. We forget the purpose of the Sabbath and what God intended it to be about. The important thing is that we rest, remember God as our Creator, Provider, and Redeemer, and seek to honor Him. We would do well just to keep the purpose of the Sabbath in mind rather than arguing about which day it should be observed and whether or not you’ll go to Hell if you don’t do it on the right day.

       In the next part of this series, we’re going to look a little more at Jesus’ teaching about the Sabbath – that it was made for man so we might rest and remember God. God knows that we need rest, and He does not want us to work ourselves so hard that we do not take the rest He has created for us. We’ll look at the fact that we need rest, that God desires rest for us, and that Jesus led by example on this idea of rest.

In Personal Finance Bible Study, Work , , , , , , , , ,
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Advent Conspiracy: Spend Less

Corey —  December 7, 2010

       Last week, I discussed the first concept behind the idea of Advent Conspiracy – Worship Fully. Today, we’re going to look at the second concept – Spend Less. Here’s the Advent Conspiracy video in case you missed it:

Spend Less

       Once we begin to Worship Fully and make Jesus the most important part of the Christmas season, we’re free to Spend Less. Spending Less doesn’t mean you won’t buy any gifts this Christmas. You may eventually come to the point where you choose to no longer buy any gifts, but that’s not the idea behind Advent Conspiracy.

       Americans spend an average of $450 billion ($450,000,000,000) a year on Christmas. How much of that goes to gifts that no one really wanted in the first place? How many times have you bought a gift simply out of obligation? How many times have you received a gift out of that same obligation? Doesn’t really add much meaning to your Christmas, does it?

       Advent Conspiracy is asking people to consider buying just one less gift this year. Instead of buying that gift, make something or give your time instead. It sounds very insignificant, but the total effect is obvious if you think about what it would look like for everyone to choose to give presence instead of presents. If you need some ideas for gifts that don’t cost a lot of money, check out these resources:

       Spending Less lets you focus on Jesus and finding special ways to tell others you care about them rather than just buying stuff. Giving presence or home-made gifts conveys more meaning and love to others than store-bought gifts or gift cards. And it frees you up to Give More and Love All – the last two concepts behind Advent Conspiracy.

       So make the choice to Worship Fully this Christmas. Honor God – not Macy’s or Best Buy or Wal-mart. Then find ways you can Spend Less and do something special for at least one person.

       Make sure you’re here next Tuesday for the third concept behind Advent Conspiracy – Give More. Sign up for free updates to Provident Planning if you don’t want to miss it!

In Contentment, Frugality, Giving, Stewardship , , , ,
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The 10 Times Your Income for Life Insurance Rule Is Stupid

Corey —  December 6, 2010

Life Insurance Rules of Thumb Are Stupid - Like This Sign       Like so many other rules of thumb, the 10 times your income for life insurance rule is a stupid way to make a major decision for your finances. (Sames goes for the 15 times your income, or 20 times your income, or any # times your income…) I keep writing about stupid rules of thumb because they can be so dangerous to your financial future. These simple rules of thumb are nice and easy for a quick guess or check on where you’re at now, but you should never use them as your primary decision making tool!

       The problem with using one of these simple rules for calculating your life insurance needs is that they ignore your personal situation. What if you don’t need all of your income to be replaced? What if you only need the income to last a few more years? These simple rules ignore these factors if they don’t give you some way to adjust.

How to Figure Out How Much Life Insurance You Need

       Your first step should be to decide if you actually even need life insurance at all. There are cases where you probably don’t need life insurance. It would be foolish to buy it if you don’t need it.

       If you decide you do need life insurance, the next thing you want to do is think about what you need it for. Are you in one of the rare cases where permanent life insurance makes sense or should you stick with term (which is the best option for just about everybody)? Do you need it to replace your entire income (so your survivors can still fund other goals like retirement or education)? Do you just need it to cover the bare essentials for your survivors? How much would that cost? Will your survivors be able to provide for some or all of their own needs?

       Then you need to figure out how long that income needs to last. This is pretty simple – how much longer would you probably be working assuming you don’t die prematurely? That’s generally how long you’ll need the income to last. You can choose to cut it short or maybe extend it a little longer than you estimate, but you need to know why you’re making that choice.

       After you’ve got those two numbers worked out then you can start using a number times your income need. This chart below is designed to help you figure out how much you need based on the number of years until you retire (or number of years you need your replacement income to last):
 

Life Insurance Factors

 
       So if you need to replace an income of $40,000/year and you have 40 years until retirement, you’ll multiply $40,000 by 25 to get $1,000,000 of insurance coverage needed.

       Next, add in any immediate costs like funeral costs or debts you want to pay off immediately at death. Then, subtract any savings that could be used to fulfill any of the goals you included when you were figuring out how much income you need. I generally exclude retirement savings because that money is set aside for non-working years and the amount you need to save for retirement going forward should account for your current savings. That will leave you with the total amount of insurance coverage you need to buy. If you’re married, just repeat this process for your spouse (from their perspective).

       All that’s left is to buy life insurance for the amount and term you need. If your situation is relatively straightforward, you can probably do all this yourself. But if it’s complicated, I’d highly recommend at least sitting down with a CERTIFIED FINANCIAL PLANNERTM to discuss your situation. If you can find someone who works on an hourly basis or by the project, it won’t cost you too much to get a second opinion.

Think for Yourself!

       Even though this method involved multiplying your replacement income by a certain number, you didn’t get to that step until you thought through several aspects of your situation. That’s the point of all the articles I’ve been writing about stupid rules of thumb. You need to think for yourself to figure out what really makes the most sense for your unique situation. Once you take the time to do that, you can be sure your decision is going to be a lot more accurate than following a stupid, over-simplified rule of thumb.

(photo credit: Chris Ingrassia on Flickr)

This article was included in the Carnival of Personal Finance.

In Insurance , ,
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Raising a Cow for Beef: Month 15 – Goodbye, Bambi!

Corey —  December 3, 2010

       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 15. As always, let’s first check Bambi’s growth. Here he is at fourteen months old:

Bambi - 14 Months Old

       And here he is at fifteen months old (technically, fifteen months, one week, and three days old):

Bambi - 15 Months Old

       This picture isn’t the best because I had to take it on my phone (forgot my camera…). And yes, he’s on the cattle trailer (more on that later). True to form, Bambi wouldn’t cooperate for a good pose either. However, I think it’s clear he’s gained a good bit of weight since the last picture. He’s filled out a bit more, especially around his haunches. I’m not sure why his coloring has changed so much. Part of it is lighting, of course, but his color has changed over time anyway so I’m not worried about it. I’m sure it won’t affect the taste.

Costs & Time

       As of yesterday, Bambi is no more. He went to the butcher on Wednesday night (when I took the picture) and they slaughtered him on Thursday. However, I still don’t have a final tally on the costs because I’ll need to settle things up with my friends who’ve been boarding him and pay the butchering fees. Here are my totals so far (same as last month):

  • Cost of Bambi – Free!
  • Castration & Dehorning – $16.00
  • Milk Replacer – $45.54
  • Miscellaneous – $46.87
  • Feed – $362.77
  • Hay – $88.00
  • Straw – $20.00
  • Medicine – $5.00
  • Boarding – $100.00
  • Total Spent – $684.18
  • Time – 102 hours

       Bambi will probably hang to age for about a week, so it’ll probably be late next week or early the following week before we get our beef back. Figuring out which cuts to order took a while because there were some that I was not familiar with. It’s also difficult to think about all the beef you’re going to want in the next year and in what proportions. For better or worse, this is what we ordered (though we’ll have a chance to review it with the butcher the day before they start cutting):
 

 
       All the meat will be vacuum sealed. Our roasts will come in 2-3 pound packages. Our steaks will come two per package and will be cut 1 1/2″ thick. The liver, heart, and tongue are all for other people. (I hear the tongue is really good, but I’m going to pass for now…)

       After searching for a good used freezer with no luck, we bought our chest freezer on Black Friday from a local business. I figured they’d have a sale and we got $50 off – a decent discount. But I was surprised when we got a free turkey as well. :) I had no idea they were doing that so it was a nice bonus. Our freezer should get here on the 6th – just in time!

       All that’s left now is to add up the last few costs (final boarding costs and the butchering fees) and compare it to retail and/or bulk prices. Any good ideas on the best way to make a useful comparison? Let me know in the comments. Also, be sure to stay tuned for a special tribute to Bambi in the final post of this series!

       If you haven’t already, make sure you sign up for free updates to Provident Planning so you don’t miss out on my last post where I’ll figure up all the costs, compare it to buying the beef elsewhere, and see how this whole thing works out.

This post was included in the Carnival of Personal Finance.

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Personal Finance Bible Study: Work (Part 8 of 15) – Laziness Brings Difficulty

Corey —  December 1, 2010

       The final danger of laziness that we’ll look at is the unnecessary difficulty it creates in our lives. Where the distractions of laziness allow small problems to grow into big ones, careful and constant diligence prevents many problems from ever occurring.

A Little Bit of Laziness Can Go a Long Way…

       The verse we’re going to look at in Ecclesiastes reminds me of an oft-quoted saying of Benjamin Franklin: “…for want of a nail the shoe was lost; for want of a shoe the horse was lost, and for want of a horse the rider was lost, being overtaken and slain by the enemy, all for want of care about a horse-shoe nail.” A little bit of neglect or laziness can cause great problems and difficulty, especially when concerning important matters.

       In our finances or our work, misplaced focus or intentional laziness can cause problems that would have been easily avoided with a little hard work and diligence. A little bit of time spent on maintenance and gradual improvement can have a profound effect when continued over a long period of time. In the same way, a little bit of laziness can have disastrous results when sustained over time.

       By slothfulness the roof sinks in; and through idleness of the hands the house leaks.

Ecclesiastes 10:18 (WEB)

       Maintaining a house takes a lot of work, but it’s often many small tasks that need to be done rather than many large ones. With diligent care, the house can be kept in good condition. Without it, small problems become major ones. Projects that could have been completed inexpensively can become a major drain on your savings.

       This analogy easily carries over into many other areas of our life. Small projects and tasks at work can often be dealt with quickly and prevent future (and larger) problems. But the inconvenience of these tasks often causes us to slack off and procrastinate – creating much more work for ourselves in the future than if we had just dealt with it early on. God wants us to embrace hard work and diligence to save us from this extra work. He knows that there’s no need for us to deal with many of the problems we encounter if we’ll follow His call to work hard.

       The wisdom of hard work and diligence and the difficulty it can save us from is also reflected in this verse from Proverbs:

       The way of the sluggard is like a thorn patch, but the path of the upright is a highway.

Proverbs 15:19 (WEB)

       I really enjoy hiking in the woods. I find my hikes especially easy and enjoyable when I have a clear trail to walk along. I can see where I’m going and find the obstacles easily. And I get to my destination quickly. But when the trail is overgrown and difficult to navigate, I find it takes much longer to get where I’m going and I can’t see the dangers ahead very easily at all. While it can be exciting to overcome such a challenge at times, I don’t have the same peaceful and relaxing experience as I do when the trail is clean and clear.

       Clearing a trail that’s very overgrown is difficult and takes a lot of time. But clearing a trail that’s been carefully maintained through diligent work is easy and quick. Laziness is what allows the trails in our lives to become overgrown and difficult to walk. God wants us to use hard work to keep the trails clear so we can focus on Him and doing His will instead of dealing with hassles and problems all the time.

       It’s clear that God is looking out for our interests when He calls us to work hard. If we apply this idea of diligence to everything we do in life, we’ll find we can overcome huge hurdles easily and we’ll encounter fewer unexpected problems along the way. However, we must also remember that God does want us to rest when needed. In all our hard work, we must not forget to rest and refresh ourselves so we are ready for the work that lies ahead and are able to do it with all our might. We’ll look at our need for rest in the next two parts.

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