Friday, December 25, 2009

Increasing Cash Flow

I hope that FPU members get it in their hearts that operating with debt has not brought them blessings. If not, why are they coming to FPU? When they come through our door I hope they are open to making some changes.

Paying off debts is not easy, it takes “purposeful intention.” You did not intend to wander into so much debt – it just happened over a period of time. You are most likely not going to wander out of it either. You will need to get really focused and a bit radical.

I want you to get radical about increasing your Cash Flow! There is always the part time job, but, before we go there, let’s take a look at some other areas.

Habits

I pick on coffee drinkers because I am one. At one point, I would visit my local baristas about five times a week. My drink of choice was an extra hot, non fat, no whip mocha. A medium ran me nearly five dollars (ok, four dollars and some change, but let’s round up because math is hard for me, remember?).

Spending $25 a week does not seem too bad. I get paid biweekly, and really, I cannot live without my coffee. I can afford this luxury.

Then I annualized how much I was drinking - $1300 a year. In coffee!!

I could increase my cash flow to pay of debts simply by decreasing how much coffee I bought.

Short Term Loans to the Government

Another area that I mentioned earlier was by looking at my tax refunds. I was getting $5, 000 dollars back from the Government. It was like Christmas day when that refund was deposited into my bank account. Once I started my total money makeover, I saw that I was sending the Government $5, 000 TOO much and they were just giving it back (without interest).

I divided that amount by each paycheck to figure out how much was going out extra and adjusted the claimed exemptions on my W4 until I got close to that amount with out going over.

With simple paper work, I increased my cash flow to go to the debts.

Retirement and Kid’s College Savings

The last thing we did, and possibly the hardest, was stopping the retirement investments. 401k, Roth’s – everything. Yes, we lost the company match for nearly two years.

(If we were investing for our kid’s college at the time, we would have stopped that as well).

This single action not only increased our cash flow to pay off debts but it also helped us to fund the Baby Step 3 Emergency Fund and to buy a used Toyota Sequoia with cash.

Live Like No One Else

“Live like no one else, so that tomorrow, you can live like no one else” is the motto that helped me to make these life changes.

Today, we are investing 15% of our income to retirement. I NEVER would have been able to do that before while making payments on new cars.

We are not only cheerful givers to our Church, but we also look for opportunities to give outside of the Church. Cindy and I would hear of a need, but have nothing to give. Now, we are often able to find that extra bit in our budget.

We are also funding the kid's college starting this past February. I realize that we are late in getting started, but we are making some headway!

And yes, I am enjoying coffee (all though, today I prefer a tall Americano, and with my Barnes and Nobles membership card it cost $1.99).

I have not, however, decreased my exemptions on the W4. I will keep as much as I am legally allowed to keep.

It can be done!

Addendum

If you are adjusting your W4 withholdings, you might want to investigate the IRS Withholding Calculator. Personally, I found that it went a little too high for my liking.

Also, according to DR, your Human Resources should be able to help you to achieve the right balance. Be sure to listen to the caller (there is a subtle “VCR” control on the page).

5 comments:

Nick Billock said...

You know we're listening, right? We're tuned in and up till this one, we just put into practice everything with yesterday's paycheck. We haven't increased the exemptions on the paychecks, yet. I'm going to try and get into that online today and see what I can manipulate online. We both are claiming Married and 2. I also contribute to my 401K...enough to get my government match. It has always seemed silly NOT to do that...free money from my employer, right? Marjie also contributed to her deferred comp to the tune of $100 a check. So if I'm "hearing" you correctly, "Shut it all down!" Or, as Master Yoda would say: "Do..or do not. There is no try." Thanks, Chuck!

Chuck said...

Nick -

As far as exemptions goes, I think I am currently claiming about 9 total. My HR gave me a online tool to calculate this, but it came out REALLY high (enough to make me wonder). I think the easiest is to do simple math to determine how much per check you are paying out. Then, step up your exemptions gradually until you level out.

I *might* owe a little to the Government, but I would rather pay them on the back end. You also want to watch this because as the interst on your residence gets paid down, you may need to decrease the exemptions.

You should not unplug your investments more than two years, but yes, that will add a lot more money to your paycheck to pay on debts.

Make sure you understand the reasoning behind this decision - You will be investing come BS 4. Then, you will be doing it from a debt free position (BS 5 is Kid's College). When doing financial stuff, we tend to try and do it all, and when we are dealing from a position that includes debt, it is hard to get any traction.

I unplugged in January 2007 and restarted in March 2009. I started investing in Roths and 529's in March 2009. Guess what? I believe we caught the market on the bounce! The market has recovered 60% since March. Now that we are debt free, it is much easier.

BTW...when you two get Debt Free, you need to call into DR on a Friday a scream "We're debt free" with the whole family and let me know so I can pull the call off the net!

Chuck

Nick Billock said...

Are you saying that you claimed Married and 9??? I just increased mine to 3 from 2 and stopped my 401K contribution which was 5% with the same match. I couldn't find a calculator to tell me what I should do for that exemption. We normally get around 3-4K back from Uncle Sam that he was gracious enough to hold for us over the year.

Just curious, when you say "Debt Free"...I am assuming you are referring to everything BUT the mortgage, right?! I hope so. I realize that's a debt but that'll take years and years and years. The cars/credit cards are more near term for sure.

Chuck said...
This comment has been removed by the author.
Chuck said...

Nick -

Yes to both questions. Nine exemptions (woo hoo), and BS 2 is debt free but the House (which is BS 6).

But step it up gradually. I will most likely need to start backing off depending on how my tax returns go. Last year, I almost owed the Government, but my State and charitble giving deductions.

Also, from DR's website: http://www.daveramsey.com/index.cfm?event=askdave/&intContentItemId=11857

Apparently, you can work with HR, but when I went to mine I got a blank stare.

Here is the calculator that I used: http://www.irs.gov/individuals/article/0,,id=96196,00.html

Chuck