Gamification of finances

I am a big fan of gamification.  FitBit has done it with physical fitness.  Tripadvisor has done it with reviews.  I’m sure there are other examples, but these are the best known.  I have often thought it would be a great idea for personal finances.  Something like but as you add goals you get badges for reaching those goals.  Since no one has made that happen yet, I am just making something up for myself.  Nothing fancy, just setting some goals and celebrate when certain targets are hit.  While not exactly what I had in mind, there is a site you can learn lessons, take quizzes and earn points and badges.  Better Money Habits is a partnership between Bank of America and Khan University.  Sign up for free, pick a topic and learn something.  Even if it is a repeat of what you already know, it’s good to help keep you motivated.

Wealth Building Tools

To start getting our of debt, you need to know just how deep in the hole you are.  I use to track my personal finances and keep a loose budget.  It also calculates your total assets, liabilities and net worth.  I wanted something more though.  If you know anything about getting out of debt, you’re familiar with the “debt snowball” or paying down your debt using the snowball effect.  Every person that writes about getting out of debt will mention this at least once, because it’s a powerful tool.

The general idea is you have to make the minimum payments on your debt.  If you order your debts smallest to largest then throw anything extra you can at that first debt and pay it off, you take that same amount and add it to the next.  When that is paid off, you move it to the next and so on.  The outcome is your debts get paid off quicker as time goes on since you always spend the same, just move it up the chain.

A couple of rules or it won’t work:

  1. Don’t add more debt.  If you add debt, you’re defeating the purpose.  You’ll need to live on less than what you make.  Free up any extra pennies to put towards the debt.  Find ways to trim your expenses.  You may even need…{gasp}…a budget.
  2. Earn enough to cover your living expenses with enough leftover to pay the minimum amounts.  If you can’t, you’ll need to get creative.  Get a second job, sell stuff, form a side hustle, whatever.
Assuming you can do those two things, you’ll need a way to track and plan the attack.  I went looking for an Excel spreadsheet to do this.  I LOVE Excel spreadsheets. I could make one, but why reinvent the wheel when someone has clearly done this before?  I found one at The Wealth Formula.  It’s not complicated, has a nice, easy to understand layout and plenty of room to add in the numerous creditors some of us have.  Leave off the mortgage, that’s something to be dealt with later.  Do add car loans, credit cards, personal loans, 401k loans, student loans, etc.  Be as complete as possible.  Once done, figure out how much more than minimum you can do and the sheet will calculate how long it will take. Mine is currently just under 3 years.  To think that in 3 years, we’d only owe on the house if very exciting.  To think about all my wife and I could do with that amount freed up each month!  Travel, save and invest (obviously), buy real estate.  The possibilities are endless.

How did we get here?

One important aspect of getting out of a pickle in knowing how you got there in the first place.  Generally when people come into a lot of money (inheritance, lottery, bonus, etc) it leaves their wallet as fast as it got there.  Why?  The reason is they never learned to manage their money.  That’s why they were in debt and why they’ll get back there as quickly as they got out.  Much like losing weight too quickly is unhealthy, so too is trying to get rich quick.  There are a lot of fads making extreme promises but in the end they hurt more than they help.  Take a look at each debt, why it’s there and what can you do to prevent it happening again.
A few of mine are easy:
  1. Student loan.  My largest and most persistent debt.  I had to take out loans to get both my bachelor’s and master’s degrees. They help get me in the career I have now, so it seems like money well spent, however, I was living above my means and so lived off part of that money.  If I’d been more careful back then, I likely would not have near as much left as I do now.
  2. 401k Loan. Next up is the 401k.  I took this out to combine two high interest credit card debts. I normally would not advise doing this since it’s just rearranging the problem, and you miss out on potential growth of the funds that are not in your account. However, I was barely able to make the minimum payments so doing this has allowed me to actually start paying down principal. But how did those two credit cards get so out of hand?  One I used for an attorney to get an amended divorce decree.  I was spending an enormous amount of time on the road just to see my daughters.  Their mom was not working with me at all, so I needed to get it in writing. It was difficult and messy, but now I spend way less time getting them, bringing them, to my place and taking them back.  The other credit card was mostly due to renovating our house.  The house had smelly old carpet, no closet space and no bathroom space. My wife was moving in with me and we needed to get the changes done soon.  I could not get a home equity or other better financing so I used a personal loan and credit cards.
  3. Auto loan.  After 17 years, I needed a new vehicle.  I wanted something that could haul the entire family, go on road trips, go camping, etc.  I chose a used vehicle, but did get an extended warranty.  All financed on a four year note. 
  4. Personal loan. Home improvement, see #2.
  5. Personal loan. Taxes, after my divorce, I forgot to update my W-4 with my employer. As a result, I way underpaid my federal income tax.  I’d rather owe a bank than the IRS.
  6. Credit cards…more taxes from my wife doing what I did, a vacation that I bought impulsively, road trip with my girls for spring break, camping equipment, trying to get more points putting my expenses on a card and failing miserably to pay them off each month.  Clearly I need to reign in my spending.
Now that I know my weaknesses I am now able to ask myself if I really need a thing more than I want to see that damn debt gone.  It helps to have a visual to remind me what’s important.

The M.O.N.E.Y. show interview with J.D. Roth

This was one of my favorite episodes of the MONEY Show.  JD Roth is the founder and former owner of Get Rich Slowly blog.  He now runs a blog called Money Bo$$ and travels the country with his girlfriend in an RV.  I like hearing stories about how people dig themselves out of a hole whether that’s a financial, health related, relationship, whatever. Coming from behind and making something of yourself; not giving up even when things seem bleak. I find inspiration in these stories.  

What affected me most though was how similar his story is to mine. Family business, making bad decisions with credit cards, divorce after many years of marriage, love of nerd culture, etc.  While his track was one of entrepreneurship and no kids, mine was one of kids and career. He was able to come up with something that, while not unique, was innovative and captivating.  Today he lives off the fruits of that labor and inspires others to reach their goals.  He also had an interesting take on looking at our personal finances as we would a business.  

In business you generally want to make a profit.  You want your expenses to be below your income.  The gap between those two is your profit. You want your personal finances to be the same. Working to increase that gap and make sure you’re saving for the future. 

The other thing was how he “gamified” getting out of debt.  Nowadays you can find all kinds of gamification for health (Fitbit), travel reviews (Travelocity), etc. where you get points badges for accomplishing small goals.  While there really is no site that does that for personal finance, you can still do something similar on your own.  Setting small challenges with yourself or friends, posting about it to be held accountable and celebrating when you hit a goal. Anyway, it inspired me to get my head wrapped around my debt situation and to start denying myself a few things to reach this goal.