That is the question I have been asked by several of my blog readers in the past 6 months or so that I have not spoken about the Money Experiment. Did it work? Did it bomb? Did you scrap it altogether? Today, after a long hiatus from the blogosphere, I’m here to put all those questions that I got flooded with, by those ‘four’ die-hard fans of my blog, to rest. To be honest, I myself cannot tell whether the experiment was a grand success or an utter failure. All I can say is that it did change quite a few things in my life (hear the music playing?). In this post, I am gonna spit out all the details and let you decide how the experiment fared. In fact, many of the changes that came about were not related to money at all. If you’re going through the original post right now, please do ignore the post-script, the daily update never came about (I was busy dude!)

If you look back at the original post I wrote almost a year and a half ago, when I started the experiment, you can easily tell that I had no clear idea where I was going or what I was trying to achieve. It is not that hard to figure that from the way the post was put out right? All I knew was there were a lot of things that were wrong with my finances and I felt I had absolutely no control over them (they were controlling me rather). I was almost broke, with only a few dollars in my bank account and hoards of debt piling on constantly. I was living the American dream! As an immigrant, that was certainly not acceptable, at least by Indian standards.

If you recall, I had organized my experiment into three broad categories with very intelligent names – categories A, B and C! Category A was all about the stuff that I was buying by paying above-sticker price. The sticker price in this case would be the best possible price for a particular product considering all sources available. In short, I was buying things without doing enough research or giving considerable thought. Did that change? It did, to a certain extent at least. I do a reasonable amount of research now before I buy anything. I have several tools now that help me get the best available price for a particular product. I do have to confess that I haven’t stuck to the rule 100 percent of the time. For instance, my mobile phone bill for 2009 was $1340 for the year. That is about $112 per month, just for cell phone service. For that kind of money, I can hire a guy in India who will run over to the other party and deliver my message every time I have something to say. I’m not kidding! Well this has been partly due to my inabilities to keep an eye on my minute usage in addition to ATT’s incompetence. Mostly, ATT’s incompetence I would say.

Another pain-point for me has been the use of cash. As weird as it may sound, but I have used too much cash last year, almost $200 every month. Now I know what you must be thinking; isn’t cash better over credit cards and did you say $200 (loser!)? Yes, cash is better than a credit card! That is, only if you are living on welfare or have a gambling problem and in that case, you wouldn’t have any credit cards anyway. Why is cash bad you ask? Well, first of all it is a pain to go to the ATM to get cash and secondly it is a bigger hassle to keep track of where it went. I, for one, haven’t tracked any of my cash expenses in the past year (or ever). Was it spent on food or was it spent on gas? I’d be happy if it went into the former. On the other hand, if you use a credit card, you can easily import all your transactions into your monthly budget. I don’t get it when people get really worked up when they hear about credit cards. There are no bad credit cards, only bad spenders (and then there is Citibank, of course!). I’d rather use a credit card to get the free points ($$$) and help track my budget online than get slapped with a $39 ‘insufficient funds’ charge by the bank by using a debit card without knowing my balance.

As you can see, there is still some work to be done but I’m ‘working’ on it. However, the biggest change has arrived in my buying habits, which brings us to Category B. Category B items were everything that were turning me into a borderline, compulsive hoarder. Buying craploads of stuff that I did not need in the first place had become my evening job. I’d come home from work and go shopping because I had nothing better to do. A bike that I rode only once, shoes that I wore once (or maybe twice), magazines that went directly to the trash were just a few among a zillion other things that were being bought without thought. Did that change? Oh yeah baby, big time. Now I buy stuff that pays me back. It could be in the form of health, information, entertainment, travel or plain, simple fun. In other words, I seek value now, the way Tom seeks Jerry. No more going to the movies just because it is a Friday and you have no other way to kill time. I’d rather stream a movie over Netflix and stay home cozied up on the couch *wink* *wink*. Instead of going to expensive restaurants just because the wife’s friend posted some crazy pix of her gouging on a 5000 calorie meal on Facebook, I’m happy with my five-dollar-footlong while I watch the birds in the park. See the lifestyle changes that I was talking about earlier?

If you have read so far, then I really admire your patience and I think I just added my fifth reader. *High five!* By now, the question that might be lingering in your mind is ‘what about Cat C?’ or ‘you don’t wanna talk about that debt, do you?’ right? Of course! Who likes to talk about debt anyway? Toadly kiddin! Yes, let’s talk about Cat C! While at it, let’s run the numbers too.

Credit Card: ~$3200 @ 0pc until 2012. This was primarily spent on appliances that we bought recently. About $1000 from the previous balances is included in this. So yeah most of the CC balances were paid off from 2008. I did get a lot of flak from friends/family for buying appliances using a credit card. I will get to that in a bit.

Bad News: I do have some bad news to report too. It’s not bad bad but I did get an auto loan. Please let me explain before you jump to any conclusions and expunge me from your feed. Remember, I had bought a used Mitsu Montero in 08 that was using more gas than a mini 747 and was breaking more times in a week than a fresh Windows Vista install? Thousands of dollars and a gazillion gallons of petrol later, I decided it was time to bid adieu to the sucker. After months of permutations, combinations and several calculations, I arrived at the Toyota Prius. I was trying to zero-in on something that had the lowest ‘Total Cost to Own‘ and no matter how many models I compared it with, the Prius always came out to be the winner. I had spent about $4000 on the Montero in the first half of 09 compared to $2500 on the Prius in the second half (that includes everything from gas to depreciation mind ya!). Whatever said and done, I do have an auto loan and it is not my best friend. Aah, the bliss of American life. I did get a great deal on the loan though; 3.69%. That way, I could pay off the rest of my loans. I promise you will love me more once you read the following section.

Housing loans: We completely paid off balances on our Bangalore home. Yay! This was a major win financially. If we decide to go back to India in the next few years, we have a dwelling to call home. The other night, I had a dream that we were stuck on a rainy day in Bangalore and we had to spend the night on a sidewalk. Guess that’s not gonna happen now.

Just in case you were getting happy that the post was getting over, I have some news for you; it’s not. We are only half way through. I also have some breaking news for you: just a sec, waiting for the triumphant music to get over….

About three months ago, we closed on a home here in Austin, TX. Double yay! Yes, no kidding. After years of living in flats, apartments, tents and under bridges, we are extremely excited to be first-time homeowners. I’m yet to receive the infamous 8k credit from Uncle Sam which I’m going to diligently apply towards the mortgage. After getting burned in other instruments over the past couple years, my mantra for the next few years (or the rest of my life) is: you buy it only if you can touch it. Since late 08, I have solely concentrated on real estate and gold. Sorry, no intangible assets for me please. The above CC expenses were solely towards appliances like Washer, Dryer and basic move-in expenses like paint, furniture etc.

And the credit card ire from friends and family I was talking about earlier, it was just a matter of choice. Whether I wanted to spend the cash upfront or would I rather pay it off slowly and take care of other expenses first. I had to buy the appliances anyways coz it sucks to lug your laundry to a laundromat in the middle of the night if you do not have a working W/D (believe me, I have done it before). It sucks even more if your wife makes you use your hands to clean those dirty dishes. So my advice, if someone is not charging you interest for something you need badly, take it. Pay off your other high-interest loans or if you’re one of those lucky ones who doesn’t have any, put the cash in a CD or a savings account.

Takeaway: This is all that I have ‘accomplished’ with the Money Experiment in the past 16 months. There have been some major lifestyle changes along the way and there are many that are still in the works. All in all, I have become a little more aware of my overall finances, be it income, spending, investing or saving. Wastage has almost come down to zero which I’m really proud of. Even though income levels have pretty much remained stagnant, I do feel we are leading a better life. All said and done, I’m yet to see the day where I can comfortably say ‘I’m well off’. Hopefully, I will get to see that day. Some day…

For most of you who have been following my Money Meter closely, it might have come as a shocker to see the meter jump from about $1400 last month to over $2000 this month. I’m gonna refrain from building a plot and a climax in this post today and just throw the numbers at you real quick.

$250 – MS Exams

Last month, I registered for two Microsoft exams. Each one of them costs about $125 but I used vouchers from friends and managed to register for both of them for free. Total savings = $250.

$500 – Lease Renewal Special

Two weeks back, when we were driving back our new Prius from San Antonio, we were dog tired and damn hungry too,  so we stopped by Riata Bar and Grill for a quick bite. The waitress in the restaurant looked really familiar. After a good 15 mins of scratching my head, I was finally able to recognize her. She is a neighbor in our apartment complex and I see her every now and then with her dog, thanks to Dash’s aggressive instincts. Khushi and the girl hit it off right away (women!!!). The girl then went on to tell us about a special that was going in our apartment complex. It was for a whopping $500 discount on the first month’s rent if we renewed our lease for 6 months or more. We had recently signed a lease and it was effective only from July 1; so I thought to myself maybe we were eligible for the deal but were never told about it. The very next day I went to the leasing office and haggled with the manager for 20 mins. At the end of it, I came home $500 richer.

$300 on Cable

We got rid of the cable last month since all we were watching on TV was Network TV. It did not make any sense to pay $50 month after month for something that was available for free. We are not gonna have cable for a while now unless they start showing live cricket matches in North America. Total Savings for the next 6 months = $50 X 6 = $300

The next project for haggling is to get my renter referral money from the apartment guys. I referred 2 friends and am eligible for a whopping $800 check. I’m not gonna get the entire $800 since it’s gonna be divided by 3 (Indian style of referral!). Whatever the amount, I don’t like to let go of $$$$ that legitimately belong to me. Especially not to corporations.

Last week, owing to several issues that I had been having with AT&T, I finally decided to bid adieu to their UVerse TV service. I had been with Time Warner for a long long time and I just loved their service. Then, AT&T came out with an enticing offer (rebates etc!); so I bit the bullet and ordered their UVerse service. I had heard really good reviews from my friends about their revolutionary new TV service which let you record four programmes at the same time among many other things (help us with laundry, dishes etc.). Even though I never had to record four shows at the same time, my biggest frustration came from their HD broadcast. It looked worse than SD. Time Warner’s HD was hands-down a thousand times better than ATT HD. HD was not the only thing that made me pull the plug on ATT though.

My second biggest gripe with ATT was their customer service. Even though they have hundreds of corporate stores across the country and a handful in Austin too, there is no help available whatsoever from any of their stores. The stores are only to signup new customers and from there on, you are pretty much on your own. It takes a good 20-30 mins to get through their 800 number and their ‘offices’ are open only during regular business hours. In other words, you cannot call their 800 number after 6 o clock? What is this, the 70s? When we signed up for the service at one of their stores, the sales guy had told us he would get us a rebate of $300. That was too good an offer to refuse, so we signed up. Three months went by and there was no sign of any rebate. After trying a zillion times to get through to their customer service, I finally received my rebates, for $150. And that, after almost about five months. Their excuse was they did not have my apt # in their database! I wonder how those bills would arrive month after month, promptly, at the right apt #? Hmm! Time Warner, on the other hand, has a local access number and worst case scenario, you can just go to their local office and get your grievance addressed.

Even after ending my relationship with Uverse, my problems did not stop. This happened when I had to return their equipment. They have an ‘arrangement’ with UPS where in you need to find a UPS store and drop in all the equipment there. I had no issues with that. It’s no different than go to a local ATT store right? In fact, the UPS guy was quite nice to us. However, what frustrated me was that ATT did NOT require me to return any cables or the remote control. The UPS guy outright refused to ship the cables and remote back to ATT. According to ATT, the cables and the remote control are ‘yours to keep’. I’m sure ATT is trying to reduce UPS costs but do they really think it costs them less to manufacture another remote than to just ship it back? So, essentially, every AT&T customer in America ends up with a few hundred feet of telephone cable and a remote control for a cable box for good! After this ‘incident’(for the lack of a better word), I do not think we will be doing any new business with AT&T. I have wireless service with them but I have to stick with it just because I love my iPhone too much. I’m just waiting for my contract to get over at this point.

The Time Warner service got installed last week and I’m really glad to see some good quality HD broadcast now. Not to mention, TW is charging me $80 a month against $110 that ATT used to charge us. Total savings for the next 6 months that I plan to keep TW, 6X$30 = $180.

Last year, I had built a desktop for myself. I got some of the best components out there and assembled a high-end quad-core desktop for my home-office. I shall post some pix soon. It was based on Jeff Atwood and Scott Hanselman’s desktop rigs. It is an awesome setup! However, after just about a year, my 24 inch monitor gave up. It was out of warranty by one week and Westinghouse did not entertain my request for a courtesy service (a rant post is coming your way pretty soon). Another thing that had never worked from day one was the NVIDIA 8600GTS video card that I had so excitedly added to the mix. I tried everything I could possibly try to fix it but to no avail. So finally I decided I was going to get a new card. However, I wanted to make sure that it was the card and not the motherboard that was faulty.

I went to Frys and got a 9400GT (512MB @ 550MHz). The damn thing worked like a charm on the very first attempt. I was thoroughly impressed with its performance even though it has a lower clock speed than the 8600GTS (550 Vs 700). But again I’m not a gamer so you’re asking the wrong person when it comes to video cards! By the way, this post is about the moolah that I saved on this card rather than my geek skills’ show off I got the card for $86.59 with taxes etc. A couple of weeks later I stumbled upon the same 9400GT but with 1GB memory on Buy.com that was selling for $65.10 shipping included. I promptly ordered the card and it arrived within 2 days. Yesterday, I went back to Frys, returned the card and said thank you very much. Just now I found that the card I bought on Buy.com has a $15 cashback as well!.

Total savings : $21.49 + $15 = $36.49. Sweet!

The above graph pretty much tells the story but since I have the bragging rights for my Money Experiment, I’m going to use them anyways If you have been following my Money Experiment, you might already know that I have been using several different techniques to come up with ways to save more and spend less money. In one of my articles, I had spoken about our exponentially increasing dining bills lately. The chart above is a standing testimony to our mammoth dining expenditure in the past 3 months or so. So, in January we decided it was time to take matter into our own hands and come up with a plan. The above chart shows how much we ended up spending on dining by the end of Jan.

We decided we were going to use cash instead of plastic for all our Dining expenses and allocated $200 at the start of the month. We told ourselves; that is all you are going to get for the rest of the month for eating out. If we ran over the budget, there was no other option than to eat at home. We weren’t too optimistic in the beginning and thought we will use up the cash in the first week or two itself and the plan would fall flat on its face. Then, as we started thinking more and more about it, it didn’t feel all that impossible. $200 a month meant $50 every week. We had decided we wouldn’t be eating out on weekdays, so that meant $50 every weekend. Somehow we had to make do with fifty bucks for the whole weekend. We had two options, eat at a cheap restaurant on both Saturday and Sunday nights or eat at a pricier one only on Saturdays. Then Khushi gave me a better idea, why not eat at a cheap place for 3 weeks (both days) and a little upscale one on the last Saturday of the month? That sounded like a brilliant idea. I also picked up a Restaurant.com gift certificate for $25 which kinda bumped up the budget a little. Not much, just a little.

To be honest, initially, there was a strong urge to give up. We were used to going out on all three days of the weekend. Not to mention the random trips on weekdays whenever we were bored or sore from a workout. After the first week, though, we started getting used to it. In fact, it was really exciting to wait all week for that one special Saturday night dinner. In the process, I picked up my long-lost hobby of cooking. The last time I had cooked was when I was in college. It was pretty enthralling to get back to cooking good food while also impressing your wife at the same time She never knew I could cook. Hehehe. Last week, we finally pulled our numbers out and we were really really surprised to see what we had spent on dining over the past four weeks. The total was $162. Yes, we had infact exceeded our expectations by 38 bucks. It did take a lot of discipline but at the same time, it was a mighty good experience, which I’d love to go through month after month . As a side effect, we have gotten a little leaner and our BMIs have come down considerably. Try it out yourself, you will have a great time.

These days, before I shop, I use sites like www.deals2buy.com, www.slickdeals.net and www.cheapstingybargains.com. Now I know most of you already know about most ‘deal’ sites. What I also know is that you have been using those sites for the wrong purpose. Yes, you have been buying stuff just because they are on a deal or selling for cheap. That is not our mantra. Before you forget, let me reiterate our mantra. It is “do we need it?” The idea is to buy stuff, stuff you have been wanting to buy or you can put to good use, for cheap. Not buying any stuff that is cheap.

There are a few good sites dealing with coupons and cashbacks that can save you some dough. I particularly like www.retailmenot.com and www.ebates.com. I also use www.workingadvantage.com, an employer-subscribed deal site; talk to your HR department if they would be willing to enroll. And don’t forget the good old newspaper coupons. Or the ones that show up in your mail every day. We’ve saved quite a bit on Dash’s supplies using those Petsmart and Petco coupons. And last but not the least, the grocery store coupons that are printed on the back of the receipts. I just love them. I cut a coupon from my grocery receipts every month and use it towards my haircut. $5 coupons for a good $60 saving every year.

And the most important thing to do before pulling the trigger on a buy would be to compare prices through different vendors. You can use any of the popular sites like www.pricegrabber.com or www.bizrate.com. Do not forget to add up any shipping and handling fees before you buy. Many vendors have a lower retail price but shipping and handling charges can jack up the final price quite a bit.

What I have learned by now is, it’s OK to use coupons. It’s OK to save money. Every dollar that you save is essentially a dollar that you’ve made. I know it sounds cheesy but wouldn’t you like a $3000 raise this year?

In my quest to consolidate everything into a single loan, last week, I made a balance transfer of 4k to my Citi account. They had a zero percent promotion until September of 09 and I had a couple outstanding balances on prime rates. So my brilliant brain thought, for a 3pc transaction fee, I could get a zero rate for 9 months. 4k in 8 months, that’s $500 a month for 8 months. Not a bad deal right? I did the transfer by paying a $120 transaction fee. Next week, I was expecting a balance of $4120 in my statement. But I see $4146 instead. They had charged me $26 in ‘finance charges’. I call them up asking them why the $26 in finance charges and this is the reply I get.

Since you had an existing balance ($2000) on the account and then you made a balance transfer of $4000, your new balance was $6000. However, you did make a payment of $2000 which we have promptly applied towards the $4000 @ 0% APR. The $26 was finance charges for the $2000 that you have had previously @ prime APR. Our policy states that any payments made to the account would be applied to low rate balances first.

If you haven’t gotten confused enough by now, I don’t blame you. This is what corporate America thrives on. A confused consumer. Essentially, what it meant was I had a total balance of $6000 out of which I had paid $2000, thinking that it was towards the statement balance of $2000. But what Citi says is that the $2000 I paid went towards my transferred balance of $4000 even though I had made the payment and the transfer on the same day. So, now my 0% balance was down to $2000 in a matter of 5 days (against my original plan of 8 months) and my prime rate balance was still stuck at $2000. What that means is until I pay off the entire loan, I will be getting charged a prime rate on the $2000. If I were to stick to my original plan of $500 a month for the next 8 months, I shall be charged about $26 a month for the next 4 months and another $65 for the remainder of the 8 month period, a total of $169. This is in addition to the $120 that I had already paid for the transaction. What a ripoff! All I can do now is either take those charges bending backwards or I will just have to pay off the entire balance next month out of my emergency fund. What a bummer dude!

Lesson learned here is, if you are planning on doing a balance transfer, make sure that you have absolutely no existing balance on the account, no pending charges of any sorts. Let the statement arrive, you make sure there are zeros all over the place and only then you go ahead with the transfer. Otherwise, they will make you pay interest on that $20 haircut you got from that Korean woman last week, for the next 3 years.

Ciao!

Oh, by the way, I did call Citi like 4 times and got my $26 back. Take that to the bank Citibank!

Reuse, Reduce and Recycle – Best Friends

Reuse, Reduce and Recycle sounds like a green mantra but today I’m going to show you how you can actually apply this mantra to your financial life.

When I came to the US almost ten years ago, I was pretty intrigued by the whole ‘Back to School’ concept. Kids get to buy new stuff every year? That’s weird! Back in the day (and this applies to today’s kids back home too I’m sure), the only new stuff we used to get was notebooks and pencils. We wore the same school uniforms to the next grade and the next grade if our parents had their way. As long as they were not worn (read torn) or they wouldn’t fit anymore (most likely reason for them to be worn/torn), they were all fine. And if you had an elder sibling, then you were pretty much screwed. All your life, you would just be using his/her stuff! Can reuse get any better? So next time you want to throw away that old TV just because you’re bored of it, think again. The sight of perfectly working stuff lying next to the community trash bin just plain horrifies me. Give it to charity, send it to the bedroom or better yet, put an ad and someone will buy it. Don’t just throw it away; which by the way makes you very eco-unfriendly.

There were a lot of pearls of financial wisdom that one could have gathered back in India while growing up. Another thing that I remember from my childhood was the idea of reduction. I have already spoken about reduction in Part I but I want to write some more stuff just to put the point across. I remember the times as a kid back home, when I used to go on shopping trips with my parents. Never was there an occasion where we just saw something and said ‘Let’s get this’, other than maybe vegetables or groceries. I used to find it quite silly back then. I thought my parents were the biggest misers on this planet. It was excruciating. What I realized later was that it was not a parenting trick, but more of a financial principle. You don’t need it, you don’t buy it. Simple. Classic reduction! It makes a whole lot of sense now.

The last bit of the mantra, recycle, might throw you off a little. You might be thinking I’m talking about taking those plastic bottles out of the trash and puttin’em where they belong, which you should by the way. However, I’m talking about recycling stuff, all that stuff that’s lying in your attic, thanks to the packrat that you’ve been all these years. It’s time to clean all that junk out. ‘That day’ when you will find some use for ‘that thing’ will never come. Believe me. You’re getting this from a former packrat, man-to-man. Scavenge through your closets, underneath the bed, the garage, wherever you can. Hunt down the last piece of junk that you haven’t used in years and will never use in the near future either. Put an ad on your local classifieds or on Craigslist and you will be surprised to see the kind of response you get. One man’s junk can be another man’s treasure. I made a good thousand bucks getting rid of my junk. I’m sure you have way more junk than I did. Use that money to work on your wishlist (more junk?). Do whatever you want, it’s extra tax-free cash. But if you want to buy new stuff, get rid of your existing stuff first.

Lesson learned: Memorize the mantra: Reduce, reuse and recycle. Reduce – Buy less. Reuse – Think before you throw. Recycle – Use old to buy new.

Image courtesy : www.wearmichigan.com

Mr. Overextender – The bad guy

In my article yesterday on the Money Experiment, I spoke about how we had mismanaged our mortgage by deciding to use cash instead of a home loan. Other than mismanaging our mortgage, there was something else we were doing wrong. Overextending. Yes, we were living beyond our means even after knowing that we needed to cut back. Our mantra was, just put it on the credit card. Almost all of us living in the great US of A can identify with me here. We just spend too much money on things that we don’t really need in the first place. Our latest and greatest hobby, unfortunately, is Shopping!

Two of our biggest expenses every month, we realized, were groceries and dining. Groceries is cool right? Well sadly, that $38 sweater at Target that you had to buy while you were waiting in line at the checkout counter, shows as ‘groceries’ in your monthly credit card statement. And our second most favorite pastime when we are bored is, well you guessed it right, eating out. And Austin does tend to throw at you an array of designer name restaurants when you’re bored and hungry. Weird! I ran the numbers a few days back and our average ‘monthly Dining expense’ category had ‘$500′ written next to it. Check yours, it must be really close to that number if not a tad north.

The way I tried to fix this was by identifying the top 2 to 5 biggest expenses of the month that I could cut back on. I ignored expenses like utility bills which were hard to trim. In my case, I wanted to fix my grocery and dining bills. I asked myself, how much was I willing to spend every month on these two expenses. I thought maybe $200 for dining out and another $200 for groceries. Then, I allocated cash at the start of the month to take care of these for the rest of the month. I was not going to use credit cards on dining and groceries anymore.

Overextending does not necessarily have to mean overindulgence. In fact I’m a firm believer of overindulgence, as long as it does not affect my financial life that is. I would love to drink that $70 wine provided I have the means to afford it and I have planned well ahead for that expense. I would certainly not call it an ‘overextension’. Some other overextensions might happen without you even knowing. For instance, I had a $60 Time magazine subscription that was getting automagically renewed every year. Never read a single issue! Another $156 for credit reports. Never felt the need to check my credit rating every month! $240 for a pricier phone plan. Never used even half the minutes. At the end of the year, just add these up and you’d have enough money to take that dream vacation, every year!

Bottomline, buy stuff that you really need, badly that is. I’m sure you can find something more interesting to do over the weekend than visiting malls! Shopping and eating out are not hobbies by the way Eat at home whenever you can. Don’t go and buy a truckload of TV dinners! Learn to cook, not only will it save you money, you will have acquired a new hobby and would have saved many a future trips to the doctor’s office.

Lesson learned: Avoid impulse buys. Cultivate new hobbies to circumvent pointless shopping and dining excursions. Allocate cash every month for your most expensive categories. Avoid plastic on the whole. Don’t pay for services or goods that you do not use.

From the title of the post, you must be thinking this post is about a suspense thriller set to hit the theaters this Friday. Well, I’m sorry to disappoint, but this is a post about our Money Experiment that crossed a small milestone on Tuesday, the 30th of December. However, I promise to keep it as dramatic as a Bollywood movie though. We had set a target of $1000 to scrape before the end of the year. To give you some background on the experiment, let me just rewind a little.

On the fateful day of November 12 2008, I happened to check my bank balance and was unpleasantly surprised to find that I had just 98 dollars in my bank account. To be honest, I had an idea that I was not managing my money properly for a while. However, I had never felt the gravity of the situation until I saw my measly two-digit bank balance. Never had I made a conscious effort to take control of things and be a little more responsible with my finances. That night it hit me though. What if I lost my job? What if there is an emergency? A health issue, an emergency trip? With no money in the bank and loads of debt to pay off, what would we do? That night I decided that it was time to take matter in my own hands. It was time to account for every penny that was coming in and going out. That is how the experiment began. In fact, money scraping was never part of the plan!

The goals of the experiment were simple.
1. I wanted to track the inflow and outflow of money. In other words, track income vs expenditure.
2. I also wanted to fix the outflow since I knew we had been living outside our means for a while.
3. The most important goal was to enjoy the experience. Believe me, the sight of a large wad of cash in my hands at the end of the experiment was pretty delightful to say the least!

So the first thing I did was to sign up with QuickenOnline (Try it, it’s really good). Like I said before, the idea was to see how much money I was making and how much money was I spending. And what I saw was terrifying. I was spending more money than I was making! No wonder I was bankrupt.

Loans- The good guys with a bad side

One of the reasons behind our excessive expenditure was our so-called ‘mortgage’. This was for an apartment that we bought in Bangalore last year. It was a 66k investment that we undertook without much forethought. Well we had thought it out, just that we were not prepared for enormous spending, month after month. I mean 66k is as low as it can get for a home right? It would have if it were a conventional home with a conventional mortgage. But this was on an altogether different payment plan. A mortgage which wasn’t really a mortgage. The way it works in India, and correct me if it works the same way here, is that the builder who is undertaking the project starts booking units well before the construction begins. The client pays the builder through the course of the construction process in installments, usually 10-20pc. We being residents of TX, were not in a position to procure a home loan back in India (security issues) and ended up paying in cash. Long story short, our monthly payment came up to a whopping $3000. What kind of a money-making machinery would it take for a middle-class, service-industry worker like me to make that kind of a payment every month?

We started making our loan payment every month while pushing the credit card payment to the next billing cycle. Months went by like this. After a few months, we had a massive pileup of credit card balances. It was hard playing catch-up. Another mistake that we made was to pay off our car loan. My great theory was to have as few loans as possible. What I failed to realize was that, while I had paid off a 5 percent APR loan, I had also accumulated more 15 percent ones. After lots of juggle work, I somehow managed to consolidate all my high-interest credit card balances into one zero APR balance. It came with a 3 percent transaction fee and I did end up paying finance charges on some outstanding balances that could not be transferred in time.

If you’re in a similar situation as me where you are planning on buying real estate, make sure that you get a home loan first. No matter how much money you make, it is a no-brainer to shell hoardes of cash in one shot. There are other things to be taken care of too other than a mortgage. Also, home loans come with a very small interest-tag. If you have the cash, invest it in high-yield mutual funds or stocks, not in one large asset like a home. Diversify.

Lesson learned: Always buy real estate through a home loan. Pay off your high interest balances first. It is not important how many loans you have, what is important is how much loan you have and how much you end up paying in interest.Your first goal should be to be debt-free.

To be continued…