I will be upgrading wordpress Saturday, April 12 between 6 and 8 PM US EDT. I have tested the upgrade on my local machine with success, so except for some minor issues during the actual upgrade, all will be good.
Again, I will be upgrading my Wordpress installation between 6 and 8 PM US EDT on Saturday, April 12 (TODAY).
Thanks,
Nathan
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Last week, I wrote a short review of John Maeda’s Laws of Simplicity. This week I want to introduce you to his first law, “Reduce.” In this law he lays down the concept of “SHE: Shrink, Hide, Embody.”
Maeda points out in his book that large things tend to be fear inducing, while smaller things tend to be perceived as “mostly harmless.” In our world of personal finance, we have all learned this lesson well by the way we have gotten ourselves into debt.
That little peace of plastic seems harmless, but we now open our monthly credit card bills at some excessively high interest rate and see the balance near that really high limit and, at least until we took control of ourselves, wondered how the heck we were gonna get out of this, let alone pay just the minimum due. Now add all the debt together and you get this behemoth that instills even more fear and trepidation and you start to feel extremely helpless, perhaps in some cases considering drastic measures that could do even more damage to your credit or, to the most extreme, your health.
This law of simplicity can now be applied in reverse. Following David Ramsey, we take that behemoth of a debt and break it down based on current balances. We then order by smallest balance to largest balance and blast our way through with snowballing and snowflaking, while increasing our total snowball as we find ways to shrink our overall spending habits to the point where we spend less than we earn. As we are doing this, we are shrinking that behemoth down and removing the fear it induces, but maintaining a bit of respect for it’s ability to grow at any sign of weakness.
In order to further simplify things, Maeda suggests that after shrinking things as much as possible, we start hiding stuff. As we shrink our spending and debts, we all realize that having credit cards is not the problem, but using them is, so some of us hide our credit cards to help us train to rely on other, non credit based ways of buying what we need and want. As we learn and change, we may decide to close an account or bring a card out of hiding and back into responsible circulation. While it’s great to hide credit cards, you can also hide various asset accounts such as savings accounts.
When you hide a savings account, you are just hiding it from yourself and not the government, you simply pay no attention to the balance over time, letting the power of compounding work over time. Let’s say you have a savings account that starts out with a balance of $100, with an interest rate of 12%, compounding & crediting monthly. If you check once a month, you will see a 1% gain over the previous month’s balance, but if you check only at the end of the year, you will see the entire increase of about 12.68% in one sitting and feel a greater sense of accomplishment than watching month to month. Now only look at it once every five years and you will see the total growth of 81.67% in one sitting, rather than seeing the 12.68% per year or 1% per month. If you were to put in $100 at the beginning of each month over the same 5 years, you would see a whopping $8,248.64 and your ego would say I have a heck of a lot of money here. Not only do you get an ego boost, but hiding the account reduces the temptation to raid it for something, since you let yourself forget it’s even there.
Of course the best time to check up on your hidden assets is when you are preparing your tax returns, since you have to look at the interest & dividend statements (USA: IRS Forms 1099). Let me reiterate, in this case, hiding your assets is only hiding their value from yourself, NOT from your government. I will never endorse illegal activity, maybe someday I’ll endorse highly risky and just barely the right side of the law, but NEVER illegal.
As things are shrunk and stuff is hidden, we must imbue a sense of increasing value into whatever is being reduced. How can we do this with our debts and personal finances? We really don’t want to make our debt seem more valuable, so how do we embody debt reduction? It’s simple really, we blog about our journey from extreme indebtedness to financial freedom. But what about those of you who are not blogging? You are doing it right now by reading this and other blogs about personal finances and debt reduction. If it weren’t for readers, who would blog?
Maeda’s first law of simplicity is “Reduce,” which consists of the principle “SHE: Shrink, Hide and Embody.” As we work our way out of debt to financial freedom and beyond, we shrink both our debts and our spending, while hiding debt creators and some assets and embodying the whole concept through reading and/or writing blogs. This first law is fully embodied through our first goal of reduction/elimination of debt.
I know my readership is low now, but I’ll bet I will have some rather large peaks throughout this series and I welcome you all to my blog and hope you will subscribe to my feed. Please stay tuned for further installments to this and other “postponed” series.
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In the last month, I have refactored my credit card debt in such a way that I am making some changes to my 2008 goals. I have successfully opened another card and transferred $7,250 to it at a fixed 2.99%. This past weekend, I got my lower rate (now 16.76%), previously existing card’s limit raised $700 and a 6 month low balance transfer rate on the same card, which I used to finish off my highest card (where the $7,250 came from) and put a dent in my overdraft protection
(17.9%), which I have been counting as credit card.
This refactoring means that my balances are (no particular order):
Before the current situation, I was planning my snowball to go through my Other Debt, Card 2, Card 1 and finishing with my overdraft this year. My Auto Loan and Student Loan would then have been worked on next year. As a result of these changes, I have decided to reorder my attack to be, in order: Other Debt; Overdraft; Card 2 and Auto Loan this year, followed by Card 3 and Student Loan beginning next year. To accomodate this, I am restating my goals effective immediately.
2008 Goals (in order for debts):
This restatement of goals represents an even more agressive plan, but will be easily attained once the first is achieved. I expect to be earning the equivalent of $40-50 thousand per year, based on my current residence (which is a relatively cheap place to live). This means if I move somewhere that costs 50% more to live, which I suspect, I will expect $60-75 thousand per year. With any luck, I will not move somewhere cheaper, since 50% lower cost of living puts my expected income back where it started, at about $20-25 thousand per year, though I could live off about $10,000 in said cheaper area.
Thanks to these changes, I have new baselines, so I will not be stating progress for the month.
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