Month: January 2019

What is Debt?

Some Definitions:

Debt – something, typically money, that is owed or due. OR the state of owing money.

Own/Ownership – have (something) as one’s own; possess. OR the act, state, or right of possessing something.

Metaphor – a figure of speech in which a word or phrase is applied to an object or action to which it is not literally applicable.

 

Congratulations, you just bought a home!  Or, did you?  More like the bank bought it and you are “renting to own”.  I struggle with the textbook definition of being an “owner” because possession is equated with ownership.  Just because I am driving around a rental car (aka possessing it) doesn’t mean I own, because I don’t.  But the same could be said of most automobiles; the driver may be a part owner, but it’s the bank who really owns it.  Ownership implies not just possession, but the exclusive right to something.  And if a payment is involved, you are only one missed payment away from losing it – so do you really own it?  As we look at our collective lives, we notice we own very few valuable things.

 

Describing Debt in Metaphors:

Treadmill – When I am on a treadmill, I want to get off.  But I set a goal (and timer) and keep going until I hit it.  But as soon my workout is complete, I am off the treadmill.  But what if you couldn’t get off that easily?  In the treadmill of debt, there is no emergency stop or pause button – there isn’t even a “free” decrease incline or decrease speed button.  Every little bit of debt you take on increases the speed and incline, and the only way to reduce either is by paying the interest plus something additional.  Just as it is hard to adjust a treadmill when you are running at 8mph with a 5% incline, so is paying off lots of debt.  It’s possible, but it takes extra work, cutting unnecessary expenses, and doing that for a while.

Leeches – I heard this metaphor on JL Collins NH financial blog, and really like it.  Imagine being covered in leeches as you trudge through a swamp.  That is what debt is like.  It’s a struggle to succeed at life already; don’t make things harder on yourself.

 

Given these rosy pictures, one should stay away stay away from debt.  And if you have to have some debt (a first mortgage on a reasonable home, or a loan on a basic car to get you to and from work), you should keep it as tiny as possible and pay it off fast!

 

 

Financial Status Update – Dec 2018

What. A. Year.

A lot happened in 2018 for us…

  • Finished my Bachelors Degree
  • Received solid promotions with raises at both my full-time and part-time jobs
  • Had a baby
  • Paid off 2 loans

And 2019 is looking bright as long as we keep up the hard work and save, save, save!

PersonalCapital_2018_All

$149,238 – I upped the value of our home by $10k twice during the year to match a truer value.  Subtracting that, we saw an increase of almost $18k over the year.  Not as much as we wanted, but a solid gain on all fronts.

 

Our investments grew by more than 25% this year, between additional contributions and returns.  And to be honest, the market downturn at Christmas followed an overall poor year.  Meaning that we actually added more than Personal Capital gives us credit for; we just lost it in negative returns.  But we have a long-term view and use low cost index investing.

PersonalCapital_2018_Investments

 

The Home

We completed a lot of little things this year, postponing some needed items to 2019 or even 2020.  Much of the almost-a-need items, such as replacing very old, drafty windows or fix the leaking [detached] garage roofing, could be done now with a loan.  But we want to be debt-free besides the mortgage and have a solid cushion for when the next recession comes around.  Fixing the remaining big ticket items could cost $15-20k all said and done, and we don’t want those bills hanging over us just yet.  But the home has the value potential, so they will be completed for us to enjoy them well before we move out.

We did increase the value of our home from $200k to $210k within Personal Capital as it is easily worth that now.  That is $10k less than our new taxable value (we fought the city and won, reducing the taxable value by $20k!!!).  Zillow now zestimates the home at being worth near $270k which is crazy and probably not realistic.  But talking with a Realtor doing comps, we could sell the extra lot for around $46k and our home is still worth the taxable value if not more.  So, while we plan to keep the land intact for now as we really enjoy it, we have some hidden value when we need a bigger home or different location.

 

Loans

We paid off our 401k loan (used to complete needed renovations prior to moving in) and the second car loan (very early in 2018, if memory is right).  We just have our mortgage, a Home Depot no-interest loan for pre-move-in work, and a minivan loan.  All interest rates are very low (2.8% & <5%), so we are paying off the no interest loan due this year asap.  With our estimated tax return coming in Feb/Mar of 2019, we should have it paid off quickly.

 

Savings

We are saving a good chunk each pay period between what is automatically deposited into the retirement accounts and a HSA.  We have a goal to increase some additional savings into an IRA, but we are missing our goal.  We need to revisit that goal and redouble our effort.