Finding Time - No More Excuses

With the holidays and work as they are, I am having difficulty finding time to write in my blog........excuses.

As I was starting to write this note I realized that I have been allowing things, excuses, get in the way of me following through on my journey to financial freedom and my commitment to this blog.  I still invest on a monthly basis.  However, I have started to become too relaxed, comfortable, with my successes.  I have been getting comfortable with earning money from my place of employment, instead of driving myself to financial freedom.  I started "Keep Your Mind and Money Moving" with a lot of drive and energy.  But, I have found myself getting lazy as I bring home my biweekly paychecks.  It's embarrassing how fast I let myself get distracted.  But alas, I have let life happen to me once again and have given excuses to myself and others as to why I have not been maintaining my blog.

Instead of wasting time giving you excuses; I will tell you what I have been doing.  In November I became the proud owner of 100 shares of MCP for $37/share.  Sadly, it is now trading between $30 and $32 a share.  I am not sure if this is a correction, or if I made a really bad purchase and bought at a high. Either way I am determined to make lemonade out of lemons.  So for December, I sold a $37 Call against my MCP shares and earned $35.03 after fees.  It is not much, but it is still more than what I would make if I had that money sitting in a savings account.  Along with selling a Call, I also sold a Put with my remaining cash.  I decided to invest/speculate in REE, another Rare Earth Metals company.  I sold a $9 Put, for a $57 profit. 

To sum this message up:

• I have allowed myself to become distracted from writing in this blog.
• I have continued to invest my money on a monthly basis in options
• If all goes well, by the end of next week I will have made $92.03 from my option trading for December.

My future goals for this blog are to continue to write about my monthly investment endeavors, and to finish writing about how I completed the goals outlined in the book "Your Money or Your Life". 

The Trend is Your Friend

I am learning to trust the trends in the charts that I make.  Today MCP had a huge gain, and I was able to sell my Call options for a $90.04 gain.  That is 11.93 % of the $754.97 that I spent, and I earned it in just seven days!  Multiply that by 52 weeks in a year and the annual % yield is 620.17%!  I don't know about you, but my savings account doesn't earn that much interest. (Correction: I think I got a little carried away on my calculations.  To be fair, I consider this a monthly investment, even though I made the money in seven days. So, I think the actual annual % rate would be 143.16%)

I sold my options early in the morning, around 7:00 a.m..  Had I held on and waited to sell them near the closing bell, I could have made over $400.  I was a little bummed that I sold them early, and lost out on the opportunity to earn more. But, I have to remember that I made $90.  Just think how much I would have made if I would have invested all of my money, $5,188.  That is a little too risky for my blood right now.

I am just stunned that I made so much, with so little money.  This is far better than leaving it in a savings account, and a lot more fun.  I have included a chart with today's movements. The stock actually broke past the upper trend line that I drew earlier in the month.

Figure 1: MCP

I will put two entries on my spreadsheet for October since I made two trades. Now it is time for me to research my next move for November.

My first time with buying Call options

I have been away from my blog for a few days, but that does not mean that I have not been working on my investments.  Far from it.  I decided to branch out a few days ago and try something new......Buying Calls.

A week or so ago, I read that China produces 95% of the Rare Earth Metals.  In the article it stated that China consumes a lot of these materials, and in the years to come will be consuming all that it produces.  Around the time that I read this China had cut off Japan from receiving these metals.  The article also stated that the U.S. and other countries use these metals for military purposes, and in a lot of the electronics that we use everyday.  I did some more research into this situation, and feel that Rare Earth Metals might be a good investment opportunity for the future.

So, with that in mind I have been following a company that just recently went public.  MolyCorp inc. (MCP).  They are a mining company based in the United States, that digs for Rare Earth Oxides. The one thing that made me hesitate about investing in this company is that it does not have a dividend.  If you remember, I said I like to invest in dividend stocks so I can get multiple streams of income.

Below is their chart.

Figure 1: MCP charts

I drew two lines on the candlestick chart, showing that the stock is trading upward within two resistance levels.  I decided to try my hand at trading Call options on 10/20/2010.  I bought two MCP December 2010 calls at $3.70, for a total of $754.97.  Now I must sit and wait for the price of the stock to go up. Since buying the options, the price has gone down.  I am not off to a good start for November.

I only used a portion of my $5000 with this investment, so I would like to also sell one or two Puts for November as well.  I just need to pick the stock.

A Little too Close for Comfort

Wow! This was a crazy day for DMND.  As a reminder, I chose a $40 strike price for the Put I sold.  In one of my previous posts I think I mentioned the stock price could go down to $38.85 and I would at least break even on my investment if the option was exercised by someone. (This is not including fees.)

Well.....take a look at the chart below.  The stock gapped down from its high yesterday of $42.45, and it continued to drop to $37.91.  This was below my stated $38.85.  Was I nervous today?  Absolutely.   Did I freak out?  Nope.  The drop was related to bad news about future expectations of the company.  Yesterday Diamond Foods, inc. came out with an earnings report that showed they did better than expected, and the stock market rewarded them with a day high of $42.45.  The earnings report is a fact, as far as I know.  And then today the stock took a beating because of some speculative information?  It did not seem rational.  Still there was a potential for me to lose some money.  I decided to hold on for the ride.  In looking at the charts, I think tomorrow will be a better day.  I still see upward movement for at least a week.

Chart 1: DMND stock with candlestick information
(charts thanks to MachTrader)

Side Note: For those of you who are interested, I have been reading a lot about Rare Earth Metals in the news lately.  China controls 95% of the production of these metals, and countries and companies seem to be concerned about it.  I think it might be a good investment opportunity for those of you who are interested.  As always, do your research before you start investing in them.

My Stock Option Pick for October

I decided to sell a Put for Diamond Foods, Inc. (ticker: DMND).  This company sells nuts and snacks, including popcorn.  The strike price of the option is $40, which ties up $4,000.  The option expires in October.

Below is a snapshot of the chart that I looked at when deciding to invest in this stock.  Verbal permission was obtained from MachTrader prior to showing any charts. 

The red and green bars are known as candlesticks.  Green bars tell me that the stock closed above its opening price for a particular day and red bars tell me the stock closed below its opening price for a given day. 

Figure 1: DMND stock chart

 The stochastic chart was showing me that the stock was oversold, and the blue line had crossed over the red line indicating that the stock was getting ready to move up in price.  This was the only stock that I could find where the stochastic was showing me that the stock was oversold.  Every other stock I looked at was overbought, indicating the price was going to go down.  I coupled this information with the MACD chart, where it looked like the blue line had just crossed over the red line, also indicating the stock price was going to increase. 

Points of concerns

1. The strike price is really close to the actual price of the stock.  One bad day in the market could cause the stock price to tumble way below the strike price, requiring me to purchase the stock.  If the price goes below $38.85, and I am required to purchase it, then my premium of $115 would be eaten away.
2. The earnings report is expected next week, and I am concerned the news may not be favorable.

Below is what the stock charts looked like at the end of today.

Figure 2: DMND stock chart on 10/01/2010

The 30-day Moving Average has moved lower since I first made my investment choice, which makes me worried that the stock is going to continue down in price.  However, the Stochastic and MACD charts have trended upward as I predicted. 

I am pushing my comfort level on this trade.  Hopefully I can find a stock with a little bigger cushion for error next month.

Step 2 - "Your Money or Your Life - Transforming Your Relationship with Money and Achieving Financial Independence"

On to step 2........ 

A.  What is your "real" hourly wage?

The book asks you what your definition of money is.  People put a lot of power behind this piece of paper, the round piece of metal sitting in my hand, the electronic number that gets transferred through cyberspace with the swipe of a credit card.  In short, it is a tool that is used as a means of exchange.  It is not good or evil.  However, how we use it can have positive or negative consequences. The authors state: "Money is something we choose to trade our life energy for."

Life energy is the time you have available before you kick-the-bucket.  We exchange that time for money in the form of work: in order to pay the bills, buy things that we enjoy, to pay for a future trip, or whatever it is you are trying to afford.  Every hour that you work for money is one hour that you are not: reading a good book, singing a song, playing soccer, gardening, doing anything that fulfills you (unless of course you enjoy your work).  How do you currently spend your life energy?  How are you going to spend the life energy you have remaining?

What is your "real" hourly wage?  This is NOT the money you get paid per an hour of work that you put in.  example: $15 per an hour x 40 hours worked per a week.

The "real" hourly wage takes into account the amount of time that you use to beautify yourself in the morning, the cost of your wardrobe or uniform that you need specifically for work, medical costs and time off related to the stress of work or illnesses you get from other coworkers, the amount of time you take to get to and from your place of employment, the cost of vacations that you take so that you can recharge, and the cost of lunches among other things.  When I tallied this in May 2003 I was surprised at my true wage.  My hourly wage prior to this calculation was  $17.25, and afterward I found out that it was actually $7.02. A copy of my information is below.

Figure 2-1: My real hourly wage

Was it worth it for me to trade 85.75 hours of my life energy to earn $7.02/hour?  I continued with this book because it was not.  I wanted to find out where all of the money that I traded my time for was going, and how I could improve my situation.

B. Record ALL the money that comes in and goes out of your life.

This might sound worse than it actually is.  I carried around a notebook full of college ruled paper everywhere I went.  If I found money on the ground, I stuck it in my pocket and recorded it in my book.  When I went to the vending machine at work and bought a packet of candy, I wrote the transaction down.  The idea of tracking every penny might seem intimidating to you, but it is important.  If you cheat once, whose to say you will not cheat again on you paperwork.  What do you gain by cheating yourself?

I used a big notebook, because I wanted a big reminder in front of me to keep me moving forward on my goals.  The book mentions different methods people used to record their information.  Some saved all the receipts at the end of the day and recorded the information on their computers, and some had small notebooks that fit in a purse or wallet.  The great thing about this book is that it encourages you to follow this path your own way.  So as long as you do it, it does not matter the tools you use: computer, paper, fabric, etc.  It is your path.

Figure 2-2: Tracking my money

Next, step 3: Analyzing the data you have collected.

Note: Step 3 is a big one. It took me a little time to put it together, but it was well worth it.  Basically, I found out how I was spending my life energy, through the items that I bought.

Step 1 - "Your Money or Your Life - Transforming Your Relationship with Money and Achieving Financial Independence"

As I promised in a previous post, here is how I worked through the steps from "Your Money or Your Life - Transforming Your Relationship with Money and Achieving Financial Independence".  This book taught me how to evaluate my relationship with money, and align my spending with my values. 

Chapter 1 from this book is titled The Money Trap: The Old Road Map for Money.  Step 1 of the program is contained in this section and consists of two questions: "A. How Much Have You Earned in Your Life? B. What Have You Got to Show for It?"  It is asking that we examine our past so that we can work on our future.  It is not meant to make you feel bad about yourself.  It is a tool to show you where you have been.

It starts out discussing how people associate self worth with the jobs that they hold.  i.e. A person may consider themself someone of importance if they are a doctor, and not as important if they are a janitor.*   When talking with friends and/or family members are you asked how your job is, what you do for a living, discuss new "toys"/status symbols?  If you do not have a job, do people have a hard time holding up a conversation with you?  Instead of being labeled by the job you perform, what if you could be known for living by your values, or being able to fulfill personal goals?

The book then asks how fulfilling your life is; how happy you are. Do all the extra hours that you put in at work, the stress of the job, the paycheck, lead to fulfillment within your life?  After all of your basic necessities are met, are you truly happier the more you upgrade your toys?  If not, then why are you working where you work, and spending your money as you do?  You obviously have received something from the jobs that you have held otherwise you would not be doing them, and there was something that lead you to buy that expensive shiny new car.  At what point would you consider that you have reached your level of fulfillment, where you are truly happy? Happy with the work that you do, the company you keep, the money you earn, the items you buy.  The point at which you have everything that you need, have items that bring you enjoyment, are living in alignment with your values, and are truly happy is known as "Enough".  If you add one more thing to the list it will not bring you higher returns.  The book calls the excess "clutter".  Having "Enough" is different for everyone.

Now to the two questions:

"A.  Find out how much money you have earned in your lifetime-the sum total of your gross income, from the first penny you ever earned to your most recent paycheck."

The book suggests that you look at your Social Security statements and/or income-tax returns to see how much money you have earned since the beginning of time.  Also include cash flow from any investments such as home rentals and royalties; and include miscellaneous things such as lottery winnings, garage sale money, bottle return deposits, etc.

I did not dig too deeply into this.  I did look at my Social Security statement, and was amazed that I had earned quite a bit considering my age.  So where did all the money that I earned go, I asked myself?

Question two.........

"B. What Have You Got To Show For It?"

I have to admit that I did not complete this section.  The idea of categorizing all of my things, and trying to figure out how much I could get for it if I sold it in a garage sale, was a little overwhelming.  However, I can see the benefit of completing it.  Basically, they are asking you to determine your net worth. i.e. assets minus liabilities.


The book asks you to list all of your liquid assets such as cash, stocks, bonds, life insurance cash value, etc.; and the value of all of your fixed assets such as your car, home, t.v., boats, antique furniture, books, etc. (This is the money that you could get for your items if you were to sell them today, not how much you paid for them.)


 You are then asked to compile a list of all of your liabilities, also known as debt.


Once you have the amounts for your assets and liabilities, what is your net worth? ( Assets minus Liabilities) This can be an upsetting calculation for some, and exciting for others.  Just realize this is allowing you to establish a foundation, giving you some perspective, as you complete the remaining steps.  From here great things happen.  You have just been shown how you have related to money in the past.  The next steps help you direct your relationship with money to align it with your values.

 Even though I did not complete all of step 1, I did not let this stop me from working on the remaining steps.  

Next: Step 2 - What is your "real" hourly wage and tracking every penny into and out of your life.



* I make this comparison as an example only.  Janitors play an important role in keeping things working, and by no means did I make this example with the intention to demean them.

Part 1: Stock Option Results, Part 2: Podcast on the Subject of Gold

There is so much that I wanted to tell you today that I have split my Post up into two parts, and I am saving the remaining information for another time.

Part 1: Stock Option Results

The Put option that I sold on YUM a few weeks ago expired without me having to buy the stock.  The stock price did fall below $44 dollars for one day, before it increased to $45.75 on 09/17/2010 (Expiration Day).  I have not researched what I am going to invest in for this coming month.

As a reminder: All of my investment choices are shown on the "Stocks and Stock Options" page.

Part 2: Podcast on the Subject of Gold

This morning I heard the following segment on "The Bill Meyer Show", radio station KMED.  I thought it was good information to know, and decided to share it with you.  Gold and Silver have been on a tear upward in price the last few days, as have stocks, and I was not able to make sense of the reason until I heard this.

click below to hear the podcast
Bill's discussion with Andy Gause

My Stock Option Pick for September

I decided to sell one put this month.  My pick was YUM Sept 10 44 put.  The YUM ticker symbol stands for YUM! Brands, Inc.  This company operates other companies such as KFC, Taco Bell, Pizza Hut, etc.  I chose them because I think people will always eat inexpensive food, even during tough economic times.  I was able to sell the put for $0.59, for a profit of $0.59 x 100 shares = $59 (before fees are taken out).  After all of the fees from the broker were included it came to a grand total of $44.03 for this month.  The annual percentage rate for this is 12%.  If the stock goes below the strike price of $44, I may have to buy the stock at $44/share.  Today the stock closed at $44.28.

What sealed the deal for me was my husband recently spoke with a truck driver.  They started discussing how business was going for the driver.  The man told my husband that he chose to drive truck transporting food, as oppose to some other item, because people will always need food.  The driver stated that his work has cut back a little, but he is still busy.  He then told my husband that the guys that haul electronics are not doing as good. 

In the previous post, I wrote that I was considering investing in Honeywell International, Inc..  This is listed as an Aerospace/Defense company.  I decided not to invest with this company at this time because the stock options were not very profitable for me.   I only have around two weeks remaining in September before September stock options expire.  As time decreases on the options, they do not earn as much.

After reading the news this evening, I am glad I did not invest with Honeywell International, Inc..  The Huffington Post has an article written by Mike Elk titled Explosion Rocks Honeywell Uranium Facility Run by Scab Workers.  NOT GOOD!  Supposedly the explosion happened when they were splitting Hydrofluoric acid (HF) into Hydrogen and Fluoride.  HF is a nasty little acid. (MSDS)  As a little background, I have taken around four years of college chemistry.  If I remember correctly both Hydrogen and Fluoride are HIGHLY volatile.  It will be interesting to see what happens with the stock tomorrow.

Technical Analysis of Stocks and Gut Feelings

Currently, I am looking at various stocks to see which trade I am going to place next. I use technical analysis, the news, and my gut feelings when making a trade.

These are the stocks and industries that I have researched today, in no particular order:

Industry

• Gold; 
• stocks - MGH, VGZ, JAG, BRD, GG, NAK, RBY, and GGN

Industry

• Paper Products
• stocks - IP, XRM, BZ, and KMB

Industry

• Aerospace/Defense Products & Services
• stocks - HON and GR

A part of my investing is based on gut feelings.  This probably sounds unprofessional, but there is something to be said for the internal voice that is saying "go for it" or "run for the hills".   For me, it stems from the overall sentiment that I am getting from the news and the people that I am around.  There is this nervous energy that I pick up from people when the markets are about to turn for the worse, or an excitement that things are looking better when stocks are going up.  Instead of ignoring the internal voice, I listen to it and then back up my feeling with data.  My personal fear can mess with my gut feeling, so I look at the data in order to prevent fear from stopping me from progressing.

The definition of technical analysis as stated on http://www.investopedia.com/ is the following:

"A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security's intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity."

 Personally, I enjoy working with charts. It is a LOT of fun for me.  I explained a little bit about technical analysis on my Stocks and Stock Options page.  Our family uses software that allows us to play with stock charts.  This includes the ability to add trend lines, include different studies (examples are: MACD, Stochastic, Moving Average, etc.), and change between a line graph and a candlestick graph.  I do not have time in this post to explain this in detail, so if you are interested in learning more please look up the definitions on the Internet or in books.

What I am seeing in the charts today:

I saw several interesting things in the charts that lead me to think particular stocks are going to trend downward in the near future.  This follows information that I have been hearing in the news.  In particular, I chart Moving Averages for stocks at 30-days, 90-days, and 200-days.  What I am seeing is, on the daily graph, the 200-day line (green) is crossing above the 30-day and 90-day lines.  Along with this, the 30-day (red)  line is crossing below the other two.

IP stock has followed the pattern shown above.  I think it might have short little runs up, but over the next 6 months to a year the long term trend is down.  The stock price for the last 22 days has been below the 30 day MA (red line).  When the stock price consistently stays above the red line, and the red line crosses above the 90-day MA (blue line), then look for the longer trend to be up.

I am leaning towards trading HON stock. I like its dividend, and I recently read that it has signed an agreement with China to send them parts to make their own airplanes.  The article I read stated that China currently purchases its airplanes from Boeing, but they would like to be able to build their own.  This stock was also strong during the Great Depression.

When I finally decide what I am going to invest in I will display the information on the Stocks and Stock Options page.

Recommended Movie - Money as Debt by Paul Grignon

A day or so ago my husband suggested that I list the movie Money as Debt by Paul Grignon on my Recommended reading page. Since it is a video instead of a book, I am highlighting it here, and updating my Recommended Reading page to Recommended Reading and Viewing.

A little over three years ago I checked out a movie from our local Library. The title was Money as Debt by Paul Grignon. The pictures on the back of the DVD case were a little cheesy, but the title grabbed my attention.  This was one of those instances where I was glad that I did not judge a movie by its cover.

It was one of the most eye-opening videos regarding our personal and national debt that I had seen.  The great thing about it was that it took a complicated subject and made it a little easier to understand by using animation. The core of the film discussed the fractional reserve system i.e. Banks lend out more money than what they actually have on hand.  Possible ramifications of such a system were explained, as well as possible solutions.

A few years back, I got into a discussion about all of the banks failing and the housing crisis during lunch at work.  I told everyone about fractional reserve banking, and people did not believe me.   So, I told everyone that I would bring the movie in, if they would sit and watch it during our lunch break.  Within the first five minutes of the movie I would say that most everyone was absorbed in what it showed.  It lead to some good discussions afterward.

If you come across this movie in your Library, video store, or an on-line resource please take the time to watch it.  Then come back here and tell me what you thought.

Stocks and Stock Options

Hello,

I have added a page that tracks my investing progress with stocks and stock options.  I am starting with $5,000.  Let me know what you think.


As a side note: Derek copied a URL in the comments section that I think is worth reading.  It is an article with John Williams, an economist that created Shadow Government Statistics.  I have attached the link below.  I have also included a podcast from KMED talk radio, that mentions the article.

John Williams: Times That Try Our Souls 
Source: Karen Roche of The Energy Report  08/05/2010
http://www.theenergyreport.com/pub/na/7005

The Bill Meyer Show: radio program, Guest: Will Reishman
http://www.kmed.com/common/global_audio/51/20930.mp3

Feedback

Hello,

I received some great feedback from several readers regarding my previous posts.  So, I would like to take some time to clarify a few things and expand on other items. I have paraphrased the questions and colored them in blue below. Please continue to send me feedback.  It helps me learn.

How does the title of the blog relate to the information you are writing about?

I decided on the title Keep Your Mind and Money Moving because in my experience as I increase my financial knowledge and apply what I have learned my family's money continues to grow.  When I get lazy then things start to slide.  I wanted the title to continually remind me of my intentions every time that I visit this site to write, and encourage me to stay on track.

I have also learned that money intended for investing should not be put into an account and left to sit; this includes a 401K, a savings account, a long term Treasury bond, or stock.  If  the money is parked in an account long term then I cannot use it in other investments, and my progress slows.  The money has to constantly be moving from one investment to the next and when possible working in multiple ways at once.  I will cover more on this at a later time.

The last paragraph in the "Getting out of Debt" post did not seem to fit the rest of the information.  Can you explain?

In the beginning of the "Getting out of Debt" post I mentioned that I was frustrated soon after my husband and I moved in together, because we were continually coming up short on the bills each month.  This led me to creating a list of financial goals with time lines to complete them.  Around the time that I was paying off my last college loan, my husband heard an interview on National Public Radio with one of the authors of the book Your Money or Your Life (see Recommend Reading page).  He thought that I might gain something from it after seeing the progress I had made with the debt, and bought the book for me as a gift.

My first impression of the book was that it was New Age mumbo-jumbo, and I was intimidated by it.  The book is made up of nine steps, that help you establish your relationship with money.  I read it through once without doing any of the steps.  After some of the fear had gone away, I read through it a second time and saw things that I missed in the first reading.  I knew it would be work, but I wanted to see where it would take me.

One of the steps involves tracking every single penny that comes into and goes out of your life.  It was during this process, as I was paying off my school loan and saving six-months of living expenses, that I discovered my husband and I were spending double on our groceries.

I learned a lot while following the steps in this book and plan on sharing each one with you in my next blogs.  It set up the foundation for me to pursue financial freedom.

What's next, considering interest rates on investments are so low? 

You are correct that interest rates on CD's and Treasuries are currently very low.  However, I have found when one investment opportunity is at the bottom of its cycle there is another investment that is taking off.

I do not invest in real estate yet, but it is something that I am looking into.  I think with interest rates being so low, and housing prices coming down after the bubble, that this is the time to start getting into buying rentals.  Just make sure that income from the rent can pay for all of the expenses.  I am not an expert in this investment by any means, but maybe you can learn with me.

Yesterday, the stock market dropped significantly.  For people who buy, hold, and hope that the stock price goes up this could have been a painful day financially.  However, if you invested in a way that makes you money when the market drops, shorting the market, you probably have a smile on your face.

My husband and I recently learned how to trade in stock options, a derivative of stocks.  We need less money than if we were strictly investing in stocks, and can make money when stocks are going up, down, or sideways.  There will be more on this in the future.

I think it is a good idea for everyone to at least invest one time in a short term Treasury Bill, either for a 3-month term or a 6-month term.  A Treasury Bill was my first investment.   It helped me gain confidence in trusting that I could learn how to invest on my own, and still get my original money back.  In these economic times I would not invest for terms longer than six months, because I am expecting interest rates will increase and you may need your money back in a short amount of time. You do not want your money stuck in a 30 year bond at 4.375% interest when everyone else is buying them up at 12% because the market has shifted. Disclaimer: In July 2010 the Treasury sold 29-year 10-month bonds for 4.375%.   I picked the 12% interest rate at random for this example. 

The one IRA that I have from a rollover in a 401K is currently invested in a short term Treasury Money Market fund through T.Rowe Price.  This is because it is low cost, and I am expecting the stock market to decline even more.  I am willing to take the risk of a low interest rate vs. losing my money in the short term in the stock market as I wait for it to decline and then recover.  This goes against keeping my money moving, but I am saving it in case of an emergency.  I already used a portion of this money to put 20% down on a foreclosed home for my family.

A little tip: First time homebuyers are able to take up to $10,000 out of an IRA without being penalized 10% if the money goes towards the purchase of a home. Please consult your accountant before removing money from an IRA or 401K plan.

Getting out of Debt

How it started......

My husband and I moved in together after we wed, and combined our income and expenses. When I was living by myself, prior to the wedding, I had no problems paying my bills. However, after the wedding party, I was finding that we were coming up short each month. I became upset because I was having to take from our small savings account to pay bills. This was something that I had never had to do prior to being married. I was frustrated and mad, and for the life of me could not figure out what was going on.

On August 5, 2002 I decided to put together a notebook of goals.

Here is what I wrote.

1. Have college loan paid off in two months. Current Balance: $500
2. Have car loan paid off in six months. Current Balance: $1,547
3. Have credit card loan paid off in eleven months. Current Balance: $2,101

Here are the calculations I used to determine the time for each goal.

Goal (1): $500 / (minimum payment + extra cash) Note: I added more money to pay off faster.
Goal (2): ($1,547 - (minimum payment x 2 months))/(minimum payment + goal (1) payment)
Goal (3):($2,101 - (minimum payment x 8 months))/(minimum payment + goal (2) payment)

I chose to pay off the school loan first. My focus was on paying off the loan with the smallest balance first, not worrying about which one had the highest interest rate. At the same time, I paid the minimum on all of the other loans. Once goal (1) was completed I rolled the payment from goal (1) to work towards goal (2). The process was repeated for goal (3).

I also created a list containing information on each loan, including the current balance and the minimum payments on a dry-erase board. This was stuck on our refrigerator so that it would always be visible to me and keep me motivated. As I paid off the loans, I would mark them as completed. If guests asked me about it, I was proud to tell them what I was doing.

Goal (1) was paid off 8/27/02. Goal (2) was completed 11/7/02. Goal (3) was completed 02/24/03. What I discovered was that I paid off my loans a lot faster than what I predicted.

This was just a start because I still had one more large school loan hanging over my head.

June 25, 2003

1. Pay off school loan in 22 months. Current Balance: $8,591.13
2. Save $10,000, for six months living expense, in 14 months.
   

Repeating the process I started on August 5, 2002, I went after paying off my second school loan. This loan was paid off on 07/14/2004. The second goal was completed 08/27/2004.

If I knew then what I know now, I would have started building our emergency savings while I was paying off my debt. If one unexpected expense arose during that time, we would have had to use our credit cards.

Through this experience, I realized my husband and I had not communicated who was going to buy the household groceries. We were both buying them without the others knowledge, and that was why we did not have enough money at the end of each month for the bills.

My Journey

Hello,

I have been contemplating starting a blog detailing my experiences on my journey to Financial Freedom for over two years. However, the little voice inside my head has always talked me out of it. Thanks to the encouragement of friends and family members I have decided to jump into the pool of blogging. I have tested the waters enough with my big toe.

Please note that this is my journey, and any information that you pick up from me should be double checked. The laws where I live may be different from your local area, and what works for me might not be suitable to you. My ultimate goal is to help people by cutting a path through the tall grass in the financial field as I reach my objective of Financial Freedom. I have noticed that as I act on the knowledge that I have gained, the return I receive on my investments grows. I also do better when I keep my money moving between investments. With the exception of an emergency fund, I do not let the money sit in a savings account for long periods of time earning next to nothing in interest.

Best Wishes,

E.J.