Beating Broke

Personal Finance from the Broke Perspective

The Debt Movement

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I often get asked why I started this site.  And my response is always that it was a great way for me to share some of the things that I was learning as my wife and I struggled with our debt.  All of the things that we were learning through books, trial-and-error, and online that helped us, I tried to fold into some post here.  My goal in sharing these things has always been two-fold.  The first part is that I wanted someplace to record what I was learning.  The second part, and the part that keeps me writing here, is that I wanted that information to help someone else.  The more places it can be found online, the better.  I’ve always felt that it has a bit more weight when it’s coming from someone who’s lived (lives) it.  Nearly 5 years into the life of this site, we still struggle with debt sometimes.  We still have lots to learn.  Today, I’m going to share something that I think has the potential to change a lot of peoples lives.  It’s called the Debt Movement.

The Debt Movement is the brain child of Jeff Rose. Last year, he brought us the Roth IRA Movement, and the Life Insurance Movement.  Both of those were meant to bring the entire personal finance blog community together to talk about one subject on one day.  I think both went very well.  Jeff has raised the bar a bit this time around.  The Debt Movement isn’t just about educating readers on a subject.

What is the Debt Movement?

It’s a 90 day challenge.  Officially, it starts on February 1st, 2013 and will run for 90 days.  Participants, like you and me, are challenged to aggressively reduce our debt over that 90 days.  The goal is to help people payoff Ten Million dollars worth of debt in those 90 days.  It’s a lofty goal, but I think it can be done!

In addition to the challenge, Jeff has rounded up a group of sponsors who are sponsoring a Debt Movement Scholarship.  As of right now, the total is around $10,000 and is likely to grow as the movement gains speed and gathers new sponsors.  There’s an application process, as well as a few rules, but certainly something to look into.

Jeff has also partnered up with Ready For Zero.  Ready for Zero is a company that has created some pretty sweet tools for paying off debt.  Once you’ve signed up, you can enter in all of your information, along with payments, interest rates, and balances, and their software magically (or mathematically, I can never keep them straight) puts together a debt payoff schedule for you.

What do you say?  Will you come along on this journey?  Let’s pay off some debt together!

Killing Debt? Have a Realistic Budget

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Do you have debt?  Does it drive you crazy?  Do you stay awake at night wondering how to pay it all off?  Does it feel like you will never pay it off?  Do you argue with your spouse about your bills?

While debt can at times be a useful tool (student loans, for example), when it comes time to pay it back, debt can be a heavy burden no matter if it is good debt or bad debt.  Debt can cause marriage problems and even affect your health.

If you have decided enough is enough, and you want to be free of debt once and for all, you might be tempted to slash your spending and put all of your extra money on your debt.  Be careful, though, because this type of plan can lead to a quick crash and burn much like a person on a crash diet will only follow the plan for a few weeks before giving up.

Before you even begin to put extra money on your debt, you must first create a realistic budget.

What Is a Realistic Budget?

A realistic budget is one in which ALL of your expenses are taken into account.  Perhaps you pay your car insurance every 6 months, and it is $400.  If you want to create a barebones budget so you can pay off debt, perhaps you don’t consider this payment, which can be a mistake.  When the car insurance payment is due, where is the money to pay it?

We have been paying down our debt aggressively, and we made the mistake of not having a realistic budget.  We did have a $1,000 emergency fund, but because so much of our extra money was going toward debt repayment, we continually hit months where we had expenses such as the semi-annual car insurance payment and no cash to pay for it.  We would rob the emergency fund to pay it, and then we would have to stop our extra debt repayment for awhile to build up the emergency fund.  This cycle creates its own stress.

A Realistic Budget May Mean Hard Sacrifices

When you add up all of the payments you have to make in a year that don’t come in regular monthly intervals, you may be surprised.  There is car insurance, house insurance, license plate tabs, vet bills if you have animals, car repairs and maintenance, children’s athletics, and clothing for the family to name a few.  Add up how much you spend on these, and you probably easily have a total in the thousands.

That is thousands of dollars that are unaccounted for in your budget.

Almost a year into our debt repayment, we finally made a realistic budget.  We were shocked to see that when we set aside money each month for a portion of our annual or semi-annual payments (like $67 for our semi-annual car insurance payment), we didn’t have enough income to cover our realistic expenses.  As a result, we had to make some hard sacrifices such as cutting cable completely and pulling our daughter out of her expensive preschool.  These sacrifices weren’t easy, but making them did relieve some stress.  Now we no longer have ups and downs in our money flow.  We set the money aside, and when the bill is due, the money is there to pay it.

We may not be able to put as much on our debt every month, but we have a set amount for repayment above the minimum payment, and any extra money that comes in also gets put on debt.

Creating a realistic budget can help you avoid the stress of not having enough money certain months to pay all of your bills when semi-annual and annual payments are due.  However, you will feel more in control of your money, which can create a positive cycle.  The more in control of your money you are, usually the more money you find to pay on your debt.

What irregular expenses give you financial difficulties?

Why I Like Passive Income

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When you’re in debt, and trying to escape from the cycle of debt, the one thing that seems to dominate your every thought is paying off that debt.  Far too often, those of us who talk about debt and finances regularly tend to focus on debt as well.  We focus on paying off debt, eliminating debt, and ways to spend less money so you free up more money in your budget to pay off that debt.  What we don’t talk about often enough, in my opinon, is making more money.  In many ways, increasing your income is just as important to your fight against debt as staying disciplined in paying your debt off.

I don’t know about you, but I often feel like my income is capped.  In any job, you are either paid a yearly salary, or paid an hourly wage.  In that way, you’re income is capped.  If you’re paid on a salary, it doesn’t matter how much you work, you only get paid a certain amount every pay period.  If you work hourly, there are only so many hours that you can work in any pay period.  There are always ways to advance yourself through the workforce, and up the ladder at work, but your income is still capped.

Uncapped income.

Passive Income Cash Machine
img credit: Whatleydude on Flickr

One way to increase your income, that doesn’t require that you work all hours, and that doesn’t cap your income is through passive income.  I’ve talked about it before here, and here, and here.  The ideal definition of passive income is income you earn without putting in any work.  And, maybe in an ideal world, that type of income would actually exist.  In our less than ideal world, truly passive income is very hard to find.

How I define passive income

I like to define passive income in somewhat more liberal terms.  To me, any income that I can earn with a minimal amount of work is passive income.  If I can make income off of something that only takes me 30 minutes a month, I consider it passive income.  Anything that continues to make me money long after I’ve put the work in counts too.  It’s like Ronco income.  “Just set it and forget it!”

For me, my blogs and websites are passive income.  A majority of the income I make off of them is income from posts I’ve already written.  The work has already been put in, and it would continue to pay me even if I quit writing.  My traditional stock portfolio is a passive income.  I did the work early on, earning the cash to buy the stocks, as well as doing the research to pick the stocks, and many of them pay me dividends on a regular basis.  That dividend payment is a passive stream of income.  Yet another stream that I take advantage of is my Lending Club portfolio of peer-to-peer loans.  (See my latest report on LC)

Other forms of passive income can include things like royalties, patents, and rental properties.  I’m sure if you think hard enough about it, you’ll find several other streams of potential income that would fit my definition of passivity.  (Share them in the comments!)

Why do I like passive income?

Naturally, I like passive income because I’m lazy.  😉  After all, what could be lazier than earning money while you sit on your behind and watch soap operas on T.V.?

“Naturally, I like passive income because I’m lazy.” — @beatingbroke (Click to Tweet)

As much as I like that reason, the real reason is a bit more explanatory.  I like paying off my debt.  I like the ability to do that while still enjoying life.  And, as many of you can attest, doing both of those things can sometimes be somewhat difficult.  Balancing the expenditures that can come enjoying life (even a frugal one) with paying off your debt is troublesome.  The best way that I’ve found to try and do both is to work hard at paying off debt, while working hard at increasing income at the same time.  Without passive income, the only way to increase income is to work more hours at your hourly job or to negotiate regular raises at your salary job.  Recently, it’s become even more difficult to do either of those.  Passive income becomes the last, best way to increase your income with little to no continuing work output.

Why do you like passive income?  What do you consider to be passive income?  What are some of your passive income streams?  What are some that you’d like to take advantage of?