I’m amazed how fast I grow cash by not using any credit cards
Earlier today, I was in a bit of a financial nostalgic mood. I couldn't sleep a wink last night so I poured over old reports and spreadsheets I had of my financial past. It was quite the journey into the black hole of debt I had. It left me feeling amazed at how far I have come, but with a tinge of regret and wishes that I had ended the debt cycle much, much sooner. However, I still feel re-energized in motivation to keep going on my current path to wealth.
I have this particular spreadsheet that I have regularly contributed to for years now, and continue to do so. It has sheets dating back to September of 2008, showing my Assets, subtracted by Liabilities, and ultimately showing my Net Worth. It's a very black and white financial snapshot, and I kept meticulous track of all of my accounts with this spreadsheet. While I use QuickBooks for business, it doesn't give me the true black and white overview of my "financial snapshot" so to speak, because some accounts in QuickBooks are equity accounts that don't get included in the Profit and Loss reports and others are personal accounts that I don't track in QB.
Anyway, here is the first day of my financial snapshot, to illustrate:
| Financial Snapshot | 9/24/2008 |
| A/R | $ 10,601.61 |
| Chase Checking | $ 1,550.01 |
| Pending Deposits | $ 385.00 |
| ING Orange Savings | $ 2,582.51 |
| PayPal | $ 563.92 |
| Total Assets | $ 15,683.05 |
| A/P | |
| Discover | $ (3,687.17) |
| Chase Visa | $ (3,686.68) |
| Chevron Card | $ (291.51) |
| Sales Tax Payable | $ (838.99) |
| WF MasterCard | $ (7,425.10) |
| Personal Loan | $ (10,000.00) |
| Total Liabilities | $ (25,929.45) |
| Net | $ (10,246.40) |
It was that day when I started my spreadsheet. It was the day I first took out a $10,000 loan because I had large purchases in the pipeline for my business. I had to buy a whole bunch of computers and a server and with my weak capital and credit lines, I simply could not afford it. So, I borrowed $10,000 from my grandparents and set out to track everything with this spreadsheet. You can see that I had over $25k in debts and liabilities. I was always very good about keeping up with bills, which the A/P shows as zero. I also had a savings of $2,500 going. It's too bad I was a horrible spender and credit card user from the outset.
Fast forward to 2009, and the picture looks nearly identical with the debt and liabilities load:
| Financial Snapshot | 9/19/2009 |
| A/R | $ 7,531.15 |
| Chase Checking | $ 6,889.98 |
| Pending Deposits | $ 255.00 |
| ING Orange Savings | $ - |
| PayPal | $ - |
| Nic Owes | $ 7,944.00 |
| Total Assets | $ 22,620.13 |
| A/P | |
| Discover | $ (6,073.59) |
| Chase Visa | $ (6,338.79) |
| Chevron Card | $ (225.00) |
| Sales Tax Payable | $ (736.20) |
| WF MasterCard | $(10,097.84) |
| Loan | $ - |
| Total Liabilities | $(23,471.42) |
| Net | $ (851.29) |
The only difference here is I managed to pay off that loan, and reduce my Net Worth to $-851. However, the debt is still there because I had always actively used my credit cards. My wife owed me $8k here for a boob job that I paid for with my credit card so I could reap huge rewards points with it. She paid me back within the next couple days after this snapshot was taken.
Let's move forward to March of 2010:
| Financial Snapshot | 3/28/2010 |
| A/R | $ 12,268.24 |
| Chase Checking | $ 2,795.91 |
| Pending Deposits | $ - |
| ING Orange Savings | $ 202.92 |
| Chase Savings | $ - |
| PayPal | $ 139.15 |
| Checking #2 | $ 1,201.60 |
| A/R #2 | $ 210.90 |
| PayPal #2 | $ 195.44 |
| Total Assets | $ 23,743.20 |
| A/P | $(20,070.94) |
| Discover | $ (1,408.06) |
| Chase Visa | $ (1,981.88) |
| Chevron Card | $ (30.46) |
| Sales Tax Payable | $ (1,153.43) |
| BillMeLater | $ - |
| Wells Fargo MC | $ - |
| Toyota Visa | $ - |
| Citi Diamond | $ - |
| Total Liabilities | $(24,644.77) |
| Net | $ (901.57) |
What's really interesting here is my Net Worth is still negative, and my liabilities have skyrocketed to over $24k. I also have way more credit cards opened here, and my A/P is a massive $20k. This is because after I reconciled most of my credit cards, I shoved them into the A/P accounts in QB with the intent of paying them all off outright. Of course, that never happened because I continued to use credit and funnel whatever cash I got my hands on back into paying down credit cards. And, my pathetic attempts at growing any kind of savings account was futile, because those credit card bills just kept on coming!
As I have written previously, I finally declared war on debt in January of 2011. I vowed to stop using credit altogether, and focus on paying off ALL debts as fast as I possibly could. The day I declared war was January 1st, 2011, so this snapshot reflects my financial picture a day after that date of infamy:
| Financial Snapshot | 1/2/2011 |
| A/R | $ 7,056.63 |
| Chase Checking | $ 3,597.67 |
| Pending Deposits | $ 330.36 |
| ING Orange Savings | $ - |
| Chase Savings | $ - |
| PayPal | $ - |
| Checking #2 | $ 232.87 |
| A/R #2 | $ 668.90 |
| PayPal #2 | $ - |
| Total Assets | $ 11,886.43 |
| A/P | $ (2,325.17) |
| Discover | $ (6,554.34) |
| Chase Visa | $ (5,109.21) |
| Chevron Card | $ - |
| Sales Tax Payable | $ (1,013.47) |
| BillMeLater | $ - |
| Wells Fargo MC | $ - |
| Toyota Visa | $ (2,690.00) |
| Citi Diamond | $ - |
| Total Liabilities | $(17,692.19) |
| Net | $ (5,805.76) |
What I failed to include in the liabilities section all along, were our car loans at the time. We had two car loans - one for my Matrix and one for the gas guzzling, money pit of a Tacoma truck. In mid-2011, I finally paid off my car loan, and in December 2011, we traded in the truck for a roadster that we paid for with cash. So the adjusted financial snapshot for January of 2011 was more in the $35k liabilities range, and a far, far weaker Net Worth.
After all our hard, hard work in paying down and paying off debts, I can proudly present to you, my current financial snapshot which shows NO debt whatsoever (aside from the regular business A/P and Sales Tax Payable accounts which will always be current liabilities):
| Financial Snapshot | 2/16/2012 |
| Checking - #1 | $ 494.44 |
| Checking - #2 | $ 5,233.95 |
| PayPal - #1 | $ 179.03 |
| PayPal - #2 | $ - |
| Total Cash | $ 5,907.42 |
| A/R - #1 | $ 11,364.25 |
| A/R - #2 | $ 1,377.39 |
| Pending Deposits/Revenue | $ 3,100.00 |
| Total A/R | $ 15,841.64 |
| A/P | $ (350.00) |
| Sales Tax Payable | $ (700.42) |
| Citi Diamond MasterCard | $ - |
| Total Liabilities | $ (1,050.42) |
| Net | $ 20,698.64 |
For the first time in my entire life, I have a current net worth of over $20k, let alone a positive net worth! Granted, there are more things like my businesses and our cars, as well as our material possessions that count as assets which are not included in any of my financial snapshots to date. However, I'm only looking at current, short-term liquid assets here. One big difference here is the lack of liabilities accounts I actively track. It sure has reduced a lot of stress in my life. Another difference here is I focus how much cash I actually have, which as of today, is almost $6k. My short term goal for cash is to have $10k in both of my checking accounts, with the rest spilling over to savings accounts. My biggest problem in the past was cash flow. I have learned time and time again that it is important to have a cash cushion for daily business operations. I was funding it with credit all the time in the past, and could never get ahead, because the credit lines were massive. All the real cash I was pulling in was immediately going out to finance my debts. I was always underwater with credit cards and it didn't matter how "careful" I was in tracking all of the accounts on a regular basis.
The key takeaway here, for myself, and for all of you out there, is you grow your cash so much faster when you have zero debts to worry about!
Having real cash in the bank makes me happy
For the first time in literally 5 years, I have managed to keep over $5,000 real cash in my bank accounts for over a month so far. I plan on growing this cash hoard as fast as I can to reach my short-term goals of having $20,000 cash split between both checking accounts, and then spilling over anything on top of that into a long-term savings account. The reason being, is I have learned that I need to have a sufficient cash-cushion for operating expenses in doing business. Once I reach these thresholds, the sky will be the limit!
Back when I was using revolving debt to finance operating expenses and operations in business, I was one miserable dude. I hated seeing $10,000 cash in my checking for one day, only to know I had to pay off a massive credit card balance. It just seemed that I could not hold onto the dollars. Five years ago, I did have $5,000 cash stashed in a mutual fund over at Vanguard. However, it lasted a mere two months and I quickly depleted that fund when I bought my Toyota Matrix. Since then, I simply did not bother to replenish the account and closed it instead.
So, with the hard five years of constantly doing the debt cycle, and finally breaking free and seeing some REAL cash in the bank, I am so much happier. I think my wife can tell too, since she could always see how angry and miserable I was whenever I was short on cash. If there were only a couple hundred bucks in my operating account, I would be angry, miserable, and lash out at people.
The biggest thing that has helped me in saving money and building up a cash cushion is simply reducing bills. The biggest bill you can kill are credit card bills and to do so, you simply stop using credit cards, pay them off, and voila! You have less and less bills to worry about. At my peak debt, I had a balance on at least 10 different credit cards. It was a huge chore just keeping up with payment due dates, minimum payments, and actually trying to pay down all balances as much as possible, which in turn kills the cash flow. I am amazed how trapped I was with credit cards. It still blows my mind to this day. Now that I no longer have to worry about 10 credit card bills, I feel less stressed and freer. Additionally, I have killed the car payment, which was yet another bill. Having less bills in general seems to make the cash appear so quickly. I am at the point where, after all my regular monthly bills are paid, I have at least $5-10k net profit every month, so that means I should very easily be able to save $50k this year alone, and possibly more.
Here are my cash hoarding goals in a nutshell:
- 1-2 Months: Save $5k in checking account number 2 (DONE in one month!)
- 3-6 Months: Save $10k in both checking accounts for a total of $20k in operating cash after all expenses. This is to be a cash cushion
- 12 Months or less: Save $40-60k total cash across all accounts. Use this money for a downpayment on a home
Now about that home....a topic for another day!
So, kill the bills, save the cash, and become a way happier person who has way less stress in their life!
Some people are just terrible at tracking their expenses
I used to be one of them. I am reminded today about this huge problem I had in the past where I would let certain charges go unnoticed on my credit card. A client of mine just emailed me today asking if I had signed them up for a $49.95/month service by "Merchant Technical Solutions" for anti-virus, backups, and the works. I said no and that it surely sounded like a scam. Upon further googling of this company, it turns out it is a scam and I'm not surprised. What I am surprised about though, is this particular client let this charge slip by since 2010! So $49.95 per year, for nearly two years is about $1,200! And it's money that was literally just thrown away, out onto the street, for nothing in return. Sure, they probably could have gotten this so-called anti virus and online backup service, but they didn't have any piece of software installed. Hopefully the client will be able to get a refund - which is very crucial in staying financially fit. Always get a refund for services or products that you don't use - especially a service like this one which is an obvious scam.
There was a period in my financial life where I was subscribed to everything under the sun. I had several magazine subscriptions, website memberships, ezine subscriptions, and was a member of several organizations that just like to take your money such as the local chambers of commerce for a few surrounding cities near me. While I understand there are intangible benefits to such memberships and subscriptions, it's totally a waste of money paying for them when there are so many free sources out there. The Internet, Google, local library, bar/pub, business gatherings, and more. At one point, I had over 49 different, regular monthly bills. Now? I have exactly 5 bills related to business, and 8 bills related to personal/home use. I no longer subscribe to any magazine, have memberships to any website (except one which is absolutely critical for my business - LogMeIn Rescue), or allow ANY unauthorized charge go by. When I had 49+ regular bills, it was way too easy to overlook fraudulent charges. Just for kicks, I pulled up a few statements from a couple years ago, and actually did find a couple charges that I have no clue about. It's a funny thing - even though I reconcile all of my accounts with QuickBooks, I still let a few charges slip through. I suppose it's no surprise that my client let his charge slip through. He's very wealthy and I am sure has several dozen accounts that he regularly has to keep track of, and untold amounts of subscriptions, memberships, etc.
I'm a believer in keeping things way simple. The more simple, the less things to worry about and therefore the less mistakes are made (as well as less stress!). I only have two business checking accounts, one savings account, and while I do have probably a dozen open lines of credits, I use NONE of them. So really, I am only keeping track of 3 bank accounts, one of which is my high-volume account that I really pay extra attention to in scrutinizing transactions. At my peak, I was struggling to keep track of 3 checking accounts, 2 savings accounts, 2 paypal accounts, 10+ credit card accounts, and a couple car loans. It have managed to whittle all those accounts down to just 4 that I regularly keep track of. I have things set up with all my unused credit card accounts to immediately e-mail me if any charges pop up unannounced.
Ahh, the beauty of simplicity.
Don’t be a Hoarder; It’s tacky and against all what frugality means
Last Christmas, I decided that I didn't want to spend hundreds of my hard earned and saved money on Christmas gifts. I did this all in the name of trying to become debt free and stay debt free. I wanted to protect what little cash I had in my bank account for operating expenses for business capital. I had always noticed that if I dipped below my $5,000 "cushion" of cash for expenses and operating pay-outs in business, I would struggle and strain to stay afloat and in a couple instances, I did have to revert back to using credit cards as my "cash cushion" last year. Additionally, I was tired of getting junk so I wanted to save everyone the hassle of having to buy my wife and I gifts, since I just view Christmas as a stressful time to worry about buying the right gifts for the right person. Anyway, when I announced to my family that my wife and I did not want to buy anyone gifts nor receive gifts because we are trying to save money, the backlash was horrendous from my mother. My father and brother had no problem it appeared, but my mother flipped a bitch when we told her "no gifts!"
You see, there's more to it than just me wanting to save money. I am also extremely sick of consumerism in general. I'm sick of getting junk -- and the same old junk at that -- during Christmas. Instead, I had hoped that my family would be open to doing something together as a family, rather than sitting around like fat Americans gnawing open shiny Christmas presents and getting basically the same old crap that we normally get year in and year out during our massive gift exchanges. Some Christmases were crazy in the past. We would literally get hundreds of these gifts from our parents, grandparents, aunts, uncles, etc. It's all just meaningless junk. Additionally, my mom has a problem. A big problem, whether she realizes it or not. She's an addict as it is, addicted to cigarettes for as long as I can remember, and never could kick the habit (even after a couple serious prognoses regarding her lungs). She's also a hoarder. What used to be my old bedroom from when I was living there, has become a treasure trove for the hoarder. She has piled from floor to ceiling lots and lots of "collectible antiques" as she likes to call it. To anyone else who's not a hoarder and not an addict, it's all just junk. Seriously -- who needs all that crap? This is why I am the polar opposite of my mother in terms of not wanting anything material whatsoever. I try to avoid material goods like the plague. I am sick and tired of things. Whenever I get something new, it's always something that I will actually use and need on a regular basis. I make a point of removing anything that I no longer need, out of the home. I post it on eBay, give it away, or simply chuck it in the trash if it's broken/worn/unusable at that point. Case in point, I just upgraded our home theater system with Apple TVs in the bedroom and living room at a cost of $99 a piece. I effectively replaced the SageTV network I had going, with two Apple TVs that cost no more than $200. I recently sold just one of the two SageTVs on eBay for $260! I will be posting the second one on eBay soon. I basically got rid of something that paid for the new thing many times over. This is the smart thing to do. Don't just shove old things in a closet, box, attic, or garage because you will forget about it and that's cash that will be long gone as time goes. If you can, swap out the old thing with a new thing that's equal to or less in cost than the old thing. It's better to replace a $500 vaccuum cleaner with a $250 one that ideally performs a lot better than the old one did. And if the old one still works, you could try to fetch $100 off Craigslist for it, and cut down the cost of getting the new thing for nearly half off additional than what you paid for it.
When my iPhone 3GS became unbearable to use (it was slow and totally physically falling apart), I posted it on eBay and got a quick $115 for it. I used that cash towards my new iPhone 4S. Instead of just throwing the iPhone away, I managed to salvage cash out of it. If you look around your home, I bet there are hundreds, if not thousands, of dollars in "stuff" that you could probably do without. My golden rule of thumb is, if something is going to be stuffed away in a box in a closet or attic or garage for at least 6 months - try to sell it, donate it, or simply just get rid of it! Frugality means that you have just enough things to keep you happy, content with your Feng Shui surroundings of your home, busy, entertained, and doing so without breaking the bank or making the storage closets bulge on the verge of flooding your home and suffocating you with useless crap. It's also just tacky to hoard things. You've been warned!