I ran into a situation recently where I had three debts at different interest rates, and wanted to figure out how to pay them off so they would be done soonest. The answer surprised me, so I’m going to post the numbers here and let you take a look at this:

Debt 1:
$1800 at 5.49%. (Minimum payment is $179 per month)
Debt 2:
$8000 at 4.59% (Minimum payment is $276 per month)
Debt 3:
$22,000 at 10.25% (Variable interest rate, minimum payment is equal to finance charge)

I have $1000 per month to pay this off. How would you pay it off?

Even if you are the type of person who wants to be spontaneous and not tied down by an itinerary, it is important to set a plan, especially a financial plan.

Consider this:  Multiply your yearly salary by 10.  This represents the amount of money that you will have be able to control over the next 10 years.  (Ignore raises, promotions, etc.)  Obviously a big chunk of this goes to taxes, but whatever is left is what you can control.  If a business has that sum of money, do you think that they are just going to sit on it with no plan for doing something with it?

10 years is not just a convenient number; it also represents the time frame for which you can set some real goals and achieve them.  Maybe you want to buy yourself a car with cash.  10 years will give you enough time to save that money.  Maybe you’d like to retire some day.  If you contribute $300 per month for 10 years, and you have 20-25 years still to work before retiring, you’ll likely be able to retire off of that money.  If you own a house, you might consider paying that house off in 10 years.  The choice is up to you, but you need a plan.

OK, so you decided that you want that new car.  Let’s say that you are buying a relatively modest car at $23,000.  You negotiate an average interest rate of 6%, and a loan term of 5 years.  By being the shrewd financial guru that you are, you decline the extended warranty, but opt for the gap protection.  (Gap protection is insurance that will cover the difference between the value of your totaled car and the remainder of your loan.  This could be several thousand dollars, so gap insurance for $300 sounds like a bargain.)

Summary:  $23,000 + $1610 (7% sales tax) + $50 (title) +$300 (gap insurance) = $24,960.   Plug the numbers into the loan calculator, and you come up with a payment of $482.55, and over the life of the loan, you will pay a total of $28,952.80.

Financial nuts will also look at depreciation of this car, so they will have an idea of the resale value in a few years.  Let’s say that you bought a car with good resale, so it only depreciates at 20% per year with average mileage.

 Now, instead of purchasing that car, let’s say you keep your already paid-for car, and invest your car payment into a mutual fund earning a modest 10% per year.  (To keep this simple, I will roll the car payment into a single yearly payment.)  We do this for five years, and then we don’t touch the money until retirement.

Our yearly payment is: 12 * $482.55= $5790.60 

• year 1:  Contribution = $5790.60 | earns 10% | total value = $6369.66
• year 2:  Contribution = $5790.60 | earns 10% | total value = $13376.29
• year 3:  Contribution = $5790.60 | earns 10% | total value = $21083.57
• year 4:  Contribution = $5790.60 | earns 10% | total value = $29561.59
• year 5:  Contribution = $5790.60 | earns 10% | total value = $38887.41
• year 6:  Contribution = $0 | earns 10% | total value = $42776.15
• year 7:  Contribution = $0 | earns 10% | total value = $47053.77
• year 8:  Contribution = $0 | earns 10% | total value = $51759.14
• year 9:  Contribution = $0 | earns 10% | total value = $56935.06
• year 10:  Contribution = $0 | earns 10% | total value = $62628.56
• year 11:  Contribution = $0 | earns 10% | total value = $68891.42
• year 12:  Contribution = $0 | earns 10% | total value = $75780.56
• year 13:  Contribution = $0 | earns 10% | total value = $83358.62
• year 14:  Contribution = $0 | earns 10% | total value = $91694.48
• year 15:  Contribution = $0 | earns 10% | total value = $100863.93
• year 16:  Contribution = $0 | earns 10% | total value = $110950.32
• year 17:  Contribution = $0 | earns 10% | total value = $122045.36
• year 18:  Contribution = $0 | earns 10% | total value = $134249.89
• year 19:  Contribution = $0 | earns 10% | total value = $147674.88
• year 20:  Contribution = $0 | earns 10% | total value = $162442.37
• year 21:  Contribution = $0 | earns 10% | total value = $178686.60
• year 22:  Contribution = $0 | earns 10% | total value = $196555.26
• year 23:  Contribution = $0 | earns 10% | total value = $216210.79
• year 24:  Contribution = $0 | earns 10% | total value = $237831.87
• year 25:  Contribution = $0 | earns 10% | total value = $261615.06
• year 26:  Contribution = $0 | earns 10% | total value = $287776.56
• year 27:  Contribution = $0 | earns 10% | total value = $316554.22
• year 28:  Contribution = $0 | earns 10% | total value = $348209.64
• year 29:  Contribution = $0 | earns 10% | total value = $383030.61
• year 30:  Contribution = $0 | earns 10% | total value = $421333.67
• year 31:  Contribution = $0 | earns 10% | total value = $463467.03
• year 32:  Contribution = $0 | earns 10% | total value = $509813.74
• year 33:  Contribution = $0 | earns 10% | total value = $560795.11
• year 34:  Contribution = $0 | earns 10% | total value = $616874.62
• year 35:  Contribution = $0 | earns 10% | total value = $678562.08

By year 35 (remember, you can’t withdraw from your IRA/401k/Social security until you are 62.5) your “new car” payments will be worth $678562.08, or in other words, they will be earning $67,856.21 per year for you.  Pretty nice yearly income for simply sacrificing that new car purchase.

1. I am bored with my job. I completed a bachelors degree and a masters degree in mechanical engineering, but I’m only pretending to be an engineer. I’m not one, and I don’t think like one. I don’t get any enjoyment out of my current employment, and my previous was just as bad. I love the jobs that I held in college, despite them being much more stressful. (Responsible for maintaining computer systems for a government contractor, had my own business repairing computers as a consultant.)
2. Deadliest Catch is one of my favorite shows.
3. I enjoy driving around in an ugly old Dodge Dakota (1994). I made the mistake of buying a “new” car one time, and now I try to be as anti-”new car” as I can be.
4. I nearly failed out of college my first year. I was on acedemic probation until I became a sophmore in college. After two years at that school, I transferred to another school so that I could get those credits transferred (anything higher than a C) but my GPA wouldn’t follow. I was on the dean’s list twice during the next year.
5. I built a radio station during my freshman year in college. I ran it from my dorm room until the police threatened to bring the FCC in to shut me down.
6. I owned a 1975 Plymouth Duster with a slant six engine, and I sold it to pay for the last part of school. I regret selling that car, and I had tears in my eyes when the guy drove it away.
7. I love anything to do with water… the beach, cruising in my boat, tubing…. water.
8. I like watching Mythbusters.

 Manufacturing and industry was the staple of the US economy until the 1950s.  World War II brought the US out of the Great Depression, along with building the interstate system.  The key to manufacturing is resource extraction. This means literally mining or extracting resources from the earth (coal, gasoline, wood, other fuels and raw materials).

In the 1960s, we began a transition to an information society, where manufacturing became less of a staple.  But that doesn’t mean that we have fewer manufactured goods.  It means that other countries (primarily in Southeast Asia, Mexico, and to some extent, Canada) were used for manufacturing.  Note the way that I stated that last sentance: “other countries were used for manufacturing”.  The US industry educates us to believe that this is true.  However, this is not true and we are being controlled by other countries.

Using an American’s (Dr. Demming) quality initiatives, Japan was the first country to take some of the steam out of our manufacturing industry.  They quickly became better than the US at manufacturing (better means lower cost and higher quality).  However, Japan is a smart country, and they started to outsource manufacturing to cheaper countries in southeast Asia.

Japan has become the electronics capital of the world.  Have you noticed that there are virtually no US companies that manufacture electronics goods in the US?  The reason is that basic components such as resistors, capacitors, and integrated circuits are manufactured in Japan, and if a US company starts producing goods that use those components, a Japanese company will offer to buy the US company.  If the US company refuses to sell, Japan will refuse to supply the US company with components to manufacture the good!  The US company can either sell, or go out of business.

Fast forward to 2007, and China is rapidly expanding and using the same tactics that Japan has used.  However, China’s laws are very relaxed, and they ignore US patents, so they don’t even offer to buy the company.  They just start producing copies of the goods, and doing it cheaper.  Fortunately, they are generally producing significantly lower quality goods.  But that will change…

I’d like you to consider the account balances of several world countries.  You can find more about account balances here: http://en.wikipedia.org/wiki/Current_account

China’s account balance is $179,100,000,000.

Japan’s account balance is $174,400,000,000.

Canada’s account balance is $20,560,000,000.

USA’s account balance is -$862,300,000,000.

Should China or Japan stop accepting US debt for goods, our economy would fall apart.

Source: https://www.cia.gov/library/publications/the-world-factbook/rankorder/2187rank.html

I call this nearsided consumerism because people in the US only are interested in themselves.  A large company’s board of directors may outsource jobs because it will boost profits which makes the company stock go up which earns the board of directors a lot of money.  They haven’t considered that allowing their intellectual property to go to another country just educates people in other countries which will likely cause competition that can compete at lower costs than the original country!  We are paying people in other countries to learn what we know, and then they are turning around and competing with us!  All for the sake of the next quarter’s financial statement.

Shortsidedness is scary.

1. Work for the sake of work.

This would be someone that loves their job.  They search for the perfect job for them, regardless of anything else (money, benefits, etc.).  Job satisfaction is important to this person.

1. Necessary evil.

When you think of work as a necessary evil, you probably resent going to work.  You may not make an effort to get along with your coworkers.  You may not like your coworkers.  You may become depressed at the thought of getting up in the morning to go to work.  Maybe you yearn to be outdoors on nice days, or anywhere that isn’t at work.  You feel tied to your job.  Your job causes depression.

The fact is that this person is so focused on their daily activities and rituals of the job that they don’t see the bigger picture.  Often they don’t see what the company is producing or they don’t value it because they are so obsessed with their current situation.  This scenario would be mis-aligned values.

If you feel that work is essential to your life, then work provides income which goes to putting food on the table and paying the bills.   Then you get up tomorrow and do it all over again.

3. As a means to an end.

This person is likely to be the most satisfied with work.  The idea here is that your current work situation is planned out and there is a goal in mind.  Maybe the current job is needed in order to get a promotion.  Maybe it is required experience that is necessary for another type of job.  Maybe it is a financial goal and the money that is earned is being used to pay off a debt or achieve a savings goal.

Another way to think about these philosophies of work is planning/delayed gratification or impulsive/instant gratification.  The person who views work as a necessary evil is so inwardly focused about their immediate job because they can’t see themselves moving into a better position.  They have absolutely no plan.

The person that makes sacrifices in order to have a perfect and ideal job for themselves again does not have a plan, but only sees the current situation.

The person that uses a job as a means to an end has a plan in place.  Work doesn’t have to exist as long as we live.  While we are young we are most valuable to our employers.  We must develop a plan early on in order to keep work in perspective with the other aspects of life.

They are supposed to be mounted to a wall using drywall anchors and tiny screws.  This assumes that you have a good level, since the level that is mounted in a piece of paper that comes with it is not accurate.  Then drill your holes, but make sure that there is absolutely no error.  Otherwise they screws won’t line up.  Oh, did I mention that the included anchors are not nearly strong enough to go through drywall, and they will deform and break long before you get them seated properly.