The Everything Guide to Living Off the Grid (4 page)

A tip for a successful workout: prepare for your workout the night before by packing your gym bag or, if you work out at home, laying out your workout clothes so when you get home, you’re ready to go. You’d be really surprised the amount of ways you can talk yourself out of a workout routine, so it is best to have everything ready.

Making exercise a family activity can get everyone in on the action, and allows you to spend more time together. An after-dinner walk on a spring evening or a weekend hike in the mountains are great ways of getting yourself in shape and setting aside some time to spend with your loved ones.

Start Studying

Now is the time to take a class at the local Cooperative Extension System office or community college, or borrow books from your library about alternate energy sources, gardening, livestock, or any other area you need to brush up on. Sign up for seed catalogs and browse through the varieties available and the advantages and disadvantages of each.

Organizations also occasionally offer workshops and classes on making the transition to a more self-sufficient lifestyle. Sign up for some, and make it a point to talk to the teacher—more likely than not, he or she lives off the grid and can give you some firsthand advice. Nothing beats the wisdom of experience!

CHAPTER 2
Getting Out of Debt

You might wonder why getting out of debt is one of the first chapters in the book. In order to truly have a self-sufficient lifestyle, you need to be debt-free or nearly debt-free. When you owe someone else, your choices are limited; you have to earn a certain amount of income to meet your obligations. Spending less than you make is vital to financial security.

What Is Debt?

When you are in debt, you have borrowed money from an outside source (for example, a credit card company, an automobile dealership, or a bank) with the promise to not only pay back the original borrowed amount (the principal) but also pay to the lender a charge for borrowing the money at a certain percentage rate (interest).

Three out of five U.S. households have an average credit card balance of more than $11,000. Paying only minimum payments at 24 percent interest, it would take twenty-two years to pay it off—and you would pay more than $47,000 in interest.

To help you understand more about money and how to get out of debt, you need to consider these areas:

• How interest works against you or for you
  
• Good debt and bad debt
  
• Creating a budget
  
• Sticking to a budget
  
• Refocusing your priorities
  

Famous American essayist Ralph Waldo Emerson said, “A man in debt is so far a slave.” Getting into debt or living beyond your means does more than affect your credit rating, it affects your life. Statistics show one of the primary causes of divorce is financial problems. Choosing to spend today and pay tomorrow will indenture your future. As you gain control of your money, you will be free to move forward with the changes you want to make in your life.

The average college graduate has nearly $20,000 in debt; average credit card debt has increased 47 percent between 1989 and 2004 for twenty-five- to thirty-four-year-olds, and 11 percent for eighteen- to twenty-four-year-olds. Nearly one in five eighteen- to twenty-four-year-olds is in “debt hardship,” up from 12 percent in 1989.

How Interest Works Against You or for You

Simple interest is the type of interest used for most consumer loans. The original amount of the loan is your principal. For example, if you bought a washing machine for $1,000 and put no money down, your principal would be $1,000. The interest accrued or accumulated is calculated by counting the number of days since your last principal payment multiplied by your daily interest factor on the outstanding balance. Here’s an example:

Loan balance or principal
= $1,000

Interest charge
= 13%

Your first payment
= $50

Number of days since last principal balance payment
= 30

Daily interest factor ($1,000 x 13% /365)
= $0.36
(So, you pay 36 cents a day interest.)

Amount of interest owed (30 days x $0.36)
= $10.80

Amount of your payment that goes toward the principal ($50–$10.80)
= $39.20

New loan balance after payment ($1,000–$39.20)
= $960.80

If you continue making payments of about $50 every month, it will take you approximately two years to pay off your loan and during that time you will have spent an additional $141 on interest payments. If, however, you make payments of $90 every month, it will take you half the time to pay off your loan and you will have only spent approximately $72 on interest payments.

The average American with a credit file is responsible for $15,788 in debt, excluding mortgages, according to Experian, a credit reporting bureau.

The longer you take to pay off your loans and the smaller the amounts you pay toward the principal, the more money you pay in interest. An
amortization table can show you how long it will take you to pay off your loan and how much interest you will pay during that period. You can find amortization calculators online, and many banking websites also offer them. You can use these not only to determine how quickly you can pay off your current debt, but also to get a realistic grasp of how much it’s actually going to cost you to borrow.

Interest can work for you, too. If you have a checking or savings account that earns interest, the money you have deposited in it is growing. However, before you start putting money into a savings account earning 4 percent interest, be sure you are not maintaining a balance on a credit card at 16 percent interest. You are actually losing money by not paying off the credit card first. Only after eliminating debt should you put your money into a savings account, with the exception of allowing a small amount to be saved in case of emergencies.

Good Debt versus Bad Debt

Are their good reasons to go into debt? Certainly! If you are investing in something that will increase in value, like a home, a business, or even student loans, that is good debt. If you take out a home equity loan to pay off a higher-interest credit card, that’s a good debt because your home equity loan will generally have a lower rate and will be tax-deductible. However, be careful you don’t spend your home’s equity on bad debt like a vacation, new furniture, or other items that will not increase or retain value. Most consumer debt, i.e., credit cards, is bad debt. A good rule to live by is “if you can’t afford to pay off your credit card at the end of the month, you can’t afford to make a purchase.”

It’s important to know your credit score. Your credit score will dictate how much borrowing money will cost you. Each of the three main credit bureaus offers free reports each year. To get a free report, go to the website set up in accordance with the Fair and Accurate Credit Transactions Act (FACT Act) (
www.annualcreditreport.com
).

Cars

Automobiles are another area where people make poor financial decisions. You should consider how much car you really can afford. You should also consider that over the first year of ownership, some cars depreciate at a rate as high as 35 percent. You can find the value of a car at websites like Kelley Blue Book (
www.kbb.com
) or Edmunds (
www.edmunds.com
).

Weigh the pros and cons of new car ownership; is a new car warranty worth the cost of depreciation? Can you find a used car that is still within the original manufacturer’s warranty, yet because it’s used, it will depreciate at a slower rate? How much money can you put down on the car, and how much will you have to borrow? What will the cost (interest) on the loan be? When you combine interest and depreciation, will your car be the value you thought it was?

What is the depreciation on a used car?
According to
Safecarguide.com
, the yearly rate of depreciation on a used car is anywhere from 7 percent to 12 percent. More specific information depends on the model and make of the car, as well as the mileage.