Though it’s a very busy week for me, I ran across a couple of bloggers posting their "epiphany" moments in response to an invitation from GatherLittleByLittle to do so.  I just had to take a few minutes to share mine while I’m going through all my bills and budget today.  Though I don’t find it very glamorous, it is sort of ironic.

I Had It All Figured Out

Photo by Fighting Tiger

A couple of years ago, I was financially invincible.  Nothing could stop me from being able to provide for my family, enjoy eating out all the time, go on vacations, and continually upgrade my list of toys and gadgets.  I was making over $70K/year, had a nice house, and a stack of debt.  Everybody did though, it’s just how things were, right?

Well, in my glorious plan to start working my debt without actually WORKING my debt…I suckered myself into a sub-prime loan for 115% of the value of my home.  (Though it’s probably closer to 120% of the market value now.)  This allowed me to consolidate almost all my credit cards into one payment with an average interest rate well below my then 18% average.  The plan was to pay down the 2nd mortgage before the 3-year term was up, then refinance again.  With appreciation on the house going up and me paying down, I could probably do it two years, right?

This plan had a ton of risk…but I was invincible!

Enlightenment Begins

I was working late a few nights a week during a really big project, and I started driving home when this financial guy, Dave Ramsey, was explaining to people how to best approach their financial issues to get out of debt.  I really started liking the guy and agreed that just about everything he was saying had potential to help me really change my life.  I started talking about some of his principles so much, that my wife got me his book The Total Money Makeover (aff) for my Birthday.

I don’t remember the last time I devoured a book so quickly.  But, something in the book contradicted the plan that I was currently on.  He didn’t seem to like the idea of consolidating loans, and he certainly didn’t like the idea of borrowing more against your home than you own.

Oh well, I can still manage.  My plan wasn’t that different after a few tweaks.

The Dreaded Realization Approaches

I was in my car one evening, when I heard Dave going on about something he seemed REALLY passionate about.  Whoa, was he livid.  However, it really hit me hard when I heard what he was ranting about.  Sub-prime Loans.  Um, ouch.  I’ve got one of those…

Well crap.  Everything he said really made sense.  I was totally putting my entire family at risk.  I pulled a STOOPID move doing that consolidation.  My problem wasn’t my debt, it was my spending.  I’ll just go down to the bank this week and get on a plan to get rid of all this and get back on track.

The Epiphany Moment

So I’m in the bank talking to the VP that did my original loan when I moved to my city a few years ago.  We’re talking and I’m spewing out the whole Dave Ramsey enlightenment mess with plans to get back on track with a refinance ASAP.  She’s on board and excited to help me out.  We talk income, credit checks…no problems there.  I don’t have a great credit score, but it’s not bad alongside my income.

Then she asks me how I plan to pay off the 2nd mortgage.  (The $35K that’s borrowed above and beyond the value of the home.)  Umm…I thought that’s what I was sitting in her office for.

"Do you have any other assets worth this amount?"

"No."

"What are your vehicles worth?"

"Hmm, maybe $4-5000 combined."

"Do you have a 401K savings you could borrow from?"

"Maybe a couple thousand."

"Sir, I’m afraid I can’t help you until you can pay that off…or your home value absorbs it."

Photo by carpolena

Oh…CRAP.

So much for my glorious invincible plan.  I was screwed.  It was time to clean up my act, get on a plan, and never put myself in a situation like this ever again.

I can’t emphasize enough how horrible it felt to be in there asking this lady to help me get out of my problem…and get rejected.  At that moment, both of us in that room knew exactly what I was up against.

In Retrospect

So, here I am about a year later.  I’ve got just under two years to clean up this mess before my ARM rates can increase, and I’ve made very little progress actually paying down the mortgage.  We are, however, much more aware of our situation and striving to make progress toward cleaning things up.

I remember my epiphany moment just as clear as if it were yesterday, and I actually think about it all the time.  I DISPISE remembering that moment, but it keeps me going every time I think about how much I gotta get out of debt.

When was your financial epiphany moment?  Share it, post it, link up to GLBL and join in the conversation!

I’ve been burning the candle at both ends pretty hard lately.  I simply haven’t had time to sit down without my eyes burning for sleep in quite a few days.  It’s just been a rough week at work, which happens from time to time, but the light is at the end of the tunnel!  The wife has also been putting in more hours, which makes things even more exhausting…but at least we’ll have more income from her than usual!

I have a lot to write about, because I got my tax refunds back from state and federal and I’ve been putting that money to work!  So hang on tight, I should be caught up with things by the weekend.

On a side note, I’ve been getting into using StumbleUpon some the last couple weeks and really have started liking it.  Feel free to check out my user account and add me as a friend if you check it out and give it a go!  Userid: Mrdb.

If you haven’t cut up your credit cards already, *tsk-tsk* now’s your chance to win some prizes for doing it!  Get on over to The Penny Saved contest page and check out how to win some iPods and books for sending in pictures of your cut up cards.

Frankly, I’ve not physically cut up my cards.  Half of them are falling apart from over-use, but I’ve just piled them up on my desk.  I can still use them if I just grab them!  (Which can turn out to allow thousands in holiday spending if you’re not careful.)

Good luck with the contest!  (Though I hope I beat you all, LOL!)

Photo by charlesimages

I read about an issue that Paid Twice noticed with people understanding how the concept of snowflaking can be applied to many different situations.  I won’t go into the definition of snowflaking more, but I’d like to share a couple of analogies I made immediately upon hearing the term for the first time in the last few months to help shed some light on how the concept can be used and applied to something other than reducing debt.

Sometimes people need examples to fully understand things, so here’s a few analogies that I had made awhile ago:

1. Snowflaking is just like saving money the way Grandma used to do it.  At the end of every day/week, whatever was left went into the jar in the kitchen.  Over time, the jar would fill up full of money and the kids would all get to help count it so we could list all the things it could be used for.

2.  It also reminded me a lot of the concept of growing multiple income streams.  No matter how small the trickle is, if you gather up enough of them you won’t need to rely solely and entirely on the one river.  Just the thought of being able to replace an entire income with small streams reminded me of the comparison between snowballing and snowflaking.  Snowflaking the way I understood it is to be done in conjunction with a major debt-reduction effort such as snowballing.  You wouldn’t want to quit your job before you had enough coming in from the other streams now would you?  Same concept here.

3.  Dare I say, losing weight is a lot like debt snowflaking?  I know many of us would just love to lose that extra 30-40 pounds tomorrow night.  However it’s a bit more complicated than that.  And not everyone can dive right into a plan that takes full-time 80-hr/week training and dieting while still living everyday lives.  So if we just concentrate on losing what we can every single day…focus every little extra moment to burn a few calories here and there…over time it’ll add up to something significant!

See the pattern here yet?  It’s almost like a theme of persistence and dedication to even the smallest gains can make an overall significant difference.  That’s really what I got out of the term "snowflaking" the first time I heard it.  Hopefully those analogies have helped you understand that it’s not just a debt-reduction concept as well.  It’s a strategy for anything that requires time and dedication with just little bits and pieces at a time.

As I was hoping to get by two days in a row without spending any money, I realized that my car’s gas light was already on for two days in a row.  Guess it’s time to bite the bullet and just fill the car.  That’s one of the advantages to having the same car for over 10 years, I really know how far I can push the limit on it when it comes to procrastinating the fill-up.

Perhaps this reveals a little habit of mine though…living paycheck to paycheck really lines up with living gas tank to gas tank.  The procrastination of every little thing that takes money away from me to the point where I’m almost late…or stranded.

Today’s Progress:

• Earned - $0
• Spent - $35.46 (gas)
• Debt Reduced - $0

I’ve been doing a little thinking about the whole price of stamps going up ordeal.  It seems to have hit the personal finance blogs pretty quickly as a hot news item with some of them saying "stock up on the Forever Stamps!".

Don’t do it!

(at least not without reading on)

Why Forever Stamps Don’t Save You Any Money

If you had $0.41 to invest in an index fund that only ever kept up with the rate of inflation, would you do it?  If you did, would you keep it in a kitchen drawer or laying around on a desk where it could get lost once you bought it?  Let’s say you had $4100 to invest, would you buy into that index fund knowing you probably couldn’t ever sell it for what you paid for it?

Inflation

photo by forcasts.org

If you’re in debt paying 10% interest, would you rather pay down the balance and save on interest, or buy a big stack of forever stamps so you eliminate one tiny expense for a lifetime?

Well, that’s about what the forever stamp is.  A tiny investment into a USPS product that never increases in value faster than inflation.  For the long term, there’s just no major savings for the customer.

Now, these statements make a few assumptions:

1. You’re an average citizen that just mails a handful of letters a month.
2. Buying a book/roll of stamps isn’t something you do an awful lot.
3. You’re not running a business that requires you to send out lots of mail once in awhile in massive quantity. 

So when is it a good idea?

Let’s say you know exactly how many stamps you’re going to use each month.  Right before the price change, it would make sense for you to buy enough stamps to make it through the first few months after the change.  If you burn through your stamps within the first quarter, you’re essentially saving at (rounded) four times the rate of inflation, which is a pretty good investment.

Let’s say you’re running a business.  You already budgeted for the entire year how much you’ll need in stamps to maintain all outgoing mail.  It probably makes more sense to buy forever stamps knowing they’ll still get your mail out for the year without having to do any accounting changes.

Convenience

What the forever stamp ends up being in the end, is a big giant convenience for many people that just don’t want the price of stamps to affect the stamps they’ve already bought and paid for.  Don’t want to buy a bunch of 1-2 cent stamps to let you use the ones you’ve already got after a price increase?  The forever stamp is that perfect convenient fit…it’s just not an investment!

I hope that helps clear up any confusion.  I remember when they first came out everyone had jokingly talked about buying 1000s of them so they’d never have to pay for stamps again.  Sorry, but I simply don’t use stamps anymore.  I’ll buy one book of forever stamps, and it’ll probably last me a couple of years just because we use our bank’s web bill pay for everything we possibly can, and email for everything else.

So, how many forever stamps do you feel like buying?