Wino's Ramblings

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.

The wife and I have managed to complete nine months here in Dubai. We are not hating it, but there are certainly a lot of things that we miss from the US. Less than 120 degree days in August is only one part. It is amazing how the heat takes all of your energy, even with air conditioning.

We splurged and got two unlocked iPhone 4S's. We use them to Facetime with family back in the US. I also use mine to listen to podcasts while I'm driving. I just downloaded iTunesU and have grabbed some course lectures that I hope are interesting. I won't say what the courses cover, but there's a large selection for anyone else who considers himself a life-long learner. There's a lot of fluff there, too, so wade carefully if you go to download anything; there are even some personal finance courses there.

Our financial goal posts are getting closer. We hope that only one more year will put us where we want to be for retirement. Worst case, we promised ourselves no more than 8 years over here before returning. If we stay that long, it will be to retire immediately upon return, which is not in me. I'm sure I'll continue working until I die.

Actually, I've known quite a few men who have died within 6 months of retiring. I wonder how many of them would have lived a lot longer had they never retired? I believe at least one of them died because he went from powerful, respected, and fulfilled to "retired" with no wind-down between the two. I'm certain that his retirement killed him.

Part of my job is teaching. I love that part of it. When I "retire," I'm going to become a full time teacher. I've never had any aspect of my job that I have ever enjoyed more than that. How can you beat getting paid for doing something that you would conceivably do even if you didn't get paid for it (and could still eat)?

A while back, while I was still living in the US - don't worry! I'm coming back eventually. - I bought one of those High-Efficiency Washer and Dryer combinations.

This was during my "spend it even if you don't got it" phase, so I'm not even sure what I paid. But that's not the point.

Shortly after I got the pair, the computer went out on the washer. The repairman came and replaced it. He said something to the effect that had I had to pay for it, the part alone was over $500.00.

Five Hundred Dollars!!

So, I went out and bought one of those high-current, appliance-ready surge arresters for about $50 and put it onto my machine. I've had zero problems since.

So, was this "money well spent" or was this "you fell for it, sucker" money? There's no way for me to say definitively, but I'm putting it in to the former category.

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.

Living in Dubai, I can't listen to radio shows, and TV from the US is non-existent except for prime time stuff on Netflix that I mostly don't watch. My solution is to download and listen to podcasts.

I was listening to one podcast - I don't remember the show, but probably Dave Ramsey or Clark Howard - and the host and author were talking about how we do things by habit. They said that if we can change our habits, we can change the way we do things. There were couple of interesting points that the hosts made that got me thinking.

The first point was that occasional rewards followed by multiple non-rewards actually cause a compulsion to do the action that may or may not be rewarded more than a constant reward or non-existent reward would cause. The author used video games and slot machines as his examples, and stated that cigarette companies vary the amount of nicotine cigarette-to-cigarette, as well, to give the user only an occasional "fix." Whether any of this is true about intentionally doing the occasional reward to get more response doesn't really matter. I think that it makes sense that an occasional reward does cause you to appreciate it more and therefore do it more. We stop playing tic-tac-toe once we realize you can never win against an opponent who plays correctly, or other kids' video games because they are too simple and you never lose.

The second point that caught my attention was that you have triggers that cause you to do the habitual behavior. The author used getting ready for work in the morning as the example. If you're like me, you do your morning routine in order, and if you vary the order, you're likely to forget something. I can remember going to work without a belt on occasion for varying my order of prepping and dressing.

Why am I posting this here? Because I think I can use this to my advantage both to eliminate some of my bad habits, and possibly to develop some good habits.

I drink many too many carbonated beverages. Every morning, I take one out to the car with me. For the last two weeks or so, I've made the effort NOT to take one with me. The first couple of times, it was hard. Now, I don't even miss the drive-time caffeine. Also, I have to force myself not to open one as soon as I arrive at work. This is just a start to get me to change my behavior. I think it would also work to eliminate the "coffee cup cigarette" or "mid-morning sweet roll" or whatever compulsion item one of you readers might be experiencing.

The author mentioned that you need to get a trigger to do a new habit. I'm trying to figure out a way to apply this "habit" to my finances. In reality, though, I think I've already got a good balance where this is concerned. My wife and I have our weekly "date night," which means we go out somewhere and have a nice dinner and drinks, but don't splurge. We've had only one splurge in the nine months we've been here in Dubai. The splurge was intentional and planned weeks in advance, so it really wasn't so much a splurge as a reward. We frankly needed a nice night out with friends, so we set aside a few dollars to enjoy without guilt.

What kind of trigger can I set up to avoid my soda? Or more precisely, can I identify the triggers that cause me to crave the soda and then eliminate the need? Time will tell. Also, what financial behaviors might I be able to develop? I already do the month-beginning transfers, investments, payments, etc. I don't really know if there's anything else I can do on that front.

Over here in Dubai, we hear stories all the time about owners who withhold paychecks without reason or warning, and once things are finally said and done, the owner has left the country with sometimes millions of dollars.

Usually, this happens with companies that have very large low-paid labor pools. The laborers sometimes get paid as little as $20 per day for 12 hour days, even in this day and age. Imagine how many people would have to be employed at that rate to make even one million.

What got me wondering about this? My paycheck was not deposited yesterday. Along with last month's extreme hold up on my money, now safely in my account again, I need to get some cash back to the US. I was waiting for payday to include more cash as I'm not charged a percentage for the transfer, but a flat rate. Therefore, the more money I send, the less per-dollar it costs me. I was hoping to send back enough for more than two months this time around.

Our CFO is on "holiday," and he is usually hands-on with the paychecks, so I hope this was just a late deposit transfer, but we'll see tomorrow. The other guy at work at my level pretty much refuses to do anything if his paycheck is late. He's been here longer than me, so has heard more of the horror stories. I think he figures he is always a month behind, so he's not about to extend even one additional day.

I'll update tomorrow.

After two more visits and another telephone call to the US, we finally got a call from our local agent that we could come in to pick up our money.

At this point you may be thinking "he got resolution," and - eventually - we did, but the story has quite a few twists in it. Please, read on to see what I deal with over here in Dubai.

During the call, the agent said, "The German bank only sent XXX amount, so you won't be getting back your whole transfer payment."

Needless to say, I disagreed fervently, and even eventually mentioned, "Not only did you not perform the service that was contracted, you had my money for four weeks. In actuality, you should be paying me interest, not cutting my refunded amount."

I decided this was better discussed in person, and went into the office where I made my initial transfer, along with my copy of the contract. Again, they said that "since the money has already been converted to US currency" I'd only be refunded the amount of the returned deposit, less fees for the conversion, fees for the new conversion back to local currency, and less the fee for the initial transfer.

No deal. I said again that they were going to give me the entire amount for failure to perform according to the contract. The agent made a call, and said, "OK, we'll refund the whole amount."

Again, the story does not end there.

The agent then started working with another agent, going through the drawer, counting money in their machine, filling out forms... basically spending more than five minutes before having me sign 3 different forms (without a lot of explanation), and finally handing me a bundle of money and saying, "Goodbye."

I then counted the money right there on the counter where I was given the money. Stashed right there in the middle of what was more or less a pile o $250 dollar bill equivalents was a single $125 equivalent. I pulled it out, and put it with the other bills of the same denomination and kept counting.

I came out $125 under the amount I was due. They then made another big show of balancing the guy's drawer, even going to the point of grabbing a briefcase from the back full of $3.00 bill equivalents, and finally gave me the balance I was due.

My wife, who was there at the time, asked me if I felt they shorted us on purpose. My answer, "Definitely. That's why they made the big show. They saw I never did anything but count the money. They only needed to recount it themselves to see I was shorted. They showed no surprise or suspicion that I might have shorted them. The whole refund show was a fabrication to try to get us to walk away without counting."

I got all my money.

No, I won't be using this shady group ever again. Instead, I'll be paying the bank more, for more security.

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?!

As a continuation of my last post concerning my telegraphic transfer from Dubai to the US: I continued to go to the sending agency here in Dubai for updates, waiting enough time to prevent them from putting me off by saying the paperwork was still going through.

Eventually, I was told that the problem was at Chase Bank's end in the US.

I called Chase, and after more than 30 minutes, I found out that - just as suspected - it is the US Government preventing the deposit. Little Hitler has some power, and is illegally preventing me from moving my money. I've done nothing wrong. I've done nothing illegal. They have no right to this obstruction. My rights as a US citizen (to my property and my free use thereof) are being violated.

All of that aside, it will take Chase four more days to return the money, so I can then go to the bank in Germany to get my money... which will probably take another week or more after that to finally get the cash back here in Dubai so I can again try to get it transferred to the US so I can pay some bills. Thankfully, I keep enough emergency fund in the US to go a couple of months without immediate cash.

The long and the short of it is that I have $8,000 in electronic limbo, and I won't get it for at least a week. I have lost the use of this money for nearly a month.

Thanks, Uncle Sam. I now know the true meaning of the sentence: "I'm from the government, and I'm here to help you."

I am a United States citizen living in Dubai, United Arab Emirates. Firstly, let me say that the title is not talking about the present political difficulties taking place in the Middle East. In fact, Dubai is fairly immune to such disturbances because only about 10% of the population is Arab. Most of us here are expatriates, such as myself.

The hazards I refer to are best illustrated by my present predicament. On September 2, 2012, I sent a wire transfer back to my US bank account, so I could pay my US-based bills. To do this, I need to convert the money into dollars - which costs me money. I then need to give the money to someone to send it - which costs me money. The money then arrives in the US, where my bank charges me a fee for receiving it - which, you guessed it, costs me money.

Naturally, I try to minimize the charges involved in me transferring the money. For the last four months, I have been using an agency set up to transfer money out of the UAE. This was saving me about $15 per transmittal, as I only saved money on the "sending" fee, and not on the exchange or receiving fee. The previous option was using my UAE bank for the transmitting business.

My money from this transfer has not yet gone through. Today makes 2 weeks I have been waiting. I have initiated an investigation. I believe what has happened is the US government has held up the transfer; probably waiting for me to prove I am not laundering funds from Iran. If this turns out to be true, I will be upset. The government has NO RIGHT and NO JUSTIFICATION to make such an arbitrary decision as to hold up my funds transfer. They can record it, and then investigate it, and THEN, they can bring charges if necessary.

My transaction is from me in the UAE, to me in the US. There's nothing illegal about it, and the government has no probable cause to stop the transfer. They are being a-hole bureaucrats, and this is why everyone hates government employees. They're all little Hitlers, given the chance.

So, I have several thousand dollars in limbo, and I'll have to use the bank (at a higher price) for my next transfer. The bank not only costs more, but it also takes longer... at least it takes longer if I don't count this attempt.

I just have to wait, and hope for the best. I've heard of things like this taking up to six months to resolve over here. How would you like to "lose" several thousand dollars for six months or more? I know how I feel about it. I can't say, though, because I try to keep my blog PG rated, at worst.

I learned about this years ago. In the late 1980's, I was living in Houston, Texas. Our house was about 90% carpeted, and we had two dogs. One dog carries, by my approximation, 100 gazillion fleas.

At the time, there was a service that promised to remove fleas, called "Rx for Fleas." I mentioned to a friend that I was thinking about using this service, as they promised to get rid of fleas for up to a year. My friend told me how to make my own bug killing mixture that is safe for pets and children. I've used it ever since.

There are two ingredients. You can buy them cheap, or you can buy them for a lot.

The first ingredient is called "Boric Acid Powder," or orthoboric acid (in powder form). You can get this in a pharmacy, where it is pure and intended to be mixed with water to make a disinfectant liquid for cleaning skin-borne bacteria. I once was prescribed this by a vet to be used to clean the eyes of a rescue kitten. As felines clean themselves (including their faces), I deduced that this acid was not harmful to pets, as advertised. The pharmacy version of Boric Acid Powder costs about $4.00 for about 4 or 6 ounces (7 to 10 grams).

You also buy this powder at a dollar store. It will be in a plastic bottle. It will be called something like "roach proof" or "roach powder" or something like that. Just look on the label for "boric acid" or "orthoboric acid." The only problem with this type is that it often has a light blue tint, as if they added a tiny bit of blue chalk from a pool cue piece of chalk. Just don't use this on white carpets, or you can buy the pharmacy version, which looks like baby powder. Anyway, the dollar store version is one pound (28 grams) for a dollar.

Before I go on to the second ingredient, let me talk a bit more about boric acid powder. Bugs are actually clean critters. They are constantly cleaning themselves by the equivalent of licking themselves clean. Therefore, anything they walk through, they ingest when they clean themselves. When they walk through boric acid powder, they clean it off by swallowing it. The powder gets into their digestive tract where it damages and kills them. I think a person or cat would have to eat like a half a cup to do the same, so small quantities such as you'd get from dust in the air being breathed in or swallowed won't hurt a healthy person, baby, or animal. I'd be careful of lizards, or someone with lung problems.

You can put boric acid powder anywhere that people are not likely to go, but bugs are likely to go. I got a "Planters Peanut" jar (the one with the metal lid held on by a plastic ring; I think it was a pound), and put a bunch of holes in the top using a nail, like a big salt shaker. I use this to "distribute" the powder. Places I've put it are: In my attic near the walls, behind electrical outlets, and onto my garage floor, especially near the walls. I use the pure boric acid, and just "sprinkle" the area. Remember, bugs will walk through it and pick up the talc. It takes very little to kill them.

The second ingredient for the carpet treatment is "diatomaceous earth." This, too, comes in two forms. You can buy it in some hardware store insecticide areas, where it was $4 per pound when I priced it. Instead, you can go to the pool supply area, and buy it for like $10 for 25 pounds (about 11 kg). It is used in pool filters for cleaning the water or backflushing.

Diatoms are really small creatures with skeletons. I don't really know where they fall in the animal kingdom. When diatoms die, their skeletons, carapaces, or shells (whatever) remain. These things are too small to make out as more than dust to the human eye, but to a bug, they are as sharp as razors. When the bug walks through a place with diatomaceous earth (millions of dead diatom shells), they get the powder onto them, and into their joints. The diatoms cut into the joints, and cause the bugs to bleed out.

Mix 10 parts of diatomaceous earth with one part of boric acid powder. This dilutes any coloring in the cheap version of the boric acid powder until it is nearly non-existent. Put about a half jar into the peanut jar, and use it as a "salt shaker" all around your house on the carpets, dog beds, or anything cloth on the floor.

Before starting to sprinkle the powder, make sure all food is covered, and clean all dishware afterward. Personally, I just keep the cupboards closed and don't have any dirty dishes out when I spread the powder around.

It doesn't take a whole lot. I'd say about half a pound (250 gms) per 1000 square feet (100 m2), maybe a little more. Sprinkle it liberally, and then work it in with a broom. Leave it messy and powdery for two days or so, then vacuum and dust normally.

You won't see any change in your bugs for a week or more; however, after about a week, you're going to see hundreds of fleas and think I've steered you wrong. Wait about three days to a week for this invasion to subside. You won't see another flea for six months or more after they subside.

This will remain effective for at least a year, with one warning: If the powder gets wet, it will dissolve and stop working. Therefore, steam cleaning or other means of getting your carpets wet means you have to wait until they are dry, then reapply.

I've used this for years, and I can personally attest to its efficacy.

It doesn't matter what you do in the world today, you have to deal with money in one form or another. Have you ever thought about what you can actually do with money? I'm not talking about dreaming what you'll do when you win the lottery. I'm talking about actually sitting down and thinking about money and what it entails.

I had a problem when I was younger of not paying attention to money. I've always been employed, and I've always made enough for my needs and wants, but I don't have extravagant needs or wants. Here, I'll outline what you can do with money, and what it entails. It is only a guideline to help you think about what you're doing, rather than just setting a goal and roboticly working your way toward it without any real understanding of what you're doing.

Money use 1: Borrow it
Since you're reading this blog, chances are that you're already well-versed with this use of money. Borrowing entails someone giving you money for your use today, with the promise that you'll pay back even more money in the future.

What do you get for this money? About the only thing is "immediate satisfaction." And debt. You always get the debt part, and you usually get the immediate part - "immediate" being a relative term - but you don't always get the satisfaction part. Have you ever purchased a used car only to wish two months later that you had not? Or maybe you used your credit card for a night out where you had a little too much to drink, and as you were ruining your shoes and your trousers or pantyhose, you regretted the purchase of at least one of the drinks? You didn't necessarily get satisfaction, but you did get the debt.

Now, there are actually two categories for debt, which I call "dumb debt" and "smart debt." How do you tell the difference? Basically, dumb debt - which is the vast majority of debt - is debt that costs you money and doesn't really do anything for you in a positive manner.

"Smart debt" is debt that you use to achieve some other financial goal. About the only thing that falls into this category is real estate loans. Now, it is arguable that stock purchase loans can also fall into this category, but I don't believe that is anything other than gambling, regardless of the odds. Real estate appreciates as long as you purchased it at its real market value rather than at an inflated going rate. See my previous "Dave Ramsey" blog post where I give a bit more information on this topic.

In most cases, borrowing money incurs only debt and hardship, so it is a dumb thing to do with money.

Use 2: Spend Money
This is not quite as bad as borrowing, and as long as you haven't done "use 1" too much, there's nothing really wrong with this use of money. Spending money entails trading a value of cash for some item, service, or other value that is not cash.

In general, spending money does not decrease your net worth, assuming what you get in return for the money has an equal value. Most assets, though, depreciate in value, so in the long run, spending money decreases your net worth over time, or at least prevents it from increasing more quickly.

Use 3: Saving Money
Saving money is what you do with money when you have it, and don't use it for another purpose listed here. Saving money in and of itself is a good thing. It entails putting the money somewhere safe where it cannot lose numerical value - though it can lose spending ability due to inflation being greater than the savings return.

Saving money puts money somewhere that you can get to it more or less "at will." Usually, you pull money out of savings once savings reaches some given point to use it for some other purpose. Often the other purpose is "spending" as above, which will probably cause your absolute value to go down more quickly.

Use 4: Investing Money
The main differences between saving money and investing money are rate of return, risk, and liquidity. Basically, the rate of return is how much you make for your invested value compared to its value; the risk is how likely it is that your rate of return can be negative. Liquidity is a measure of how quickly you can reclaim your money for another use (including re-investing it elsewhere).

Investing money is a personal decision. There is no "right answer" and there is no "right way" to invest your money. You have to balance your needs, your wants, your assets, and your obligations, and your personal ability to remove yourself from the equation. One of the hardest things to do is to watch an investment lose value, yet "stay the course" and not incur even more losses shifting money around to no avail. But that's all a part of investing.

Investing is one of the wisest things you can do with your money, but you cannot invest until you have "extra money" to invest. You should only invest money that you don't need for spending or saving. An emergency fund is not investing. It is savings for unforeseen events that require money. Paying off debt is not investing. It is the penalty you are paying for past immediate return.

The main thing about investing, though, is that it is gambling. You are betting that your investment gains value at a greater rate than inflation or the economy in general takes it away.

Now, the above statement is going to anger just about every investor who reads it. "Index funds have historically returned (blather) amount over any (X) years." Yes, they have. Absolutely every investment vehicle I've ever seen has also said, "Past performance is no guarantee of future results." Why? Because it is a gamble.

The thing about gambling, though, is that you can improve the odds by various means - most of them legal, many of them illegal. For example, you can run a casino and weight dice to insure a certain roll. That's an illegal way, obviously. Legal ways to improve your investment odds is to research your investments. The best advice I can give in this regard is to invest in something you know and understand.

Use 5: Earn Money
Earning money is performing some service, improving some item, or otherwise doing something that someone will give you money in exchange for. Most people have a "job" where they earn money. Earning money always increases your net worth or asset value. This is your best vehicle for increasing your comfort and ability to do all of the things listed above.

Your ability to earn has very little to do with your intelligence, your education, your network of friends. Your ability to earn hinges on three precise qualities that everyone possesses in one degree or another: Integrity, imagination, and dedication.

Integrity is listed first because it is the most important. Integrity is more than honesty and trustworthiness. It is the sum total of your character. "Character" has been described as your penchant for doing the right thing even if no one is watching. This allows people to trust you, work with you, and rely on you.

Imagination cannot be underestimated. This is the quality one has to see a situation, item, or other intangible or tangible object and apply a unique or unthought-of change that others have not foreseen. This is how ebay, Steve Jobs, and about 99% of the other "successful" people and businesses have made their way. Imagination is the ability to see something that hasn't been seen by others. Earning is your ability to exploit this vision to make money from it.

And that takes the last item: Dedication. This is your ability to stick with something because you know it's going to work out for the better. It is your ability to stay with things when they don't look good, but in your heart you know you can make them good. Dedication means staying with something because you believe in it, no matter what anyone else is saying or thinking.

Dedication is a two-edged sword. If you're wrong in your belief, then you are dedicated to a losing proposition. If you're right, though, you can look like a genius and set yourself up for a windfall. Unlike the gamble of investing, though, with dedication, you're believing in yourself and your vision. That's always a better bet than believing in someone else.

Conclusion
In any case, I've listed the things you can do with money from "worst thing you can do" to "best thing you can do." It is up to you what and how you'll follow the list above. It is also true that how often and how badly you've done them in the past will affect how well and how much of each of them you can do in the future.

Remember that you control your own financial destiny. What you've done to this point will only make it easier or harder for you to get to your desired situation. What you do from this point forward, though, is more important to reaching your goals.

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.