I talked about how success requires bold decisions, so I figured I should share the decisions that where bold and went against the grain to get me were I am at today. Where am I today, you ask? Well…awesome growing marriage, beautiful wife, two wonderful children, paid off 70,000 in debt, no debt except for a mortgage, 32% equity in a home, $12,000 emergency fund, and a net worth of about $150,000 at age 29 to list a few. I am ecstatic about my as it stands, I truly am, not one complaint.

The question remains, what decisions stand out as catalysts towards achieving my dreams:

Getting Married. I have little doubt that the majority of the positive things I have accomplished in life are directly related to my wonderful wife , our accountability, her inspiration, and our friendship.

Adopting Two Wonderful Adoptions. It is amazing how much children have furthered my desire to change and grow. They haven’t been the hinderance that DINKS and single people told me they would be, in fact they have been a catalyst to positive growth.

Jesus. Some may disagree, that’s fine, but I know first hand the difference that a personal relationship with Jesus Christ has made in my life. This one is a little unique since I feel that the decision found me during my teen years rather then being something I chose to further my life.

Giving Up Debt. Wiped away $70,000 in debt, and we haven’t looked back.

Paying $10,000 Cash For Our Wedding.

Choosing A Small House Very Affordable House. This took some major discipline and teamwork to stick to this wise plan, but our lives and finances have benefited immensely. The choice for a 5 minute commute helps too! Check out my post on delayed financial gratification to see an example of how much difference it can make.

Embarking on an MBA(Master’s in Business Administration). A wonderful 2 and a half year personal journey that has set the stage for the next phase of my career and financial dreams. I have just two classes lef until I am finished!

Driving a Beater Car. My car says a lot about me, and has barely cost me a dime in 5 years.

The key is the intentionality. We must be vigilant about figuring out our goals and dreams and making decisions that align and SPEED you towards those goals. Commit to the dreams.

Original content from The Happy Rock: How The Happy Rock Went Bold

I have admitted it before, The Rockette have never lived on a formal budget. The closest we come to real budgeting is what I label retroactive budgeting. This is when you come up with reasonable spending amount for the different categories like groceries, clothing, entertainment, etc. Then at the end the month you compare the actual totals to your suggested limits.

When we were in the midst of shedding our 70k in debt, we did this almost every month. As the debt shrunk, so did frequency of our retroactive budgeting. I have been trying to decide whether this is a negative thing.

Three things happened as our debt decreased and was eliminated.

1. Our behavior and spending patterns changed. With less debt and new spending habits our monthly totals feel within a reliable range.
2. As the immediacy of the situation abated, so did our intensity. Our intensity got us through the tough times and turned the tide, but then our attention slowly began to leak elsewhere.
3. I felt like we earned the right to not check. Not checking as closely became the reward!

The thing is, changing the direction of the net worth train and your financial habits is heavy tiring work. Work that pays off down the road and work that removes stress. For those of you that are in the midst of an intense debt struggle, this can be a light at the end of the tunnel. For those of us who weathered the storm and are in cruise control, you know that freedom that is created from not having to worry and stress over your finances.

Sometimes, I think I am sacrificing financial efficiency, because of laziness. Other times I remember that the reason I got out of debt was to have the freedom to focus on other areas of my life without having my finances dictate decisions. Obviously, I think the latter is more often the reality or else I would be much more diligent about checking.

What are the readers opinion on the matter? Are you earning the right to ‘slack’, or are you going to better off if you stay focused and efficient?

Original content from The Happy Rock: Do We Earn The Right Not To Budget?

The reason they call it personal finance is because there aren’t any right answers. That’s right, no right answers. If there were right answers, we could call it something like personal financial decision science. Everyone would be doing the same 20 step program and trying to achieve similar goals.

That isn’t how it works. It is our money. We are all different. We all have our own quirks, goals, personalities, and dreams. Personal finance can not escape that fact that it has to deal with humans, and that is where the personal side of equation comes into play.

Consider two families who just went through their house and de-cluttered. They are both left with a pile of junk, but they decide to do something different with that stuff. One family sells the items through eBay and Craigslist, while the other donates the items to the local children’s shelter. Did either family make a wrong decision? No, they both chose according to their own goals, desires, and values. One was willing to sacrifice income while the other willingly sacrificed the benefits of altruism. One of the tricks to learn to be aware of what our decisions are really costing us.

Sure, maybe the family who sold the stuff will have more money, but that isn’t the goal of personal finance, is it? If it were, we could move closer to a finance science since we have an empirical goal by which to judge all actions. The fact is our money goals are very personal and cover a broad range of topics.

Does that mean some choices aren’t better than others? Of course not. It is still possible to judge the value or helpfulness of a given choice, but it is hard to do without having some understanding of the personal and situational context within which the decision was made.

Ok, so why do I mention this? I honestly feel that we will only cause ourselves trouble without truly understanding the realm in which personal finance decisions are made. In order to make the best decisions and help others make wise decisions, we must be honest about imperfect nature of personal finance. We must be willing to judge actions by not only outside empirical evidence, but also how the decision relates to our goals, personality, and values.

Original content from The Happy Rock: Why Personal Finance is Personal

Being debt free has been more amazing than I thought, and I want others to be able to share in a similar joy. For those who are trying to get out of debt or entertaining the thought, here is some ammunition. As my wife and I and slowly hacked our way out of $70,000 in debt, there were a few key strategies that were extremely helpful:

1. Find Your Passion – Finding your passion is my number tip for anything that requires a large amount of energy and commitment. I started thinking about being debt free, because I realized that I wanted more in life. I wanted freedom to change careers, financial freedom for my family and children(and for their children), security for my family, freedom to pursue my dreams, and to be able to give abundantly. Those are the types of things that get my juices flowing, and the real goals that propelled me to being debt free. What are the things that resonate with you and how does being debt free help you achieve them? Figure that out, and you will be able to harness a powerful motivating force and a set yourself up for some strong endurance.

2. Change Your Behavior – If you are like me, you were in debt because your beliefs and actions towards money got you there. Becoming debt free will require you to change those behaviors and belief structures. Cut up or cancel those credit cards, change how you handle stress or depression, cancel the cable, cut down on your golf, change your ideas on how many toys your kids need. These are the types of things that will heal the financial bleeding. I mention this mainly because people can get caught up in the math of getting out of debt and lose sight of actually changing their behavior. Debt is a behavior problem, not a math problem. We need to stop spending money we don’t have; you won’t get out of debt unless you do.

3. Simplify and Focus – This one is paramount for changing you behavior. Just like multi-tasking isn’t the most efficient way to get things done, spreading yourself/money thin doesn’t work for getting out of debt either. Use your passion to develop a plan that divides your debt up into small steps, and conquer them one at a time. We had $70,000 in debt, so this step was extremely important. $70,000 in debt is a mountain, but we chose to focus on climbing several mole hills.

We focused all of our extra money on debt. And when I say ALL, I mean all. We stopped our monthly savings, 401K, everything. We usually focused the extra money on the smallest debt, unless a higher interest debt made more sense. The reason we started with the smallest debt, was for focus. Each debt you eliminate helps you focus more on the next. Just as the focus on small conquerable pieces gives you more energy and encourages the ever elusive change in behavior.

4. Believe You Can Do It – If you can believe that you will be debt free, you will probably make it. But for those of us who lack self-confidence or have a mountain of debt, dividing the overwhelming task into small manageable tasks helps to breed confidence. With each victory, you can begin to picture yourself debt free. Picturing yourself debt free gets you closer to passion and breeds more energy which creates better focus. Creating such a positive cycle will only help to increase your results.

5. Have An Emergency Fund – Before you start paying down your debt, save a small cushion that shields you from the ups and downs of everyday life. One financial expert, Dave Ramsey, suggests $1,000, and this is a reasonable number. I know that we dipped into the emergency fund a couple times over the three and a half years it took to get out of debt. Things like unexpected car repairs that might have gone on your credit card can come from the emergency fund. The emergency serves as your shield so that you can stay focused.

For those of you in debt, I hope that these tips are helpful. I know they helped me. For those of you feeling beat down: step back, regroup, and come out with your guns blazing. If you need some support, feel free to drop me an email.

If you liked this post, I highly recommend our benefits of getting out of debt and our personal debt story.

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Original content from The Happy Rock: 5 Key Strategies For Getting Out Of Debt

Duncan Simester created one of the first experiments that attempted to directly test how consumer’s ‘willingness to pay’ is affected by credit cards. In this experiment 1^st year MBA students were instructed to provide a sealed envelope with the amount that they would be willing to pay for sold out Celtics and Red Sox tickets. One set of instructions required cash payment and the other a credit card payment. In both cases the face value of the tickets were not given. The prize was to be sold to the person who wrote down the highest price, but sold at the second highest price. This system was designed to extract the participant’s true ‘willingness to pay’.

The results were no less then surprising. Consumers were willing to pay 133% more for the Celtics tickets, and 76% more for the Red Sox tickets when using credit cards.

One of the suggested reasons is that consumers use different anchoring points to assess value. In one case the amount of cash the person has on them or in their account is probably used, and in the other the credit limit or remaining credit is probably used. Although the reason isn’t fully known, that shouldn’t really matter to the frugal spender. What matters is that there is such a thing as a ‘credit card premium’ and we need to be aware of it.

Has anyone noticed whether this is true in their own lives?

Source – Note the experiment was administered at a time when the Celtics were a playoff contender.

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Original content from The Happy Rock: The Credit Card Premium. How Much More Are We Paying?

We want people to accept us, it is a fact of human nature. Time and again you hear people sharing the same thought on friendship, “I want a friend that accepts who I am”. That sounds noble and uplifting enough, but let’s take a deeper look into that idea. Think about examples of people for whom nothing is ever expected. What becomes of the child whose parents give them everything, yet don’t expect anything?

Your dog Max accepts you, and so does a car salesman, or even a drug dealer. The question remains, “is that enough?”. I say no. Personally, I want to have friends that accept me the way I am, but love me enough to not let me stay that way. I want friends that will smack me over the head when I buy a 36″ TV on credit while having no income. I want a friend who calls me to task when I am not a man of my word. Someone who tells me I am not being patient with my son. Friends who are willing to step in and take your keys when they think you have had too much to drink. These are the types of friends that challenge us and help us grow. These are the types of friends that you need around when you are climbing out of $70,000 in debt. These are the types of friends that surround successful people.

Acceptance is not enough, real friends want the best possible life for us. Not the best life they think we should have, but the best life for us. I didn’t marry my wife, because she was the same as me, or because she is beautiful (although she is darn beautiful). I married her because she opens up my world, makes me see the world in new ways, and challenges me, but always always wants the best for me.

The real challenge is to evaluate your relationships, not only by how much they let you be you, but also how much they want you to experience the best. These type of relationships, like most things in this world, don’t start with other people, but with ourselves. We need to invite this type of accountability and friendship.

• Be willing to take all criticism, whether right or wrong, and respond positively.
• Be honest and open up about your dark sides.
• Truly value other’s opinion. People won’t share if they don’t think you’ll care, or if it will break down the relationship.
• Finally, we need to be able to lovingly accept others the way they are, and encourage them to change (if they want it).

Related Reading : Scott Young’s 10 Steps to Honest Feedback

Original content from The Happy Rock: Friends Matter: Friends Accept Us The Way We Are, But…

Remember the ‘Marshmallow Test‘? It was a study from the 1960′s which found that preschoolers who were able to delay gratification at four years old were more likely to be socially competent, assertive, trustworthy, dependable, able to cope, and likely to embrace challenge. The ability to control our impulses will encourage success in most areas of our lives. Our relationships, careers, money, and wealth will all be positively affected by being able to delay our gratification.

As an example let’s look at two similar families who want to own their $300,000 dream home. They both have a $60,000 down payment ready, and the ability to handle $1,438 a month. Family 1 decides to purchase their dream home right away. They take out a 30 year mortgage at 6.0% interest. With a $60,000 down payment and minimum payments of $1,438, they completely own their house in 2037.

Family 2 decides to ease into homeownership and purchase a starter home for $150,000. They take out a 30 year mortgage with a down payment of $60,000. They make minimum payments of $539 and put another $900 towards principal. The first house is paid off in a little over 6 years. Assuming a conservative annual rate of return of 3% on real estate and subtracting selling fees, they have a down payment of $173,413. Finally, they take out a mortgage (20 years @ 5.7%) on their now $358,000 dream home. Their dream home is paid of in 16 years. Family 2 owns their dream home in 2029, eight years earlier. If they save the $1,438 in a high yield account to finish out thirty years they will not only own their home, but also have about $144,000 cash in the bank. The numbers get even more exaggerated if they keep saving and you run the numbers out 20 more years. Family 1 will have $540,000+ in the bank, while Family 2 has $1,000,000. Delayed gratification and compounding with time are quite helpful.

I kept the example simple, but it shows how much delayed gratification can influence positive results in our lives and our money.

Original content from The Happy Rock: Delayed Gratification Will Save You Money

Consider two similar working mothers: one who wants to get out of debt because a few of her friends starting getting our of debt. The other woman decides to get out of debt, so that she can provide a more secure environment for her children by quitting her job to pursue a life goal of staying at home full time. If you had to bet on which one will succeed at becoming debt free, which one would it be?

Maybe the example is too simplistic, but I hope the point is clear. Having goals is very helpful, but having purpose will change your life. The woman who feels called to be at home with her children will be motivated far beyond that of the first woman. If we can begin to define answers to the questions ‘who are we?’ and ‘what are we meant to do in life?’, our lives will begin to reorient themselves around these answers. Purpose fuels our passion, which in turn should lead to making measurable goals. The goal becomes important, not because it is a ‘good’ goal, but because it is a step towards achieving your deep fulfilling purpose in life. When the goal is the end in and of itself, there is nothing to motivate us. We are limited to the extent that our self discipline will keep us on track. I know for most that this isn’t a promising picture.

“Ever more people today have the means to live, but no meaning to live for” -Victor Frankl(concetration camp survivor)

If you connect with these words, then there is no better time to start trying to find the deeper meaning in your lives. It may take us years, even a lifetime, but our lives will never again be the same.

Original content from The Happy Rock: Having Goals Is Great, But Having Purpose Is Better

Before I post on how we are going to change our current system, I wanted to discuss what I am looking for in a good finance system. Note, I am using personal finance system to mean the accounts and tools that your money flow through from paycheck through payment and/or savings. As always, the purpose of analyzing this and the overall theme of The Happy Rock is to continually simplify our lives in order to create more freedom for the goals and people we truly value in life.

Here are five areas that should be analyzed when creating, tweaking, or assessing a personal finance system. A personal finance system should be :

• Simple – First and foremost, I am convinced that a good system needs to be simple. If it is not simple, it can rob us of the motivation to use the system to our best advantage, or waste time that could be spent on other areas. Simplicity is a broad term, but here I am mostly talking about number of accounts. With each extra credit card, bank account, and savings account in the system, comes add complexity(even if the accounts themselves are ‘simple’). Complexity breeds more rules to juggle, more points of failure, more time investment, and ultimately more stress. Complex schemes seem easy when everything is running smooth, but throw in a lost job, unfortunate death or injury, or even a mistake and the system can collapse. One late fee or bounced check can quickly wipe out all the benefits we thought we were receiving from our schemes.
  Freedom is usually sacrificed as complexity increases. If you really feel that you ‘need’ added complexity, make sure that you get a premium for the extra time, stress, and complexity. For me, 40$ or even 100$ dollars a year in interest isn’t worth the negative side effects of too much complexity.
  Finally, simplicity is crucial for facilitating good financial patterns in marriage. If one spouse creates a system that is inaccessible to the other, it creates an imbalance of power and destroys communication. The system should foster sharing of stress/responsibility, ideas, workload, and accountability. Without the ability for each spouse to ‘do their part’, the system loses the bulk of its effectiveness.

• Working for you – The ability for the system to provide returns on the money you earn is a key component. It boils to down to more freedom. The more your system earns for you, the less you need to focus on earning. When drawn out over the years(retirement), the importance of this factor becomes even more apparent. Here the main components to look for: interest rates in your savings account and checking accounts, credit card rewards, and performance on retirement vehicles. Performance needs to always be balanced against risk. The higher the risk, the better return you need to earn. As a guideline line, savings should earn above 4%, checking above 2%, credit cards rewards from 1%-5%, and retirement performance would hopefully be 10% or more over for those with a long time before retirement.
  • Fees/Rates – I also want to lump in fees, because they will detract from you earning power. Late payment fees, service charges, overdraft fees, mortgage rate, credit card rate, and ATM fees will effect your bottom line. For example, $20 a month on ATM withdrawal fees would probably warrant a close look at new options.
    
• Easy to Use – Ease of use speaks to the complexity and convenience of the tools that the system offers you. Instead of breaking this into categories, I will throw out some questions that I think about are relevant: Is the website straightforward and easy to use? How hard is it to transfer money? Check card options? What does it take to deposit? Is customer service easy to contact, friendly, and efficient? Do I have access to branch services? Easy payment options? Do I have to wait in long lines? What happens when the internet is down? Good training materials? Remember, each person may have different requirements here, so balance the questions I posed with the particular questions you need to ask.

• Provide Protection from Mistakes – The idea here is that when we inevitably make a mistake(and we will), how badly with the system penalize use? A large part of this requires doing business with companies with solid reputations that aren’t out to ‘get you’. Other than fee structure, this is based mostly on the experience of others. Research really helps, and the internet and blogosphere provide a plethora of relevant material. Most people bounce their first check, and don’t realize that they can call the bank and be given fee reductions. For example, the other day I emailed Wachovia to see if they could do anything about the Microsoft Money service fee. Although they couldn’t help long term, they did remove May’s $5.95 monthly fee.

• Supports your Goals – Your whole financial system should be setup up to support your values and goals, but what does that really mean outside of helping me earn the most money. For me, I noticed that a college fund is noticeable absent from my system. Since my family is of the utmost important, I decided to pursue an ESA as part of our system. This support could even be more personal. If one of your values is earth friendliness, then maybe you would choose companies that are more environmentally aware. When a system aligns with your goals, using it will provide a sense of fulfillment that will help propel you forward. I know this may seem like overkill, but a little forethought and planning can go along way to creating success and achieving freedom from in your personal finances. So what does your financial system look like, and how does it stack up? Next post I will tie these criteria into the changes that we are making to our finance system.Does any one have any other criteria they use? Feel free to drop a note in the comments.

Original content from The Happy Rock: What should our personal finance system “buy” us?

So we battled for three years to get rid of our $70,000 dollars in debt….so what! Here are the benefits that being debt free(besides the house) and the process of becoming debt free gave us.

Cash Flow – First and foremost, we got control of our money back. Instead of the bank requiring hundreds and thousands of dollars a month, that money was staying in our account.

Catharsis – I didn’t see this one coming, but eliminating debt helped me to revisit and deal with some bad decisions I made in college. Instead of just chalking them up to youth, I was able to accept them, learn from them, and do something to positively change my life because of them.

Lower Risk – Not having any debt lowered our overall risk level. The prospect of losing income is not that scary anymore. With so few monthly payments, I could probably survive delivering pizza. Second, since we changed our spending and behavior patterns, the chances that we will find ourselves in financial trouble in the future are small.

Less Stress – Even though the debt we had was not very old, we still felt the stress of having it hang over our heads. Without debt the juggling act is gone. We aren’t afraid to talk about our finances, and I know that our marriage and relationship has benefited from getting debt free.

Free Time – Along with the debt removal came much less time worrying about money. After a year or two, the system we were continually tweaking became second nature. I don’t spent more than maybe a minute or two a day, and 30 minutes on a budget meeting each month. Not only was my money mine again, I was able to reclaim extra time each day.

Change of Values – The debt elimination process caused us to really think about what things were wants and which were needs. Things like clothes, new furniture, and vacations took a back seat to the things that we truly valued. Long term success and happiness became more important than indulging our immediate desires.

Freedom – Finally as the title of the blog suggests, the journey was designed to give us more freedom. Debt can be stifling, and it is amazing how many more possibilities you can see without debt clouding your vision. We are freer to take advantage of life opportunities as they come our way. Free to give more. Free to seek after the things we truly love. For example, my wife was able to drop down to 18 hours a week, when our son came along. She could have stayed at home full time, but she wanted to keep her foot in the professional world.

This result of getting out of debt isn’t something I could have imagined before I could see the light at the end of the debt tunnel. If you are on the fence about the no debt thing, seriously give a try for a few months, completely eliminate some debts, and see if you notice your life changing. If you don’t like, it will only take a few minutes to get back in debt again.

Let me know which of these ring true for you, and which ideas I am deluding myself on.

Original content from The Happy Rock: What does getting out of debt “buy” you?