One Cent at a Time hosts this weeks Carnival of Personal Finance

Its been a while since I submitted and managed to get one of my posts up at the Carnival of Personal finance but today I’m happy to pass along that I have done just this. My post from last week about being Overleveraged made it in. There are always some interesting articles so definitely go check it out:

Carnival of Personal Finance #408 – Disney World Edition

A couple posts that caught my attention:

Dwindling Debt – The Simplicity of Getting out of Debt
Compounding Returns – Get Rich. Act Poor

Overleveraged and Fixing it!

Ever since moving into the new house we’ve been feeling the pinch, there are more costs and just keeping things going seems like a struggle. The first of the month feels like a punch to the gut and the worst part about it is that while our debt is going down it doesn’t feel like we’re making real progress and forget about savings.

We have entered the wonderful world of being “house poor”, but its not the house thats doing this to us; that wonderful new house is something that we love and shouldn’t be a problem considering our financial situation. My wife and I make good money and we don’t spend extravagantly on gadgets and things. You could find some room for improvement in our lifestyle but at the end of the day we also need to be able to enjoy life a bit. So what’s the problem?

At the end of the day we’ve come to the conclusion that we’re almost overleveraged as defined: .

Occurs when a business is carrying too much debt, and is unable to pay interest payments from loans. Overleveraged companies are unable to pay their expenses because of over excessive costs. (http://www.investopedia.com/terms/o/overleveraged.asp)

We make more than enough money and if we were more cautious and frugal with our spending it wouldn’t be an issue but we’ve already trimmed a bunch of fat from our spending and its just not worth trimming that much more without really changing our lifestyle. And since we moved in last fall we’ve been trying to find that happy balance between lifestyle and paying everything down. We don’t want to give up having a few drinks (at home because the bar is too expensive) or being able to keep the car.

As I’ve mentioned before we aren’t the epitome of frugality but we also don’t spend a poorly. We tried to balance it and when looking at everything at the end of the day we did find that there was a big money sink; The issue is simple – we have 1 property too many. We really looked at everything at at the end of the day keeping the cottage and our current debt load meant that we’d be stuck in a very slow repayment of everything for years. The culprit became clear as did the solution.

A couple years back we purchased a cottage because it was something we both wanted, we’ve used the place extensively and even made a bit of money renting it out. We didn’t overleverage ourselves to get the place and could keep it. But unfortunately there are a lot of hidden costs with owning a vacation home, insurance, taxes and even the cost of driving there are something that can be easily hidden. So while the mortgage itself isn’t that bad when you add everything together along with all of our other debt selling the place really is the best possible option.

So in order to fix that feeling of being overleveraged we’re going to sell the cottage, its sad but when you look at the numbers removing that financial hemorrhage we’d be out of debt in about 2 years and could start saving and investing a lot.

The emotional side of this – we really like the cottage and have wonderful memories from there; its just when you look at the cold hard numbers and take away the cottage things start looking very rosy; extremely rosy with a lot of possibilities of having no debt maybe paying down the mortgage sooner or gasp invest in something.

At the end of the day we’re going to net out about even on the sale of the place, there isn’t a lot of money to be made but what will happen is we’ll remove the monthly expenses and be able to pay down a lot of debt. Once the property sells it should average out to an improvement in monthly cash flow by almost $2,000 which is huge! So while the emotional side of this came into the picture seeing the numbers really closed the deal for us. We’ve listed the cottage and hopefully it sells relatively quickly. There is still some rental income that we’re likely to get this summer but not much. In the meantime we just need to keep everything paid and up to snuff.

When you get into a situation like the one we found ourselves in the luxury of owning a cottage really became that a luxury. We took a hard look at the numbers and removed the emotion of the purchase; that helped us find the solution. Everyone situation is a bit different but in order to make headway and remove the weight of debt that we’ve got it became very clear. The numbers don’t lie; always go back to the numbers.

March Update – Net Worth + 5.08%

All of a sudden April has crept up on us and hopefully the nicer weather comes with it. My daughter has been saying April showers bring May flowers and while she’s excited about seeing flowers I think about the yard that needs to be tamed. Now that April is here we’ve tabulated our monthly metrics for March and it was a great month from a net worth perspective as we were up another 5%.

This is a great result but its easy when the starting point was fairly small to begin with; its going to be pretty hard to keep this pace going for the whole year but if we do that would be fantastic. Now what this nice rosy number does not tell you is how challenging it has been to keep up with all of the debt load and mortgages and just life in general. The progress is going in the right direction but at what cost.

The question that comes to mind is are we over-leveraged? We’ve been into our new house for 4 months and 3 into the new year and I thought that we’d settle into an easier pattern but its still a struggle so I am thinking that the answer to the above question is yes and we’re doing something about it that I’ll post later this week.

In the meantime I’m going to enjoy the fact that our net worth continues to increase regardless of what it actually means from a cash flow perspective (even if for a day).

Brown Bagging Challenge Results

At the beginning of last month I challenged myself to brown bagging it for a month and I have to say that it has been an interesting month. I have to admit that I was very worried about the challenge because I would eat out for lunch pretty much every day. So this radical shift to brown bagging it was something I wasn’t sure was going to work.

The background here is that when I first started working I would socialize with my co-workers during lunch and it became a very ingrained habit. The results actually astonished me

My challenge was:
I am challenging myself to brown bag it as much as possible during the work week and then put the money I would have spent against one of my credit cards.

I managed to brown bag it every day in March! I didn’t go out once and in the process I’ve managed to get into a new habit of bringing in my lunch. I have also put that additional money onto one of my consumer credit cards.

My expectation was that I would be able to complete most of the challenge with a few trips out but it became a routine to make sure that I had food for myself during the day. I’ve been eating a lot more fruits and there are virtually no leftovers in the house now which is great. So this challenge was a complete success and has shown me that I can easily start changing habits that I thought were hard. I think i need to find the next challenge.