Finance and Fat

Reader Tip Roundup – How to Change Your Life

Posted on December 18, 2007 | by Franklin Thoreau | 358 Comments

I received a lot of great comments in response to my post, What I Have Learned Since Starting My ‘Finance and Fat’ Turnaround. Here is a compilation, in the order they were posted, with links to the bloggers who shared their wisdom. Enjoy these tips and be sure to visit these sites as well. I read them all regularly and highly recommend them.
Single Guy Money – I’ve learned that I in order for my financial position to improve, I must get rid of DEBT!

Mrs. Micah – I’ve learned a lot, including that I’m going to be in debt for years (but I can influence how many) and it’s hard to attack debt when you’re in an flexible income situation.

Making Money Journal – If you are part of a couple, both have to be on board the get our of debt bandwagon, otherwise the climb will be nearly impossible.

Quest For Four Pillars – What have I learned? Maybe not to over-analyze too much. Most bloggers do this (that’s why we are bloggers) but it doesn’t necessarily help us in our decision making.

I’ve Paid for This Twice Already – Don’t define your journey by your setbacks but by your triumphs.

Dawn @ Iowahippiechick – I think what I’ve learned the most since starting financial blogging, is to make every dollar count. Making that a mantra of some sorts, helps me think a little, before spending it frivolously.
Also, as savingdiva does, putting the bits of money that I may earn on the side towards a specific goal.
In other words—making every dollar count
I think there is a lot of financial power to that frame of thought!

Debt Diet – I’ve learned that I’m not the only one in this situation, and that I have what I need to be able to change it.

It’s not too late to share what you have learned on your journey- whether that be with a financial or ‘fat’ turnaround or any other tips for breaking bad habits and starting good ones. Thanks to all who have participated!

Enron, My Best Investment Ever

Posted on November 29, 2007 | by Franklin Thoreau | 265 Comments

No, really. It was a brilliant (lucky) investment. I made almost 400% on my money in about a week. I find this story so fascinating because so many people associate Enron with tragic loss. Well, that was the case for many people, but I was one of the lucky ones.

By the way, I was inspired to write this post thanks to the contest being held at Moolanomy- Share Your Investing Story for a Chance to Win a Book. Be sure to check out Moolanomy for great personal finance coverage and smart investing talk.

Think back to November 2001. That was an awful time in America overall and the stock market was having a rough go of it too (awesome time to buy just about anything). I had a brokerage account with Datek Online at the time (they were purchased by Ameritrade some time ago). I remember I was at work closely following the Enron collapse. This was the serious, final, mega-collapse (Enron started it’s fall from a high of over $90 in August of 2000). It had been falling for a while. Some people thought it was a bargain at $10. Some thought $5 was the can’t-miss price. Some thought surely at $2 they would find some value. Well, not me. I held out until it was so close to the bottom I thought it really couldn’t go any further. Sure, it could go to $0.00 but I knew that was still a little way off.

I made my first purchase at $0.64 per share. Oops! That wasn’t the bottom. I bought more two days later at $0.35. Yay, pretty darn close to the bottom. I bought more shares the next day at $0.36. If I remember correctly it fell into the $0.20 range before bottoming out.
Now, before you get too excited, I only had a few thousand dollars to work with. I would have bought tens of thousands worth if I had it, but I did what I could. I even sold some other investments to have more money to put in Enron. It’s hard to explain why, but I just knew I had a winner.

I was banking on two things. One was that value investors would still come in and scoop it up at a higher price, along with people who were too stubborn to admit they were wrong at higher prices would buy to average down. The other factor I expected to have in my favor was short covering. The brilliant people who sold it short at much, much higher prices and who were so gutsy as to continue to wait down at these sub $1 levels to come in and cover.

In an almost unimaginable stroke of fortune, both of my hoped for scenarios took place. I sold off my shares of Enron over the next week at prices between $0.75 and $1.25. Fortunately, I bought many more shares in the $0.30 range than the $0.60 range so I came out with a really nice return. I remember calculating my final return to be in the 300+% range, but I don’t remember the exact number.
I also have to tell you that my week with Enron was absolutely exciting and amazingly stressful. The stock was making huge upward and downward moves, just about every minute. I went through a lot of emotions at the time. Seeing my first investment cut in half in only two days was a bit scary. Seeing it rise to almost $2 was incredibly exciting. I have to admit I got caught up in the greed and started imagining what would happen if it went to $5 or $10 (I had several thousand shares). That prevented me from selling out closer to $2. It was also disheartening to see it drop back below $1. Believe me, you have to have an amazingly high risk tolerance (or be just a little stupid) to take this kind of ride on a stock like Enron was at the time. This was not truly an investment, but only a speculation. That being said, it was a lot of fun and given similar circumstances I would do it again! 🙂
I’m not trying to say that I’m an investing genius. I could just as easily share a bad investment story (I lost about 40% on an Enron relative called Cal-Pine shortly after this). Really, I was just lucky. I could have bought Enron earlier and ended up with a huge loss. I could have held out too long and missed my chance to sell at a profit. I didn’t buy at the bottom and I didn’t sell at the top. I just wanted to share this story because it shows a different perspective on one of the most publicized stock market collapses in American history. While I feel horrible for the people whose lives were destroyed by Enron and its corrupt executives, I can’t help but think of the stock in a positive light. It just goes to show you there are always opportunities to make money in the stock market. Even though I can take some credit for thinking the way I did and acting on it at the time, I was still lucky. Things didn’t have to turn out the way they did.

*Disclaimer – before anyone writes off investments like this as being foolish or too risky- yes, that is true. Except that it isn’t always true. 🙂 I love stocks and I love the stock market. I started making paper portfolios and watching CNBC at the age of 12. So while it’s true that I was lucky to win with this investment, it is also true that I was lucky because of my experience and knowledge that provided the insight to make the moves that I did. If you do not have strong knowledge of the stock market, you absolutely should never try something like this and you shouldn’t be buying individual stocks at all.

Get Out of Debt in 9 Steps # 9 – Be Patient and Don’t Give Up

Posted on November 27, 2007 | by Franklin Thoreau | 5,287 Comments

No matter how well you have done with budgeting, cutting your spending, and tracking everything it is extremely easy to get bogged down in the daily grind and feel like you aren’t getting anywhere. I believe this is the hardest part of the process. Depending on the size of your debt balance and the size of your income, you could be looking at years to get out of debt, maybe decades.

There are essentially two levels of debt freedom. One is obvious- having no debt at all. The other is being debt free except for the mortgage. This distinction is made because a mortgage is generally thought of as good debt (I don’t agree, at least not on a long term basis), but saving up the cash to pay for a house is rather difficult and most of us end up with a mortgage when we want to own a home. I want to be 100% debt free and that is my goal, but I will feel a lot better about my debt load once I am debt free except for the mortgage.

Right now, seeing my debt balance gives me a sickening feeling deep down and really motivates me to work hard at getting out of debt. I don’t know if that feeling will go away when I am down to just a mortgage (frankly I hope it does not), but some of the pressure should be off by that time. That pressure and sickening feeling can both motivate you and discourage you. You need to recognize that you have these feelings and think about why you feel that way and what you need to do to change your situation. Nothing will improve if you don’t take action to improve it.

You really need to think about what being debt free means to you and most importantly what it means to you in the long term. For me, being debt free is about freedom. Freedom to not take a job because I need the money and it is a tolerable way to pay the bills. I don’t want to settle for that, but at this point in my life I need to make that choice. I have so much debt that I need my ‘day job’ plus extra work to make my way out of debt.

Don’t get all fired up and work hard for a month and then fizzle out. That is exactly how I have started just about every life changing process I have ever attempted in the past. It’s scary to say things are different this time, but things really are different this time. I am going slowly and making real habit changes. Not superficial changes that only last a short while. You can’t succeed by doing that. You need to go slowly, you need to make small changes that you can handle, and you need to maintain those changes. The steps you take toward becoming debt free need to become habits, natural parts of your life that you live on a daily basis. You need a solid foundation. That is why you should go slowly. Don’t expect to get out of debt overnight. Think about how long it took you to get into debt and allow plenty of time to get out.

In this Get Out of Debt Series, I have outlined many tools and methods for making a successful financial turnaround. I believe this series can be the solid foundation you use to support your journey out of debt. Everything I have talked about here is exactly what I am doing and I know that it works. I know that it is now only a matter of time until I am done with debt. Start your journey today and please feel free to post comments on this site or contact me via email if you need help or encouragement along the way.

9 Steps to Get Out of Debt

Get Out of Debt in 9 Steps # 8 – Make Yourself Accountable

Posted on November 26, 2007 | by Franklin Thoreau | 527 Comments

Without accountability your plan to get out of debt is likely to fail. Unless you are a super-motivated, goal-oriented kind of person, you need a form of accountability to find success with your finances. Be honest and know yourself and know your limitations. Think about efforts you have made in the past to get out of debt and why those efforts failed.

I don’t know about you, but I am not that super-motivated, goal-oriented kind of person (at least not yet). I need a form of accountability to be successful in achieving my goals.

Accountability starts at home- unless you are single you probably have someone in your house that you can regularly discuss your finances and goals with. If not at home, find a close friend or relative who you can share this with. You may be embarrassed and I can certainly relate to that, I have yet to tell most of my friends or family about my situation or about this web site. However, I have found all of the accountability I need without involving anyone other than my wife (and all of you folks on the Internet). 🙂

You can find anonymous accountability by starting a blog about getting out of debt. I did it and so have hundreds of other personal finance bloggers. You don’t have to make a part time job out of it. You can just talk about where you are now, where you want to go, and document how you get there. You can start a blog easily and for free with blogger.com or wordpress.com. If you don’t want to make that level of commitment you could join a personal finance forum or find a local debtor’s anonymous group or consider Dave Ramsey’s Financial Peace University (often done for free at churches, also available online for a fee, which includes forums).

It may seem odd given the anonymous nature of this blog, but the accountability I have created here is an amazingly powerful force in keeping me on track. I may not know everyone personally who reads this blog, but I know that there are real people out there and this is all very real to me so it really matters to me that I keep up the hard work and stay on track with my finances. Obviously, discussing our finances with my wife regularly is great accountability too. I think the blog adds an extra layer of accountability though, in case we both decide to make a bad decision there is a third party out there waiting to offer advice and criticism.

Figure out what works for you, but find a reliable source of accountability and use that source regularly. I absolutely believe that is critical to success with getting out of debt and turning your finances around. If you try to do this all alone, it can become too easy to give in to temptation and break the budget. Don’t be afraid to ask for help!

9 Steps to Get Out of Debt

Get Out of Debt in 9 Steps # 7 – Visual Reminders to Track Your Debt

Posted on November 25, 2007 | by Franklin Thoreau | 4,755 Comments

Making a financial turnaround and getting out of debt is likely to take a long time- I am faced with several years to pay off my non-mortgage debt and probably more than 10 years to be completely debt free. Seeing that long time span when I want to badly to be out of debt now can feel overwhelming or disheartening at times. I have found the best way to overcome those negative feelings is to make a visual debt reminder and look at it daily.

Visual Debt Reminder

I have my budget spreadsheet for tracking debt that I look at regularly (above). I have this website with my debt snowball published for the whole world to see. I also have a white board on the refrigerator at home where I keep my total debt remaining and the amount I have paid down since starting this financial turnaround. It’s a safe bet that you will see your refrigerator each day and this is a great way to keep your goals in sight. You could even just write your numbers on a piece of paper and tape it to the refrigerator. You could easily take that down if you don’t want family and friends to see it. I would recommend leaving it up though, I think it could open the door for some interesting conversations. However, I must admit that no one who has been in my house since I put up the white board has asked about it. 🙂

The most important thing I have learned about setting and tracking goals is to write them down and review them regularly. I can really feel the power of this concept at work when it comes to my visual debt reminder. You need to be reminded daily about why you are making the sacrifices you are making and where those sacrifices will get you some day if you stick with them. Walking out the door each morning knowing that I have X amount of debt left to pay off is a great reminder. At the same time, I don’t want to feel buried by the debt so I also take the time to look at the amount of debt I have paid off so far. Without seeing these numbers daily I think it would be very easy for me to make excuses or get lazy and fall behind on my progress.