Part One of a Three Parts Series

Every time I have lost money is when I have tried to make more money than what I was already making. ~ Salil Jha

Week 1

I have been hit hard (twice now). I have got an IRS bill for $17,000. This needs to be paid in 30 days. Five months ago, I got a similar tax bill from IRS asking for $8000 in various taxes. I took a loan from my girlfriend and paid $8000 thinking it was a big fat check for an expensive business lesson. I thought to myself, I have already learned a lot in my various business venture. But, unfortunately, this was just the beginning.

This is a story of resilience, positivism and making lemonade out of life’s lemons. This is my story. A true story. A story of an immigrant boy trying to chase his American Dream and the mistakes made on his perilous journey.

I started an IT consulting business in Oct 2011. My primary goal to start Precog LLC (the name of the company) was to generate some side income and possibly grow the business to enough profit so that I eventually sponsor my H1B visa and Green Card through it while making good cash.

The goal was also to help recent college grads to find jobs and help them in whatever way possible. There were a lot of bad and abusive companies in the IT consulting realm and our goal was to purge the abuse of innocent and poor college students.

The company was started by Albert Pen, my good friend and me. The company was incorporated in his name, the same month he got his Green Card. I was the man running the engine. Albert was the legal structure beneath our company.

One thing that I did not mention yet is that Precog was not originally conceived as an IT consulting firm.

The groundwork of Precog started in early 2010 when two of my good friends and I thought of building an electronic stretching machine. Our ideas was to make stretching easier to learn for martial artists, yogis, gymnasts, and any fitness enthusiasts.

But, one of my friends had another idea, a rather big idea to build flying drones and sell the idea to state governments.

The Birth of an Entrepreneur

Look, back in 2010, a Canadian company was in fact building and selling drones (UAVs) to DC police. Their product was in $20,000 USD and we wanted to build something for half the price.

We started to work on the first prototype, leaving the electronic stretcher idea on the back burner. As we got more involved in our overly ambitious project, all of us started to realize that we need more capital than what we had initially planned for.

Together we spent $6500 into the project and as you can probably predict from the story line, we lost it all. One of my friend who has spent into a powerful computer took his computer and factoring that still lost about $1000. I lost about $3000 in this failed venture.

So this was the beginning of Precog. And this Precog was about to be transformed into a service-oriented company where you do not have to invest a lot of cash up front.

The Precog LLC Era

I worked very hard building Precog. I created a website for our company and began to advertise our services. Soon, I had several interested students calling me for IT training and assistance in job placements.

I started to teach classes, often charging $500 for each student per course. Initially, I was mainly working with recent college graduates.

The first 6 months were tough. Not for the business but tough on me. I was working a full-time job and I was running Precog part-time. I used to wake up early at 6 AM, do a training session, then get ready for the job.

During my lunch hours, I used to call and screen my students and answer to new inquiries. In the evening, after returning from my job, I used to take another class, sometimes two classes in a row.

I was working with various vendors. I was working with my students over the phone to prepare them for job interviews. I was talking to clients and other marketers. It was an all-consuming job. I believe I used to work ~16 hours a day, maybe longer on some days.

In the first 10 months, I invested almost $10,000 USD without much return. This was the turning point for Precog. It was “do or die”.

One of my friend, Matt Joy, who was trying to find a job came onboard during this time. Matt took charge for saving Precog. He was Godsent. Precog not only survived but actually thrived after Matt joined the team. Soon, we hired a marketer from India. His name was Daniel. And now we were a strong team of three, making some real cash.

The $750,000 Venture

We placed more than a dozen consultants between 2012-2014. We trained a lot of students. We were making some noise. This was late 2012. Things were looking sunny. We did over $500,000 in revenues in 2013 alone. In total, we did almost $750K in business in two and a half years of Precog’s life.

The business was doing great but my mind and body wanted to give up. I was single and occasionally dating. I thought to myself, business and money can come anytime but this is the time to find my life’s partner. My focus shifted from business and money to relationships.

2013 was hard on me personally. None of my relationships were lasting more than 3months. Matt was getting frustrated with me because he was all pumped up and wanted to take Precog forward. I, on the other hand, was distracted between dating and running a company.

I did not have the energy or interest in doing so. By this time I also began to realize the tax and accounting complications that Precog was facing. We had consultants working in 8 different US States.

All the tax paperwork in itself was 20 hours of work per week. The stakes were high, money was rolling in, and the business was getting complex.

Week 2

This past week, I have been thinking of ways to repay my $50K debt. The breakdown of my current debts are like this:

$18000 IRS/Business Dissolving Cost

$14000 – Girlfriend’s loan

$18000 – Credit cards debt

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$50,000  Total debt

This past week, I canceled some small monthly payments (to stop the slow bleeding). Subscriptions such as Spoitfy premium, TU Credit Monitoring and Audible membership were the first three to go.

These small monthly savings will not amount in big numbers but it is for the motivational purposes. These steps gave the mental confidence that “I CAN DO IT.” And I have 2 years to clean this mess up without significantly downgrading my lifestyle.

I am not giving up on music, reading or financial know-how. Instead, I am switching to Pandora’s free account, switching to Kindle eBooks (much cheaper) and Credit Karma’s free credit monitoring. I do not have any upcoming big purchases or loan request so I really do not need any credit monitoring at this time.

Next, I gave ultimatums to all other people I have employed on eLance for blog writing, manuscript editing, etc. This is going to save me $140 per month starting May 1st.

However, I have decided to keep one editor to edit my two upcoming books and one Virtual Assistant to help me grow my public platforms. In total, this is $200 per month expense. It is important to note that these costs are not new addition but the continuation of on-going expenses so I won’t feel a blow but will have to suffer the heat, well at least for now, until I find a better solution for my requirements.

I took advantage of Citi double points credit card offer. This will let me use $1700 credit for next 18 months without any interest.

I applied in my girlfriend’s name and got another $6700 for 21 months at no interest. These two credit cards will give me enough credit to use for the next one and half years.

In the coming months, I will be paying off all my existing credit cards where I also pay interests on purchases and existing balance. This way I’ll be saving $30-$40 in interest each month.

My girlfriend and I also applied to TD Bank’s checking, debit and credit offer which is offering $200 cash back and 5x points per dollar spent for the next 6 months. Together, we both will be able to get $600-$1000 back from TD bank’s offer in next 6 months. In the coming months, we will be looking for similar bank offers where we can earn or save a few hundred bucks.

The $10,000 credit union loan that I applied, I am still waiting to hear back from them. In the meantime, I applied for a $10,000 loan from my local Credit Union in my girlfriend’s name as well. If she will get a better rate from the Quincy Credit Union, we will take the loan in her name with Direct deposit payments. I’ll be transferring the monthly amount to her.

The other things I have decided to do are:

1. Call Xfinity and cancel the service in my name and get the service in my girlfriend’s name. Being a new customer, she will be getting better rates than what I am paying right now. If she gets the same rate, then I will cut the TV in our package and only keep the high-speed internet. This will bring in additional $20 monthly saving.

2. Once the free APR Citi credit card arrives, buy a new router and model through our new credit card and ask Xfinity to take off their rented Modem and Router. ($10/month savings)

3. Ask my employer to take off my health insurance ($397/month). Expected savings $280 per month.

Total monthly savings: ~$350 – $500 (per month)

In part 3, I’ll be focusing on selling old iPhones and other electronic devices that we are not using. Also, how meal planning and bringing lunch from home is saving me additional $200 in foods by not eating out.  My goal for part 3 write up (next week) is to save another $350 – $500 each month.

Week 3

Now, I am at a phase where action means more than planning. I have prepared a very detailed plan and now it is all about execution. The key here is quick action.

The first thing I did was email my website hosting company that I will be shutting down Precog’s website (i.e. $375 per year saving). I also listed both the domain and website for sale and auction on both GoDaddy and Flippa. I hope to at least sell the domain name and recover whatever I can from the sale.

I also listed my other domain names for sale which I am not using or plan on using in the next 2 years. In total, I have put five domain names on sale.

Next, I emailed MyLLC (the registrar for Precog LLC) that I would like to dissolve the business. There are some paperwork and a $99 fee. I am working on it and hope to close the business by April end. I found out that I have not paid my 2014 fee for NV and there were several other interests and penalties. In total, I paid $500 due on Precog since Oct 2014. Another $500 bill added to the debt bucket.

My girlfriend and I went to Quincy Credit Union and signed our loans. I borrowed $12,500.00 at 12.65% interest rate on 24 months repayment term and my girlfriend borrowed $7000 at 11.65% interest rate on 12 months repayment term.

I hope to repay this amount back in 24 months and 12 months respectively. I am setting aside $1200 to pay back these two loans. Starting month 13, I will continue paying $1200/month to QCU towards my $12500 loan to cut the time short and save on interest.

The next day I transferred $14000 to Albert and asked him to deposit the amount in Precog’s account. We have $3000 plus change in Precog’s business account and this will take care of the check that we will write to IRS.

I opened all my Credit Cards account and organized my balances and interest rates. I found an interesting thing. I had Credit Cards ranging in 11.15% – 23% interest. Since my big loans are in 11.65% – 12.65% range, I decided to pay off all Credit Cards which is charging me > 12.65%.

Luckily, my girlfriend does not carry any debt on her credit cards and therefore we do not have to factor in any cash there. After looking at all our credits, this is the summary.

Pay Citi, US Bank, and Chase in full and stick with Capital One (11.15%) and Discover (15%). Since the bulk of my credit card debts are consolidated in my Discover card (~11000), I have no other choice but to keep the debt there for now.

This past weekend, I started to find out all the electronic junk and books that I do not need and gathered a pile of items to be sold. I listed both our old iPhone 4S, two old digital cameras, and 2 books.

I have about 20 more books to put. At the time of writing this, I have already sold both iPhones (within 12 hours of listing on Amazon for $95 + shipping) and one book (The Art of War by Robert Greene) for $8 + shipping. I’ll continue to do this until I am rid of all the things that I do not need, use or have touched in a year or so.

Also, anything that I am not using and does not need and that cannot be sold, I will simply donate or throw away.

Keeping your home and mind clean and organized helps you in better managing your debts. I mean, it is not scientific but it works for me and few others.

I called home and explained the situation to my parents and discussed my options with my elder brother. They were stressed by the news but after talking for about half-hour, everyone got calm understanding that the situation is under control.

We continued the meal prep on Sunday and this is our third week on meal planning. I believe, meal-planning itself is saving us ~ $300-$400 each month by not eating out our lunch and dinners.

Meal planning is not only effective to save lunch dollars but also dinners. And when you do eat out, for most of the nights, you can eat at Panera and Chipotle. Note, you have to avoid restaurants because you pay for the meal and then you pay tips and end up getting drinks. So sticking to Chipotle/Panera type food joints works best.

Last week, I also called my employer and canceled my Health Insurance ($397/month pre-tax dollars). I have been on health insurance from January –  March.

If I go out of it (I understand it is a risk but it is a calculated risk that I am willing to take). By going out of health insurance, I will incur MA state tax penalty in 2016 for 9 months.

This fine will be half of the premium amount of the cheapest health insurance. By paying a fine 12 months from now and by paying it far less than what I am spending on health insurance is a better choice for me.

After taxes, this might increase my paycheck by $300 per month. I will also try to take advantage of 3 months no-penalty gap period between health insurance enrollment periods. This way I will buy cheap health on my own in 2016 and not have 3 months of coverage.

I have always had health insurance and therefore I am up-to-date with my physical, dental, vision, and everything. I feel, going out of health insurance for say 12 months is risky but worth the bet given my miserable financial situation.

I called and email all my friends to whom I have loaned money. I explained my situation and they started to pay back. I got $330 from Norm Matthews and $140 from Sean Attitude.

Tim Robert said he will try to pay me back $1410 as soon as possible and Bill Tequila said he would like to pay me back $800 loan from last year. Â In total, this will bring me $2680 in cash. I’ll use this extra cash to pay off the high-interest credit card debts or my income tax liabilities once I do my taxes for 2014 this coming week.

I have ~ $250 in my OptionHouse stock brokerage account. I have to make a decision whether I liquidate my remaining position and get out or leave the money there. $250 is not a big amount. A hard thinking line for me but I hope to come to a decision very soon.

Week 4

I started this week with some excitement and joy of paying off three of my low balance (but highest interest rate) credit cards. In total, I paid off close to $3000 in outstanding debts. Doing this is going to save me $50 in monthly interest. I also canceled my PostPlanner subscription from May. This will save me $29 each month. Phew right there, just in one day I have saved myself another $80 each month.

I put aside these three credit cards (Citi Diamond Preferred, Amazon Chase Visa, and US Bank Visa) on my card box (and out of my wallet). I deleted these cards from all recurring payments and moved all automatic monthly payments to my Discover Visa and Capital One Master Cards.

As of today, all of my credit card debt now reside in three cards: One Citi Double Cash (0% interest, a new card that I applied and got), a Discover card (holding the biggest portion of my debt, almost $12000 at 15% interest) and one CapitalOne card (11.15% interest, the cheapest card in my wallet).

I mailed $10,000 check to IRS by a 2-day priority mail so that it can reach on Monday, 04/13. I wrote a letter, signed it and sent it along with all the forms and supporting documents proving my unintentional mistake.

In my letter, I basically requested IRS to forgive my penalty (~ $2500) and to add back my educational credit of $1415. I’ll call IRS in 10 days and check on its progress. If I receive some financial breakdown, it will help.

If I do not receive any financial breakdown, Albert will take on the missed education credit payoff and I’ll pay off the rest of the balance within 5 business days once we hear back the final word from IRS.

Lastly, it is worthy to note that for the past few weeks, I have been tracking all of my expenses in an excel sheet across 50 different areas. This sheet as I continue to fill in and track my daily expenses has been mind-blowing.

For example, even after doing meal-planning, I have spent almost $500 on eating out while my grocery expenditures have been only $125 so far.

This is 4:1 ratio. This clearly shows that there is a lot of room for cost cutting and improvement. I hope to update on this after 8 weeks of tracking. I am sure, I’ll discover surprising findings.

Money you can earn and spend but time – time is a finite resource. You can’t borrow it, you can’t store it. It moves only in one direction and there is only a finite amount that you have got. To be successful, while in debt, you have to work extra hard to make up for not having money. You have to solve each problem creatively. ~ Salil Jha

Week 5

IRS cashed my $10K Precog tax check on 04/15, that’s good news. Who would call loss of $10K a good news? Well, when you have messed up and there is no way out, any little progress (similar to drinking bitter medicine to cure illness).

Now, this IRS bill is not something that I should have paid because, overall, it was indeed a net loss. What went wrong is that during the tax filing, we did not show enough expenses thinking we have already saved on taxes (once our tax due became $0).

We stopped and did not add any further expenses. And now, after IRS did an audit and a match on our revenue, they came up with additional $40,000 in our 2013 income and since we were $9000 in the loss, after doing the simple math, made a decision that our net profit in 2013 was $31000.

This $31K was then taxed at a higher rate (sort of understatement tax penalty) and assessed a Self-Employment tax of 15% (which is ridiculously high). 

Anyways, let’s move forward with our story. I called Discover Personal Loan to check if I can take a loan to pay off my remaining Credit Cards and lower my interest payments.

I qualified for $15K loan at 11.99% and paid off my remaining Credit Cards. After a while, I will seek to refinance this loan again at a lower interest rate, say between 8-9%. How?

Since consolidating your credit card debt into one personal loan often helps in credit score within a few months. This is one reason that I did not try to move my one credit card balance to another credit card with 0% APR.

The goal for me here is to not only eliminate debt (by changing my spending habits) but also to improve my credit score which in turn will open up future opportunity to further lower my interest payments and therefore the overall debt burden.

At the time of writing this:

My total credit card debt = 0 (Zero dollars)

My IRS debt = 0 (Zero dollars)

Loan from my girlfriend = $14000

My other loans: $34500

Quincy Credit Union (in my name) = 12,500 ($595 per month x 24 months)

Quincy Credit Union (in my girlfriend’s name) = $7000 ($620 per month x 12 months)

Discover Personal Loan (in my name) = $15000 ($690 per month x 24 months)

Quick Maths

So, as you can see from week 2 (above: my total debt amount roughly remains the same. $48500 instead of $50,000 but now at least I have put up a plan to pay it off in 24 months without changing my employment or sacrificing too much on my lifestyles.

However, my game plan has just begun.

Continue Selling

I continue to sell my electronic gadgets and equipment that I do not use. Books sell as well but they bring on a very little amount of change (when we are talking about $50K).

I sold our two old iPhones (4S) for $200. Tim paid back $500 to me (actually just today). Tim still needs to return me $1115.

I have deposited $7500 in Precog’s business bank account just to wrap up Precog and pay off the remaining bill to IRS.

Both I and my girlfriend received our TD Bank cards this last week which is giving us $200 cash back for spending $500 in first 90 days. We have switched all of our expenses (and subscriptions and/or automatic payments) to TD card to meet $500 threshold.

On the flip side, last week, we also did our personal taxes and ended up paying $5000 and $900 to IRS and $52 and $200 in State Tax to Massachusetts (my girlfriend and I, respectively).

She had to pay a lot of federal tax because of how her I9 and W4 was set up with her ex-employer. She has had already anticipated and planned for high tax amount and therefore these taxes did not affect us financially.

Nevertheless, this was a lot of money going out of our bank accounts. At the end of the day, after paying over $6100 in taxes, we felt broke looking at our checking account balance.

Weeks 6-8

This past three weeks I have been selling my older books and other non-necessity items on Amazon and as a Garage sale in my building. I sold a few electronics toys to my friends and colleagues at work.

I am currently enjoying $0 in Credit Cards debt. As I mentioned above as of today my credit score has jumped from 670 to 720. Having a loan is actually a good thing for the Credit report and not having a Credit card debt is also one of the best things you can do regarding your personal finance.

At this rate, I hope within 6 months, I’ll be able to take loan offers at a much lower rate than what Discover is currently giving me (11.99%).

Conclusion & Next Steps

I’ll end the first part of this story here. I’ll have a second blog post on it with more details in 6 months. We’ll revisit my total financial debt and what new measure I am employing to get rid to the single penny.

Hope this post has been inspirational, motivational and educational in some regards.

Remember, to be successful, to get out of your debt, you have to work extra hard to make up for not having money. You have to solve each problem creatively. This is a blessing in disguise. You will get to exercise all the creative brain cells if there is such a thing inside the human skull.

You have to make sure that you are not losing time by missing out on good opportunities. Remember there is a thing called “opportunity cost”. You have to keep moving forward with time and not wait until you are out of debt.

I hope to shed some light on this topic in my next blog post as well. See you in six months.

If this blog post has been helpful to you or if you have faced a similar situation in the past, please DO SHARE your thoughts in the comments section below.

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