Part one of the Money Quadrant Series- Are You a Debtor?

Check Casher-

Do you know people that rush to the back on payday to cash their check? Do you rush to the bank to cash your check? Well, in the banking world we call this type of person a check casher. They work hard all week to get that paycheck that seems to disappear by the next payday. There are a few that do manage to save some money before they pay their bills, but most live paycheck to paycheck. The three different kinds of check cashers that I’ve managed to differentiate are the true check cashers, filed for bankruptcy check cashers, and low income check cashers.

A true check cashier usually just likes carrying a ton of money on hand at all times. I think it gives them a sense of power (even though if they were ever robbed or misplaced their wallets they would be so screwed). I’ve seen a few that just cash checks at the bank that the check is drawn on, then bring it to their bank, but it was minimal. They are usually on a fixed budget, and don’t like to get themselves into any kind of debt (not a bad philosophy).

The filed for bankruptcy check cashier usually hates banks or any kind of financial institutions because they believe they are out to get their money. They live by the slogan “They’ve do it once. They’ll do it again.” A lot of the ones I’ve met also have managed to get the IRS on their backs because they don’t pay all their taxes. I’ve been able to discuss some form of personal finance with the ones that want to express their problems. Usually they get a credit card or checking account and overdraft their account within the first month. They’ve never learned cash management in their youth and it’s reflected by how many times they use their credit/check card. They just don’t remember how much is in their account and end up with tons of overdrafts. They are forced to close their account and they evade paying the overdraft fees by never opening up another checking account or credit card. Some that piled large amounts of credit card debt were forced into bankruptcy because they weren’t able to pay for the minimum payment.

A low income check casher is in very tight situation. Their jobs do not pay enough to make ends meat. They’re on a very tight fixed budget and can’t have many of life’s luxuries. Most of them do not have a high school education which puts a cap on their earning potential. My only advice for the low income check casher is getting a G.E.D. Education and hard work can really turn around your financial situation. You do not have to settle for a low paying job for the rest of your life.

The similarities between 97% of check cashers are:

• They don’t end up saving a dime
• Fixed budget
• They do not splurge on big purchases
• They spend every penny before their next paycheck
• A lot of wasteful spending

Solution-

When I left the bank and decided to get an easier job (the high-end liquor/wine retailer), I noticed a ton of check cashers purchasing large amounts of alcohol and cigarettes. Originally, I was kind of sad for the individuals that were stuck on a fixed budget, but this brought a new light to the situation. You cannot spend money on liquor or cigarettes when you can’t even afford car insurance! Stop smoking and drinking and make your life better. They would usually spend about $50 a week on booze and cigarettes which turns into a yearly amount of $2600. That’s a lot money that you could be putting into a retirement account… You need to find your latte factor and eliminate it from your life A.S.A.P.

You need to save all the money you would have spent on your latte and throw it into a high yield savings account. I would highly consider paying yourself first before you start spending when you’re on a fixed budget. This worked wonders for me. I could save 15% of my income then blow the rest on whatever I wanted. Once you’ve mastered this skill, you will now be considered a Super Saver.

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First Quadrant- Debtor

Whether you’re in college borrowing student loans, or you’re in the workforce with a ton of credit cards, you will be regarded as a debtor to all bankers. Why do some people fall in a hole of debt, while others manage to rise above it all? Sometimes you can’t really stop it. You were born into a lower income family and you’ve had to pay your way through life. I call these debtors the diamonds in the rough. These types of people have the ability to transform their debt to knowledge later on in their lives. They know the true value of a dollar and they usually try their best not to blow their money on random things.

On the other hand, you have this type of debtor that ends up blowing even more money on stupid things because they don’t know any different. They will spend all their money on a depreciating asset¹ and then use their credit cards and loans to make it “pimped out”. “Pimped out”is just another word for stupid spending. Usually, these types of people are very generous to their friends at a young age. They usually pay for drinks at the bar, fast-food for friends after the bar, and have massive parties at their place when the bar is closed. I call these types of people the live-in-the-now debtors. They don’t think of the long term liability they are getting themselves into. I worry a lot about the live-in-the-now debtors. Unfortunately, they are usually the ones that file for bankruptcy before their 26^th birthday.

Similarities between most debtors

• Look at their minimum payment as their actual payment.
• Spend 15-20% more than what they make.
• Eat out more than they eat in.
• Present thinkers instead of long term thinkers
• Postpone paying off their credit cards and keep more cash on hand.
• Have trouble sleeping at night because they worry about paying credit card bills
• They have addictive personalities i.e. drinking, gambling, and so on

Solution

The first step to reach the Check Casher quadrant is regulating your spending habits. Stop using credit cards to pay for things. Go on a cash only budget. If you need help if your budget, please take a look at this post. When you’re on a cash only budget, once you run out of money, you run out of money! You can’t rely on credit cards to bail you out this time. A cash only budget teaches self-discipline and can cure your debtor type of personality. Your big bills need to be paid before you start paying for the small stuff. Your rent or mortgage, food and necessary bills come first! Here’s a rough budget for reference purposes.

Slowly pay for your credit cards till they reach $0 balance. This might take three months or even three years depending on your debt level. After you reach the $0 balance, you can jump to the Super-Savers quadrant. Give yourself a high five! Now you have to learn how to become an Intelligent Investor.

*eFIPO’s Rule* When you’re a debtor, do not buy any thing you don’t absolutely need!

¹ Cars, TV’s, stereo systems

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I realize that most of the population are debtors and not asset builders. The first thing we need to do is describe the difference between both kinds of money handlers. In economics a debtor (or a borrower) owes money to a creditor. An Investor thinks investing is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. I really like how Wikipedia defines an investor specifically “deferring consumption.”Now that we have the definitions down, how can you turn yourself from being a debtor to an investor?

Think outside the box. You must train yourself to think of an investment as a tangible item. Buying stock should be considered consumption. When you purchase more “food/stock” to feed your investment portfolio, he grows and gets stronger every day.

Food and shelter are extremely important parts of life, but the same is true for your investment portfolio. You need to care and feed your portfolio till he gets big and strong. After many years of providing “food and shelter” to your portfolio he will be self sustainable. And in the future, he will be taking really good care of you.

Think of ways to turn every dollar spent to a profit generating system. The first thing that comes to mind is purchasing stock into companies that already have your business. Instead of always being a customer, be an owner. Whenever I purchase a cheeseburger at Wendy’s¹, I always think that I am reinvesting myself in a company that I share profits with.

Now let’s look at the “think of an investment as tangible item” topic again from a different angle. Everyone usually has an imaginary budget in their heads before they start spending. For example: If you make less money one month, you spend less. Add investing to your imaginary budget every single month. Whether investing is purchasing stock, adding money to your online savings account, or paying down extra debt, it needs to have special place in your budget. Always add at least 35% of what you spend into your investment account. If you spend $400 a month on food and entertainment, you need to stash away $140. If you can’t invest that much money, cut your spending habits.

*eFIPO’s Rule* Investing and saving is just looking at debt from a different angle. If you think of investing as purchasing an actual product, you will be a very wealthy person later on.

*Do you need a concrete budgeting system? Check it out here!*

¹ Because I own stock in the company

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Thanks to the web, finding good deals on travel has never been easier. There are millions of websites that will offer you wonderful rates on cruises and air travel, but sometimes the company’s direct site will offer you even better deals.

For instance, I will be taking a cruise in March so I have been shopping around on Cruises.com and CheapCruises.com for good deals. The rates ended up being the same on both sites, and each site offered some upgrades that I didn’t end up qualifying for (such as the age 55 & up deals). After surfing through all the “discount cruise sites” I personally called Carnival Cruise Lines and asked if they offer deals to previous sailors. They told me I could get an upgraded room for a discount value.

When you do have your vacation spot picked out, find out how you can get deals with the financing of the trip. A lot of credit cards offer points or cash back when you reserve the trip using your card. I even found out that just having an American Express card offers you an even lower discount. Discounts are everywhere, so don’t just assume the advertised rates are the best; research the prices and find the deals!

If you already have cash saved up for your big vacation, stash it away in your online savings account. If you don’t have the money for your trip, read my previous post on how to save money for a trip. Vacations are essential to having a fun and enjoyable life. Finding deals on vacations are life’s little bonuses.

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Bad debt sucks period. What do I mean by bad debt? Credit card debt for unnecessary purchases, student loans for stupid purchases¹, and home equity lines to consolidate all your debts. Debt can create more debt very quickly so extinguish your debt-fire². Here’s a good example on how debt can create more debt.

Someone purchases a new car; which they cannot afford without car financing. This new car requires a lot more attention than your old car because you want to keep it new and pretty. So you wash it more, provide better maintenance, and spend more money for custom alterations. You’ve just thrown a ton of money on a depreciating liability for something that isn’t even yours yet! So you’ve just added fuel to your debt-fire.

When you;re in debt life doesn’t seem so bright and the only way to make yourself feel better is to buy new things. Do not fall into this trap! Get yourself out of debt by living below your means and pay your debts at an accelerated pace. If you are currently in debt, stop going out to expensive places and spending a ton of money. It’s not worth your time and money. Learn from your mistakes and keep your life simple until you get out of debt.

¹ Going on spring break, paying for drinks for people at the bar, buying expensive TV’s, or anything else that doesn’t contribute to your education
² A word created by eFIPO, or at least I think I created it.

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Do you know how much money you should really have in your checking account? There are many answers to this question because it’s really about personal preference, but there is a financially correct answer to this question. Here is how your account should look like if you don’t have a huge amount of expenses.

Checking account- No more than $100
Savings account that is directly linked to your checking- No more than $1000
High yield savings account that indirectly linked to your checking- The rest of the money

*eFIPO’s Rule* Try to get all your expenses¹ moved to the same week as your rent or mortgage payment. This is just for simplicity sake. You could also have them split up by paying your mortgage/rent the first week of the month then paying for your expenses the third week of the month. When you receive the bills for your monthly expenses, transfer the money from your high yield savings account to your checking account and pay your bills online.

If you use credit cards correctly this will be an extremely valuable tool. Paying for things without your own money, and receiving benefits² by paying off the credit card at the end of month is incredible.

You are actually losing money if you have all your funds sitting in your checking account. Here are the reasons why:

1. You aren’t making interest on your account. If you’re making interest on your account it’s no more than .5% which is nothing. Having most of your money in a high interest savings account is the way to go.

2. Time value of money. I know this doesn’t seem like a huge problem on a month to month basis, but it still counts.

3. You aren’t increasing your FICO. Having a lower credit score will increase your fixed expenses later on in life. So get with the program and learn how to use credit cards wisely.

4. Your missing out on some good rewards. I get 3% back on gasoline, food, groceries and receive 1% back on everything else. Not a bad deal. It’s free so why not take full advantage of it.

¹Credit Cards, utilities, ect…
²Cash back, rewards, and of course an increase in your FICO

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I know so many people that are struggling to keep their head above water when it comes to their student loan and credit card obligations. I am far from perfect, but I have a plan to totally get out of debt, and at least I have appreciating assets. Some of these people make more than twice the amount of money then I do; yet they have three times the amount of debt than me. How and why does this happen? I mean we go to the same places, see the same people and party the same amount, but I am not drowning in the kind of debt they’re in. How do these events come into place? Well after long discussions with these individuals, because they finally asked for my help, I found a few links that tie them together. Here are a few things you should avoid so you don’t fall into the same situation.

Avoid overspending when you go out to eat or at bars. This will get you into trouble all the time. Stop acting like your some kind of celebrity when you are at the bar. No one cares how much you are able to drink and the amount of drinks you buy at the bar. *Another thing for the guys* If you run into a hot bartender that acts as if she is interested in you. Unfortunately, your drunken state actually thinks you have a chance and you decide to over tip her by a large amount to make it seem like you’re made of money. Trust me she’s more interested in what’s in your pants, and NO it’s now what you think. She wants to see that a $40 tip on a $60 tab. Don’t fall victim to the fake number gag, guys.

Stop buying crap you don’t need. eFIPO’s definition of crap: Anything you really cannot afford, but still decide to buy because it’s the new “it” item. Examples include, but not limited to: purses, jewelry, jeans, shirts, TVs, cars, huge stupid sun glasses, stereo system, liquor, and anything else that makes you look like a celeb wannabe.

Yeah, I’m pretty sure you don’t need that Louis Vuitton purse when you can’t even afford to pay your utilities. And being the nicest looking bum on the street doesn’t give you a lot of street cred, so stop buying stuff you can’t afford just to look like a celebrity that has an eating disorder.

Are you too good for the grocery store? Hey buddy, I’m pretty sure your credit card will be gladly accepted at your nearby Kroger. You don’t always have to eat out and spend your hard earned money on fast food and steak. Reality called, they told me to tell you that credit cards aren’t free money cards. People will spend an absurd amount of money because they are too lazy to go out and by food and actually prepare a meal. I understand how hard it is to make a turkey sandwich, but give your credit cards a break for once! I know that fueling the American economy by spending all your money must be on the top of your priority list when you’re broke, but saving some money every now and then won’t affect it that much. If you didn’t see the sarcasm in the past few lines, please re-read them.

These are just a few things I’ve piled together. If you like them, I will try to think of some more. Thanks and have a great day!

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Well now that the countdown to moving back in my parents’ house has begun, I need to set up a plan to get back on track with my finances. The past semester I did not want to work so I ended up using all my savings and getting in some pretty minor debt. I would say about $1,000 by the time I move back to the r’ents house. My schedule has finally opened up so I can have a job and graduate on time. This will pretty much be the highest paid job I have ever had because all the money I will be receiving from the paychecks will be mine (no monthly living expenses).

Monthly living expenses usually burn about 60-75% of your paycheck (mortgage/rent, and utilities); which I will no longer have to take care of. My house will be paid for by my tenants, so I will need to redirect some of my money back to savings and investments.

My first plan of action is to pay off all my credit card debt that I have accrued for the past couple of months. That shouldn’t take too long, no more than two to three months (I’m shooting for two).

After paying off all the debt, I need to rekindle my savings account to about $2,000. The savings account will be used for some down payment money, if it’s needed, so I can look at purchasing my second piece of real estate. This will probably take about four months depending on a few factors such as: monthly paycheck, internet revenue, and stock performance.

When all of that is done, I can start reinvesting money in my individual stock portfolio. This will probably be done around June. I will aim at putting in the full Roth IRA amount. If I do end up using my savings account money for a down payment, I will put half of my money in savings and the other in my IRA.

Finally, when everything is in place and I feel comfortable with my finances again, I will have to save money to repair a few things around the house. This will be a pretty short-long term goal. My tenants will be living in the house for 18 months so I will have about one year to save around $7,000. I plan to put down either hardwood or laminate because carpets get destroyed to quickly in a house like mine.

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Yeah, yeah I know what you’re thinking. Yes, I am not a huge fan of budgeting, but I would say more people like to be on a schedule. Everyone has their budgeting tricks, but here is a great Excel file that pretty much covers every single expense you can think of.

This is pretty conservative “set in stone” type of budgeting sheet. There are tons of items on this sheet that you might not even be thinking about. Try it out!

Get your Budget On!

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Over 21 only article –involves alcohol
Follow up post Liquor over Beer Makes YOU Richer.

***Can drinking alcohol increase how much money you get at the end of the month? According to The Journal of Labor Research, drinkers usually earn 10-14% more than non-drinkers. You could read the whole article at CNN Money. A lot of writers on the internet have already thrown in their 2 cents on this new discovery. I am going to hit this subject from a different angle with an experiment of my own. ***According to The Journal of Jeremie’s Research lab, people that drink liquor can save even more money than beer drinkers (and they won’t have bad beer breath). This “real” research lab found that if you purchase liquor instead of beer can save you hundreds of dollars by the end of the year. *The only real research that Jeremie has done is take down prices at a few different liquor stores, gas stations, and grocery stores.***

New Data

Because I received a few comments on this post, I decided to do some further investigation. I decided to research the prices at four different liquor stores, and take the prices of a case of beer (24 beers). I averaged the prices of all the different kinds of liquor to make it even fairer. I even took in the account of specials which might offset the numbers a little.

Here’s the data

Legend:
Dirt Cheap= DC
Good Cheap= GC
Premium= P
-Assumptions
12 Pack of Beer
1.75 Liter Bottles of Liquor
**Went to 4 different liquor stores so I avg. their prices

Now here comes the math.

Old data**Most of time you need to purchase mixers such as: Cranberry juice, orange juice, soft drink, ect. Let’s make another assumption and you spend $6.00 for 2 bottles of juice (2 liters).**

Assumption:
Per beer price= Price per 12 pack/number of beers (12)
30 drinks in a 1.75 L
Adding in liquor and mixer cost/30
One beer= 1.25 oz of liquor
Six beers per night = 3 liquor drinks (2 ounces per drink)

Old data**As you can see, even if you purchase premium liquor your price per drink is much less than using dirt cheap beer. So who ever said you can’t have quality and quantity is completely wrong!**

New Data

After calculating all the numbers, it still looks like premium liquor wins the overall battle. Comparing apples to apples, you are paying ~100% more drinking beer when you compare the DC. beer to DC. liquor, GC. beer to GC. liquor, and P. beer to P. liquor (other than the bourbon). The cost of DC. beer is still more expensive than a night of drinking P. liquor.

Cheers & Drink Responsively!

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