Last month I wrote about “BUDGETING” as the second of the FIVE key ingredients to Financial Peace and the recipe that I find most useful to get there. To recap here’s the Full list of the 5 KEY Ingredients once again: (I believe in repetition!)
This month I want to focus on ELIMINATING YOUR DEBT and why this is such an important part of the recipe. As of December 2015, the most recent data from the from the US Census Bureau & the Federal Trade Commission indicates that the current outstanding “revolving credit card debt” in the United States is $936 Billion. BILLION! The average American today holds 52% more debt than they did a decade ago.
The average household has $15,779 of credit card debt. Then add in Car Loans. Student Loans. Debt Consolidation loans. You see where I’m going with this? American’s have become accustomed to using credit as a means to get what we want for years and it is crushing our ability to retire and to truly reach financial freedom. The APR’s that we are paying to the lending institutions, who so freely lend us money, are allowing them to build bigger buildings and crippling us from being able to retire at a reasonable age. But it doesn’t have to be this way. You CAN make a decision to eliminate your debt and start using your number one wealth building tool, YOUR INCOME, to grow wealth for you and your family. The best method: THE BUDGET combined with THE DEBT SNOWBALL APPROACH.
If you truly want to build wealth and have the Financial Freedom to choose the next stage of your life freely, Eliminating Debt should be your number one goal.
How do you get there? Start by making a list of your non-mortgage debts smallest to largest with their balances, APR’s, and minimum payments due each month.
Look at this example: A $1200 Purchase at Lowe’s of a new washer/dryer came with a 24.99% APR *(yes this client signed up for 90 day ‘same as cash’ but didn’t have the money to meet that goal and ended up with this balance at the end of the 90 days!)
Making $50 minimum payments each month means it will take almost 3 years to pay this $1200 purchase off and at the total cost of $1680 (*$480.64 is paid in INTEREST)
The goal in Eliminating Debt is to DO it QUICKER! How?
*GET COMMITTED TO BUDGETING!
*GET CLEAR ON YOUR GOALS.
*GET IN TOUCH WITH YOUR EMOTIONS (and by that I mean the 4 yr old that says “but I want it!!!!”)
ASK YOURSELF THESE QUESTIONS: Do I just want to continue to owe? Do I really want to be paying 1/3 more for every purchase I make in life because it’s easier to “charge it” and figure it out later or am I willing to save for the things I want before I buy them? Can I soften that 4 yr old voice of immaturity that says ‘but I want it!’ because it comes with a huge cost to me (and maybe my spouse and my family) when I don’t?
If you are ready to change these things then here’s where you start and how to eliminate debt quicker:
STOP making just the ‘minimum monthly payments — You must stop spending money in others areas so you have those dollars to use towards the debt–YES, you can go without eating out for lunch/dinners, getting your nails done, and the daily coffee stops on the way to work if you want to get out of debt quicker and reallocate those dollars to eliminate the debt. (As a financial wellness coach I have 100+ ways I help people figure out the HOW)
You can go back to those things if you chose after this temporary period of taking back control of your finances. You see, you will have the FREEDOM to choose those things when you have all of your income coming back in and not hundreds of dollars being wasted on ‘interest’ to others.
Stay tuned for the next part of our recipe: SAVING/INVESTING= BUILDING WEALTH!
Last month I wrote about “SIMPLIFYING YOUR LIFE” as the FIRST of the FIVE key ingredients to Financial Peace and the recipe that I find most useful to get there. To recap here’s the Full list of the 5 KEY Ingredients once again: (I believe in repetition!)
This month I want to focus on budgeting and why this is such an important part of the recipe. Many of my clients seem a bit deflated once they have mastered their monthly budget planning with me and then I add “And now you will do this for the rest of your life.’ WHAT?!? “WHY they ask? Once we start getting our spending under control, why would we have to continue to do this?” It’s simple!
Budgeting is the strategy to winning with your money!
Whether you are sitting down for the first time to try to lay out a plan to get out of debt or whether you are ready to build your retirement nest egg, the BUDGET is the strategy to use. You see its proven. Those who plan, WIN with money. Those who don’t plan, don’t win with money. Businesses who plan and forecast are healthier than those that don’t. One of my favorite Dave Ramsey lines from Financial Peace University is “If YOU were running the company called You, Inc today the way you handle your personal finances, would you fire You?” (Hmmm?) I know in my early 20’s when I was buried in credit card debt and owing many of those cash advance loan companies that kept sending me those ‘cash today for a low monthly payment’ checks, I was NOT running ME, Inc with ANY financial methods at all. I was running on an emotional high as a girl in my early 20’s thinking ‘Look at me, l’ve moved out, have a shiny new car, my own apartment, AND I can have all this “other” stuff, because someone thinks I’m adult enough to hand me credit.” The “other stuff” was a new gas grill, appliances, leather furniture, a sweet waterbed, and of course a vacation from the stress of having TOO MANY monthly payments. It took me getting back to the basics of what my mother taught me, balancing the household checkbook at 10 years old, to see that the reason I was stressed out was that I didn’t have enough money. You see, the budget reveals some tough truths when we don’t have enough coming in and helps reveal some amazing truths when we do but we just keep spending it all. It will work to your advantage if you start learning to tell your money where it’s going, before it shows up each month. I have many clients today that prior to budgeting monthly, had no idea where their extra paychecks went twice a year. When the tax return arrived it was spent on paying off the Christmas gifts that went on a credit card, an auto repair, something for the house or to fund their vacation, because there wasn’t any savings or vacation fund to hit up.
The budget does more than just sort out what will happen when. It’s helps you have the plan to work the plan. As a Dave Ramsey Trained Independent Financial Coach, I help people move through the “7 Baby Steps to Financial Peace“. Whether they are on Step One (save $1000), Step Two (pay off all of your non-mortgage debt smallest to largest), or Step Six (paying off the principal of your home mortgage early) KNOWING what is available each and every month to make your STEP WORK happen is imperative. It’s truly the most important ingredient as you are building the entire recipe.
If you want to learn how to cook, you watch the Food Network or pull out a cookbook. If you want to learn more about HOW to budget & WHY to budget (there are SO many benefits) you can take one of my online budget webinars this month and in just one hour, in the privacy of your own home, learn how to start winning with your money.
See you next time, when we look at ingredient #3 ELIMINATING YOUR DEBT!
After years of watching the Food Network and witnessing chefs creating their masterpieces without much measurement, I know all to well that I can become overly confident with my own culinary abilities. Time and time again, when I try to cook a great dish or desert WITHOUT following a recipe, MY finished product usually turns out to be something the neighbors dog wouldn’t want to eat. However, when I take the time to follow a recipe step by step, I can serve up something that people think was delivered by the top caterer in our area.
I find that the same is true when I help people figure out and design their plans to pay off debt so they can obtain financial freedom/peace. It takes a specific recipe to get the best results. THIS I’M GOOD AT!
The recipe that I find most useful to get there includes these 5 KEY Ingredients:
For this week, let’s look at the first ingredient in some detail:
In your personal life, this means reviewing your current ‘reality’ and taking steps to minimize your monthly output by removing things that are hindering your progress or that just need to change because they are weighing it down. For example: Do you have a gym membership that you are paying for and yet you haven’t seen the walls inside for 3 months or more? Are the kids involved in sports, music lessons, etc (many today are involved in ‘multiples’) and have you calculated the annual cost of their extra curricular activities: Uniforms/Costumes, Tournaments, Cleats/Dance Shoes. Recently, we found our monthly “eating out envelope” drained very quickly because my son joined a new one game a week “recreational soccer league”. The game times seem to have created a new “Hey, let’s just grab something after the match” habit for us. While the initial cost of the league may have only been $85 for 8 weeks–add in the new cleats $120 (this is an indoor league and his foot grew AGAIN from last year), a $10 shirt, gas to/from and now the eating out, this ONE addition to our ‘normal’ plan could bust our budget by $1000 over 8 weeks. What was I thinking! Even a budget coach can get tripped up by these ‘extras’ people! In this case my ‘simplify our lives rule of ‘one sport at a time’ backfired as an ‘in between’ sports sessions league appeared. Has this happened to you?
When we look very closely, we tend to see areas more clearly that are screwing up our recipe towards financial freedom. Here’s a few more:
Are you buying brand new cars every few years? Are you tackling monthly car payments that are almost equal your monthly housing expenses?
Are you eating out so much that the waitresses know what you want to drink as soon as you enter the front door?
Do you have constant ‘store rewards’ showing up in your mailbox because you are a frequent shopper?
Are your closets full of three different sizes and clothes you haven’t worn in a year? (Mine were!)
Do you have ‘too much’ house? If the kids are grown and gone, have you been talking about downsizing but haven’t pulled the trigger.
Truly look at what YOU CAN change.
Sell some stuff! Downsize! Settle the kids schedules (and yours) and discuss whether they really need to be ‘SO active’ that they can’t remember how to rest.
Study after study shows a life with LESS stuff (And LESS DEBT) tends to become a life with more freedom, more meaning and more time to spend enjoying what’s truly important.
I teach my clients how to pay off their debt using the Debt Snowball approach. It’s the approach used to get through Baby Step Two of the Dave Ramsey “7 Baby Step Plan”– paying off all of your non-mortgage debt and gaining the momentum towards Financial Peace.
The Debt Snowball involves listing all of our ‘non-mortgage debts’ smallest balance to largest balance and whacking at them from top to bottom until they are gone. This list includes past due medical bills, credit card debt, student loan debt, car loans, loans that need to be repaid to Grandma. You get the gist.
Once we establish your monthly budget for the ‘four walls’ and once your $1000 emergency fund is in place (Baby Step One), we start to take EVERY extra dollar that is left and smack it onto the smallest debt that is on the top of the list, until it’s gone. Once it’s gone, we work the next debt taking the extra money that is no longer going to the debt that was just paid and work our way down the list. Some months, when there is an extra weeks paycheck or a Christmas bonus, this approach can be very effective and can result in a few or more of those smaller debt amounts being paid in one month! Like building a snowball, using this approach, we start to build momentum and immediately can see the results building as we roll money from one thing to the next. It shows that a plan works.
For many people, they are working without a plan and that is where they fail.
I say it time and time again, if you shoot an arrow at nothing, it hits nothing every time! When we establish a ‘methodology’ and start telling our money where to go, we can see it actually working. The positive feelings start to come and the decision to get out of debt seems possible.
If you need help establishing a written, workable plan I’m here to help! Let’s start 2016 off on the right footing, the one that leads to financial freedom and eliminates financial stress!
Banks make their money on MONEY or LACK THERE OF…
Unlike a retail store who makes its profits on a product, banks profit on the ‘transaction’ of money. Think about when you open a savings account at your local bank. You basically deposit (loan them) your money at a very low interest rate. Once you’re in the door their marketing machine begins… sign into your online banking and you can see for yourself there are 10 offers on each page trying to capture your attention. Open your mailbox and there are offers for their credit card. Open your bank statement and you find a slick insert with their most recent program rates!
They are working very hard to lend your money back to you in the form of mortgages, home equity lines, credit card offers, personal loans, car loans, all of which range with interest rates of 2.75% to well over 20%– WELL OVER your .035 that you are earning on your savings.
After raking in money on savings accounts, Banks turn their attention to checking accounts. Banks make most of their money by charging the following fees:
Overdraft fees: which represent approximately 60% of the fees charged by banks. The average overdraft fee today is $29 per transaction! Only 10% of the population pays 75% of the fees, and they tend to be the most economically vulnerable, including our troops. Can you believe that last year overdrafts fees paid to US banks exceeded $32 Billion!?!? Yes $32 BILLION!! In 2007 that number was only $17.5 billion so we have gotten twice as bad with handling our money as we were 7 years ago.
ATM fees: which can add up quickly. If you go out of network, you pay ATM fees to two banks: your bank, and the bank that owes the ATM- this accounts for over $11 Billion in fees.
Monthly fees: which most people get waived. A direct deposit or minimum balance usually takes care of this fee but the average American is paying $6.00 month just to have an account at their local bank.
HOW did we get to this point where we are financing 60% of the bank growth by our STUPIDITY?? For some of us we just stopped using basic sixth grade math and keeping track of what we have in our accounts. It’s craziness really. Some of us haven’t balanced a checkbook since online banking became the ‘norm’- we just check our balances 1-2 times A DAY!!! It’s laziness really. Living paycheck to paycheck has become the norm because many Americans have tried to ‘out earn’ their stupidity. It doesn’t work and this is the price we pay… FEES! Late fees, monthly fees, higher interest rates.
I’m here to tell you there IS ANOTHER WAY!
Let me help teach you how to implement a healthy financial budget that will have you taking control and putting money back in your pockets NOT the banks!
If you would like to learn more, visit my website.
RESISTANCE: The law of physics says that for every ‘action’ there is an opposite ‘reaction’. If you learn to understand that this is so, your added awareness to the law of resistance, can help you hold stronger, as you walk towards your dream of Financial Peace.
Think of a rubber band. Resistance comes when you first take a hold of each side and start to pull them apart. Isn’t that also true of how we feel when we first begin to work on our financial wellness plan? The ‘feelings’ that come up as we step onto this new road are overwhelming at times. One partner may be excited to get started and the other resistant. In a single’s situation, you may be ready in your heart but your head starts to tell you differently. The funny thing about resistance is that you will find as much resistance as you did in the beginning as you near the end of your goal. Why? Because that’s the law of physics! The more we pull outward to see how strong that elastic really is, we have a new ‘fear’ of it breaking, so we are resistant to continue to pull. I’ve seen many people start their journey off strong and as they are so so close to having their debts all paid off, retract due to resistance.
So, how will you know if you are in ‘resistance” at the beginning or towards the end of your journey? Quite simply. You will MAKE EXCUSES. You will PROCRASTINATE. You will START SLIPPING back into your old spending habits. You will STOP BUDGETING. You will STOP COMMUNICATING. You will STOP WORKING THE PLAN.
At the ‘beginning’ of working on your new plan, you might find yourself saying things like, “I have no time”, “I’ll just watch you do it and see how it works”, “that’s just not MY thing”, But what is ‘x’ happens?”.
At the end of working on your new plan, you might find yourself saying things like, “But we’ve worked so hard for the past few years, let’s just reward ourselves”, “I’m sick of measuring everything I do!”, “I meant to fund the envelopes but forgot”, I don’t know where that extra week’s paycheck went this month, was there really an extra week?”, “we’ve skimped this long, I need to splurge just once.”
All of these statements are clear signs that you are ‘resistant’ and resistance will inhibit you reaching your goal is you don’t see it appearing. If you find yourself using any of this language, do something about it today. Regroup. Recommit. Reconnect. HOW? Sign up for a Facebook support group and share, such as my Sick of the Hustle Budgeting discussion group– it’s a great forum to connect with others on the same journey. Sign up for another Financial Peace University Class in your area. Get one on one coaching to help you along. (that’s my specialty!). Get an accountability partner. Read Dave Ramsey’s Total Money Makeover or Smart Money Smart Kids (again). Listen to some Podcasts on financial wellness. Share your success with someone else who is struggling and help them.
Stay Positive and Keep all of these ‘tools’ handy in your toolbox when resistance rears its ugly head!
One of the most useful things we can do on our journey towards financial wellness is REFLECT. We all get in ‘over our heads’ for different reasons. For some of us, its childhood ‘lack’ and adult ‘gain’ that lead to our overspending. For some of us, its an emotional rise to spend money on things that make us feel better and forget about whats happening in our lives. For some of us, it’s a gaining of ‘status’ that causes us to overspend. For others its unexpected medical bills, loss of a job/income, a divorce. Whatever the reason, in order to change ANY situation and plan your way out, you must first reflect.
Start by creating a ‘money journal’. A simple notebook will do OR get fancy and decorate a fun journal/notebook knowing your going to take this journey seriously. Spend some time over the next few days thinking about and answering one or more of these reflection questions in your ‘money journal’:
Name three things do you truly love to do. Do any of these cost money?
Name three things that you do regularly that you truly hate to do? Why do you do them? Are these in any way worth the reward you get for doing them?
What things are preventing you from doing more of the things you love and less of the things you hate? How can you remove the things that stop you from doing more of the things you love?
When was the last time DIDN’T feel badly about a purchase you made? Why did you feel good about it? When was the last time you felt horrible about money you spent? Why did you feel badly about it?
Jot down your answers and do some ‘reflecting’ on them over the next week and share your thoughts with your partner, close friend, or with me on our Facebook discussion group: Budgeting Group Sick of the Hustle https://www.facebook.com/groups/358488774329894/
My son revealed to me at age 14, that he wants his first car to be a Cadillac STS. My daughter wanted a Jeep. Some kids want BMW’s, Mercedes, Audi’s or Land Rover’s to drive but it doesn’t mean we can run out and get them what they want. We usually make sure that the purchase is a realistic one that makes sense. One they can afford to buy on their own (for some), or one that they can contribute to (for others). Some kids are given their first car, but most parents aren’t buying their sixteen year old a new BMW.
There are many ‘teachable’ moments in terms of ‘finances’ that we can use in guiding our children. The ‘first car’ is one of them. Putting your kids on a ‘commission’ at an early age and paying them once a week for their chore list, instills that they earn when they work. They gain a sense of ‘ownership’ and ‘pride” in their efforts. They get to watch their efforts accumulate and they can set goals for how they will use THEIR money.
My son Alex is diligently saving HIS money as of this writing for his first car. I had established early on (age 12) that I am not buying him his car (same with his sister 3 years ago so he knows I’m serious) I will ‘match’ what he saves up to $3000. I had to set a threshold, because Alex WILL work and save diligently to get the car he wants which could have turned out to be a $14,000 ‘first car’. Let’s face it, when it’s their funds they are using, they make more calculated decisions, versus when we are picking up the tab. When we let our kids know that we aren’t paying for all they want because we already provide what they ‘need’ they may at first seem slighted, but they come around eventually.
They learn patience. They learn contentment. They learn to negotiate. They learn to shop and research. And most importantly they learn they are capable.
I believe these qualities are so important and if I can use the ‘first car’ as a way of invoking them, it’s a win win for both of us! Have you thought about milestones that you can use to raise financially responsible young adults?
In order to achieve ANY goal you must have a plan. If you are going to teach your kids how to walk you don’t just tell them to run, you hold their hands and let them learn to take ‘one step at a time”. The first step in learning how to handle your finances is applying basic math. The second is learning how to budget! Budgeting is a scary word for many people but it truly is basic math… MONEY IN/MONEY OUT. If you chose not to look at the basics you CAN’T win with money. Your family, your business should not be run like the Government! When you spend more than what you have you create a mess. You create a system of “borrowing to pay for not only the extra things you want like vacations, clothes, cars, dinners — Eventually you begin ‘borrowing to pay for basic necessities such as groceries, gas, cable, etc…. Eventually the stress and the pressure of continued borrowing steals our JOY! We find at this point that we are working for the past not our future.
Listen, we are all bombarded by marketing messages day after day that lead us to believe that ‘borrowing’ is normal. I pulled a stat last week that showed that Bank of America was spending $25million a MONTH to bombard us with internet ads! SICK!! We start to have the mindset that car payments is ‘normal’. That having a bigger house as long as you can ‘afford the monthly payment’ is living the American Dream. But without proper planning and a true strong hold on your spending and planning these things start to become the American Nightmare. We can turn it around just by getting back to 3rd grade math (or in today’s society, Kindergarten math!) and by taking a REAL look at what is coming in and what is going out and making a conscious decision to NOT spend more. NOT to borrow. NOT to charge our lifestyle on a credit card. Many of us have gotten bitten by this bug and many have had to ‘bankrupt’ their way out of it. Ok, done. NO REPEATS! But I’ve found that many of the people I have worked with and coached back to financial wellness had not changed the ‘behaviors’ that led to hitting the ‘restart button’ and kept repeating the same mistakes. It takes time to see that Bankruptcy (not medical related bankruptcies I’ll add) is not a cure it’s usually a symptom of other financial issues/behaviors that need fixing. We learn quickly that we CAN’T Bankrupt our way out and many times find that even if we tried, we can’t get rid of past due IRS Debt, past due Child support, Past due Student Loan payments. So I’m here to tell you to focus on and to learn what you CAN FIX!
WE CAN FIX our lack of income, communication in marriage, spending habits. We can fix DOING something different. We can decide and learn to move differently, behave differently, and experience real change in this area of our lives. If you would like help with budgeting and creating an individualized plan to walk yourself in a new direction, check out my coaching packages.