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Credit Scores

October 31st, 2013 at 03:25 am

If you're like me, you've wondered at some point how they come up with that strange "credit score" that all of our borrow, and many of our payments are affected by, if not controlled by. I was browsing the Experian site, and came across the following.

30% of your credit score is based on your credit usage
Credit usage refers to how much money you've spent on accounts that have credit limits, such as credit cards. Also called a utilization rate, it measures your total balances compared to the total of your credit limits. High credit usage or utilization rate is a strong indicator of credit risk and can lessen your ability to gain new loans.

31% of your credit score is based on your payment history
The most significant factor in determining your credit score is your payment history and making your payments on time. Late payments remain on your credit report for 7 years from the original delinquency date. The original delinquency date is the payment date that was first reported late by your creditor.

15% of your credit score is based on the age of your accounts
Having a lengthy credit history shows lenders you have an established record of managing your debt. Closing older accounts, such as credit cards could negatively impact your credit score. Experian retains closed accounts with no negative information associated with them for 10 years from the date they are reported closed. As a result, positive credit information remains on your credit report longer than most negative information, such as late payments.

14% of your credit score is based on the types of accounts you have
There are four basic types of credit: Real Estate Loans, Installment Loans, Credit Cards, and Retail Cards. Having a good mixture of credit types along with high quality accounts, such as a mortgage loan, shows lenders you can manage your credit responsibly.

10% of your credit score is based on inquiries or "credit checks"
Every time you apply for credit, a "hard inquiry" is placed on your credit report. Having too many hard inquiries could indicate to lenders that you're trying to overspend. Hard inquiries stay on your report for 2 years.

So that's at least how one bureau does it.

Updates, Not All Financial

October 29th, 2013 at 02:17 am

I guess I've waited long enough to post again here.

My mother and father are doing as well as can be expected. My father had a simple heart procedure - pretty much an external one-time pacemaker-level shock - to quiet his atrial fibrillation. Everything is now hunky dory, there. He also had a stress test and pretty much passed with flying colors. He has the heart of a thirty year old. Not bad for a 78 year old, I'd say.

On the not-so-good side, my mom's dementia is progressing. She's also been diagnosed with mild osteoporosis. My younger brother (divorced and kids are grown) moved in with them to help them out. My dad is in great shape, but he is still 78 years old. Getting old really stinks. Baby brother is now job hunting in the Richmond, VA area. I don't know the job market there, but he's always managed to do well. I'm just glad there's someone younger around in case my folks need the help.

MIL is now in a convalescent home recovering from her surgery. She's not extremely healthy, but they're very optimistic that they got all the cancer. They're still putting her through a round of treatment (I think radiation), but I think that's more precautionary more than anything else. She is slated to be back in her house before Thanksgiving.

My knee MRI results are "bad, but not bad enough for surgery." They didn't add, "So deal with it," but it almost sounded like they said it, to my ear.

On the financial front, DW has finished installing the new french doors. I really like them, and they came in a few thousand dollars under budget, but still a few thousand more than I wanted to pay. I will admit that the installers did a better and much quicker job of it than I could have done. I know they're better than the old doors, because when DW and I were on Facetime, she opened the new door, I immediately heard the train whistle from about ten blocks away. With the old doors, I'd have heard the train before she opened the door. DW also says they seal better than the old doors. Maybe this will get our utility bills under $100 per month. That's a milestone I wouldn't mind hitting. The bills were originally in the $400 per month range when I first started energy upgrades.

The painters have also finished repainting inside and out. When they started, I felt this wasn't really necessary, but they found some water damage, which was repaired relatively early. If they had not found that damage, I'm sure I would have had a much larger bill to fix the additional damage whenever the damage would have been later found. So, although I didn't want the house repainted, it was a good thing DW had it done, after all.

Debt repayment is progressing apace. The doors are two payments away from complete. We put them on a 0% card just for the convenience factor. We could wait longer to pay them off, but I'm just as glad that they'll be paid off before January. I hate credit card balances. DW's car payoff is going OK. Still a ton owed, but with a 1.19% interest rate, I'd rather leave my money in the mutual funds than pull it out for the car. We'll just cash-flow the payments. It should be paid off in less than two years, and maybe sooner.

I sent the "contract" about the Bank of Mom & Pop loan to DD2 and SIL2. I told them that there was no need for a signature - it's not like we'll sue them if they don't repay it - but I wanted to make sure everyone was aware of the terms. I included a "late payment" penalty of 1% per month after 90 days, but I set back the "first payment" date to January of 2014. They were happy with the terms (0% interest and about a ten year term), which is not surprising.

About my bonus... I'm quite upset. They still haven't paid me for my April bonus. They have reasons, but those reasons are now sounding like excuses to me. Things go more slowly over here, but we are beyond a reasonable delay, in my mind. I plan to speak to our CFO tomorrow to sort this out once and for all.

I will be traveling back to the US over the Thanksgiving holidays. I hope to see my folks and all of my brothers. All four of us children are planning to be there, but I haven't got the details of their planned visits. Time is growing short, so I need to get on the stick about this. It has been over 25 years since all four of us got together at the same time. Two of us live in Texas, though I reside in Dubai. One lives in the DC area. My folks are just outside Richmond, VA. Baby brother just moved in with my folks from Kansas. Maybe his move means we'll all get together more often, but probably not. We keep in touch by phone and such, but to actually get all of us in the same city has just not happened much. It is mostly my fault, as I've lived in Europe and the Middle East for much of my life, and traveled frequently for my entire adult life, rarely visiting when I'm not on the road.

DW and I slowed our mutual fund purchases to cover the water damage repairs. It turns out we pretty much skipped October, but we'll make it up in December, or when I get my bonus. I could pay off DW's car with the bonus, but it's ear-marked for retirement instead. That's part of the "great car compromise" DW and I made. DW's early move back to the US is having more of a financial impact than I would have liked. She has held off on buying new furniture, at least, other than the beds and other assorted items. Only one room really needs new stuff, but of course it's the living room. That's better than another Tempurpedic mattress, anyway.

Baby Step 15

August 31st, 2013 at 08:24 pm

Anyone who has listened to Dave Ramsey (insert evil or triumphant music here, depending on your proclivities), knows he suggests "baby steps" for paying off your debt.

As a reminder, his steps are:

1. Save $1000 for an emergency fund.
2. Pay off all consumer debt sans mortgage.
3. Save up 6 months of expenses.
4. Put 15% toward retirement.
5. Save for kids' college.
6. Pay off your mortgage.

The last time we were paying off debt - and now we're doing it again, but that was last month's biotch - we didn't follow his plan for the debt snowball (lowest balance to highest balance). We also didn't follow the debt tsunami (highest interest rate to lowest interest rate). We followed the "loans then lines of credit." DW and I figured it's easier to not ask for another loan (paperwork) than to leave a credit card alone (swipe! cha-ching!).

Fast forward to now. DW just bought a new car, made some home improvements, is buying some furniture, and loaned some money to DD2 and her DH for their new house home improvements. So, we have consumer debt again as well as our mortgage.

So, we're on baby step 15:

We're paying off her new loans at a good clip (yes, already): Baby step 2
We're saving up the emergency fund again: Baby step 3 (total: 5)
We're putting more than 15% toward retirement (baby step 4: total 9)
And we're paying down the mortgage (Baby step 6: total 15)

This is possible because the "great car compromise" included NOT buying another house. We aren't building that fund until baby step 15 (or at least through "9") is done. I think we've already got step 3 back in place, more or less. I still have the "float" and there is still quite a bit of "furniture money" in the checking account, so I'm not worried on those lines. I would like a bit more cushion, though.

We should be back on an even keel - only car and house, with full EF - before the end of the year, with both the car and house still being attacked quickly.

Won't Power

August 24th, 2013 at 07:19 pm

"Won't Power" is a new phrase I've just coined. It is the opposite of "will power."

How do you use your won't power? When you're at the store and you see a cute outfit that would be great for work, but that you don't have in your budget? You tell yourself, "I won't buy it." When you pass by the candy aisle at the grocery store, you tell yourself, "I won't need those calories." When you see the iPhone X come out, you say, "I won't need any new functions, my old phone still does what I need."

How do you develop "won't power?" You keep looking at the big picture down the road. Do you want a house more than you want those shoes? Do you want to fund your children's college more than you want that mocha latte? Do you want to get rid of your debt more than you want another 0.3 inches on your phone screen? Do you want to retire and travel to see your grandkids, or do you want to rely on social security to pay your electric bill?

I think I've got some problems keeping my won't power at full strength, but it's definitely better than it has been.

Lastly, the bane to "won't power" is "want power." If you really, really, really want that big screen TV, it's hard to muster the "won't power" to overcome the urge. Maybe tape a picture of your child and a photo of your diploma to your credit card. That should tend to limit the want power and reinforce the won't power, I would think.

Maybe It's Me

August 5th, 2013 at 06:57 pm

Many of you have seen and commented on my rant about DW spending and using our debt cards - they certainly aren't credit cards - to do upgrades and changes around the house.

Yesterday, my portable scanner failed. It just doesn't work anymore. I've had it about four years, and I used to use it all the time. Well, about 8 months ago, my portable printer failed. It didn't really fail, but the ink "spilled" (I don't have a better word for it) inside the printer so it leaves a colorful "trail" along one edge of the paper, and that trail is just not going away.

Anyway, I use these a lot when I travel for work, but I haven't been able to use the printer for nearly a year. So, why haven't I bought a new printer? And why did I almost cringe when I thought about buying a new scanner when I decided it was actually broken?

I think the pendulum has gone too far, and I've become too averse to spending money. I think I need to loosen up more and go a bit back toward my old spendy self, just not all the way toward my old self. I'll just have to remember to remove the ink cartridges when I pack up my printer. And that scanner... well, this will be my fourth one in the last 12 years or so. I guess the scanners are just consumable.

There's no "shopping around" over here for anything. Many of the stores have Ramadan sales going on now, so I think I'll go out today and see if any of the electronics stores have printers and scanners on sale. I'm not holding my breath.

There go the Trees

August 4th, 2013 at 09:33 am

When I was back in the US, I noticed some peculiar damage to the trees in our back yard. We live in Houston, TX, and the power company can come in and trim any trees away from power lines to help limit wide-spread, long-term outages when storms blow through.

Four of our trees, three oaks and a pecan, are on the easement, and they keep getting butchered every time the power company does their trimming.

The damage I noted, though, was near the bottoms of the trunks, but above where a weed eater or other lawn tool would hit; maybe three feet (one meter) up from the ground. The bark was splitting, leaving very large spots that had bare wood under them. Trees are very, very long term investments, so we scheduled an arborist to come out and look at them, in the hope that we could nurture the trees back to health.

The diagnosis is dire. First off, the "best tree," which is an elm off the easement and closer to the house has been hit by lightning, probably multiple times. It is dead on the inside, and the arborist said we have about two more years before it must come down. We're not waiting two years. The tree is too large to risk it falling, and I lost a porch on my last place because I went too long before removing a dying tree.

The four trees in the easement have been butchered badly by the power crews - I don't blame the crews, because the benefit to the majority of the people outweighs my personal losses. The damage is so bad that these trees, too, need to come out. Two of the oaks have lost their capillary layer, and just don't know they're dead yet. The pecan is structurally dangerous now, which we already suspected. I don't know what's wrong with the other oak.

Long story synopsis: I'm losing all of my backyard trees, and it's going to cost about $3K to take them out. I've already asked DW to go to the "good" nursery near our house to start shopping for new trees. We're probably going to put in fairly large trees, because we don't have 30 years to wait to have "real" trees.

The good news is that the trees in the front are healthy, including the oak I put in to replace a tree I had taken out 5 years ago after Hurricane Ike. So, the curb appeal is not affected, only the backyard ambiance.

DW has agreed to wait to pay cash for this, at least. It is not an emergency, so we're going to pay for it without hitting the debt cards. We'll probably have it done before Christmas.

I'm going to miss those trees.

Vent or Explode

August 2nd, 2013 at 01:31 pm

Arrrrgh! Just got off the phone with DW.

Begin rant

DW and I used to have very significant non-mortgage debt. Through diligence and dedication, we paid off or sold off well over $100K in a relatively short period of time. We've been "except for mortgage" debt free for quite a while, and the money has been going to retirement accounts and investments since then, as well as accelerating the mortgage pay off.

We were left with our only debt being a relatively low mortgage principal due. Late last year, I had worked out an amortization schedule on that (remember, I'm still an Excel nerd), and determined we could pay the whole thing off in less than a year. I ran some numbers on a refinance and determined that the interest rate reduction wouldn't cover the closing fees over the period we could reasonably expect to pay off the loan.

Fast forward to now. DW is back in the US setting up home again in our "old" house, and she's spending like a Congressman who doesn't have an opponent for the next term. Between the BMP loan to the kids, a new bed (gotta be Tempurpedic, not just memory foam), a new garage door (yeah, that's an emergency, right?), repainting the outside of the house that really doesn't need it except for cosmetic reasons (paint is for protection, not beauty), the two sets of new French doors, and her new car LOAN... well the EF is gone.

She's starting to use the credit cards. I told her that I'm NOT cashing in any of the mutual funds for this (after tax, no penalty, but we're not going to touch any retirement funds until we retire). I guess now she's going to buy all new furniture and probably have the driveway re-paved.... Sorry, that's hyperbole and frustration, not actual plans. At least she hasn't mentioned all new furniture (yet?).

Anyway, all the work to get us out of debt is being thrown away. I let her get the car loan in a compromise, and now she's continuing - no accelerating - the spending without any more compromise.

To top it off, she's even asking to decrease the amount we had agreed to pay toward the mortgage in the "great car compromise." For that one, I told her a flat-out "No, we're going to pay the amount we agreed to." I even "threatened" to pay the note from here rather than transferring the monies to her account which has all the autopays. She agreed to keep that compromise, but I think that she just wants to make those Jones next door envious.

End rant

Now that I have that out of my system...

There's nothing she's doing that we hadn't planned to do over time, but she wants to do it all right now. The problem is that she's putting us back into debt and also killed our EF at the same time to do it.

Does anyone have any advice for me when I talk to her next time? I swear, this feels like she's an alcoholic who skipped out on an AA meeting to go to a bar.

Porcine Lipstick and Reality

July 14th, 2013 at 12:17 pm

I just got off the phone with DW. She's met with our financial advisor, and of course sent me forms to sign and instructions to follow. She said it might rain today, so we'll save a few dollars on watering the new sod we put in.

DD2 and SIL2 have started the structural changes in their new house, and found that one of the walls she wants to pull down contains the risers for the plumbing upstairs. She's bummed, but they're going to do an archway with support beams (rather than just a stand-alone column to conceal the plumbing) instead of only the breakfast bar with no verticals. I'm sure it will look fine.

The Bank of Mom and Pop has extended the credit line to DD2 and SIL2 to accommodate a new fence. SIL2 had great plans to put in a new fence by himself, but I'm not surprised he's not doing this one. I've done fences before, and even using a two-man auger, postholes are a pain in the butt to put in. He's not all that mechanically inclined, so they got a bid for others to do the fence. The old one is already torn down and the new one should be going in as I type.

DW asked why parts of our house are cold and other parts are not-so-cold. I told her it's because it is an old house, and DD2 doesn't run the ceiling fans, closes all the doors, and blocks all the air flow from the registers back to the inlets. I told her to just leave the doors open and all the ceiling fans running and that things would moderate. DD2 cannot be told anything that doesn't agree with her preconceived notions. She thinks that air conditioning should work according to her desires and not according to physics. I can't wait until she starts seeing the results of her ideas in her new place. Remember that I've done thousands of dollars in energy updates in my 1950's bungalow. She refused to do the updates in her 1970's Brady Bunch place.

The puppies are loving the yard, still. I, on the other hand, mopped the floors this evening. I miss the vacuum cleaner aspect of those two.

Credit Score update

July 13th, 2013 at 01:50 pm

I was going to go to bed, but I checked my credit score on Credit Karma just now. In my April 20th post about credit scores, I said that DW had a credit score approaching "deity," while mine was close to 100 points lower than hers. Her score was so high, I'd think that folks would PAY her to borrow from them.

When we went to the US, we got a new car for her. This put two new inquiries onto my account; that should've been just one, but I'm not worried about the inquiries. Inquiries are "negative" in effect on credit ratings. We also borrowed a healthy amount, increasing our debt-to-income ratio, which is another "negative."

So, what was the result of adding two negatives to my credit record? The score went up to nearly DW's level after nearly six months of just sitting where it had been.

As I said in the comments to the April post: I just don't understand credit scores or how they work.

Back in Dubai

July 13th, 2013 at 09:56 am

Well, the hectic trip was "hecticker" than I imagined it would be. We made it to DS's wedding and met his bride's family. They seem to be really nice folks. Almost all of the older men at the wedding were US military veterans, from both sides of the family.

My parents were not able to make it to the wedding. I was warned that my mother has symptoms of dementia, but when we flew to VA to see them, I found out the brutal truth of the situation. My mom remembered me, but she kept asking my wife who she is. It is really quite sad, but my father is coping with it well. Luckily, they are well-set financially for their retirement, so his only worries are taking care of my mom.

DD2 and her hubby (SIL2) have closed on their house. They haven't moved in yet as they are having a lot of work done before they move in. They are replacing all of the floors and painting. I suggested they replace the windows and put in more attic insulation, but instead they are doing the cosmetic changes.

I helped SIL2 put in some purlins in the attic (like there would be purlins anywhere else). I left my nailer and compressor at his place and showed him how to determine if a wall is load-bearing. I also showed him how to brace back to a load-bearing wall for the additional purlins he's going to have to put in. DW is working with DD2 this weekend to help her paint the inside.

Their contractor has finally given them prices for some of the interior changes. His prices are in line with the amount of work to be done. In addition to our house-warming gift of $2K, we're making them a substantial "Bank of mom and pop" loan as well. We're making them sign some papers, but that's more so that everyone knows the terms than for any legal purpose. I seriously doubt that we'll do any legal action if they don't pay us back. Of course, I'm sure they will pay us back, else I wouldn't have approved of the loan.

I spent the remainder of my time doing repairs on the house DW will be staying in. She insisted on a new Tahoe, and I made her get the LTZ model. If you're going to have a new car, you might as well get a good one. We financed it with our CU, who offered 1.49%, but after negotiating the deal, the dealership asked what our interest rate was. He said he could beat it, and therefore our rate is actually at 1.19% through Capital One. That's not a bad rate, in my book. DW should have it paid off in about 1.5 years by the amortization schedule we worked out.

Homes in my neighborhood have fully rebounded from the "soft" hit they took during the downturn. Empty lots are going for exorbitant levels. The house beside ours is listed for $1250 per month as a lease, and it is significantly smaller and less well-kept than ours. Rental estimates for our place are about $2K. I have considered selling it, but every time I look at its value, it has gone up yet again. Right now, it has increased by over $60K in less than a year. Although those are unrealized gains, there's no way I'm going to sell until that pace of increase abates.

So, now we have a car payment again. I can't say I'm happy about that, but at least DW has a safe car to drive in. This trip also put our house payoff schedule back a few months. It looks like we won't have it fully paid off until the first quarter of 2014 now. Oh, well, the best laid schemes of mice and men oft go awry, as the Burns poem states.

I'll be back at work in the morning, and have already received about 10 phone calls about minor issues that needed my input. I guess I'll need to get back into office-work mode this evening. I won't be taking any more time off for at least 6 months.

Ramadan started this month. "Ramdan Kareem!" to those of you who follow the tenets of Islam.

Financial Decisions

May 12th, 2013 at 10:54 pm

DW is planning to split her time between the US and Dubai. The summers here are oppressively hot, and she just doesn't want to suffer through another one. I, on the other hand, actually like the hot weather, and as I'm the one working, there's no real way I can go back to the US and work here part time.

Because of this, we'll need both a car and a house in the US. For some reason, DW doesn't want to live in the house we already own, and have nearly paid off. She wants a larger place for only her and our dogs. Her car is being used by DD2 and SIL, and DW doesn't want to ask for it back. I'm not even going to discuss my opinion of that. I gave my car to BIL (DW's brother) when we left to come here to Dubai, because there was no way I could sell it for what it was worth, and BIL needed it more than we did. No regrets on that front.

So, it looks like we'll need to buy both a house and a car upon our return for DS's wedding. I have DW convinced to buy the house first, at least, but because of that, we won't have the cash to buy her new car outright. I hope she will come around and let me get her a gently used car for $20K or so until we can save up enough for the car she wants (list price around $55K). If not, we'll end up with car payments and we'll have to beat those down while simultaneously attacking the last of house(1) mortgage and new house mortgage. At least we have no other debts to worry about. House(1) is nearly paid off. If it weren't for the need for the down payment for new house, we could pay it off completely.

So, DW is putting a crimp into our retirement plans. The only point we're in full agreement on is that we aren't touching any of the retirement accounts for this, and we'll still fully fund both Roths. She wants a place with a large fenced yard and a pool. We also want the place to be energy efficient, well-made... all the "normal" house desires. She also wants "close in to town," and "new construction." We're talking five times my annual salary to get everything she wants, and that's just not going to happen. She also doesn't want to work, which I don't mind. But she's going to have to "give" on at least a couple points or it's just not going to happen.

I should find out my bonus amount this month. That's going to decide a lot of what we're going to be able to do right away, and what we're going to have to put off until later. I'm hoping for a very large bonus.

Credit Scores

April 20th, 2013 at 04:06 am

DW and I were looking at our credit scores on Credit Karma or Credit Sesame (no way I'm paying for curiosity information). Her score is up to "deity" level. Mine is still somewhat below "hero," probably in the "champion" range.

Basically, her score shot up by about 35 points to the "nowhere to go but down" range. Mine is still "very good," but there's a lot of both up and down potential. When we look at the basis behind the scores, we both score A in every category.

I'll never understand credit scores. Our credit has been married for over 6 years. Anything bad on mine from before should have fallen off.

Good thing we pretty much ignore these things. There's something about walking into a car dealership and saying, "We don't care about payments. All discussions will be referencing bottom-line, drive-out , we're-done-forever pricing. If you send me into the room with the lady who wants to sell me undercoating, pin striping, and extended warranties, I'll say 'yes' to everything she asks. Just be aware, though, that the number you and I come up with is the final answer, so you won't get another penny above that, no matter what you throw in for free."

We're currently saving to purchase our retirement home outright. I doubt I'll need a mortgage broker, and the title company will be someone I hire, not one hired by the bank or some other entity. I guess I've learned that doing things yourself saves money.

Still wish I knew why my credit score isn't moving at all. We pay our present mortgage on time every month.

Money, Debt, and Credit

March 22nd, 2013 at 08:49 pm

CreditCardFree posted an article about her friend spending her tax return on unnecessary items.


This got me thinking about how I used to view things. I started to reply in the comments, but my "reply" turned in to a longer post than CCF's original musings. That, in turn, spawned this post.

In the US, and probably much of the developed world, "available credit" has become synonymous with "money." Think about how you were before you devoted yourself to paying down your debt: As long as you were still below your credit limit, you could afford to buy something.

Did you not think "I still have room left on my credit card, so I can afford this?"

From this revelation, I realized that "available credit" has become conflated with "money." If you thought that the two were the same thing, then there would be absolutely no reason to pay off debt with your tax return. Follow the reasoning in the next paragraph.

I have a $3000 tax return. I have a $12000 balance due on my $20000-limit credit card. Therefore, I have spending power of $11K. If I pay off my debt with my tax return, I have $0 in cash, and $9K due on my $20K balance. Therefore, I have "spent" my tax return for no gains in my ability to buy things. Therefore, I have "wasted" my tax return for nothing.

How many of you had thought processes similar to the preceding paragraph? You may not have thought it through quite so logically (self-anointed nerd, here), but does it not encapsulate how you actually thought about money and credit? They're the same thing in the minds of those who have not had the epiphany that "debt is bad" that most of us writing in the blogs on SA have had.

And this is why most folks don't understand us, and most folks are not paying off debt, and why most folks are going to panic again when the next downturn happens.

Money does not equal available credit. If you realize the wisdom in referring to them as "debt cards" instead of "credit cards," then you understand why we're paying off our debts. Maybe we should all start calling them "debt cards" instead of "credit cards" when we talk to others. Maybe we can start a trend that has a positive effect.

More likely, though, we'll get talked about behind our backs for not knowing the "right" words for those plastic swipe things.

Paid a Stupid Tax

March 2nd, 2013 at 06:08 pm

Followers of Dave Ramsey know what a stupid tax is. For those of you who do not know, a stupid tax is money you lost, spent, or had to pay for doing something that, in hindsight, is stupid.

In our case, DW and I are intent on eliminating our mortgage. We are so intent on it, that when a milestone presented itself as being "in reach," we reached out and grabbed it by paying more than we had planned for February.

Well, the bank statement had a $12 fee... What the heck?! It's "free checking!" As I live overseas, I cannot make a direct deposit. Therefore, free checking requires a $1500 minimum daily balance. Well, we dipped below $1500 for a couple of days, and whammo! $12 down the tubes.

Now, a lot of folks would tell me to go to the bank and complain to get my money back. I have a very strict code of ethics. If I were in the right, I would definitely complain - loudly and long - until I got the charge rescinded. In this case, though, I was in the wrong, and therefore will pay the fee.

The real kicker is that we have enough money in our other accounts that we could have easily transferred the money before sending the payment and avoided the fee altogether.

I hope it is "lesson learned," and we don't incur the onerous fee again. I think the $12 amount is outrageous, and when I get a chance, I'll be transferring my accounts to my "other bank." We have avoided doing this so far, only because of all of the direct withdrawals we have coming from the current account. The twelve dollars is our incentive to make the effort to get away from what Clark Howard terms "the big monster megabank."

Not such a good trip

February 15th, 2013 at 06:45 am

I finally get to go to East Timor day after tomorrow. When I arrived, I went straight from the airplane to the helicopter. I didn't even clear Timor L'este's customs or immigration, but I get to on the way back. I have one night to overnight in town.

DW hurt her back while I was over here. The boss is helping out by getting her to the doctor and physical therapy. They're doing some kind of massage, steroid, and machine-assisted (shock and ultrasound?) therapy, but it isn't helping. There's nothing I can do from over here.

This job has been the definition of "snake bit." Every time we fixed something, something else was found to be wrong. We go "back on contract" tomorrow morning, which means the folks paying for this excursion start getting money from the client again. At least we saved them on the two-year contract overall.

The only good outcome from all of this is that I have had nothing but "no spend days" since I've been here. DW was left with minimal funds and there is absolutely no way to actually spend money here offshore. DW has an account with several thousand dollars in it at her fingertips. Were it an emergency SHE deemed worthy, she could spend it, with the understanding that I reimburse it immediately upon my return. Apparently, in her mind, doctor visits and medical treatments are not emergencies.

I wonder what IS an emergency in her book? I'm thinking "alien invasion or asteroid strike" apparently.

Oh, she has credit cards, as well. I did not leave her without resources. I travel fairly regularly and on short notice, so we have contingency plans set up for just such instances.

This means that we'll be 100% back on track for the mortgage pay off. Although it is still 8 months off (maybe more, maybe less), I can almost smell the smoke of the paperwork. I hate this part of paying off things; the anticipation when it is still a bit far off.

Hit the Emergency Fund

January 24th, 2013 at 06:51 pm

On January 10, a notice went up in the elevator that on 21 January 21, the barriers and building access systems would be activated, so you needed to have your cards.

I had applied for my card in November, but - with typical Dubai efficiency (NOT) - I still had not received mine. I waited until two days before the "drop dead" date to finally go to pick up the access cards.

Well, even though I had a receipt that said all fees were current up until July 9, 2013, it seems a new fee was due at the end of the year. Note that had they issued the card when I applied, this fee would not have been due, and I would not be in a position to need access cards in two days.

The fee due was about $4,000. I called my landlord who said, "No, I'm paid up through July." Yes, he had the same receipt. As I needed access, I paid the fees, then wrote a synopsis of the problem and copies of all bills and receipts to the landlord.

As I now had access to all of the paperwork, I worked out the amounts. My Landlord has to pay over $6,000 per year for maintenance fees, facility-access fees (gym, beach, pool, etc.), and parking fees. In addition there is a general-fund fee that goes to who-knows-what. How would you like to have condominium fees at that level? That's what the high price of living in Dubai is like.

Landlord has promised to refund the amount. I don't know when or how we can get the money, though.

DW and I went out and got groceries at a new store last night. They had American items like pop tarts and taco mix. We cannot even find chili powder over here - we did find cumin and cayenne, so we have the basics of our own - so we spent a bit on some "home country" food we wouldn't normally buy. It came to just under $200 for maybe 6 bags of nearly nothing. Just to give you an idea, a can of red kidney beans is over $4. DW likes beans in her chili, and also decided to make "Three bean casserole" this week. I don't think she realizes that instead of being a frugal meal, over here, it is going to run about $30 for a single casserole.

Anyway, we're now low on our EF for the rest of the month until the Landlord repays us for his fees. As an aside, we have to pay our rent in a single check for the year, so he already has our money until next November.

Newspaper Article

January 17th, 2013 at 12:42 am

I need to stop reading the news.


This doctor and her husband apparently committed suicide over money problems.

Some facts from the article:
They drove up in a Mercedes.
They paid $1100 cash for the hotel room.
Her clinic has now been taken over by someone else.

So, they had significant debt, I would assume, and apparently decided to kill themselves instead of facing the problem and trying to solve it. The fact that someone else has taken over the clinic tells me it was or could have been profitable.
I don't understand why they couldn't make the sacrifice to buckle down. Were they unable to accept a lowering of their lifestyle?

I really don't understand why anyone would commit suicide over money.

Lottery Winner

January 16th, 2013 at 12:01 am

There is an article out today about an unemployed guy buying an $8.00 lottery ticket and winning $1 million. Good for him! He got a check for $670K after taxes were withdrawn.

Now, I seem to remember that they just raised the tax rates, and a quick check on Yahoo finance shows that anything over $450K is taxed at nearly 40%. That means that he'll owe $340K to the US government alone, although only $330K was withheld.

Now, with any State income or sales tax, I'm pretty sure he's going to already be below $640K.

He said he tithed 10%. Assuming that was $67K (ten percent of his take home), he's now down to $570K.

He bought two jeeps: $520K. And now he's made an offer on a house. For convenience sake, I'll estimate $250K for that.

He just won the lottery, and he has no job. He has a paid-for house and $270K in the bank. I will guess he has a lot of credit card debt, so I'm going to arbitrarily put his bankroll at $220K right now.

How long do you think it will be before he's borrowing on his house to pay bills? I'm guessing no more than 2 years. After all, this guy immediately started spending after he got some green in his palm.

Retail Therapy has Causal Link to Sadness

November 16th, 2012 at 05:27 am

A few of you may remember my post where I talked about spending a lot of money when I lost someone very close to me. Well, according to this link, sadness apparently causes people to make bad financial decisions.


From the article:
'"Our results suggest that individuals who are sad after the death of a family member might exacerbate their financial hardship by making intertemporal choices that favor immediate consumption more than is wise," the researchers wrote.'

What I find interesting is that being behind on everything tends to make people feel bad - which must be close to being sad - which might cause them to become even more behind due to bad decisions.

I know that I did exactly what the research indicates. Anecdotal, assuredly, but still it jibes with my personal experiences.

How to Know You've Turned the Corner

October 23rd, 2012 at 05:31 am

How to know that you've turned the corner on your debt:

1. You look forward to the end of the pay period because you'll get to pay more toward a debt so it will be gone that much faster.

2. You see someone drinking a Starbucks Veinte and think, "How can someone spend over $7 on a cup of coffee?"

3. The phrase "Ramen noodles" no longer brings up memories of your college dormitory.

4. Any animal product for less than $1.00 per pound becomes part of your gym routine as you lift it into your cart.

5. The new car smell now makes you wonder the length of the loan and how high the payments are.

6. You use the past tense as you talk about money problems.

7. You save up for Christmas rather than dread paying for it over New Years.

8. Your kids stop complaining when you say "No," because they realize it won't get them the candy, toy, or new video game.

9. Your kid points out something on sale at the grocery store instead of complaining in the first place.

10. You read this list and say, "He forgot one."

Plumbing Problems

October 20th, 2012 at 07:34 pm

Daughter and son-in-law staying at our place in Houston called to say that yet again the kitchen drain had backed up. This is a 1950's bungalow, and the plumbing in the kitchen is still the original. The old bathroom and the new bathroom both have new plumbing - well, 95% of the old bathroom drain is new or refurbished. We still have about 50% of the supply lines to be redone, as well.

We have asked them to get an estimate on the drain. So far, the estimate has ranged from $13,200 to $6,500. We have one more estimate to go. Of course the lower-priced plumber said that the guy who does official estimates was off, and that they should come back with a camera for a fee to look in the pipes. I guess that means that the lower estimate is the estimated estimate.

I told the SIL that we would not pay anything for an estimate. The $13,200 estimator had a boroscope and also cleared the clog while he was there, both for free. Of course, if I was looking at $7K in profit, I'd probably do a 'scope for free, too.

This is going to make Christmas not so cheerful. We had known the plumbing was going to need to be replaced as we had already done two of three areas, but we had hoped to put it off another year or two. There's still the supply to do, too, when this is done. Luckily, I can do the supply myself. I won't mess with drains, though. Too much can go wrong with drains; supply lines either do or don't leak when you're done.

My wife wants me to sell the bungalow. It is in my name from before we got married. I want to keep it as we can get about $1300 to $1500 per month if we rent it to other than her daughter. So, the time has come for us to make a decision. Do we sell it and use the equity to buy another house or do we keep it and use the rent to help pay off another house? The wife believes the former. I believe the latter.

Financial Blinders

October 4th, 2012 at 10:15 pm

There are two types of financial blinders. I have used both of them.

The Bad Blinders
These are MUCH more comfortable to wear than the Good Blinders (coming up). These blinders allow you to look at your finances - or not look - and not see the debt piling up. These blinders let you borrow 100% of your house loan, get zero-down car loans, get and run up several credit cards and tens of thousands in their debt.

The benefit of bad blinders is that you get a very good credit score, until you wear them too long or something else interferes. You also get to have lots of cool things like new cars, big houses, the newest cell phone and computer.

The detriment of bad blinders is that eventually your habits catch up with you. The first time you have to decide which bill not to pay because your loans, credit cards, mortgage, utility bills, and Starbuck's addiction add up to more than your income, your eyes open up and you see the result of living beyond your means. Yes, no matter how much you earn, you can spend more than that with very little effort.

At the point where you see "rich people's income" and "poor people's balance" you find out the bad blinders only stopped you from seeing the truth that paying thousands in interest every month only benefits the institutions receiving the payments.

The Good Blinders
A couple of two or three years back (that's Texan for "a while ago"), we threw away the bad blinders and put on some good blinders. We made drastic changes and sold one car for what we owed, gave away another car that I loved (still do, actually) but someone else needed more than we did, sold the vacation home we really didn't need - or could afford - again only breaking even. In short, we first got rid of things we really didn't need.

Now, the good blinders came in to play. These blinders let you ignore income you don't really have. If you make $1200, and have fixed bills of $1000, you only have income of $200 to play with. The old blinders would let you look at the gross income and ignore those medical payments, FICA, and other deductions. Why not? If you can ignore the fact that the amount of the actual check is already accounted for, and more, then why not also ignore the above-the-line deductions that also can't be spent?

So, now, the good blinders allow us to have the wife's check go directly into a stand-alone account that doesn't exist; at least, it doesn't exist on our balance sheet. We also don't have any retirement accounts. What do I mean? I haven't retired yet, so that money doesn't count toward our finances.

These new blinders aren't terribly uncomfortable. Sure, every once in a while I check the balances in the accounts, but overall, we keep the blinders in place 99% of the time, and are just waiting until one of the peeks lets us give our jobs their two week notice. I haven't even written one of my Excel spreadsheets to see when we will have enough to retire. We have very lofty retirement goals, so I know we're not there yet. We're throwing every penny at the funds so it really doesn't matter if I know when we will get there before we arrive. There's no way we could send more and still eat.

Yep... these blinders may not be as fun to wear, but the end of month bill payments take up a lot less of our time.

Things I've Learned

September 23rd, 2012 at 04:42 pm

Like most Americans, I was never really taught about finances. I was shown how to balance a checkbook, but when it comes to investing, saving, credit, or myriad other financially-related items, I was completely ignorant. I knew so little, I didn't even know where to learn about any of the things I knew I was deficient in.

I've always been smart. Why was it I knew nothing about money? Because I was so ignorant, I didn't even know where to start looking to get the information. Due to this, most things I know about money, I've learned by doing the wrong thing for the right reasons. This post is to illustrate my mistakes, and the corrections I now make as I pass 50 years of age.

Buy Quality
I used to shop around for the best prices on furniture, appliances, on everything, really. My idea of a good deal was finding something that cost less but did the same job.

What I have learned from this mistake is that spending $200 three times over 6 years is actually more expensive than spending $500 once in 10 years. Find items that are well-made using good materials. Solid wood furniture is worth at least 3X what the glued sawdust furniture you get at Wal-Mart costs, and even 10X more if you buy something with a dense grain. It will just last longer. Same with buying a name-brand, researched refrigerator or car. Buy something that is well-made, but feel free to buy used or to bargain for the price.

Everything is negotiable
When you find that the TV you're looking at getting to replace your old TV is the last one they have and a display model, you should be thinking, "Opportunity!"

Managers are busy people. They have to be concerned with all of their employees, their stock levels, their profit, their sales compared to last year, and customer satisfaction, among other things.

Managers don't really have time for every customer, so they are more inclined to find a fast answer, as long as it balances a few of their objectives. Due to this, they are more inclined to cut a few percent off a sale so they can get back to their "real" duties. So, when making large purchases, find a reason to call the manager and ask for a discount.

The last item or a display item are ideal for this. If you have kids, your stuff will be scratched or damaged cosmetically at some time. Go ahead and purchase something that's gently damaged cosmetically, especially if the damage "doesn't show." The side of a dryer can be scratched or slightly dinged, but you'll never see it, for instance. Ask for a discount. If you get it, you just "made" money.

Get Yours
The first two houses I sold, I had to make realtor-suggested improvements before I put the house on the market. These were little things, but I realized that I could have paid for these improvements earlier and lived with the better house rather than preparing a better house for my buyer. Now, I make improvements and repairs and upgrades as soon as I can.

Get Paid for What You Do
This is similar to the paragraph above, but it doesn't pertain to salary or wages. What it means is that you should make improvements that pay you back.

I spent $25K at least 5 years ago to install insulation and other improvements in my 1950's bungalow. This is a no-brainer, but most people in my neighborhood have not yet done it. I now save at least $200 per month on my energy bills (in the Houston summer). I figure I'm no more than $15K down just counting the insulation. If you add the AC unit, radiant barrier, ridge vents and windows, I'm no more than $5K down on my improvements. On top of this, my house value is at least $40K above where it would have been without the improvements. The longer I keep the house, the more money I'll "earn" on these improvements.

Don't Spend your increase
The easiest way to get breathing room in your budget is to ignore bonuses and pay increases. Sure, you got $10,000 more this year over last, but if you keep the same budget, this is an increase. If you now decide you can afford that $35,000 car, you've actually lost money.

This can also be applied on a debt repayment plan. If you retire a $150 payment, use $30 to reward yourself each month - to get breathing room - rather than adding the entire amount toward the next bill. Of course, if you're like me, you only do this on occasion. When I get a bill, I put every penny I can find toward it.

I realize this sounds counter to the title, and I guess it is, but what I mean by this is to not spend all of your increase just because you can. Instead, save part of it rather than seeing all the new stuff you can finance with it. You should still reward yourself for your gains, but don't use it all for "new stuff."

I need it
This is how my wife and I decide we shouldn't really buy something. When we see an impulse buy item, we'll tell each other in a very effusive voice, "I need it!" We then laugh and walk away. Most stuff you buy in this manner is absolute crap. Why buy something you're not going to really use or enjoy?

Debt is Dumb
Debt means "I want this so badly, I'm willing to pay more for it than they're asking." The one SLIGHT exception to this is a home, but that's only if you buy below market and the value increases. That's not what has happened to most purchases made in the last 8 years.

Debt means you're impatient. I wrote a spreadsheet to show that saving and buying later saves you thousands of dollars, even at 6% payments with 2% savings interest. What it normally means is you buy later for MUCH less. What normally happens is people are too greedy and impatient to wait until they get that new car, boat, or ATV.

Just save until you can pay cash. You'll be surprised how often you then decide NOT to buy and to use the money for something "better" like retirement, a home, or college for your kids.

Do you really need a new BMW today?!

The Requisite Dave Ramsey Post

August 23rd, 2012 at 09:17 pm

Most people who start looking in to personal finances fall into two categories:

1. Someone who realized the need without making mistakes.
2. Someone who realized the need after making mistakes.

Most of us fall into the second category. I know that I am one of the latter group. Someday I may post my personal story, but that's for a later day.

After making financial mistakes, most of us find ourselves deeply in debt. Now, the term "deeply" is a relative term. If you're making minimum wage and find your bills add up to 105% of your income, $1000 can look like an insurmountable debt. If you're making $100K per year but spending $105K per year, then maybe $50K isn't "too uncomfortable."

Regardless of your personal debt depth gauge, if you're looking at this site, at some point you found it necessary to do something about your finances. If you're like most people, you probably googled "get out of debt." Guess what (as of today) the first entry is? Dave Ramsey's site.

Now, I'm not going to try to sell you on Dave's methods. Dave does a good job of selling himself, because that's how he makes his living. And he's doing a fine job of both the selling and the living. I find no fault with that.

This post is written because there are a lot of Anti-Dave snobs out there. For some reason, a lot of people like to tell you everything wrong about Dave's plan. I'm going to tell you the best thing about Dave's plan: It works for everyone who actually uses it.

Dave has a seven-step plan to get out of debt. He calls his steps "baby steps," because each step is a small thing in itself. I think some of the baby steps are fairly large and shouldn't be called baby steps, but that's neither here nor there.

Dave's Plan, Baby Step 1: Emergency fund
His first step is to set up a $1000.00 emergency fund. Now, the wisdom of setting up an emergency fund cannot be argued. Having nothing as a financial shock absorber merely guarantees you're going to have a very uncomfortable time when life's bumps and pitfalls come your way (or you go theirs).

Here's my first problem with Dave's plan. I'm an engineer. Think "Dilbert on brain steroids." Engineers do one thing: Make decisions to solve problems. Maybe that's two things, but you get my point. I approach debt as a problem to be solved.

The first thing you do to solve a problem is to determine what is causing the problem. Dave omits this basic step. Are you in debt because you spend too much on electronics, because your child needed hundreds of thousands of dollars in medical payments, because you were uninsured and had a fire that destroyed your brand new house, car, boat, and ATV?

Each of the above possibilities has a different solution. Yet Dave would tell each of them: "First save $1000 in an emergency fund."

I have a different first step: Figure out why you are in debt. You do this by writing down where and how much money you have coming in, and you write down where and how much money you have going out. You can call this a budget, or you can call it a financial health check, or you can call it a worksheet.

In any case, you need to figure out the problem before you start to solve it, and Dave does have you do this as part of his plan if you purchase his plan, but he doesn't call it a baby step, and I believe he should.

Now, his Emergency Fund (EF) of $1000 is rationalized by him as "enough for emergencies" but small enough to keep you motivated to pay down your other debts more quickly. I would be petrified to have only $1000 as a buffer. I've had car failures of nearly $3000. According to Dave's method, I would then have to either use a credit card, take out a short term loan, or do without my car. None of those are good options, in my opinion. Remember, Dave wants you to put ALL money above the EF into loan/debt payments.

So, for me, I would need at least $5000 for an emergency fund, even at this stage. I don't need any external or false pressure to pay down debt. If I'm motivated to do something, then I'll do it.

My point is that this "one size" fits all doesn't really fit all. Now, the universal truism you get from this first baby step is that you should have some cash-on-hand in case you need it. How much is debatable, but the fact you need something available for outside-the-budget required expenditures is not debatable.

Step 2: Pay off all debt using the Debt Snowball
The debt snowball is not Dave Ramsey's creation. Almost everyone uses some form of it once they realize they are carrying too much debt and need to reduce it quickly. Dave has made it popular, and may even have coined the term "debt snowball," though I doubt he did.

I think this might be better described as a "debt payment snowball." It is a method of using the monies that were used for a retired debt to pay on the next debt-to-be-paid. Therefore, if you're paying $150 per month for a bill, and you pay off that bill, then you have $150 more to pay off the next bill.

Now, Dave suggests you pay off the bill with the smallest balance first, then go on to the next bill in ascending order. This is the first place that many people have a significant problem with Dave Ramsey's plan; mathematically, the debt with the highest interest rate should be paid first.

Now, no one can argue with that last statement, because I specified that it is a mathematical calculation, and it is true. The largest interest rate should be paid first mathematically.

Dave's plan trumps math at this point. In his own defense, Dave states that you need to get some victories early to really adopt the plan. The easiest and fastest way to get a victory is to pay off the smallest loan, regardless of its rate.

Why can I say you should do it? Well, "because it works" is the best argument, and the best basis for that statement is this recent study Kellogg Debt Payoff Study

The study above really isn't the whole story. I will say that once you have made the lifestyle change that this whole project really requires, you can change to the "highest interest rate" first method. Once you actually are dedicated to removing debt, and you have developed the discipline to do it, you should go back to Math and use it to your advantage. The real caveat here is that if you were doing what was mathematically correct, you probably wouldn't be in debt to begin with.

The method I used was "neither of the two above." I have to travel for a living. I have been to 71 different countries as of this writing. There is absolutely no way I could do this without a credit card or charge card. I have brought home expense reports of over $30,000 for one month. Try living in Singapore or Tokyo for a month - as well as pay for the plane ticket - on less than $15,000. Let me know how you fare.

I couldn't do one of Dave's other "truisms:" Cut up your credit cards. That just isn't going to happen. I could easily get 150,000 reward points from Amex every year if I were still on the heavy travel schedule.

Because I could not easily cut up my credit cards when I didn't have the cash to finance my travel, I set up my bills by "loans and lines of credit" followed by "credit cards." Even though most of my debt was business-related, it is just too easy to buy souvenirs and other fluff on credit when you're so used to using the cards. This was a discipline problem, not a financial problem. The financial problem was the symptom. My reasoning was that once the loan was paid off, it was gone. I then snowballed that payment into the next loan.

Of course, I paid the penalty of still spending a bit more on credit than I should have but after a few months, I stopped doing the credit card dance (spend too much, pay some off, leave some debt, cha-cha-cha), and started to put all the excess cash into paying off the loans and LOC's. The point is that I paid off debt in my way, not Dave's but the goal was the same: Pay off all debt.

Step 3: Save up 3 to 6 month's bills in an EF
Once again, I believe this is a good idea, but I question both its timing and its universality. I've already outlined why I believe the fund should be set up as Step 1 (after the budget, but that dead horse has already been beaten).

My second problem with this step is that everyone has unique circumstances. Let's look at my present situation. I work overseas for tax purposes. My job pays for my house, my car, my maintenance, my furnishings... everything except food and entertainment. So, my 1 month expenses that must be paid is about $400, unless I go out more than necessary. The food over here is expensive. According to Dave, I need less than $3000 in the bank for six months.

It will cost me about $4000 to ship my two dogs back to the US when I leave. I need to keep that money in the bank. So, my emergency fund should be at least $15000, for return travel and homestead set up upon my travel back to the US.

So, I modified Dave's plan to be "$5000, plus travel expenses" as my emergency fund. I do agree with his basic premise, once again: Save up enough so that if everything crashes in your life, you can ride through it for at least 6 months without panicking.

Step 4: Invest 15% of your income in your retirement fund
Once again, I don't disagree with the step itself, but I do disagree with the timing and the static amount. If you're 28, then 15% is a great amount to save toward retirement. If you're 58, you probably need to be doing a bit more than that to have any chance of retiring at all.

Secondly, I think the debt snowball should be modified. One warning, though, is that you MUST be committed to reducing your debt to follow my method instead of Dave's method. I will state that mathematically, Dave's method in this case is probably better than mine.

I think you should take at least 20% of your "snowball increase money" after paying off a bill, and put that toward increasing your EF and then toward retirement. In other words, using my $150 example from above, I would suggest you put $30 of that toward your savings or retirement, and the other $120 toward your bills.

My reasoning is that the markets fluctuate. You need to be buying continually to get the smoothest outcome. The old term for this is "dollar cost averaging," and its basic premise is valid: Investing a large amount at one time has the possibility that you have invested at a peak, and you can lose much of your value overnight. If you instead break up the large amount into smaller amounts and invest them over time, then any peaks or valleys are smoothed over. So, the longer you spread out your investments, the greater the likelihood that you won't lose significantly in one crash or downturn. Also, during the downturn, you're buying more shares rather than earning more income.

Again, Dave and I are not in disagreement, but his method does pay off bills more quickly. Also, since many employers offer 401K plans, you lose out on the "free money" of their match if you don't contribute, so using part of your money toward getting the match, which is typically at least 50% of your deposit, is only good financial sense. Dave's plan does not allow even this smart investment strategy until debts are paid off.

Step 5: Save for Children's College
I don't see this as a separate savings at this point. Rather than this title, I would say, "Max out tax-deferred savings, then save the remainder to taxable and therefore more liquid savings." This then allows you to pay for college, cars, or toys, at your discretion.

Why does one earmark his savings for future expenses? I can see the wisdom of making room for this, but by the time you get to this point, you should be able to save at least 30% of your income in some vehicle or another. If you haven't made the lifestyle change, then you're not even going to get to this point. By the time you're to this baby step, you should already have more money than you can spend wisely - and you should have developed the wisdom to know what "wisely" means. If you're still borrowing $50K to buy a $60K BMW, then you never got this far.

Step 6: Pay off your house
This one is a hard one. If you are close to retirement, then I agree with this wholeheartedly. If you are far from retirement, then this may not make financial sense for a different reason.

Once again, I agree with Dave in general. I think everyone should pay off his primary residence in full. I am now going to go into the reasons why you may not want to do so personally.

Right now, you can get a 15-year house loan for right around 3%. Historically, index funds have returned more than 10% over any significant period of time. So, you can reasonably expect to be paying 3% interest while earning 10% interest.

The simplistic reasoning above is correct in itself. Where it fails is that there are a lot more payments you make on your house that are not the loan amount. You pay taxes, insurance, maintenance, and improvements in addition to the payment. Will you still make money buying a house on credit? You most definitely will unless you buy stupidly. Who bought stupidly? About 90% of the people who bought a house from 1998 until 2007. OK... the 90% figure is fictional, but the trend is not.

Real estate was booming in the timeframe I mentioned. This chart shows that from about 1997 until 2007, housing prices were literally skyrocketing. Why was this? Because everyone who played this game was greedy and figured, "I can buy this $100,000 house for $150,000, then sell it a year later for $200,000 and use that $50K for toys." And that's what most people did. People are not underwater on their loans, they are watching their loans on big screen TV's and riding to work in their loans inside Mercedes SL cars.

The money was borrowed and wasted. This is the reap what you sow part of life.

Regardless of the pontificating above, housing prices are now at a decent level, but loan money is cheap. I suggest that if you're young you may want to use a house loan to increase your income. My personal opinion is that you should pay off your principal residence, and use your "extra money" to purchase real estate for rental or investment purposes.

I just don't think I should use a necessity as collateral for investments. I see it as only a small step above using your house title as your bet on one roll of the dice in Vegas. It's still gambling with your house, no matter how you rationalize it. Sure, the odds are better with an index fund than with the roll of the dice, but the payoff with the dice is quicker and more definite - both of these statements are predicated with "if you win." Both of them can be lost.

Step 7: Build Wealth and Give
No argument at all at this point. How you build wealth here is up to you.