Debt Becomes Her: The Decision

As a chef I guess I’ll need to pimp my ovenYep, that’s right. We have decided to take on debt.

A large amount of debt.

I know what you’re probably thinking. Why on earth would you take on debt in this economy? Let me explain.

One of my biggest dreams has been to go to culinary school. In fact, whenever people would ask me what I’d do if I won the lottery, my first response is always that I’d finally enroll. The other day Eric asked me why I felt I needed to win the lottery to pursue a dream like that. Good question.

I guess I felt it was too expensive, especially since I already have a bachelor’s degree. The tuition for this 15-month culinary school costs more than the tuition for my 4-year degree. It’s been hard for me to justify spending that amount on an associate’s degree, even if it is a dream of mine.

Five years ago, before I met Eric, I applied to the culinary school and got all the way through financing. When I realized I wouldn’t be eligible for any grants because of my BBA and that I’d owe the entire sum in unsubsidized student loans I just couldn’t do it. I was too afraid to be saddled with that kind of debt and it’s been one of those “what ifs” in my life ever since. You know, the kind that make you sigh out loud when ever you think about it.

So what has changed that makes me think I can do it now?

We are in a much better place financially. Eric and I have learned how to budget and have reached several financial goals together (paying off our cars, buying a new home, saving for an emergency fund). We feel that as a team we can handle taking on “good debt” in order to fulfill a dream and enrich our family.

I have the emotional support now. The first time I looked into culinary school I was on my own. My parents didn’t think it was the greatest idea and I didn’t know if such a drastic career change was the right thing for me. Now, everyone is behind the idea and supportive my decision to go. Especially Eric. I think Eric is more excited about me going to culinary school than I am. It has been a long time since I’ve been in school and I’m a little scared. It’s natural to be nervous, though, and I’m sure it will pass.

With Eric’s encouragement and reassurance (not to mention the fresh dose of confidence from my recent catering gig) I took a chance and enrolled. I’m going through with it this time.

I start next week and my estimated graduation date is June 2009. Tonight is orientation and I will be making the first tuition payment. It marks the beginning of the new debt. More on the financials soon…

Why not just save up the money and go when you can pay in cash?

Sure, I guess I could have done that. If we saved $1,000 a month (lofty goal) I would be able to enroll in 3 years, assuming no increase in tuition (yeah right). The tuition has risen about $5,000 since I first applied in 2003.

Unfortunately, I think if I wait I will end up missing out. We both have a sense of “it’s now or never” and that I might not have as good of an opportunity in the future.

Right now, we don’t have kids or any other debt (besides a mortgage). That means now is the right time. In a few years we might want children and with that comes a big change in priorities. Financing additional school for us would be unlikely to be high on that list.

We also think now is the time because of the sour economy. I’ve been thinking of starting a small catering company but with a possible recession starting a small business in a “luxury” industry might not be the best idea. I might as well ride out the bear economy with schooling and start the business when there is enough discretionary spending power out there to support it.

I still can’t believe I’m actually going to culinary school. It’s been a dream for so long it doesn’t seem real. No more “what if’s”.

I have chosen the early morning schedule so most of my classes will be held before noon. After I complete my classroom credits I’ll be working in the onsite fine dining restaurant followed by a few months of a real-world “externship”.

Eric says he can’t wait for me to start the hands-on labwork so he can benefit from all the new techniques I’ll be learning. He says he fully supports me practicing a lot at home. I think I just figured out why he is so excited…

Image Source: mccheek

Recession Fears = Flat Screen TV?

I’ll take a few of those!On our way home from visiting family this weekend we decided to listen to news radio. They were discussing the economy and the stimulus plan being proposed to help ward off a recession.

Many experts are on the fence on whether or not a tax rebate will help prevent a recession. Regardless, it seems the general population is happy about the proposed rebates. They mentioned that some people’s reaction to the rebate news was that they hoped the money would arrive before the super bowl so they could go get a flat screen TV. Funny….yet frightening.

At the risk of over simplifying it, a recession means that overall spending slows down which means fewer jobs are created (or jobs are even eliminated). Fears of a possible recession can become a self fulfilling prophecy because people often cut back on their spending if they think there is a trouble ahead. Less consumer spending means fewer sales coming in for businesses, they begin to downsize, more people can’t find work or they become unemployed, they have even less money to spend, and the cycle begins.

Bush’s proposed tax rebate plan is meant to encourage us to keep spending by giving us a little more money in our pockets. Although I welcome the idea of getting money back I wonder if it will help the economy in any lasting way.

First, it takes time to issue a refund and get it in the hands of the consumers. It may come too late to make an impact when we need it to. I’ve heard that checks could come as soon as June and that it could take 6 months to a year to reach its full effect on the economy. I guess those super bowl parties will have go on without new flat screens. With the way the stock market has been tanking I can’t help but wonder if we need the help now rather than later.

I also think the rebate counts on the majority of people spending that money immediately so it gets pumped right back into the economy. It’s been said that targeting the rebates to the lower and middle classes would help the most because those households are more financially strapped and are more likely to quickly spend the rebate money. It seems to be expected that the majority of the population outside of the upper class won’t be saving this money. I understand why that’s the assumption (it can be harder to save when money is tight) but it still bothers me.

Are people going to look at this money as a windfall to be spent frivously instead of as a way to get prepared for a possible recession? Quite frankly, if I feel a recession is coming I’m more likely to put that cash into my emergency fund or use it to pay off debt. I certainly wouldn’t go buy luxury or non-essential goods with it. It would feel irresponsible to me even if that’s what the money was intended for. Saving for an emergency fund needs to be a priority, especially during an economic down turn when jobs become vulnerable.

Unfortunately, paying off debt or putting that money in savings may not be the best way to boost the economy even if it puts my finances in a better position to handle a recession. Hmmm. Does wanting to save that money make me a bad American? Of course not.

Could it be that what’s best for the economy may not be what’s best for your household?

Image Source: PPDIGITAL

My First Debt And A $5 Lobster

Much bigger than that!This is the humorous, embarrassing, and expensive story of how I acquired my first debt.

The story begins just a couple of months after I graduated high school. I was working at a fast food joint and although I liked my job, I was ready to start college. A friend of a friend was moving to Los Angeles to start school. He wanted to be a filmmaker and figured that schools in L.A. were his best bet. He was looking for some folks to help him move and I had a month until college started so I figured what the heck. I was tired of my job anyhow.

I had traveled before, but hadn’t done very much on my own at that point (I was only 17 years old). The trip to L.A. was going to be a long drive, but I had savings from working and a credit card with a $500 limit. I had plenty of money for a road trip!

I had been good with the credit card up to that point. I had only purchased a few things and had primarily gotten the card to start building my credit (on advice from my father, who helped me get the card when I was 16). My dad had really drilled into me that the credit card was only to be used for emergencies, or small purchases I could pay off quickly. It was just to help build my credit and nothing else.

I was excited about going on the trip. I had a good friend in L.A. that I had not seen for years and I called her up to let her know I was coming. I quit my job just a few works before I had told them I would and they said it was no problem. I was ready for the trip!

Along the way, we made several stops (it’s a couple days drive to L.A) One stop we were excited about was Las Vegas. None of us had ever been there before. We were too young to gamble, but just seeing the glitzy town was enough draw for us. Plus, we had heard that you could get steak and lobster meals for about $5. That sounded great to us!

We made our way to Las Vegas and got in fairly late. We had reservations for 2 nights at the Excalibur (one of the less pricey hotels in Vegas). We were all sharing one room to save money since none of us had a whole heck of a lot of it to spare. We were starving and wanted one of our promised cheap steak and lobster meals. We set out in search of a restaurant.

Lo and behold, one of the first signs we see is a picture of a guy holding up a lobster that’s nearly as tall as he was. We had found our place! We hailed a cab and told them we wanted to go there (I’m going to leave the name of the restaurant out of this post).

We arrived to the restaurant feeling a tad underdressed – most folks were dressed pretty nicely. Then we saw another group in there looking about as ratty as we did and figured we were dressed “well enough” for Vegas. We sat down to order.

They had a special – salad, steak, lobster, dessert, and coffee for four people. Perfect! And the price was “market price”. So that’s about $5 per person, right? We all agreed that must be it since we’d heard that’s all it cost for steak and lobster in Vegas.

We placed our order. I have a memory now – not sure if it’s accurate – that the waiter’s eyes gleamed when we placed our order. He was thrilled! We didn’t really notice or care at the time. We were just hungry.

We picked at our salads, and devoured our steaks. They were much better than we had expected for $5! Then came the lobster. I kid you not – this thing was the size of a 2 year old child! It was enormous! We were all going to share that single lobster. Looking back at it now gives me a pang of guilt because that lobster must have been ancient!

Some of the wait staff, and even some of the diners in the restaurant, came by to see this enormous lobster. We dug in but could only finish maybe a third of the thing. And that’s 4 hungry teenage boys! We were stuffed!

The waitstaff encouraged us to eat more. Repeatedly. We couldn’t eat anymore. No, we didn’t want a box because our hotel room didn’t have a fridge. Besides, it’s only a cheap meal so what does it matter?

Then the bill arrived
. Without hesitation I grabbed it. I was tired and ready to head back. I don’t remember the exact amount it was (I’ve blocked that particular memory), but I got immediately sick to my stomach. I was too frozen with fear to do much of anything. I must have turned white as a ghost because my friends all looked at me. They asked what was up and I just handed them the bill. We were all silent for a good five minutes. We had spent nearly $500 on dinner!!!

The waiter must have noticed that we were panicking and immediately got the manager who stood in front of the only exit watching us as we sat around and whispered. I guess they were worried about a “dine and dash” scenario. We had no intentions of running out on the bill. We were all good kids, but I understand their concern.

After talking it over for a bit, it came down to me to pay for most of the meal – up to the $500 limit on my credit card – and the guys would piece together the rest of the money from what they had on them. Two of the guys were waiters and after we recovered some from the shock, they said we had to give at least a 10% tip. We did have great service and it seemed the right thing to do. It sure hurt though!

We had to scrimp and save for the rest of the trip. This was before cell phones and long distance calls were extremely expensive. We had enough money to make it to L.A. and back if we didn’t stop on the way back except for gas. Only three of us were making the drive back and we did shifts driving and sleeping in the car. We really didn’t even have enough money to get food on the way back. We just wanted to get home.

When I got home I told my parents the story. After their initial upset and concern, they thought the story was hilarious. To this day, I smile when I see something labeled “market price”. My parents still tease me about “market price”. Now I always ask what “market price” is.

The card got paid off, but to be honest, I don’t remember how. What I will never forget is how I got the debt in the first place.

Image by man pikin

If I Were Debt Free…

I was tagged by Rocket Finance to participate in the “If I were debt free” meme.  This meme, started by DebtFREE-Revolution asks:

What would YOU do if YOU were debt free?

Right now, Eric and I are debt free except for our mortgage.  We managed to pay off our credit card balance and our car loans this year.  So debt free for us would mean that we would no longer have our monthly mortgage.  Our mortgage takes up about a quarter of our monthly income.  So I get to imagine what it would be like to not have to pay a mortgage and have 25% more money left in our bank account every month.  Nice.

I know that as a personal finance/frugality blogger I should dutifully respond that I’d save it.  But to be honest, I’m not sure if that is the case.  Don’t get me wrong. I would likely put MOST of it in savings, but definitely not ALL of it.

The first thing I’d do is get our emergency fund up to a full 6 months salary.  I’d get that fully funded so we are ready for anything that comes along.

After that goal was met, I would put 75% into savings/investments, 5% to cushion the budget a little more, and the remaining 20% would be used to enrich our lives. 

That 20% would not be for things, mind you, but for experiences.

My long lost loveI miss going to cooking classes.  A new class schedule came in the mail yesterday and I was excited that one of my favorite chefs was hosting a few classes in November.  Then I realized that we don’t have the money for these professional classes now that we are close to moving so I threw the flyer away.  The sadness was fleeting, thankfully, but I do want to be able to go to a class or two again one of these days.

I know my response to this meme might be colored by my cooking class withdrawal and the fact that we have been in “saving overdrive” for the upcoming move.  But I do think that extra 20% could help us remember to “live a little” which is something we haven’t been doing much of recently. Perhaps we could take a few classes together, go out to a nice dinner once a month, and go to the foodie events we enjoy. 

After the dust settles from this move I might have take another look at our budget and see if I can spare a dime towards this “enrichment” project.

Now for the tagging – I think I will tag Kyle at Rather Be Shopping and Make Love, Not Debt.

Image Source: jwalsh

A New Car – On Our Terms

Now that is some custom work! A few years back, we knew it was time to get a new car. Melissa’s car was on it’s last legs, at least in my opinion. Melissa disagrees, saying I didn’t understand the delicate workings of a supercharged muscle car. All I know is if it was raining outside, the car’s electronics would stop working. It was pretty bad.

Repairing the car was kind of out of the question. Melissa had a lot of custom work done on the car so the repair would have had to be performed by a specialty mechanic, and it was looking like it was going to be very, very pricey. Besides, it was a 2 door sports car, so we decided it was time for a new (larger) car.

Knowing what we know now, we probably would have considered a used car for a lot less money, but back then, we were looking only at new cars. We didn’t want to spend too much on a car, but we had some requirements in mind that didn’t make it cheap. We wanted a larger car, that was safer, with room enough for us to pack things in. The other car was a Honda Accord, so it didn’t have a lot of room if we decided we wanted to move some furniture. We wanted something that would last us (through potential children for instance).

We took some time and checked out cars that met our criteria. We weren’t serious yet, and just wanted to test drive. We went to one dealership and told the salespeople we were just looking, but they didn’t really want to hear that. In fact, one place, after prodding over and over again, asked us to put an offer in on the car. We were tired of them asking, so we made a lowball offer, but nothing out of the realm of possibility. The manager came over and literally told us that if we were serious we needed to “get the hell out”. We were shocked. Even though the offer was low he wasn’t willing to negotiate at all. We left, and ruled out that car (and dealership) forever.

We finally figured out what we wanted – the Honda Pilot. It had everything we were looking for and we really liked the car.

We didn’t want to spend a lot of money, and we wanted to get the best deal we could. Even though we weren’t frugal at the time, and we weren’t watching our money closely, we simply refused to get screwed on this deal. I had never negotiated on a car, but Melissa has always said “I feel like I have to get a good deal”.

We went to Kelly Blue Book and got details on how much the trade-in was worth. Then we went to Edmunds and got the details on how much we should pay for the car. We figured out our gameplan from there, and went in to get ourselves a deal we could live with.

We sat down, after taking another test drive, and Melissa opened up “the folder”. We had printed every piece of information we could find on the car. The sales guy looked at the folder and said something like “oh, you guys look like you did your homework – you do realize not everything you read on the internet is correct however”. We just smiled, and proceeded to tell him how much we would pay for the Pilot we wanted, and how much we would accpet for the trade-in. He smirked, and started with his sales routine:

Well, how much do you want to pay per month?

We weren’t prepared for this question exactly, but it didn’t phase us. In fact, hearing him say that made me realize that’s how they can really screw people over. It wasn’t something I’d thought about before then. They can make virtually any number they want through a variety of techniques – balloon payments, leasing, longer terms on the loans, any number of tricks.

Well, maybe not any number, but we didn’t want to fall into this trap. We didn’t want to pay too much per month, but we had used calculators online and figured out payments at interest rates we knew were achievable (we were also pre-approved by our bank) for the term we wanted. We knew we could always fall back on the pre-approval from the bank if they wouldn’t work with us on a decent payment plan.

I said:

We aren’t focused on what the monthly payments will be. We want to get the deal we are asking for.

After a little more back and forth on the monthly cost thing, we didn’t budge, so he went to his manager. He said they couldn’t get us as much as we wanted for the trade-in. We said that was unacceptable, pulled out the KBB information (which he said was “unreliable”) and told him it was required for him to make a sale. Again, after some back and forth, they gave in.

In the end, we got what we wanted, and it was fair to both of us, but it took us standing our ground and being fully prepared. We even got them to give us a better interest rate than our bank – by a decent amount! So we paid even less than we were planning per month!

I remember this as one of our first financial victories, especially as a couple. We were young and had never negotiated for a car. We felt like we got a good deal, and that made a big difference for us. Even 3 years later, we’re still happy with our purchase and are happy with the deal we got. It certainly changed how we thought about car buying, although next time I think we’ll buy used (with a warranty) and save up to pay in cash.

Image by merfam.

This post was written as a part of the group writing project for Get Rich Slowly.

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