Our Blaughg (Public)

So I haven't really blogged about personal finance stuff in a while, because there's not really much to say on the subject (just like the video clip says). Spending less than you make means that you'll save. Spending far less than you make means that you'll save more. Routinely investing savings over time will grow your savings. Routinely investing your savings over time in tax sheltered accounts will grow your savings even more.

Here's my personal finance observation of the year: If you have any debt at all, each discretionary purchase you make is essentially being financed at your outstanding debt's highest interest rate. Let me explain with a crude example.

Let's say that I have an outstanding car loan of $10,000 at an interest rate of 10%, with 7 years left on the loan. Let's also say that I find a $1 bill on the ground. I can either use that dollar to buy a candy bar or to accelerate the repayment of my car loan by $1. By prepaying my the car loan by $1, I effectively guarantee myself a 10% investment return for 7 years, meaning that my $1 will be worth $1*(1+0.1)^7 = $1.97 in the future, which reduces my final payment by $1.97.

On the other hand, if I consume the candy bar, my $1 candy bar is essentially costing me $1.97 in 7 years.

That was a mouthful. Here's the moral of the story: If you have any debt at all, any discretionary dollar that you spend is being financed at your highest outstanding interest rate. If it isn't worth paying that interest rate to finance the candy bar, then repayment of debt makes sense. If the candy bar is worth it to you, go for it, but realize it's true cost.

Now here comes the tip part of the post. If you're in debt, especially anything accruing more than 5% interest, I encourage you to use your creativity in determining what kinds of "discretionary" spending you can divert towards repayment of loans. If you're creative, you'll be amazed to see how quickly you can get out of debt.

PS, here's a snapshot of a credit card statement that I received today:

How thoughtful of my credit card company; they provided me a table indicating how much I'd owe if I payed the minimum balance for 17 years. Isn't that thoughtful of them? I also enjoyed the "Savings" illustrated by the acceleration of repayment to 3 years. They really are thoughtful, aren't they?

It's this type of complacency with payment schedules that keeps people from emerging from debt, even though my credit card statement is obviously an extreme example. The same complacency with suggested payment schedules is also applicable to education, car, and housing loans.

“The most powerful force in the universe is compound interest.” Albert Einstein (maybe)

“One of the most potentially destructive forces in the universe is compound interest against you.” Brian Baugh

I have a crush on Jackson (our forgotten child)

2011-01-30T21:20:00.000-08:00

http://thebaughfamily.blogspot.com/2011/01/i-have-crush-on-jackson-our-forgotten.html

don't worry, we're good parents...

2011-01-29T23:36:00.000-08:00

http://thebaughfamily.blogspot.com/2011/01/dont-worry-were-good-parents.html

Happy 2011!!

2011-01-25T15:25:00.000-08:00

http://thebaughfamily.blogspot.com/2011/01/happy-2011.html

Jackson's Blessing

2011-01-24T14:17:00.001-08:00

http://thebaughfamily.blogspot.com/2011/01/jacksons-blessing.html

Trent's Wedding/Merry Christmas/We moved!

2011-01-23T20:46:00.001-08:00

http://thebaughfamily.blogspot.com/2011/01/trents-weddingmerry-christmaswe-moved.html

New Address

2010-12-29T23:44:00.001-08:00

http://thebaughfamily.blogspot.com/2010/12/new-address.html

Emily's growing up!

2010-11-22T13:29:00.001-08:00

http://thebaughfamily.blogspot.com/2010/11/emilys-growing-up.html

Date w/ Megan

2010-11-18T22:38:00.001-08:00

http://thebaughfamily.blogspot.com/2010/11/date-w-megan.html

Check your Credit Score for Free

2010-11-16T09:06:00.000-08:00

You can get your credit score for free by following the instructions here (http://www.mymoneyblog.com/easy-cancellations-free-fico-score-from-myfico-com.html) if you remember to cancel your trial (which you can do immediately). It's an easy process that should take no more than 5 minutes.

Normally it'll cost you 10 bucks or so to get the number (the official report is free once/year for each of the credit agencies).

If your score is low, order your reports here (https://www.annualcreditreport.com/cra/index.jsp) and dispute any wrongful errors directly with the credit agencies. Tiff and I did that about 5 years ago and bumped her score up 50+ points.