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I am new here so forgive me if this is in the wrong place.

To give a brief background, I have had CC debt since I owned a CC in college. 10 years ago when DW and I married we had about $10k in CC debt. 5 yrs ago when we took a HEL to pay off a big chunk of CC debt, it was about $75k. the HEL cut it down to $20k and of course when I filed bankruptcy last year it was at $90k. Today I am just waiting for the final discharge letter. I have huge feelings of guilt and feelings of failure, but I also feel a huge sense of relief, but I'm getting off track.

We are stable right now. I just started tracking everything in Quicken. If we hold our budget, we should be able to have $1k free a month. DW has 1 maxed CC at $10k as I went into bankruptcy individually. We have zero savings and probably about $6k of expected expenses coming up this year, with x-mas, kids birthdays, car repairs etc. I'm guessing priorities would put away $ for those expenses, then CC and then efund? 3-6 months of living expenses would mean $21-42k in an ING account. That seems like alot with both partners working and unemployment benefits available for jobloss. is that right?

Thanks to all. I wish I had discovered this board a couple of years ago.




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No. of Recommendations: 9
Welcome and best of luck on your new journey.

I believe you are very motivated to make changes at this time. I would challenge you to emerse yourself in Foolish thinking for 12 weeks so your motivation to change can be be channeled into Foolish habits to guide your new financial future. "Stable right now" does not sound like someone who has turned everything around and has established good habits. Take this opportunity to get very grounded in Foolish money management. (read past posts, keep up with the board, share more about your budget, your goals, planned expenses and be open to some constructive feed-back).

CC pay-off should be your top priority (ahead of gifts). What interest rate is on the $10k?

Building an e-Fund should be a priority. $200 of your $1,000 sounds about right to me. Getting to $1,000 asap should be a priority.

$200 per month should be in a Freedom fund for those $6k of planned expenses. This is not the same as an E-Fund.

3 to 6 months is the range. You can decide on what is the right amount based on your age, ability to quickly get a new job at the same pay rate, disability insurance and other benefits you and DW may have through jobs. I would focus on the habit of setting aside the $200 per month and just get started on the fiirst 3 months. You can look into ways to have semi-liquid investments (over 5%) after you get the first 3 months.

Make sure DW is on-board as well as the kids.

You are at the right place. Lots of encouragement and support. Lots of great information. Also, lots of tough love and a community with high standards for taking responsibility and control of their financial future.

Best of Luck
SD
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Welcome, getbackup. You've come to the right place. :)

>> I wish I had discovered this board a couple of years ago.

You and me both! I've been financially irresponsible for most of my adult life (from the late 1970s through most of 2005). I too filed for BK (in 1987) but then proceeded to max out my credit cards two more times (one of my biggest regrets was cashing in my 401(k) to pay off them off). I finally woke up and decided to grow up in September 2005 (that's when I stopped adding to my debt). I found TMF two months later but didn't post until January 2006. I vowed never to file for BK again. My goal is to have my debt paid off in January 2008. The important think to remember is that paying off your debt is not the end all, you must also change your attitude. If you don't learn to respect the money that comes into your life (both money you've worked hard for and windfalls), you will never stop abusing it.

getbackup, I would not have made it this far on my new journey without the advice and encouragement and humor (life should not be all doom and gloom) of the wonderful Fools on this board. I will say it again -- you've come to the right place! Welcome! :)

shirehobbit

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Getbackup,
I applaud your efforts to straighten out your finances. Stick around these boards for a ton of great info.

It appears you have plenty of offense ie income to get the job done. However, several comments in your post point to the fact that you could play much better defense. What I am saying is that it appears that your spending is still out of control.

As an example, you imply that your living expenses are $84,000 per year. Most people could live on half of that and would darn well do so if they realized they were in crisis mode. This is good news for you. It shows that the potential is there for you to make a huge financial turnaround. We'll support/encourage you as you do.

Good luck!
PW
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No. of Recommendations: 12
Welcome getbackup! You can do this.

Here's what I think what your order of priorities should be right now:

1) Make sure you understand, and are addressing, the behaviors that got you into debt. If your lifestyle and your attitude toward spending do not change, you will find yourself in debt again, no matter what short-term repayment strategy you undertake right now.

2) Get the debt load on your wife's cc down enough to avoid triggering over-limit fees. Then, pay just the minimums until step #3 has been completed.

3) Save up a $1000 e-fund as quickly as possible. This is a rather arbitrary number - because it's not enought to cover LARGE emergencies -but it's a number that's worked for me and a lot of other people. The purpose of this fund is to smooth out unexpected expenses that would otherwise throw you off your debt repayment plan; and to give you a small sense of security and peace of mind, which is also crucial for staying on the debt repayment plan. Full funding of the e-fund should wait until you have paid off the cc, however.

4) Readjust your 6K "expected expenses" number. Car maintenance must be done. Also remember things like insurance premiums, and other irregular but inevitable expenses. X-mas gifts and kids' birthday gifts should probably be dialed WAY down, if they haven't already been. You are just coming out of bankruptcy after years of out-of-control spending. Here's a great place to start changing the way you live!

5) Take your readjusted "expected expenses" number, divide it by 12, and set that much aside each month in savings.

6) Take the $1000 "freed up money" in your monthly budget, subtract the monthly "expected expenses" set-aside you've calculated in step #5, and direct the remainder EACH MONTH to paying off the cc. Don't let "I wants," "my kids wants" or other lifestyle creep items tempt you into using this money for anything other than cc paydown.

7) Once the maxed out cc is completely paid off, THEN start building your e-fund to the amount you'd really need. As for what that number should be - I can't help you on that one, because I am an incurable hoarder. But by the time you get to step #7, you'll probably have a much better idea for yourself. You'll have several months of tracked spending to review, to get a better sense of what your barebones survival needs are, and a better sense of how much cushion you and your family want above the barebones.

Good luck and keep posting!

FIgirl
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No. of Recommendations: 3
The important think to remember is that paying off your debt is not the end all, you must also change your attitude.

You are truly a wise hobbit. Gandalf would be proud.

foolazis
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Thanks for everyone's replies.

I think I misunderstood when I asked about the e-fund. I was calculating 3-6 months of income instead of expenses. But the larger point is valid. $72k a year in expenses is clearly too high for our situation. I was also including $350 for minimum CC payment, but perhaps that should be seperate. CC rate is at 25% because of late payment. Also, have a store CC with $900 balance at 19% interest. DW had her credit damaged inadvertently by my bankruptcy because her name was on one of my CC so a transfer to a lower interest card isnt an option.

While getting the 1k e-fund set and then throwing all $ at the CC makes the most sense financially, is it realistic? The kids still will need x-mas presents etc. the $600cc/$200efund/$200ffund split seems better.

I think I need a shrink more then a budget expert right now. I need to figure out why I spend and get honest with myself. I feel like an alcoholic that has just come to the realization that he will no longer be able to drink beer and watch football with his buddies anymore.

I will continue to read and post on my progress. Thanks again to everyone here.

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<<I think I misunderstood when I asked about the e-fund. I was calculating 3-6 months of income instead of expenses. But the larger point is valid. $72k a year in expenses is clearly too high for our situation. I was also including $350 for minimum CC payment, but perhaps that should be seperate. CC rate is at 25% because of late payment. Also, have a store CC with $900 balance at 19% interest. DW had her credit damaged inadvertently by my bankruptcy because her name was on one of my CC so a transfer to a lower interest card isnt an option.

While getting the 1k e-fund set and then throwing all $ at the CC makes the most sense financially, is it realistic? The kids still will need x-mas presents etc. the $600cc/$200efund/$200ffund split seems better.

I think I need a shrink more then a budget expert right now. I need to figure out why I spend and get honest with myself. I feel like an alcoholic that has just come to the realization that he will no longer be able to drink beer and watch football with his buddies anymore.

I will continue to read and post on my progress. Thanks again to everyone here.
>>



I think you will find that it takes a lot of analysis of your spending, assets and liabilities to understand how they all work. And a lot of self analysis to figure out how you work and interact with your money.


Reprogramming your life isn't easy, but it sounds like it is important for you.



Good luck.



Seattle Pioneer
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No. of Recommendations: 4
While getting the 1k e-fund set and then throwing all $ at the CC makes the most sense financially, is it realistic? The kids still will need x-mas presents etc.

I can't tell you what's realistic for you - I don't live your life. But I can tell you that most people who are starting out on debt repayment overestimate their "needs" by conflating them with their "wants." I am not suggesting that you cancel Christmas - but rather that you temper your spending in this area, which has probably been a source of overspending for you.

I'm also not suggesting that you throw ALL your money at the cc debt. I'm suggesting you throw all the money's that's left over AFTER you have met your family's needs AND set aside a monthly portion for upcoming expenses, including x-mas gifts. But you should exercise frugality and restraint with these upcoming expenses wherever you can, and gifts are one place you can do that.

Remember, reduced spending is the realistic response to financial devastation. It is not realistic to think you can continue spending as much as you have on wants, and yet somehow not end up back in financial disarray. If you don't want to change your gift-giving - then can you find another area of spending that you are willing to change?

Also, have a store CC with $900 balance at 19% interest.

Hey there! Any other debts you haven't mentioned? The advice you get here will be a lot more useful if you give full disclosure.

I think I need a shrink more then a budget expert right now. I need to figure out why I spend and get honest with myself.

Amen! That's why I listed this as your #1 priority. Just FYI, tracking your spending, while ostensibly a "budget" tactic, is really an excellent tool for getting honest with yourself and learning about why you spend. It has been a very powerful catalyst for change in my life.

Good luck,
FIgirl
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No. of Recommendations: 3
Congratulations on taking a very important step to climbing out of debt and beginning a new chapter in your financial life. I know you'll find as much support on these boards as I have--and it will bolster you.

DW and I are still enduring or own quest to remediate debt but we've certainly learned a lot along the way.

As you correctly suspect, psychology is central to correcting any problematic behavior. Don't know if you'll find it in the DSM, but some people clearly have an addiction to buying stuff and spending money, just as others abuse food, alcohol, drugs, sex, etc. I'm not a psychologist but I can say that my own spending became much easier to control once I addressed the core of my unhappiness and discontent. For myself, spending and buying were my lame attempts to fill a deeper spiritual void, a profound and bottomless discontent. It was also packaged with depression. It was no easy thing to overcome but once I ceased self-abusive behaviors and began respecting myself, it became easier to confront poor spending habits.

For me, changing spending became part of a broader re-birth. My wife and I live a fairly simple life, and try not to tether ourselves to our stuff.

Stuff is not happiness and shopping is not a hobby.

I offer these things without judgement. Only to share our experiences that you may profit.

I hope it has helped and look forward to seeing you often on this board!
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Hi Getbackup,

Welcome. You'll get a lot of support here - and requests for more information - which will help you challenge your thinking and behaviors that brought to the far side of BK.

2) Get the debt load on your wife's cc down enough to avoid triggering over-limit fees. Then, pay just the minimums until step #3 has been completed.


I want to emphasize what FIgirl wrote. In summary prioritize very short-term CC debt strategies to get you away from the edge of things getting worse: balances less than 90% of limits and NO NEW CHARGES.
To change spending habits, go to a CASH only policy. Budget your cash weekly if you need to, or per paycheck.

Budgeting is an iterative process and will take awhile to get it to a level you can sustain. Consider your current budget a good zero draft. If you can live with it for 3 months it becomes a good first draft. Weekly tracking, monthly goals and management, quarterly review, trim and revise. Rinse. Repeat.

FIgirl also wrote:
3) Save up a $1000 e-fund as quickly as possible. This is a rather arbitrary number - because it's not enought to cover LARGE emergencies -but it's a number that's worked for me and a lot of other people. The purpose of this fund is to smooth out unexpected expenses that would otherwise throw you off your debt repayment plan; and to give you a small sense of security and peace of mind, which is also crucial for staying on the debt repayment plan. Full funding of the e-fund should wait until you have paid off the cc, however.

Based on the numbers you posted you need short-term savings of 6K for predicted expenses in the next 12 months. If you put $1000 into a savings account each month and didn't touch it AT ALL, it will still take half the year to accumulate the $ for planned expenses for the whole year. If it seems like I just repeated myself - I did. On purpose. Do you see the magical thinking you're doing? That's 50% of your cushion over the whole year!! So your cushion is really only $500, not $1000.

So - getting down to reality - your budget for short term expenses that are not billed monthly is $500/month leaving you a cushion of $500/month, about 0.5% of your income.

Once you're below 90% of the CC limits consider putting away at least 80% of your cushion ($400) and any other cash you can squeeze from your budget. Do this until you have accumulated 1 weeks' worth of income ($1750 by your numbers). That will take about 5 months if you can put this money away and not touch it. Only once that amount remains untouched for a full month would you consider dialing back savings, in order to pay down debt more aggressively.

Consider it a different way: If you save only 50% of your cushion ($250) it will take 7 months to accumulate just 1 week's worth of income! 14 months to accumulate just 1/2 months' worth of income! 28 months to accumulate only 1 months' worth of income!! 56 months (almost 6 years) to save only 2 months' worth of current income! 18 years to accumulate 6 months of income!! OK, that's taking it to a ridiculous extreme - but you see what I mean?

Do you find that reality motivating? Additional cash for debt paydown or savings will come only if you reduce spending or increase income, or both.

It's building a new attitude and a new discipline, to be able to put some money aside every month and really let it sit there. This will take some time. First to accumulate any meaningful amount, then if you have to tap it for any reason, to build it back up as quickly as possible, and then let it sit there. Then build it to the next level, and really let it sit there. And so on.

But, for now, starting somewhere, is well, getting started, and that's what matters most. Congrats for getting started.
OUOD
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I was also including $350 for minimum CC payment, but perhaps that should be seperate. CC rate is at 25% because of late payment. Also, have a store CC with $900 balance at 19% interest. DW had her credit damaged inadvertently by my bankruptcy because her name was on one of my CC so a transfer to a lower interest card isnt an option.

Even if you lose your job, you will still have to pay those credit card minimums until the balances are paid off. If you are late again, or miss a payment completely, your rates may go even higher, so you need to include those in the e-fund until you have the balances paid.

While getting the 1k e-fund set and then throwing all $ at the CC makes the most sense financially, is it realistic? The kids still will need x-mas presents etc. the $600cc/$200efund/$200ffund split seems better.

You know, buying the x-mas presents, etc. in the past was probably what helped you into debt and bankruptcy in the first place. Why don't you try to spend less? Like, maybe $30 - $40 per child, and nothing for the adults? Then you won't have to short your e-fund build up.

And how much of your 'etc.' is needs vs. wants? If you don't spend money on it, will you survive? Will you damage your credit because it's a contractual payment? If you don't need it to survive or to preserve your credit - don't buy it! Someone else suggested asking the question - if I was living in my car, would I need this?

I think I need a shrink more then a budget expert right now. I need to figure out why I spend and get honest with myself. I feel like an alcoholic that has just come to the realization that he will no longer be able to drink beer and watch football with his buddies anymore.

You need start asking yourself - can I live without this for another day? before you spend money on anything. If the answer is yes - then don't buy it.

AJ
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While getting the 1k e-fund set and then throwing all $ at the CC makes the most sense financially, is it realistic? The kids still will need x-mas presents etc.

I think I need a shrink more then a budget expert right now. I need to figure out why I spend and get honest with myself. I feel like an alcoholic that has just come to the realization that he will no longer be able to drink beer and watch football with his buddies anymore.


Putting those two statements together offers me a clue as to the problem.

Another poster on this board, SoccerDad, is also coping with horrible debt problems, and has been working very had at getting the debt under control. One of his recent posts included this statement:

I guess what has worked best: "saying no, no more" and sticking to my guns even as DW throws a fit and kids complain about whatever was cut from the budget. As it turns out... they still love me even without the endless supply of money, gifts and toys. Go figure.

Yes, kids need to feel that they are remembered at Christmas, birthdays, and so on. But they don't have to have the newest, latest, most expensive, what-everyone-else-is-getting, hottest-toy-on-the-list. Twenty years down the line, they aren't going to remember that they always got the newest toy that broke down two days later. They are much more likely to realize that you don't have any retirement savings and are depending on the kids to support you, or that college is going to cost them tens of thousands of dollars in student loans, and they'll be fifty before they're free of debt.

I suggest that, as you're trying to work through a reasonable budget, you and your wife also start talking about long-term goals. Do you want to retire at a reasonable age? Do you want to travel? Would you like to live abroad at some point? What are your goals? What do you want to do with your money? Work at a cheap salary for a cause you believe in? Donate? Help put your kids through college?

Start by asking yourself these questions. Once you know your goals, you'll have a better sense of your priorities.

Nancy
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I am a little late to the party on this and have rec'd most of the above posts because they offer excellent advice.

Some brave souls put their budgets out for us to comment on. It isn't necessary and we won't think less of you for not doing it ( I haven't myself) but the posters are pretty good at seeing things you may miss.

I think you need to really closely track your spending for a while.
We used an oversize calendar where I could write down everyday every penny we spent. This really helps you see where you may be leaking money and you may discover interesting patterns. It made me realize I was spending 3-4 bucks each week for a snack on the day I took DD straight to her piano lesson after school. I started putting a snack in an igloo and taking it with us most of the time. That didn't save alot, but it did save about $16 a month or about $150 over the course of the school year. Little leaks can sabotage you quickly.

Good luck
Molly--hoping you'll hang in here with us
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We have zero savings and probably about $6k of expected expenses coming up this year, with x-mas, kids birthdays, car repairs etc.
*****************************************
Even if all this ends up in the same account, it would probably help to put it into subaccounts.

Car repairs would be an emergency and should come out of an emergency fund.

Birthdays and Christmas expenses are recurring and can be adjusted up or down. I would suggest if the kids are old enough that you tell them that you will be downsizing gifts for the whole family for the time being. Of course, if you don't downsize in this area you may have to cut somewhere else.

This $6k sounds a bit vague. This would be a good time to sit down and work out the budget for next Christmas and the upcoming birthday parties.

Also are your kids old enough to do work? Not real jobs, necessarily, but things like raking, shoveling snow, babysitting, dogwalking,etc.
They can gain a lot of self-respect that way as well as get some money of their own which you can then use to show them how to apportion into spending and saving.

Molly
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No. of Recommendations: 4
1) Make sure you understand, and are addressing, the behaviors that got you into debt. If your lifestyle and your attitude toward spending do not change, you will find yourself in debt again, no matter what short-term repayment strategy you undertake right now.

This is critical. Control the attitudes and expenditures, and just about any reasonable plan will get you out of debt. Fail to control the attitudes, and no plan will succeed.

3) Save up a $1000 e-fund as quickly as possible. This is a rather arbitrary number - because it's not enought to cover LARGE emergencies -but it's a number that's worked for me and a lot of other people. The purpose of this fund is to smooth out unexpected expenses that would otherwise throw you off your debt repayment plan; and to give you a small sense of security and peace of mind, which is also crucial for staying on the debt repayment plan.

There's another reason for the $1000 e-fund that is very important. It's a measurment of how well you are controlling your expenditures. If you can keep from using the credit cards, and keep the e-fund at $1000, your plan is working. If your e-fund dips below $1000 and you can't point at a specific expense that is both absolutely necessary and unforseen, either your attitude or your budget needs more work.

Keeping the e-fund at $1000 is more than just having some peace of mind. It's also measurement of budget results and practice at not spending money just because you have it.

Patzer
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Others have already mentioned the need to reduce spending. Take a good look at your budget and see if there are things that can be cut there.

In the case of my family, we recently decided that although we love baseball and the kids love Animal Planet, the chance to watch those TV shows was not worth the extra money the cable company charged for their "standard cable." I would love to upgrade to have digital cable with HD programming, but do we NEED it? No. We realized most of our TV watching was network television, so we paid the $13 fee to have the cable company downgrade us to the basic package. Savings: $40/month

We also looked at the telephone. We do our long-distance calling using our cell phones. My DW wanted to turn off the land line phone altogether. I was not comfortable with that, so the compromise was to drop the package phone deal we had with unlimited local calling, Call Waiting, Caller ID and Voice Mail (which we never used as we have an 8 year old answering machine that works fine). We dropped to a plan where we pay for each call out from the house. The monthly base for the plan is $18 per month less than the package. Our total local call spending last month? 7 cents.

My wife dropped the gym membership that she always said she would use, but never found the time. Savings: $20 per month.

I stopped buying items from the vending machine at work when I got the afternoon munchies and instead bought things like granola bars from the grocery store instead (on sale buy one get one free, with a coupon on top of that). Savings ~$12/month.

With those simple changes we were able to reduce our expenses by more than $80 per month. It won't make us rich, but it will help us get rid of our remaining credit card debt that much faster, and once that's gone will add to how much we can put aside each month.
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ok.

a. get CC debt under 90% to avoid danger zone. b. build starter e-fund of $1-1.5k for small emergencies and reinforce that budget discipline is working. Meanwhile, learn Quicken and track expenses for next step of budget cuts, needs/wants analysis and next payment priorities.

as far as other stuff, the $6k for expected expenses was a figure thrown out there based on what I quickly guessed would be sufficient for x-mas, birthdays, my expected exhaust repair needed to pass car inspection next week, and whatever we do for summer daycare. it will be tightened and

outstanding debts are $10k CC, $900 CC, $16k car loan, $3.5k owed to my parents for bankruptcy related expenses. mortgage and HEL I'll need to post later. almost forgot my $4k loan against my underfunded 401k.

i will check SDs thread. thanks
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I think I need a shrink more then a budget expert right now. I need to figure out why I spend and get honest with myself. I feel like an alcoholic that has just come to the realization that he will no longer be able to drink beer and watch football with his buddies anymore.

**************************
You might want to check out Debtors Anonymous
www.debtorsanonymous.org

Also for insightful and inspirational reading you might check out
Tamarian's story
http://boards.fool.com/Message.asp?mid=19721194&sort=postdate

Hope this helps,
Molly

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As for what that number should be - I can't help you on that one, because I am an incurable hoarder

I read that a could not help but chuckle because I have a friend at work who is the same way so I know exactly what you mean.

--George
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Let me just add to the other comments that with your BK, your credit rating is toast. Since DW has at least one late fee according to your comments, her credit rating is probably not outstanding either. But it is what you have to work with, so you will want to protect it at any cost. After seven years of clean credit living, you can venture back out into the sunlight, but until then your family will be dependent on DW for credit.

It sounds like you tapped every possible source of money to subsidize your spending, from your parents to your home equity to your 401k. You need to address all of that, and if that means that the kids get homemade gifts this year instead of the latest electronics, then so be it. Use it as an educational opportunity to explain the pride and pitfalls of money and credit cards. Maybe they can help out this summer with a lemonade stand. Or maybe you or DW can take on a second part time job to help bring in more cash.

Is there anything that can be sold? Anything that you can avoid paying? It can be very humbling to admit that you can not afford to do something, but you have to swallow your pride and realize that even with the BK you are far from breaking even and the whole family is going to have to make sacrifices to get there. This board can help, if you have a strong constitution, by going through every aspect of your financial life and letting you know when you are doing things right and where you can make changes for the better. It's tough Foolish love, but it is yours for the taking.

Fuskie
Who naturally spent more than he budgeted down at Disney last week...
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No. of Recommendations: 5
i'm also a little late here but...

dude. christmas is faaaaaaaar away. about a million years. stick around here and you'll have a new brain by then.

don't project. do the next right thing.

bb
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