SO YOU’VE finally managed to sit down at the kitchen table and pound out a monthly budget. Now it’s time to look at some options for tracking your spending to ensure you don’t overspend.

 

My wife and I just made some new friends in the big city and we all went out for sushi. We drank Japanese beer, got that fantastic wasabi nose rush, and shared some great laughs. Then came the bill. My wife and I reached for our rewards credit card, but our new friends pulled out a small envelope stuffed with cash. They were using the Dave Ramsey Envelope System.

 

Here’s the envelope system in a nutshell: create monthly budget, convert individual allocations to cash, place cash in corresponding envelope, spend. When all the cash is gone, there’s nothing left for you to spend. For example, if the $400 you placed in your “Groceries” envelope ran dry last week, it’s up to you to concoct some funky what’s-in-my-cupboard-and-refrigerator-that’s-about-to-go-bad-anyways meals until the next month rolls around and you can refresh your envelope. It’s that simple. 

 

(By the way, the Solvency Shark calls those gut-busting mystery meals “Cheftovers.” It sounds better that way.)

 

A technological approach can be found at www.mint.com. First, you link your mint.com account with your banking and credit card accounts, then create budgets for groceries, entertainment, &c. Whenever you swipe your credit or debit cards, the website recognizes the type of purchase and automatically deducts it from your budget! You can even download a mobile app to check your monthly progress on the go.

 

The Solvency Shark has tried both systems. With the cash envelopes, I felt real physical pain spending money. For some reason, pulling three $20 bills out of my envelope hurt so much more than a $60 credit card charge. This system is fantastic when it comes to really spending less each month. Nevertheless, I eventually became paranoid that I would lose vast sums of money at once when I inevitably lost that $400 grocery envelope or got hijacked in the new, big, and sometimes scary city.

 

As for Mint.com, it works very well with plastic-based purchases but breaks down when it comes to cash transactions. Those have to be entered by hand on an actual computer, which is not cool in the age of super-smart phones.   I also found it difficult to perform the kind of to-the-penny budgeting that the Solvency Shark fancies. “I said I only have $41.37 for entertainment this month, fool, not $42! Not $42!!”

 

It’s an on-going struggle for the Solvency Shark. My first attempts at tracking my spending were a very low-tech sheet of paper and #2 pencil that I carried at all times. After the envelopes and mint.com, I am back to a more sophisticated, spreadsheet version of the “track by hand” method that projects my budget over the course of twelve months and calculates deductions, additions, and percentages instantly each time I manipulate a point of data.

 

But listen: whether you want a straightforward solution, a technological solution, or a ridiculously elaborate I-love-to-crunch-numbers-because-I’m-the-Solvency-Shark solution, you should stop at nothing to find a solution. Making a budget is one thing; sticking to it, by any means necessary, is quite another altogether.

 

Live well, live well within your means, and remember – that’s how the Solvency Shark seas it!

By Stewart Pelto on November 20, 2010

I WENT to Harris Teeter last week and bought $150 worth of groceries for $75. Here’s how my wife and I pulled it off.

 

First, we bought a subscription to the Washington Post (that’ll be the N&O for my Triangle-area readership). It did cost us $60 for a six-month daily delivery, but it becomes profitable with only minimal effort (see $75 savings above). On the weekend, we get a gigantic edition of the newspaper along with a stack of coupons. My wife simply removes the coupon booklets and organizes them by date.

 

Next, we head over to www.southernsavers.com. It has the scoop on all the best deals at Harris Teeter, Target, CVS, Kroger, &c. They keep track of the best times to go to the store (like HT’s “Super Doubles” promotions) and even list the items you can buy for next to nothing! You simply follow their code system to locate the proper coupon booklet (this is why my wife files them neatly), click to print off a shopping list, and head to the store. They’re basically clipping the coupons for you!

 

They’ll show you when grocery stores are running promotions at the same time. This can lead to some ridiculous shenanigans. For example, you have a coupon that says “buy 2 boxes of pasta, get $1 off.” The boxes of pasta each cost $1, so it’s 50% if you buy in bulk. Not bad! But then you get to the grocery store and the pasta is on sale; it’s “buy 2 boxes of pasta, get 2 boxes free.” Nice!!

 

At the checkout counter, you realize it’s “Super Doubles” – a promotion at Harris Teeter where coupons are automatically doubled in value. Your $1 coupon becomes a $2 coupon, pays for the two boxes by itself, and nets you two extra boxes for free. That’s four boxes of pasta for $0.

 

My brother texted me the other night saying he had bought $200 worth of groceries for $85 – effectively paying for 40% of his grocery visit. With a little effort on your part, these kinds of deep discounts will really help you stick to your monthly budget.

 

Bottom line: these little multi-colored slips of paper in your weekend newspaper are every bit as good as the little green slips of paper in your wallet. Except you have to work your butt off for the green slips.

 

Live well, live well within your means, and remember – that’s how the Solvency Shark seas it!

LET’S say you owe $21,000 in school loans. (School loans are harsh, aren’t they?) You’ve managed to save up $7,000 in your bank account and have a steady job that allows for $200 monthly payments. Not bad! But for some reason, you have this sinking feeling in the pit of your stomach that your money isn’t going as far as it should.

 

In fact, it seems like the lion’s share of your monthly payments go towards the interest on the loan rather than the loan itself. Frustrated? You should be! It might be time for you to consider a balloon payment.

Strictly speaking, a balloon payment is associated with mortgages and other large loans that are not designed to fully amortize over their lives. Rather than use a system that sees the borrower pay back the loan in regular amounts over regular intervals, balloon payment mortgages typically involve a series of interest payments followed by a gigantic, one-off payment that represents the lion’s share of the loan.

 

(Some daring homeowners use this type of mortgage to defer the cost of the home long enough to resell it at a higher value. This, of course, can become very tricky when the house doesn’t appreciate in value… such as in an economy like this one. If you’re considering this, I advise caution and much research.)

 

Nevertheless, the term doesn’t have to apply only to mortgages. In fact, the term “balloon payment” can be understood as any abnormally large payment towards a debt. Let’s take the opening paragraph as an example. If you have high school debt, some savings, and a steady job that isn’t going anywhere for a while, why not take some of those bank savings and apply it to the loan? I can personally guarantee in every situation imaginable on this planet or another that you are losing more money to monthly debt that’s-our-money-fool interest than you are making on monthly bank thanks-for-banking-with-us interest.

 

If you keep up the $200 payments indefinitely, it will take you nearly 11 years to pay off the loan. Now clear out your savings account to $1,000 for unforeseen emergencies and ship the $6,000 to your lender in a gigantic, one-time balloon payment. Congratulations! It just took you less than four minutes to shave nearly four years off the life of your loan. Now that’s some aggressive, German-style attacking of your debt! The Solvency Shark applauds your industry.

Live well, live well within your means, and remember - that's how the Solvency Shark seas it!

THE OTHER day I was browsing my favorite Magic: the Gathering (MTG) websites for a specific card I wanted. [Yes, the Solvency Shark is a gigantic nerd, but before you mock me, consider this sobering fact: I have anywhere from five to fifteen rows of teeth in my jaws, depending on the species.]

 

I really wanted to buy this card in time for an upcoming reunion with a bunch of my MTG playgroup buddies. At the time, I thought to myself, “If only I can get my grubby little hands on this card, I’ll be an unstoppable juggernaut of crushing might! My fellow card players will have no choice but to break their backs upon the undeniable force of my wizard fury!”

 

I found the card selling for $0.10. Not a bad price to pay for a potentially powerful card. I’ll take it! But then:

 

“Oh no, they don’t have the card in stock! Who knows when they’ll get it back!” I said. I thought about the problem for a moment, then found myself thinking, “I. must. have. this. card. now!!”

 

I searched the internet again. I managed to find the card – yesss! – in a special edition shiny format that was ten times as expensive. Dangit! At an even $1, this card was clearly overpriced and threatening to break the bank. [The Solvency Shark has a limited budget for his hobby. $1 is a lot to pay when you only have $8 to purchase cards.]

 

You know what the Solvency Shark did? He paid that price. He ponied up the buck and he enjoyed doing it. He fell victim to the acquisition premium. Roughly defined, the acquisition premium is the difference in price between an asset’s original value and the price it fetches from the buyer. I like to call it the “I Want it Now!” tax.

 

People allow themselves to pay the “I Want it Now!” tax all the time. Newly married couples charge thousands of dollars to their credit cards because they see furniture for their new couples’ apartment and want to take them home that very instant. Sure, they’ll have to pay a few hundred dollars worth of interest on that purchase over the coming months, but that’s an “I Want it Now!” tax they’re willing to pay. Alternately, rather than bid patiently on an Ebay item in the hopes of securing a lower price, some people will gladly pay an extra ten to twenty percent on top of the item’s current price to skip all the pesky auctioning and just get their hands on the product.

 

Some crazy people are even willing to pay ten times the original value of a collectible playing card just to have it in their grasp. [In the Solvency Shark’s defense, the card is the special, shiny version.]

 

Paying the acquisition premium isn’t necessarily a bad thing, but if you don’t think it through, it can leave you with a feeling of buyer’s remorse. If you’ve just got to have it right NOW and are sure you’ll have no regrets, make the purchase. Otherwise, take a step back and ask yourself, “Do I really feel like paying the ‘I Want it Now!’ tax?”

Live well, live well within your means, and remember - that's how the Solvency Shark seas it!

GOLD miners looking for riches in 19^th century California developed a method that could quickly establish their treasure’s identity beyond the shadow of any doubt. Since many base metals have a tendency to fizzle and dissolve when introduced to an acidic environment while gold does not, the miners soon found that the quickest, cheapest, most certain way to establish a nugget’s identity was to pour acid over it.

 

It was a brutal test, but you couldn’t yell “Gold!” without passing it first. Even though those prospecting days are over, we still use this method to test other areas of our lives with speed and unrelenting certainty.

 

Companies use an “acid test” to determine their viability. To do this, they calculate the abandonment value of their current assets and add that number to any available cash on hand, then divide it by the cost of paying their liabilities all at once. If the number is anything less than 1, the company does not pass – and it’s in trouble.

 

The acid test doesn’t spare the company its feelings; it just tells it like it is. It can do the same for you. Follow these quick and easy steps to take your own financial temperature and see where you are on the path to fiscal responsibility.

 

First, total up all your cash. In this example, Mr. Finnegan Finance currently has $12,200 in his bank account. Since it is the beginning of the month, Mr. Finny Finance can also expect to make an additional $2,300. This brings his total cash on hand and expected short-term revenue up to $14,500.

 

Next, he’ll need to calculate the abandonment value of the assets he owns. In this case, Mr. Finny holds $7,000 in his company’s stock. Once he’s put all the numbers together, he can safely value himself at $21,500 for the next month.

 

Now, keep in mind that Mr. Finance didn’t get his name by twiddling his thumbs; he went to a four-year economics university and now has $17,000 in school loan debt.

 

With all the numbers in place, Mr Finny divides his total assets by his total liability – $21,500 divided by $17,000 – and calculates 1.26. Hooray!! Mr Finnegan Finance passes the acid test and has proven himself financially solvent. Not only could he pay off all his liabilities today if he so chose (1), he’d actually have a bit of a cushion left over to get things rolling again (.26).

 

The higher the number, the stronger your financial position. If you’re below 1, you’re carrying more debt than you can afford. This would be a good time to start attacking your debt like Germany and learning how to build a good budget. You can also get help from any of our debt experts if you’re having trouble.

 

So, my friend… do you pass the acid test?

Live well, live well within your means, and remember - that's how the Solvency Shark seas it!