Thursday, January 28, 2010

Debt Peonage

I believe that any form of debt makes us a slave. Having a debt means that we need an income to pay installments on those debts. Without a debt all we need is a sustainable income or savings to survive. Without a debt we can take a break from our jobs, without a mortgage we can move our life to a new city. Debt imprisons us in our mediocrity and prevents us from taking risks. Debt seems to help us by not having to put our life on hold until we have money. However, are we holding ourselves back in future by not willing to put our life on hold at present? Some debts, such a student loan (leading to high paying jobs), mortgage (within means), business loan (for well thought out ventures), may bring us more prosperity later. However, until debt is paid off we are slave to our debts. Thus, we should take on to this peonage only after acknowledging its true demands.

Sunday, January 24, 2010

Selling off unused items

I decided to follow one of my own advices listed in my earlier post, 7 debtly sins. The advice was not to waste anything, where I defined even not using bought items as a type of wastage. Many unused items in my apartment were collecting dust, while credit cards used for their purchase are collecting interests. As described in earlier post (see Declutter Your Way Out of Debt), I just sold some of my barely used videogames, PS3 and Wii. For mailing them, I used my old first class stamps (37 and 39 cents stamps). After all, I shouldn't waste anything, including old unused stamps.  

PS. Also before buying a box to mail your things, check local stores for free throw-away boxes.

Thursday, January 21, 2010

Finances - Easy to advice but difficult to follow

My last entry, 7 debtly sins, doled out seven advices on bad financial practices. After writing that blog entry, I couldn't help but to think that it is so easy to give advice and extremely hard to follow them. This is universally true for any life changing decisions; be it on financial matter, weight loss or smoking.

While giving advices, we think in a rational and reasonable way like Vulcan Spock. However, being somewhat of an irrational being, our actions are results of both rational and emotional thoughts. I am not saying being emotional is wrong. However, being emotional now about finances will effect our emotional state in the future. So, my advice is when you are faced with a next financial decision, think rationally and emotionally (about both present and future emotional state). Again, it is easy to be a Dutch uncle since nothing is given so freely as advice!

Wednesday, January 20, 2010

7 Debtly Sins

Thou shalt not eat what one cannot swallow. Do not get things that you can't afford. It can be either a daily $5 dollar mocha fix or once in 10 years splurge on an unaffordable luxury car.

Thou shalt not stray away from disciplined path. It is necessary to be financially disciplined. Being disciplined is not just paying bills on time. Staying on disciplined path requires you to stick onto your financial plan unless a better financial deal emerges. For example, you researched and settled on a car model that you can afford. Being disciplined is not adding that $3,000 fancy sound system later during the purchase. Same goes for setting up the budget for a night out on town and sticking to it (even when you are drunk).

Thou shalt not keep up with the Joneses. Keeping up the appearances with the Jones, Garcia, or Chens is a recipe for financial disaster. They may have higher income than you or are more financially irresponsible than you. If your neighbor gets a Beemer, do you really need to get one?

Thou shalt not procrastinate. Procrastination is not just putting up paying the bills tomorrow or forgetting to cancel subscriptions to unread magazines. Majority of the big expenses can be avoided by being proactive today. For example, you know that you need to change oil in your car. However, procrastinating a $30 oil change might lead to an engine failure with expensive proposition of replacing the entire engine for a few thousand dollars. Same goes to "I will call tomorrow to get lower interest rate on my credit card". Isn't it better to earn money (by saving) today than tomorrow?

Thou shalt not give in to instant gratification. Wanting everything now is gluttony. For example, you can buy a bottle of soda in a vending machine for $1.50 or get 12 packs for the same price in a supermarket.

Thou shalt not count eggs before they hatch. Never justify future earnings to pay present extravagance by credit. Excuses such as I can afford it with my next paycheck or when I get promotion or with a new job are delusional. Interest always increases your real cost. Buying a $10 widget now may cost you $20 with the interest. Thus, before buying, think if you are willing to pay $20 for that widget? Factor in the interest when you factor in the future earnings.

Thou shalt not waste. One of the common examples of wastage is wasting perishable food items.However, more unnoticeable waste is buying items and not using them to their fullest potential. For instance, you buy an expensive DSLR camera. After initial burst of enthusiasm, you end up exclusively using your old point and shoot camera due to convenience. This is a bigger waste and it is often overlooked by many of us.

Monday, January 18, 2010

My Obama Shop

Recently, I discovered "My Obama Shop" located in the Washington DC Union Station. This shop is full of unauthorized Obama memorabilia. Here tourists (as well as local) Obama supporters shell out few dollars on an impulse purchase. This is an excellent example of impulse shopping by buyers. However, it also reminded me as a excellent example entrepreneurial venture by the seller. Guess every coin has two sides and it's up to you which side you choose.

I would recommend you visit the store if you can control your frivolous shopping habit. If you are a big Obama supporter, just as precaution, don't take your credit card or more than a few dollars. It was indeed a delight to window shop and discover superhero costume for "O"man.

Saturday, January 9, 2010

Saying no can save

Whenever friends ask me to go out for dinner or go out to drink, I usually don't say "no". Instead, I propose meeting up for just one or two drinks or just dessert or appetizers. It's hard to say "no" for me not because of peer pressure but because I  regret  missing out good times and simply can't give up the lure of fried food and alcoholic beverages. At times, I was able to keep myself disciplined while other times, I ended up spending more money. I used to convince myself  that this financial and emotional compromise is necessary  to catch up with people. However, am I really doing the justice to "catching up" when I have ulterior motives (usually in form of deep fried treat and/or with a head of foam)?

Last night, I did not go out to meet a few friends who are staying at my place. Going out then would have meant just eating out some fried calamari and drinking beer. I am glad that I didn't miss anything as well as saved few bucks and few hundred extra calories.

Image: Fried Calamari at Cafe Asia. 

Wednesday, January 6, 2010

My Debt Roundup - January 2010

I started the new year by reducing debt by $1,100 to $22,539. My monthly debt reduction had fell from $1,751 in the October to $251 last month. This decline in debt repayment discouraged me even though I knew that I spent extra few hundred dollars on essential items. It reminded me that getting rid of my debt needs long and disciplined path. It is so easy to get discouraged and leave the healthy financial choices.

On a side note, cash flow next month will be tight for me because my new job will pay me at the end of the month in contrast  to my current position, which pays me in the beginning of the month. So, in practice, it will be feel like not getting payed for a month. Hopefully, after my job transition, I will get some more time (energy and discipline really) to blog on my path to debt freeness.