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keethrax
keethrax HalfDork
9/9/09 1:55 p.m.
Dr. Hess wrote: You're comparing no fund and no emergency with 3K fund and an emergency. You're missing a couple of options. No fund with 3K emergency and 3K fund with no emergency. Then there's cost of not having a fund. The math/probability starts to get tricky in the analysis, but you are always better off having the 3K fund, even if you just drained it. The cards you cut up, never allowing yourself to fall into that trap again.

Pretty sure I covered all four basic options. Both fund and no fund were meant to be addressed in each scenario, but it was somewhat implicit.

Let's try it again, more explicitly in case I missed something. Feel free to demonstrate my idiocy. I'm good at being dense sometimes.

Case 1: No fund/No emergency. This one's easy. It gets you out of debt the fastest, and since nothing went wrong, the lack of a fund doesn't hurt.

Case 2: 3k fund/no emergency: Still not too bad, because you didn't have an emergency. But you paid extra interest on the $3k you didn't use to pay off the CC.

Result for 1&2: No fund comes out ahead.

Case 3: $3k Fund with $3k emergency: This is the type of thing you have the fund for. Fund pays off the emergency, and you keep on going. However, you've still been paying interest on that $3k you used to make the fund between when you started and when the emergency occurs.

Case 4: No fund with $3k emergency You get stuck putting $#k back on the card. A depressing occurrence to say the least. However, it's the same $3k that you would have left on the car earlier to build up the fund, so your total balance on the card is in the same ballpark as in Case 3. In fact, since you've not been paying interest on that $3k in the meantime, your balance is still somewhat better than in case 3.

Results for 3&4. No fund still comes out ahead.

Keep the card for just long enough to build up a fund after thee CC has been paid off. Then cut it up.

This is predicated on a realistic grasp of what does or doesn't constitute an emergency. If you don't have that, the fund makes it harder to fall back into bad habits.

SVreX
SVreX SuperDork
9/9/09 2:12 p.m.

Poopie:

Do you know details on these stats?

poopshovel wrote:
Clark Howard said: Barron's reports that the debt level of the average American household stayed steady at 60% of personal income for decades, all the way through 1985. But today, Americans carry a debt-to-income ratio of 130%. Slicing the same data another way, Barron's estimates that Americans used to carry debt equal to 20% of the nation's output of goods and services. Today, that figure is 100% -- five times the level of debt relative to the size of the economy. Interestingly, the amount of monthly spending used to service debt is not up dramatically because of lower interest rates. Even so, it's still a 40% larger monthly "carry" (that is, what it takes just to service the debt) than a few short years ago.

I'm trying to figure out if he is referring to OVERALL debt level (including mortgages), or consumer debt (ie: credit cards), and also if he is referring to ANNUAL personal income, or monthly payments.

If the average US household annual income around $60,000, a 60% debt-to-income ration would imply historical indebtedness totaling $36,000, and the "current" 130% ratio would equal a total indebtedness of $78,000.

Does $78,000 cover the average indebtedness INCLUDING home mortgages?

jrw1621
jrw1621 HalfDork
9/9/09 2:16 p.m.

Ramsey speaks to the masses and keeps it quite simple. His intention of the $1k emergency fund is to make people pause before they spend big and take the difficulty out of people often poor planning that leaves them short on funds.

Step 1 build fund
Step 2 pay extra on credit cards
fall short on Credit cards, pull out of fund

Step 1 build fund

If you have the discipline, there are other ways but the key is to have the discipline and consistency

Dr. Hess
Dr. Hess SuperDork
9/9/09 2:26 p.m.

Some people think that a White Sale at the mall is an emergency. I understand your reasoning, but factor in probabilities and costs. You have to make some assumptions. If you assume that you will have no emergencies, that is 0% of anything bad happening, then no fund is what you want, certainly. Probabilities and penalties can be fiddled to any point and to show any scenerio, as "science" does all the time, giving us "global warming," for example. If you could accurately predict any of them, you wouldn't need to prepare for anything else. The goal being to get out of the slavery of debt, you don't want to put yourself into a position where more debt is the way out. NEVER AGAIN should be your motto. Get the emergency fund, pay off a card, cut it up and send it back. Next card.

Tim Baxter
Tim Baxter Online Editor
9/9/09 2:32 p.m.
Dr. Hess wrote: Some people think that a White Sale at the mall is an emergency.

http://www.youtube.com/watch?v=uJSgZYUnQn0

jrw1621
jrw1621 HalfDork
9/9/09 2:37 p.m.
jrw1621 wrote: What cell phone company? Some are easier to get out of than others.

T-Mobile's customer care is really quite good and known to be helpful. The trick to getting out of T-Mobile is be prepared to tell them you have moved out of their coverage area and can no longer use there service. If you kill them with kindness they will often let you out. Do this over the phone. The stores get no incentives to help you out.

One negative, you may loose your cell phone number and have to start over with a new number. Talk this through with them and see what the options are.

For you this is easy because there are large pockets within Ohio where T-mobile has zero coverage. Anyone can check this at www.tmobile.com. You will need an exact home address to tell them that you have or are moving.
For you, tell them that you have moved to 214 2nd St, Tiffin, OH 44883 and renting a house owned by Brett Smith (friend of mine).
From there you would have to drive 40 miles, maybe more, to get t-mobile coverage.

cwh
cwh Dork
9/9/09 2:46 p.m.

First- You mention eastern Ohio. I'm from Youngstown and the economy is so bad that you can find property for a song. In the city decent houses for 20,000.00. Outside, not so cheap, but you can find real bargains there now. Problem is, what are you going to do for income? There is a reason houses are so cheap. Second- I have T-Mobile to go, prepaid. Very happy with it, no problems. You could just ask if you can transfer into that program. Nothing to lose by trying.

fastEddie
fastEddie Dork
9/9/09 3:02 p.m.

We did the Dave Ramsey/Larry Burkett "debt snowball" thing ourselves a few years ago. We finally got totally out of debt except for our small house in Kettering and then we sold that within 3 weeks of listing it and moved out to the country just northwest of Wilmington. We now have a larger mortgage but still no other debt almost 2 years later. We have 1 CC that we pay off every month without fail or excuse - this is one area I tend to disagree with Mr. Ramsey on - I have no clue what the % is because we never get charged anything, in fact this card has a cash-back option (not a Discover though) so they actually pay us to use their card!

Sounds like you have a good plan for attacking your debt, we did the same thing - cut cable, other misc. expenses, sold stuff etc. It wasn't an easy or fun couple of years but we got thru it and are still alive!

EDIT - if you have an iPod and use iTunes you can subscribe to Dave's podcast - good if somewhat repetitive info there.

keethrax
keethrax New Reader
9/9/09 3:51 p.m.
Dr. Hess wrote: Some people think that a White Sale at the mall is an emergency.

And those people won't get out of debt with or without a fund. If you are incapable of defining an actual emergency, you're hosed either way.

I understand your reasoning, but factor in probabilities and costs.

I covered a pretty damn big range or probabilities and costs. You keep making it sound like I"m ignoring something, without actually presenting what that something would be. I'll freely admit I might be, and even asked someone to point out what it was. But all I've gotten in response is vague hand waving. Like the above. I'm pretty sure you're a smart guy. I like to think I'm at least average. If I'm missing something, I'm very open to being told what I'm missing.

You have to make some assumptions. If you assume that you will have no emergencies, that is 0% of anything bad happening, then no fund is what you want, certainly. Probabilities and penalties can be fiddled to any point and to show any scenerio, as "science" does all the time, giving us "global warming," for example.

So because somebody's potentially twisting statistics in an unrelated issue, then anything else using math is wrong? Come on, you know better. I didn't assume no emergencies the first time, and I damn sure didn't the second time.

If you could accurately predict any of them, you wouldn't need to prepare for anything else.

Which is why I covered everything from no emergency to an emergency that completely drains your fund.

The goal being to get out of the slavery of debt, you don't want to put yourself into a position where more debt is the way out. NEVER AGAIN should be your motto. Get the emergency fund, pay off a card, cut it up and send it back. Next card.

It all comes down to defining "more debt". To me, when choosing between two (or more) methods, the relevant definition compares the debt between the two methods at any point in time. Even though along the no fund time line the debt may go up, it should still be less debt than if you had set the money aside first.

I guess what I'm saying is if you can't appropriately determine what is/isn't an emergency/necessity then neither method is terribly promising long term. If you can, you get out of debt faster with no fund unless I'm missing something. But nobody has been able to actually present that something yet.

Dr. Hess
Dr. Hess SuperDork
9/9/09 4:03 p.m.

I see your points, and they are mathmatically valid, however, the reason most people got into this problem in the first place is because they could not properly manage debt. For them, it is much safer, in the long run, to just say NO MORE BERKELEYING DEBT than to try to use debt properly. Trying to use debt properly was everyone's goal in the first place. No one started out saying "On a salary of 24K/yr, I plan on being 15K in debt to credit card companies, some of which will charge me 30% interest." They just didn't think of it in those terms. Do you remember that first credit card you and the spouse got? It was "for emergencies." In general, men and women look at emergencies differently. Men think that an emergency is when the transmission drops out of the car while your on the road 1500 miles from home and you need to buy some tools at HF and the dollar store so you can swap in the junkyard tranny at the motel. Women see an emergency as a white sale at the mall. If you just say "no more debt" and have an emergency fund in place, and only use it for true emergencies and not white sales, you will be better off than trying to manage debt properly after a history of not being able to do that.

keethrax
keethrax New Reader
9/9/09 4:17 p.m.
Dr. Hess wrote: If you just say "no more debt" and have an emergency fund in place, and only use it for true emergencies and not white sales, you will be better off than trying to manage debt properly after a history of not being able to do that.

I just don't see how the method you use matters in the least if you can't usefully determining what is/isn't an emergency. So getting out of debt is predicated on being able to do that first. Failing that, the method is irrelevant as far as I'm concerned. It's not like having the fund changes your opinion of white sale = emergency. How is dipping into the fund because there's a sale and you define sale = emergency any different then using the card? If you've defined white sale as emergency you're hosed either way.

At first glance, limiting accessibility seems to may be helpful. If it's hard to get @ the money, you've got more time to think about it and hopefully realize what is and isn't a necessity. And likewise, some ways of storing that fund might make it less accessible. But, as you point out, the whole point of emergencies is you can't plan when/where they happen. So whatever you are using to cover emergencies needs to be accessible, or it's not useful as an emergency fund either.

EDIT: In essence those in credit trouble who haven't learned the appropriate lessons in what is/isn't necessary are hosed either way, and those who (often by bitter experience) have learned that lesson should have a solid shot at success either way.

egnorant
egnorant Dork
9/9/09 6:35 p.m.

One of the big lessons I have learned about dealing with my money is to differentiate what is an emergency and what is just stupidity or rationalization.

Christmas!! It comes around every year at the same time yet I see more people increase their debt at this time than any other. This is not an emergency...this is poor planning.

60,000 miles on your daily driver and "suddenly" it needs tires is not an emergency. That is good old "out of sight, out of mind" rationalization.

I looked at my water heater and realized it was 30 years old and would need replacing soon. I started my fund and was able to replace it before it became an emergency.

Same with my refridgerator, lawn mower, roof and dishwasher. Have my fund in place for a stove and computer, just have not found the right deal yet.

Want to get mad? Do some math on your credit card bill if you carry a debt. Figure how much of your payment is principle and how much is interest. Then figure how long you will be in debt with the minimum payments.

Bruce

aussiesmg
aussiesmg SuperDork
9/9/09 6:39 p.m.

Credit Card, what is this thing you speak of?

confuZion3
confuZion3 SuperDork
9/9/09 6:52 p.m.

I didn't read everything here, but I doubt this was covered. Try to get your current home reassessed by the government. Do it now while home values are low. What this will do is, hopefully, lower your house's value according to the government. They tax you based on what they perceive the value of your home is. Less value = less property taxes. My parents saved HUNDREDS of dollars a month doing this just recently.

Look into it.

andrave
andrave Reader
9/9/09 8:35 p.m.

If you do like I did and you do it right its not a problem.

I racked up lots of debt, went to law school, racked up even more debt, and now I'm a legal aid lawyer with pretty much no assets to my name and lots of debt. Most of it is bad debt that I don't pay on. My credit is so berkeleyed that I can't get a CC no matter how bad I want to screw it up even worse.

Please not that this strategy turns out to be a bitch when it comes time to finance anything.

flountown
flountown New Reader
9/9/09 11:30 p.m.

Well it seems people here have a lot of angles on the debt situation. So I would like to suggest stuff in the off-the-grid department. First, pick up the most recent issue of Popular Mechanics. It is basically a self-reliance special guide and spotlights people doing very self-reliant and grassroots things.

One very easy thing for food is rasing chickens...2 pounds of food per week, about 3 sq ft. and 2 cups of water/day will give you one egg per day/hen.

Also it gives you some examples of alternative power and building materials. One thing I am working on is trying to figure out more about algae, people use it to harvest biodiesel, but you can also dry it out and it turns into a drop-in replacement for coal (check inside back cover of aforementioned PM issue...trying to figure out his process from a picture). Also, learn how to build a wood gassifier (thanks "the Colony" on Discovery) and use that to power any type of internal combustion engine.

Also, look into distilling and brewing, when bartering booze is a great currency to have, not to mention ethanol can be used to power internal combustion engines as well.

PubBurgers
PubBurgers Dork
9/21/09 3:08 p.m.

$2000 30% interest card is done! Re-doing the budget we found we can put a bit more to cards than previously thought so the $1000 card should fall in the next month or so.

It's a pretty good feeling.

Dr. Hess
Dr. Hess SuperDork
9/21/09 3:14 p.m.

Good work!! Keep it up.

On another board, a guy had some credit card debt relating to his deceased mother. Like 25 large or something. He was paying it off, never missed a payment or even late, and BAC just decided that he was a "bad credit risk" and upped his interest rate to 28%. Bandits.

eastsidemav
eastsidemav New Reader
9/21/09 4:29 p.m.

keethrax, you forgot case #5, which is happening a lot more often lately, especially to people with low incomes or dings on their credit:

No E-Fund, credit card company reduces your limits or cancels your card after your debts are paid, then have a 3k emergency. Now you're sunk.

Credit cards aren't money. If I put 3K in a savings account, I can be sure it'll be there if its needed (barring TEOTWAWKI). If I need to charge 3K, (or worse get a cash advance for 3K, which would require a 30K credit limit depending on the card), I can be reasonably sure the credit line will be there, but not certain.

keethrax
keethrax Reader
9/21/09 5:22 p.m.
eastsidemav wrote: keethrax, you forgot case #5, which is happening a lot more often lately, especially to people with low incomes or dings on their credit: No E-Fund, credit card company reduces your limits or cancels your card after your debts are paid, then have a 3k emergency. Now you're sunk. Credit cards aren't money. If I put 3K in a savings account, I can be sure it'll be there if its needed (barring TEOTWAWKI). If I need to charge 3K, (or worse get a cash advance for 3K, which would require a 30K credit limit depending on the card), I can be reasonably sure the credit line will be there, but not certain.

Case 5's a good point. Big enough to make the other four moot as far as I'm concerned. Thanks!

Location of the E-fund's still tricky though, but that's a mere detail. Emergency funds need to be accessible. Of course accessible = easy to blow on stupid stuff as well. But protecting yourself from the latter defeats the purpose of the emergency fund in the first place.

Emergencies by their very nature are unplanned, and have a nasty habit of jumping on you at the most inopportune of moments. Like when I blew up the clutch of my MR2 in the mountains outside of Denver, hundreds of miles from home on a holiday (4th of July) weekend... If the money's not where you can access it, the fund doesn't help.

Toyman01
Toyman01 GRM+ Memberand HalfDork
9/21/09 6:11 p.m.

My E fund is in a money market account with a check book and a debit card. I shop and buy with cash most of the time. I have an account for "blow" money with a debit card for online purposes. The wife has an account that is hers to do with what ever she wants. We, the wife and I, have a house account that pays the bills. Every pay period, x number of dollars goes in the house account for bills and day to day expenses, the balance goes where ever we want. When the car pukes, that is paid out of the e fund, and the following pay period all extra funds go to rebuilding the e fund. We don't have any debits other than the house payment. The wife broke her leg two months ago, the total bill was over 25K. My share will be in the 3-5k range. Not a problem other than having to replace that money. No toys for a few months. There is no better feeling than knowing you have the cash in the bank to handle almost any problem. A credit card just doesn't give you that same warm feeling.

If you want to go off grid do it with no debit, and with cash. Then when the problems crop up you can handle them without being beholden to someone you don't even know. Being off grid means being self sufficient. That is hard to do with a credit card company looking over your shoulder with their hand out.

Good Luck and have fun. That is something I have always been interested in but have been too lazy to try.

NYG95GA
NYG95GA SuperDork
9/21/09 7:26 p.m.
andrave wrote: It sounds old fashioned but it still exists..

Amen to that. The older ways are usually the way to go. Fancy financing ploys and deceptive marketing schemes are hardly a substitute for planning and a bit of hard work.

In my case, I started with an old house nobody else seemed to want to touch, because it was in such primitive shape. Built in 1896, it had little work done on it to make it livable by modern standards. I lived in near squalor for a good part of 3 years, while I upgraded it on my own time, using my own skills. After that time, I sold it for 3 times what I paid for it, and took that money and put down on a more modern (but extremely modest) house in a rural neighborhood. It was paid off in 2 years. I was basically surrounded by little old ladies, for whom I would change light bulbs, fix toilets, replace bad light switches, etc. In return, they taught me how to can, garden, cook on a limited budget, and so on.

That was over 20 years ago, and most of those seasoned teachers have moved on, but the skills remain. I'm of the opinion that many of the old folks still around.are basically hippies from the "Whole World Catalog" era. Many of you young whippersnappers won't know what that means, but I am confident that a good number of the members will date it on the money.

My point being: Going "Off-Grid" is not a new idea at all; almost everybody used to do it.

curtis73
curtis73 GRM+ Memberand HalfDork
9/21/09 9:48 p.m.

On the non-loan side of things, you can really save a ton of cash if you pay close attention to where you move. Some areas provide zero incentive for alternative energy, others have huge incentives. Here in Austin, housing is relatively affordable, but they give nice money for upgrading to environmentally friendly upgrades. Other areas give nothing. The other thing to consider is the geographic location. Seattle has great incentives for alternative energy, but they lack the solar or wind potential for any serious energy payback. Here in Austin there is great potential for solar input, but solar power is also one of the lesser money savers.

Wind has a large input cost and the most widely varying inputs. Solar can be regular and predictable (on the average) but doesn't provide a large return on the investment. Your greatest return can be found in an area with predictable rainfall on a propety that has both elevation and running water. If you can find a stream with either a large flow or large elevation drop you can use that flow/pressure to operate a hydro generator. Not only should it provide enough juice for you, but during vacations and non peak consumption the power company will pay you.

My wife and I are looking at going alternative energy and I think we're going to stay on-grid for three main reasons:

1) we're campers at heart, so we're willing to give up many things. We don't mind candlelight and we don't watch TV much. But, in Austin you can't live comfortably without A/C, so having the grid to fall back on is nice for peak use.

2) I plan on brewing biodiesel which has a shelf life. If it comes down to wasting old fuel or burning it, I'll dump it in a diesel generator and sell it back to the electric company. Its only a return of about 40 cents on the dollar, but at least its not wasted and needing disposal.

3) Being on-grid is a good gauge/transition for knowing when you're ready to go off-grid. If you can modify your energy consumption to the point where you're nearing a zero electric bill, you'll know that you can support it being disconnected.

In austin, the only really viable alternative energy source is solar. Winds aren't high enough to justify a windmill and water is seasonal at best. Even if you do get lucky enough to buy land with a river on it, the elevation doesn't change much and during the summer they tend to dry up.

I'll look tomorrow, but I have a book that is an EXCELLENT primer into off-grid living. I'll post the specifics tomorrow.

aussiesmg
aussiesmg SuperDork
9/21/09 10:01 p.m.

Bring it on Curtis, very into the off grid living

PubBurgers
PubBurgers Dork
10/19/09 11:09 a.m.

Damn credit cards. I paid the first one off completely a few weeks back, to my surprise i get a bill in the mail today for $3.12 for the interest that had accrued before i paid it off.

On the plus side we've got enough to pay off the second card after our next paycheck!

In addition to selling stuff, we've started pinching pennies in other areas as well. We're in the middle of our first no spend month (no gas, groceries, fast food, etc) and it's really helping me understand how much money we waste in a given month. I also went and took all the unnecessary light bulbs out of the house (does the living room really need 4 bulbs?) in addition to keeping a much closer eye on our electric useage. We already made the switch to compact fluorescent bulbs a while back, and i saw some LED bulbs in the grocery store the other day i might switch to eventually. We've instituted the "if it's yellow, leave it mellow" policy as well after our first water bill with the cloth diapered kid was a tad higher than normal.

The way things look we should pay off the last card around December 2010 and be ready to look for a house summer of 2011.

Also, FWIW, while off the grid is an eventual goal i guess "homesteading" is what the kids call the way we want to live.

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