What Fight Club Can Teach You About Personal Finance

OK...I know I broke the first rule, but given that my last post was accused of being a "fantasy" I thought...I will go with that. It's one of those random acts of Silliness.

I really like everything Chuck Palahniuk writes, but Fight Club is such a great visual by David Fincher, that it transcends for a lot o' folk my age. What a lot of people don't get is that the story is a great allegory for Consumerism and Commercialism. Frankly...a whole bunch of ism's, but we'll focus on the first two.

The narrator of the story is a never named character that is an insomniac, at least at the beginning. As the movie shows, and as someone who has lived through that hell, you live in a daze. Not really awake not really asleep. However you really believe at times that you discover some universal truths...

I am jack's list of things to learn:

• I am not my things - He is only free once his things are destroyed. I don't advocate this...other that your credit cards
• Don't have a house full of condiments and no food - Condiments are designed to Enhance the flavor of food, not to be food. The same holds true with DVD players, Plasma TVs and *Gasp* the Internet. These things are to enhance your life not to be the center of it. Otherwise known as "Stuffitis."
• Follow your Passion - Don't blackmail your Boss to do it, but...
• You won't be free unless you have no debt - You don't need to wipe out the data centers for all of the credit card companies. Break your debt chains as soon as you can.
• You have the control - At the end he has the control not Tyler. You just have to choose to have that power.

I know this because Tyler knows this...

OK...a bit inside, but watching it again the Commercialism allegory really hits home. Probably because I am writing multiple posts about personal finance and budgeting multiple times a day. You start to see better with the sunglasses on sometimes :) .

When Even the Rich Runaway...

Even the working rich are worried according to Forbes. "Housing has imploded, the market's a yo-yo, recession's in the air. And the 'working rich' are learning to do without." This according to Russ Alan Prince, president of a private wealth-research firm and author of the book The Middle-Class Millionaire.

Princes research points out that 78% of the Working Rich, identified as those with $1MM-$10MM in Net Worth and still working for a living, consider themselves "very or extremely concerned about their ability to maintain their current financial position." Furthermore he believes 21% of them are already reducing spending.

Compared to the first half of 2007, the last six months saw a 20% drop in Luxury spending. According to a source in the report, "Luxury consumers have never expressed such a dismal view of their financial status." This is a compounding issue for the economy as the Working Rich are known networkers. In other words they talk to one another before purchasing, which if sentiment is down can lead to a vicious circle of reduced spending. The spending is transitioning into higher perceived value items, felt to be less frivolous.

This is a big indicator the economy is in trouble as this group has been a leading indicator of things to come. Great time to make sure that your debt, budgeting and money management is firmly in place!

BTW - Broke Grad Student is running the current Carnival of Personal Finance with a great spin on the topic! Take a look!

The spending is a mixed bag of information though. Hi tech gagets continue to sell well, but Jewelry is down. Luxury car are stable, but sports cars are slowing.

Debt Chain Freedom

Have you ever thought about quitting you job and doing something else, like writing or gardening or even working with the less fortunate? Why don't you?

Probably for two reasons: one, you have debts; two, you don't have the money to do that.

Those are the physical manifestations of having debt. Real life debt chains. The only way to free yourself is to break those chains.

To break the chains first you must Visualize your Debt. Think of every dollar owed as a link in the chain, every different debt is a chain each holding you down like a staked balloon. So if you have four credit cards to pay off, imagine four chains tying you to the ground.

I personally like to look at each of my debts that way. For example, I received my bill for my CitiBank Platinum Card. I continue to make the minimum payment on this as it is not my top snowball debt, yet! My bill showed I owed $9119. If i think of every dollar a 1 inch link, that is 759 ft of chain! But today I paid off $313, or 26 feet! so after I paid this I literally imagine cutting off that 26 feet of heavy rusty chain that was holding me down!

OK, I know it sounds weird, but for me I like to feel the following:

1. Progress - Thinking about cutting of the 26' of chain feels like real progress to me.
2. Value - I am freeing myself inch by inch! I am buying my freedom at $1/inch!
3. Keeps me in Check - I don't want to add another inch to these heavy oppressive chains do I? So why would I take on extra debt?

For me this has really helped, just paying off dinners that I had 5-years ago doesn't make feel better. But every time I retire $1 I really do feel lighter!

Last whacky tip. Actually go to Home Depot or your local hardware store where they sell chain by the foot. Find the heaviest chain you can and buy one link. They will look at you a bit strange, but then keep that heavy piece of chain on your desk or wherever you do your bills. Every time you pay off even $1, pick up the link and feel the weight and think about that manifestation falling off of you. If you are tempted to spend, do the opposite, image all the extra feet of that chain tying you down.

This is a quick visual and sensory piece of conditioning that can help you stay on budget and manage your money better.

Avoid Melting Your Debt Snowball

$1973.08

That is is the size of my total Debt Snowball. It will be the size of my Snowball unit my last payment is lower then that amount. That sounds really impressive until you hear that my current Debt Pool is $54,165.19!

We have paid off 6 debts so far with the snowball:

• Dentist Bill #1 - $147
• Kohl's CC - $204
• Dentist Bill #2 - $290
• Providian CC - $1055
• PayPal - $1220
• Braces (More teeth!) - $2380

• Total - $5296.63

Now we have continued pay the minimum on other debt as well and our payment on debt #7 is now $292.99 vs. a minimum of $98.51, so we are now contributing nearly $200 more to our debt. Once we pay that off we will be paying $639.28 on our car payment, or the entire $292.99 more then the payment book price!

As we pay on time, our minimums are going down on debts 7 through 12. We interpret Dave Ramsey's concept to continue to pay the exact minimums, and take the difference and apply it to the active snowball, or in our case, $292 on the State Farm credit card. Others continue to pay the original payments and pay all of the other debts a little faster at the expense of the compounding snowball.

I have always said due what works for you, but for us it feels good to put everything (hopefully including the tax rebate) to the current #1 debt. The important thing is to leave the snowball money as snowball money. In other words don't take that and add it to your 401K or something else, as the idea is to get through Baby Step #2 (paying of non-mortgage debt) ASAP.

So the best advice I can give is that although it is winter (at least in the Northern Hemisphere) don't let your debt snowball melt...it is your key to freeing yourself from debt chains and being able to manage your money.

The Dark Side of Debt Reduction: What I Could Have Bought...

Saturday is bill paying day and I was feeling pretty good. We paid everything, our overflow (which is our cash leftover after two weeks) gave us the ability to refill our coffers from our recent Ninja Bill, and we have hit my initial savings goal for the month already.

Then as I was tallying something hit me. Over the last 60+ days we have been able, as a family, to pay off about $4300 worth of debt. This is due to my checks being a bit higher for those two months and applying all of that plus our budget savings to draining the debt pool.

Then it hit me...this isn't just a number, this is payment of a lot of things that we just couldn't wait for; dinners, rounds of golf, guitar stuff, a couple new furniture pieces, etc..

Holy smokes, if we were debt free, think what we could have done with that money!

• Taken a trip to Sandals, Jamaica - We have never even really had a couples vacation. we have wanted to go to the Caribbean for along time.
• Bought a second used car - Since I changed jobs, no more company car. It would be much more convenient to have two and it would be paid off.
• HUGE Christmas - Could of gone nuts!!! Lots of plastic pieces to step on YEAH!
• Killer Guitar - Their is a great guitar that I could get a great deal on, once in a lifetime deal in fact!
• Doubled our savings! - Nearly $7000 in savings for Emergencies or to help us begin our re fiance program.

Anyway you get the point...what I am paying for is dinners that were a long time ago, that we couldn't obviously afford and other stuff, most of which is gone!

Instead of depressing me it really helped to clarify why this is so important to accomplish. I just don't want to be alive, I want to LIVE and experience all the great things life has available to us.

Think about this the next time you pick up the plastic...are you alive or Living!

You deserve better...