• Fixed Costs 300x300

    Fixed Costs: The #1 Reason You Never Have Enough Money

    (8 minute read)

    Does your paycheck have a leak? Like most, you don’t consider yourself lavish, you might even think you’re fiscally responsible, but your financial boat is always on the verge of sinking and you have no idea why. If so, what you need is to find that missing cash, and plug up those leaks. The most likely source of your leaks: fixed costs.

    The term fixed costs is often reserved for business accounting and defined as costs, such as rent, that are constant whatever the quantity of goods or services produced. However, individuals also have fixed costs. We don’t often think about our personal finances in terms of fixed and variable costs, but we should.

    In personal finance, fixed costs are those expenses which come in the form of a recurring bill. The bill comes no matter our income, or our desire for tickets to a show, or some nice chocolate. To put this in simple terms, too many recurring bills and you don’t have money for that summer trip to the beach your friends invited you to join.

    To put it another way, every fixed cost you add punches another hole in your fun money boat. “Hurray, another phone bill,” said no one, ever.

    Fixed costs are like an anchor on your bank account.

    They don’t flex. Nor do they give. Job loss, sickness, or your washing machine breaks, the bills keep coming. It’s like they don’t even care what you are going through; cold-blooded cash suckers.

    “Fixed costs put your expenses out of your control. For example, if I don’t want an apple, I don’t purchase the apple. I’m in control. However, if I subscribe to an apple-a-day delivery service, I have to spend money on the apple even if I don’t want it. I’m not in control.” – Clayton Daniel, Fund Your Ideal Lifestyle

    Clayton Daniel in Fund Your Ideal Lifestyle suggests keeping fixed costs to 40% and debt to 10% of income. Half of total income going to fixed cost and debt is more than our personal target has been. We have had a maximum fixed cost and debt percentage of less than 35% and have decreased this steadily over 20 plus years together to a current level of 8%. The lower your fixed cost percentage the more freedom you have.

    So what can you do to reduce fixed costs? First, you need to figure out what they are.

    To calculate fixed costs follow these 3 simple steps:

    • Step 1, and this is painful, but you must do it. Look at your paycheck, or if you are self-employed get out your accounting files. Now, let’s find the after tax income. Besides taxes, be sure to subtract any 401K contributions, medical flex plan contributions, or any other amount that is not deposited into your bank account. Yes, the government loves fixed costs. It hurts.
    • Step 2, make a list of all your fixed costs, their amount, and frequency. Now, calculate the total amount of your fixed cost per pay period. For example, if you get paid bi-weekly, figure the yearly cost, then divide by 26 (because there are 52 weeks in a year). Here’s an example chart for someone paid bi-weekly to help get you started:

    • Step 3, subtract your fixed costs total from step 2 from your actual take home income calculated in step 1.

    Example: (take home income) $1000 – (fixed costs) $68.85 = $931.15

    This is the amount of money per paycheck you have remaining to spend. It is critical to realize this is the money under your control. You have relinquished control of the rest in one way or another. To further calculate the percentage your fixed costs are of your income, divide your fixed costs by your take home income, then multiply by 100.

    Example: ((fixed costs) $68.85 / (take home income) $1000) x 100 = 7%

    The good news is there are many fixed costs you can regain some control over with a little effort and sacrifice.

    Eliminate or reduce these 9 fixed costs:

    1. Vet Checkups. Before you start the nasty comment know that I am an avid animal lover. I live on a farm remember? My point here is caring for animal’s costs money. Sometimes they cost a great deal of money. If you don’t have the financial ability to care for an animal’s basic needs and some emergency care wait until you do to bring one home. If you want an animal then add the fixed cost of their care to your calculations above. Also, add in some emergency cost to your rainy day fund.
    2. Gym memberships. If you go to the gym congratulations; keep your membership. Yet, most people with gym memberships had good intentions when they signed up but they no longer use the gym. Don’t feel guilty there are plenty of ways to get in shape and exercise without a gym membership. As my Grandpa used to say, “Walking ain’t crowded.” I would add to that, neither is biking, hiking, or jumping rope in your living room to Michael Jackson songs.
    3. Insurance. While you would not want to cut your insurance coverage entirely it often pays to get an update on your policy. Consider for example, could you afford a higher deductible, get away with less of a life insurance policy, or save money with another company? Could you get by with an older or less valuable vehicle?
    4. License fees. By the same token, you cannot eliminate license fees. But, what you can do is reduce them. Like insurance, license fees are generally linked to the value of your vehicle. This value will go down with time. Therefore, you can potentially lower this fixed cost via two ways. One, sell a more valuable vehicle and purchase a less valuable one. In other words, ditch a BMW and get an Accord. Two, you can hold on to your vehicle for longer. The longer you make your vehicle last the lower the fees will get.
    5. Utilities. The simple act of turning the AC thermostat up or your heat down by 2 degrees can save a tremendous amount of cash. Also, remembering if you leave a room and turn the light off you can always turn it back on if you decide to return. Leaving electric items on such as televisions, computers, and ceiling fans when you no longer plan to be in the area is a waste. In addition, if you have the opportunity to replace such items as windows, HVAC, doors etc. make sure to get a more energy efficient model.
    6. Paid television. No one needs television, period. While you need a place to live and by law you must have some insurance if you own a car or house, you do not need television. This is a want, not a need; know the difference. Besides, you’ll have more time for what’s important.
    7. Subscriptions. This is a big one, as often yesterday’s obsession is long ago forgotten. This includes magazine subscriptions which you now consider junk mail, electronic book subscriptions, and music subscriptions be it online or satellite. Special delivery services, online shopping memberships, and unused apps fill out the list. Too often we keep the payments going long after our interest or use has waned. Take the time to cancel them.
    8. Rent. If you rent it is likely you live in a location with a large rental market. If you have tried everything else and your fixed cost are still too high you might need to consider a downgrade in your living quarters. Remember, moving cost money too, so factor in moving expenses, and fees that may incur.
    9. Debt. We’re going to include debt here even though we hope one day you are debt free and the bills stop coming. Nevertheless, while they remain, they continue to leak money out of your pockets.

    Mortgage. Your mortgage payment should be no more than 25% of the figure you calculated in step 1 of the exercise above (determining your actual take home income). If it is, you are going to have a difficult time at best making ends meet. No fun for you. Consider also that if 25% is the actual payment on your mortgage it is likely you cannot afford to make any additional principle payments which by default means you are anchored to this debt for the full term of your mortgage (15 or 30 years). Unless you sell your home and move into one more affordable, or have an opportunity to refinance at a lower interest rate enabling you to make extra principle payments you could be slapped with this fixed cost every month for a good chunk of the rest of your life.

    Credit card debt. Also known as consumer debt; the cancer of personal finance. This high interest, highly addictive form of fixed cost is the worst. It is a must go.

    Car payments. Many Americans have come to accept a car payment as a permanent fixed cost. Nonsense, eliminate a car payment as soon as possible. Start moving in this direction by calculating the maximum car payment you can sustain. Now go buy a car with a lower payment than this figure. But wait, the trick is to make the maximum car payment possible only now you take the difference and put it in your savings account marked “new car fund.”

    For example, if you can sustain a car payment of $250/month but can easily get by with vehicle that has a $175/month payment, pay the $175 each month but make sure to deposit the remaining difference of $75/month into your “new car fund” savings account. Now, while you may not have enough cash in your account to completely pay for your next new car when the time comes you will most certainly have a much larger down payment to offer. This in turn, will enable you to save even more money into your “new car fund” account and eventually you will have enough to pay cash for a car outright. Of course you will continue to deposit into your “new car fund” on a monthly basis so that you never have to make a car payment again.

    To sum it up, calculate your fixed cost as a percentage of your take home income. To reduce your fixed costs and help fund more of what you want out of life, search through the list of possible cuts and find a place to start. Keep in mind this is by no means an exhaustive list of possible fixed costs draining your finances. Be sure to look for opportunities to cut them wherever possible.

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  • 7 Risky Reasons to Want a Baby

    7 Risky Reasons to Want a Baby

    (3 minute read)

    Disclaimer: This article is not about birth control methods, infertility, accidental pregnancies, or abortion.

    It is about these common ideas women get in their brains when it comes to babies.

    Here are 7 risky reasons to want a baby:

    1. He will marry me. Wrong! Ok he might, most likely not, but even if he did do you think this is the type of foundation you should seek to build a lasting relationship on? By in large this scenario leads to a woman in poverty, with a baby to raise on her own. Sorry ladies, but this is the reality. No one is going to make him do right, pay up, or be a good daddy; not you, your friends, law enforcement, the court system, not even the government.
    2. It would help save my marriage. Wrong again. If a man is not content in your marriage what on earth makes you think he is going to like it more with the responsibility of having a baby in the house? Again, the logic fails here. If you are having relationship problems, the root of those problems needs to be tapped and helped. A baby will not fix anything. Again, this scenario most often leads to either an even more tumultuous marriage or to you living as a single mom.
    3. I will not be lonely. She who does not enjoy her own company will not find the company of any other to help.
    4. I feel broody. Ah, hormones. These biochemicals are not valid measures of how, when or why we should take action. Think about it, these are the same root cause of menopausal symptoms like lashing out with death threats to loved ones, followed soon afterwards by, “hold me.” They are the same cause of postpartum depression, and premenstrual symptoms as well. Need I go on? Hence, you should never follow hormones to want a baby without your brain in gear and following close alongside.
    5. All my friends are having babies. Well, there are a lot of comments I thought about adding to this one but then again this should be enough. This is junior high logic at work.
    6. I will get unconditional love. The need to feel loved is strong. Yet, bringing another life into this world to fill your hearts vacancies is not the best of ideas. One night we were having dinner with friends who had children. The wife said something to the effect of, “But if you don’t have kids you will never get that unconditional love they bring.” For starters their children were still in the young and innocent stage where this was true. They had not yet reached the age where they can indeed decide to love you or not. Besides this fact, the husband responded with quick and wise words, “Come on honey, for real? You can get unconditional love from a dog and it will last the dog’s whole life. You don’t need a kid to get that.”
    7. I want to feel needed. Women have a strong desire to feel needed. As a result, many times we weigh our self-worth by how needed we feel. This is part of the reason we can become obsessed with being “busy”. Try this, instead of running around frantic to convince yourself and those you come in contact with you are a “busy mom” and so needed, seek rather to create self-value through character, knowledge, and wisdom.

    In conclusion, there are plenty of good and healthy reasons to want a baby. None of them are listed here.

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  • Vern Clair Baum

    I Stopped Honoring My Gramps on Memorial Day. You Should Too. Here’s Why.

    Memorial Day is set aside to honor those who have died while serving in the armed forces of the United States of America. This differs from Veteran’s Day on which we honor all those who have served in the armed forces.

    This might seem a bit perplexing to some, or even a little redundant. I have thought so too in the past. This year, however, I have been thinking a lot about my gramps, Vern Clair Baum. He was a drafted US Marine who served on Iwo Jima as well as the following occupation of Japan. Iwo Jima was one of the most brutal of WWII battles.

    Vern lived to be 81 years old. He died on January 9, 2001. Almost to the day 55 years after being honorably discharged from the Marine Corp January 31, 1946. I cannot imagine the horrors he saw. How he maintained any faith in humanity I do not know. I am not even sure how he maintained his senses. Yet, he did; all the while creating a simple, rich life for his wife and children and his grandchildren to come.

    My gramps deserves honor. Both for the service he gave our country and for the life he lived thereafter. Hence, Veterans Day makes sense to me. I can relate.

    Memorial Day is another story. I cannot relate. I don’t know anyone who has lost their life in the armed forces. I struggle to even think of a distant acquaintance. I suspect I am not alone, if for no other reason than this: there are two things you can count on, one is you will die, and two, you will soon be forgotten.

    This fact is the crux of the reason we have Memorial Day and not only Veterans Day. Because those who have given their lives are in grave danger of being forgotten too soon. My gramps would often say, “The real heroes are the ones who never came home.” This is so common a phrase among combat veterans it is almost a mantra. This is the haunting chant of the likes of Ira Hayes who came to ruin by the pomp and circumstance surrounding his part in the raising of a flag for an “after the fact” photo atop Mount Suribachi on Iwo Jima. So popular was the photo the Marine Memorial in Washington DC is a depiction.

    While I seek to honor my gramps every day of my life by the way I live, and in a special way on Veteran’s Day, I will not be honoring him on Memorial Day. Rather I will memorialize those who I don’t remember. Those I never knew. Those who never had an opportunity to influence the world beyond the battle field. You likely don’t know them either. They are heroes. Gramps would want it that way.

    I realized when I was formatting this article to post I had cropped my gramps’ buddy out of the featured picture. It occurred to me perhaps he is one of those who deserves special honor on Memorial Day. No one in our family knows who he is or was. I am compelled to put his picture here.

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  • Graduation Gift

    The Most Revolutionary Graduation Gift You Can Give Your Kid: I Know Because I Got It

    (2 minute read)

    “To buy a gift is kind, but to give a gift for free that brings a lifetime of ever growing reward is pure genius.” –Jamie Cearley, PhD

    I was not deprived as a child. I had nice clothes, cool shoes, and a car of my own. I confess, most of the time I got what I wanted.

    By all accounts I was a successful high school graduate. I had a good GPA. I would be attending an excellent private four year liberal arts school out of state on a combination athletic and academic scholarship. There I would receive an outstanding education both in life and academics.

    Yet, without one special gift my parents gave me upon graduation, to this day it would have been a disaster. It is the only gift I remember getting from them for graduation. I am sure there must have been some money in there somewhere; or a book filled with wisdom. Perhaps I got one of those fancy Cross pen and pencil sets that were so popular, I don’t know. I do remember getting some towels for my dorm room. Why would I remember the towels? Because I still have a semblance of one of them in my rag cabinet after all these years.

    While the towels lasted as long they weren’t as valuable as the other gift I remember. A gift every kid deserves to have. A timeless gift that will benefit them for a lifetime.

    Best of all it’s free.

    A budget.

    For the first time in my life I was managing my own money flow; or should I say trickle. I got $100 a month deposited into my bank account at school and the rest was up to me.

    My mom had helped me to calculate the cost of my needs and to keep track of my spending the summer before I left for school far away.

    Allowing me to live with an unlimited flow of cash, or worse yet plastic would have been the single greatest long term disservice my parents could have done.

    No one lives on earth for free and the younger a person has this principle embedded in their mind the better.

    Learning to not spend more than you have is a priceless lesson at any age. But, college is a time when the credit companies are like piranha after you.

    Whether you’re child goes away to college, stays home and attends the local school, or works to acquire a trade, help them set up a budget and put a cap on the amount of money put into their account each month.

    I would also encourage you to not allow adult children to continue to live at home for free.

    There are more adult children living with their parents in America than ever before. Many of these are living there for free, creating an unfair financial burden on their parents. What’s more, many of them spend their days playing video games and such like and at best have a part-time minimum wage job and yet still contribute nothing to their care.

    There is no greater disservice to a child I can think of. They are being set up for a lifetime of hardship and disappointment. At a minimum they should pay rent in an amount disproportionate to their income. Why disproportionate? Because they need some motivation to improve their circumstances in life. Becoming financially independent, which by the way is my definition of a true adult, should be attractive.

    To all those out there with a dependent graduating this year. Give them the gift of a lifetime. Give them a budget. They will thank you for decades to come.

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