Sustainable, Self Sufficiency - The Third Phase of the Revolution, Part 3

Let's Review:

In phase one, we began giving 10% of our income to God, became debt free and started saving 10% of our income in various investments like mutual funds through our 401k.  We also started an emergency fund.

Phase two has seen us start a process of raising our giving and saving to 20% of our income.  In addition to a 6 to 9 month emergency fund, we are storing up a minimum of 6 months supply of staple household goods, also in case of emergency.  The logic behind this is simple; if a time of long term income loss should strike, we will be able to survive and even thrive in those circumstances.  The formula behind phase two is built on Bible passages in Genesis and Leviticus. 

I freely admit, that phase two is easier for Brittan and me than it would be for some, because it is just the two of us.  Two people require less income and fewer stored goods than a larger family.  But it seems to my simple mind, that it is even more important for a larger family to think ahead.  I'm just sayin'.

Phase two was still in formulation when a perfect storm came together to create phase 3; sustainable, self sufficiency.  First, the economy was sitting on a 'bubble', which, as you are well aware, has burst.  Second, political direction of this country became quite unsettling to me as I heard about a future of higher taxes and increased Government control of all areas life.  I am not interested in any Government oversight of my life, aside from National Defense.  Third, I began resenting the ever increasing prices, and ever dropping quality of produce and other supplies available from supermarkets and big box stores.  Fourth, I started reading the labels on things I put in my grocery cart and grew disconcerted over the chemistry experiment that has become the American diet.  Fifth, I began thinking about factory farming, both in terms of row crop agriculture and that of livestock.  Sixth, my health was falling apart, including severe obesity and a variety of heart and nervous system disorders.

I looked at all these things and was not happy.  I am not the kind to take adversity lying down.  I'm a fighter.  I have taken my share of 'beatings' in life, but I won't stay on the mat.  It's not the way I'm wired. 

I'm also a control freak.  I need to be in control of my own circumstances, my own destiny (note:  I freely, willingly, totally know that ultimately, God is in control.  That fact comforts me.  But God's control should liberate me to act, rather than medicate me into complacency or resignation).  I have a few good years left before my 'sell by' date and I will not surrender the reigns to any man, organization or Government.  If I want a better life, better health, better environment, it is my responsibility, and no one else's, to take steps to ensure that.

Over time, a plan of action came together.  I'll describe it in part 4.

Sustainable, Self Sufficiency - The Third Phase of the Revolution, Part 1

My financial journey has been a scenic one.  It has taken many twists and turns.  Some of the views have been breath taking.  Others have been rather terrifying.  But I have enjoyed every minute.  I love sharing my story and my vision for universal financial freedom with anyone who will stay still long enough to listen. 

Now that we are debt free (except mortgage, but that will be soon enough), I have turned my attention to what it means to live a 'debt free lifestyle'.  I thought I would move down a path of 'wealth building', but that one is well worn, having been travelled by many who are far more knowledgable than I.  Two of the great ones are: Dave Ramsey and David Bach.  I love their wealth building ideas.  Since they've already done the heavy lifting, and since my name isn't Dave, I took another path.  Fortunately for me, my bride has been willing to walk this new trail with me.  I am a lucky man.

As you might guess from the title of this weblog, I call it "Recession Proof Living".  The website will be, www.recessionproofworld.com.  The space is reserved, but not yet built.

If you read IOU NO MORE, you know I introduced the subject of putting your finances on 'Cruise Control'.  If you haven't read the book, get a copy right away.  If you can't afford a copy of your own, borrow one.  I'm serious.  The plan will change your life.

Turns out that for and ADD charged, Type A male, like me, 'Cruise Control' was boring.  Smart, but not satisfying.  So I began to investigate why I was feeling unsatisfied.  I came up with several answers. Some  were spiritual, some were political, some were personal.

Politically, I am very concerned about the direction of this country.  Both parties worry me.  I see Govt. getting bigger and the American wallet getting smaller.  My 401k hit the tank like everyone else's did.  I have no confidence in the future of Social Security nor in taxation.  I began to ask myself what would happen if this country had a total meltdown.  What would life look like?  Would a 3 to 6 month emergency fund be enough?  Were others wondering the same thing?

Personally, I am a control freak.  I need to be in control of my own destiny.  And I felt at the mercy of the Government, my employer and the big industries that dominate supply, demand and pricing of commodities and other necessary goods and services.  I look down the road and am bothered about what I see.

I'm not a Global Warming believer.  I hate fear mongering politics disguised as concern for the earth.  Bah.  Humbug!  But I do have some things in common with the environmentalist fringe.  I don't like the way we're mishandling resources.  Traditional farming methods are destroying the soil quality of our planet at an alarming rate.  We are washing tons of chemical fertilizer waste into rivers and streams, poisoning the water and the life dependent on those waters.  And whatever you do, don't get me started about commercial animal production....Oh, by the way, have you looked at the label on a can of pretty much anything we put in our shopping carts on a weekly basis.  We are pretty much ingesting the entire periodic table.  I'm thinking that might not be a good thing.  And we're paying for the privilege. 

On a final personal note, I was born to live in the country.  I need room to roam.  I need to work in the soil with my hands.  I need the fresh air, the livestock....the manure.  Green Acres is the place to be.  Living in the suburbs, spending hours of my day in commuter traffic, punching the clock, is not 'cruise control'.  It's torture.

But it was reading the Bible that changed my whole perspective.  God has a way of grabbing hold of me, shaking me like a rag doll and pointing out my obvious blindness.  What I discovered about saving and giving was life altering.  It was also liberating.  Phase two of the Revolution came directly as a result of my Bible study.  Phase three is, I believe, a natural consequence of phase 2.  I'll start explaining myself next time.

Budgeting 101 - Part 5, Shelter

We have two walls of our budget perimeter in place, God and Food, so now we turn our attention to the East boundary, which we call, 'shelter'.

Again, without trying to become too repititve, the walls of our perimeter come before ANYTHING ELSE.  We budget and pay these things first, regardless of who screams, calls, threatens or postures.  We're going to pay ALL our debts, to be sure, but one of the fundamental behavior modifications in Recession Proof Living, is correcting our priorities and sticking to them.  It will be hard, sometimes, especially if others are hounding us for payments, but if we do the right things, and do the right things right, everything will turn out right. 

Ok, back to the East boundary.  We want to keep a roof over our heads, we want to keep the lights, on, stay warm and dry, etc. so our third priority is, shelter.  Under shelter, I include, electricity, heat, house payment and basic phone service.

Let's take them one at a time:

Electricity:  We are fairly dependent on Ben Franklin's discovery these days, so paying the light bill is high up our priority list.  We use electricity for light, running appliances, powering our telephones (in most cases) and sometimes even for heating our residences.  Therefore, I recommend staying current on the electric bill.

I also recommend doing all we can, to keep the electricity bill as low as is reasonable.  There are many things we can do to save on electricity:

• as light bulbs burn out, replace them with the new energy saving flourescent kind.  They are more expensive to buy, but consume only a fraction of the power and last for years.  You will start saving the very first year
• turn lights off when you leave a room
• use window air conditioners rather than central air (where practical) and only cool the rooms you're in.
• set air conditioning at something like 78 rather than 68.
• open windows and use electric fans when weather permits.  It's much cheaper.  Besides, I'm sure you're mother told you, "Fresh air is good for you!"
• lower the thermostat on your water heater
• run dishwashers and clothes washers and dryers only with full loads.  Better still, air dry (when possible and practical)
• unplug computers, televisions, printers and other non essential appliances when not in use, to save on 'electricity leak'.  I don't recommend unplugging the refrigerator.  I'm just sayin'.....

Hopefully, these tips will get your creativity cranking and you'll think of other ways to save.

Now, let's look at heat.  The best way to save on heat is to set your thermostat lower.  Brittan and I are famous now, for setting ours at 62 degrees in the winter.  People think we're crazy.  We think we're crazy like a couple of foxes, when our heat bill is a fraction of those of family and friends.  We do turn it up when we have guests, because not everyone is acclimated to our world.

We stay warm with layers.  It's a little trick I learned living in Scotland, where frugality has reigned for centuries.  Americans want to be able to run around the house in our gym shorts in January and be comfortable.  And that's ok, if you have piles of cash somewhere, but most of us don't, so we shouldn't act like we do. 

I like to wear sweat pants, or similar, on winter evenings.  I complement those with comfortable slippers and a nice ankle length house coat that Brittan bought me some years ago.  And I promise you, I am never cold.  Brittan, dresses similarly.  She accessorizes with some nice throw blankets that we have on our sofa and chairs.  She usually has a dog or two sitting in her lap as well, which helps. 

The point is, we are comfortable and save a bunch of money.  Anyone can do it.  It's all about common sense and behavior change.

If you have a wood burning fire place, use it.  But don't buy wood.  Go out to the woods and pick up your own.  Spend some time in the summer splitting logs and letting them season.  You need the exercise, anyway.  You know you do.

We close the vents and doors in rooms we don't use, to avoid wasting heat on empty spaces.  Again, there are lots of ways to save on heat costs. 

House payments.  Really, the only way to save on these is to make sure you don't have 'too much house'.  If you're a home owner, your payment should not exceed 25% of your take home pay.  I know that some lending institutions will loan higher, but that's because they have their own best interests, rather than yours, at heart.  You should have a fixed rate mortgage.  Any other kind will do you more harm that good in the long run.  If you're renting, make sure you look around and get the best deal possible. 

Keep in mind, that being a home owner also means things like, property taxes, water bills and etc. that must also be budgeted.  I recommend using the same formula that we do for everything else.  Using property taxes, take the annual tax bill and divide it by your number of pay days.  In my case, that's 26.  By doing so, you'll know how much to set aside in each pay period.  Use a simple money market account or savings account for this.  It's not an investment.  It's merely a place to set the money aside to pay it when it's due.  I don't recommend wrapping your insurance into your mortgage payment.  All that does is loan the money to the mortgage company.  I'd rather pay......ME.  I don't get much interest from my little savings account, but at least I'm in control of it.

Next is, basic phone service.  We need to be able to stay in contact with family, friends and emergency services.  These days, most companies offer unlimited long distance in the basic service for a pretty low price.  In fact, telephone service is cheaper now than it was when I first got out of college many years ago.

Don't go crazy with a bunch of add on services that you don't need.  And you'll notice I said nothing about cell phones, unlimited text messaging or premium cable.  You don't NEED any of those while you're trying to save money.  That is poor stewardship of your resources.  The key word is BASIC.  Sometimes, often, in fact, cable companies have some great deals on 'all in one' serivces for phone, cable and internet.  Shop around.  Do the math.  Make good choices.  The best financial choice may be basic phone, no cable and dial up internet..... for a while.  When you need high speed, go the the public library.  It's only for a while.  I'm not talking forever.

In our case, we were able to maintain a great rate on an all in one package the whole time we were in our 'get out of debt' phase.  So you might not have to go too spartan.  But we were, and are, prepared to go that route to win.

We also got rid of some cell phones.  While you are trying to gain control of your finances, some cell phones and certainly premium services, need to go.  If you're on the road and need a phone, get a phone.  Not a hand held computer/social networking connectivity recepticle, a PHONE.  Consider a pay as you go phone.  Remember, you're trying to win.  Cool can come later.  Besides, I think winning is cool.

Shelter is important.  Be wise about it.  Establish your perimeter.  Victory is in sight.

Budgeting 101 - Part 3

Now it's time to begin 'establishing a perimeter'.  You have your pencil, Basic Spending Plan, calculator and recent bank statements?  Good.  Let's get started.

One of the FAQs I receive is whether to budget weekly or monthly?  The answer is more complicated that I'd like.  The simple answer is; whatever works best for you.  Since most bills are monthly, that option is the one normally pursued.  But some, like car insurance or property taxes are quarterly or even annually.  That complicates things just a bit.  Here's what I recommend.  I recommend budgeting 'per paycheck'. I'll use house payments as the example.  Take the monthly payment and multiply it by 12 which will give you your total house payments for the year.  Then, divide that by the number of paychecks you receive in a year and you'll know how much to budget per paycheck.

I get paid every two weeks.  So, staying with our example, and making the numbers easy, we'll say my house payment is $1,000 per month.  I will multiply that by 12 and come up with $12,000.  Next I will divide that by the number of paychecks I receive, which is 26.  Many people assume that bi-weekly translates to 24, but there are always two months that get 3 checks.  I love those months.  Anyway, I take the $12,000 and divide by 26 and I get $461.54 (technically, it's a long decimal fraction, but rounds to to that.)  So I put that amount down in the Spending Plan as the amount I need to budget each paycheck.  Simple.  And easy if you have a calculator.

Now, back to our regularly scheduled perimeter:

The North Wall of your perimeter is "God".  On the Basic Spending Plan, I call it "Tithe".  There are still an amazing number of people who remain bewildered at this being the first item budgeted.  I, on the other hand, am bewildered that anyone would consider anything more important than God.

Let me explain my world view.  I'm glad this is a blog rather than Twitter, because I'm going to need more characters.

I am a Christian.  My relationship with God is the most important relationship in my life.  I love my wife, my children, my grandchildren, with every fiber of my being.  I have friends I hold very dear.  I love my country.  But nothing compares to my love for God and what He has done for me.

I won't bore you with the details of the triumphs and tragedies that are my life, but despite my numerous flaws and failures, Jesus loved me and spilled His blood on a cross, so that my sin could be forgiven and I could have a relationship with Him.  It is a remarkable love story.  And it has an extremely happy ending.  After three days, Jesus rose from the grave.  He conquered death itself. He is totally able to forgive my sin and give me a new life here on earth and eternal life later.  I intend to make the most of the opportunity.  The only thing that would make the end happier, is if you had a relationship with him, too.  He is waiting and eager to welcome you into the family.  You can read about it in the Bible.  If you don't have a Bible of your own, you can borrow mine.  Alternatively, you can read the love story of Jesus right HERE.

Brittan and I made a decision long ago, that God would receive the 'first of the best and the best of the first.'  It's like laying the foundation for a building.  If the foundation is good, the building has a chance at survival.  If the foundation is bad, 'Lucy, choo got problems."  So, if God is first, then He is first in our budget.  Frankly, I don't believe the IOU NO MORE plan would work any other way.  I'm certainly not going to test it.  My mamma didn't raise no fool.

Tithe literally meant 10%.  We give the first 10 percent of everything we make to God.  The first check I write each week is made out to our local Church.  If I get a bonus, or windfall, 10% of that goes to God right away.  Bonus money gets split between the local Church and a variety of ministries we support.  (Note:  if you stay tuned till the end of this series, you'll discover a plan to raise your giving to 20%.  Same thing with your saving.  And you'll still have more than enough to live on, quite comfortably.  But it's way too early for that.).

I don't want to get into a big, hairy debate about tithing on gross vs net.  Just start somewhere.  If you're afraid to start with 10%, start with 5% and plan to raise it to 10 when you see how amazing God is at honoring your faith.  If you have questions about tithing or about how to begin a relationship with Jesus, drop us a line.

One more side note:  Currently, the IRS allows Americans to take a tax deduction on our tithe.  How cool is that? Give money to God, and then get to write it off your taxes. You should take full advantage of that.  It's not unspiritual.  I don't recommend giving FOR the deduction, but I don't think we should reject the offer, either.

The day may come when giving to God is no longer a tax deduction.  My behavior will not change at that time.  I give because I love Him.  Everything I have ultimately comes from Him.  Jesus is Lord of all.  Even the tax code.

To summarize:  The very first thing to budget is your tithe.  Determine how much you will give.  Write it down. There, don't you feel better already?

Budget 101 - Part 2 - Establish a Perimeter

There are probably 3 keys to effective budgeting.  Yep, only 3.  This is not rocket science.

1. Create a Written budget
2. Create the budget in the right order.
3. Implement the budget

Of course, if you're married, there is a 4th key:  Create the budget together.

In our last post, we discussed the importance of Keys 1 and 4.  The next several installments will relate to Key 2, Create the budget in the right order.

Perhaps doing the budget in a certain order seems a bit silly, but I promise you, the whole process usually stands or falls on this step.

A typical budget process goes like this;  A motivated individual, or couple, grabs a sheet of paper and starts jotting down all the bills: house payment, car payment, credit cards, electric bill, etc.  Since the regular amount, or minimum payment is generally known, the numbers are fairly easy to come by.  After all these bills are added up, the sum is subtracted from the monthly income.  Finally, whatever is left over is written down, "for food".  Usually, that number is pretty small.  Already, the once motivated budgeter is a bit concerned.

Then its time to go to the grocery store.  Its amazing, how we budget food last, but go to grocery shopping the most.  Anyway, the once highly motivated, now somewhat concerned budgeter, goes to the store and buys groceries.  At the checkout, he/she is hit right between the eyes with a bill that totally blows their written budget out of the water.  Discouraged, the now disheartened, once highly motivated budgeter, pays for the groceries and trudges to the car.

As she/he loads the bags into the back of the car, the totally defeated, once highly motivated budgeter, says something like, "This is stupid.  Budgets don't work.  It can't be done.  It's all a lie.  Debt in inevitable.  I wish I'd never bought that stupid book."

I know it happens that way, because I talk to people almost every day who've done it that way.  Oh, and then there's the fact that I tried it that way..... several times.  Hey, I never said I was a quick learner.

The order in budgeting is crucial for morale.  But it also helps us align our spending with our priorities.  And most of us need to get our priorities in order.  Our spending patterns synch precisely with the order of what's most important to us.

I think of finances as a war.  It's a matter of survival and conquest.  And I'm determined to win.  My family and my own life are dependent on the outcome of this struggle.  So, just like a commander would be foolish to enter a battle without a plan, we would be equally foolish to expect to win the cash flow wars without a strategy.

The first step is to 'establish a perimeter'.  Most of us have seen movies where the invasion, or defense, force does just that to determine and protect their base of operations.  In the old westerns, it was, "Circle the wagons!"  But it's the same idea; form a boundry that protects what is most important.  Everything behind the perimeter line is mission critical and precious.

We want to build the 4 perimeter walls quickly and in this order (I'll explain the order later):

1.  North Wall:  God
2.  South Wall: Food
3:  East Wall:  Shelter
4:  West Wall:  Transportation

These are the 4 categories that we protect with our lives.  Once we have secured the perimeter, we can build a strong defense and later prepare for an invasion.  Yes, I said invasion.  Our long term goal is not survival, but conquest!

In our next post, we'll start building our perimeter walls.  If you just can't wait, you can get all the details right here.

Oh, don't forget you can always write to us with your questions.