Money Management for the OVERWHELMED

EXCITING NEWS: I was selected to deliver a national training in San Francisco this November entitled: Personal Finance Solutions for Busy Mental Health Professionals. This 3 hour workshop includes material from my upcoming eBook. Stay tuned to get first crack at the NEW EBOOK. And it’s FREE to my readers. 

“The greatest weapon against stress is our ability to choose one thought over another.”  William James 

Stress and adversity hit us all. What defines a person of strength is how she/he handles the challenges. Follow William James’ advice, choose calm thoughts, and tackle one task at a time. 

Be calm & hang on to your sense of humor.

MAIN TOPIC: THINGS AREN’T GOING AS PLANNED

Have you ever felt like the s—t is hitting the fan? At every corner there is a new problem or difficulty to contend with? All of your plans and expectations are in the toilet!

Welcome to my world. There are a lot of stressors in play now-not really financial – but other things going wrong ALL AT ONCE. Unfortunately, when things go wrong, we still need to go on living and keep up with our responsibilities, especially our financial ones. What happens if in the midst of chaos, you let your finances go on the back burner? …….TROUBLE FOLLOWS….   Fees, interest, and more expenses make things WORSE. 

This article is for those times when EVERYTHING SEEMS TOO MUCH. When your mind is consumed with lots of other things, do the bare minimum. Keep focused, don’t freak out, and only do what’s necessary.
 

PRACTICAL APPLICATION: READ THIS IN TIMES OF STRESS & CRISIS

Be in the present. I know your mind is going in all different directions, but you can’t concentrate with too much stimuli. Deal with the most important task first. 

Take a deep breath. No, really, do it. Now, take another one. 

During times of stress, your goal is this; do only these 4 money tasks. 

1. Pay all bills on time.
2. Continue with debt repayments, pay more than the minimum.
3. Continue to keep track of your money in your pocket and in your accounts.
4. Maintain adequate balances to avoid fees in your accounts.

THAT’S IT. NOTHING MORE. Or maybe you could smile and think about something funny, like penguins. 

When things get crazy, slow down and SIMPLIFY. But don’t forget basic money management. If you do, MORE STRESS WILL FOLLOW. 

Read more about this topic at Funny about Money in Getting over it, Strategies to Conquer Stress and Money. 

Add to the conversation. How do you deal with stressful and overwhelming times? What are the tricks that work for you? 

 ACTION STEP:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans. 

Take a moment to slow down and follow the 4 steps.  

BarbaraFriedbergPersonalFinance Around Web 

I am honored to have my work showcased at these sites recently. Why not stop by the CARNIVALS and round ups to check out the fine articles?   

Carnival of Personal Finance at Budgeting in the Fun Stuff published No Brainer Money Management for College Students  

KNS Financial  referenced IF you Need Extra Money; Do not do this, on his site last week. 

Dividend Monk and Invest it Wisely both included  The Best of BarbaraFriedbergPersonalFinance; 6 Month Anniversary Edition in their round ups this week. 

YAKEZIE PERSONAL FINANCE BLOGS 

After every article for the next several weeks, you will be introduced to several Personal Finance web sites in the Yakezie network. Each one has their own unique voice and style. The consistency in all is their desire to help others. Consider visiting a few each day! 

Suburban Dollar
Sustainable Life Blog
Sweating the Big Stuff
The Amateur Financier
The Centsible Life
The Consumer Boomer 

EXCITING NEWS: I was selected to deliver a national training in San Francisco this November entitled: Personal Finance Solutions for Busy Mental Health Professionals. This 3 hour workshop includes material from my upcoming eBook. Stay tuned to get first crack at the NEW EBOOK. And it’s FREE to my readers.

“Life consists not in holding good cards but in playing those you hold well.” Josh Billings

Build skills in all areas. Set goals. Success will follow.

MAIN TOPIC: Pay attention to your Spending

Esmerelda  is a college student with lots of money trouble; ATM fees, overdrawn account fees, credit card late and interest fees, rescinded credit card, late fee on tuition account, and overspending in general. Hundreds of dollars in fees and interest ate up her meager savings and caused her LOTS OF STRESS!!

I want to save you from Esmerelda’s troubles.

At the beginning of the school year, you college students are on your own for the first time with worries about friends, school and MONEY. I’ll leave the friends and school worries to someone else. But I CAN TEACH YOU WHAT YOU NEED TO KNOW ABOUT MONEY MATTERS while you are in college.

IT IS YOUR RESPONSIBILITY TO HANDLE YOUR OWN MONEY whether you get cash from mom & dad, loans, jobs, or any combination. Follow these steps and you’ll have LESS MONEY STRESS NOW & LATER.

PRACTICAL APPLICATION: Get Control of your Cash

1. Open a checking account and savings account with NO FEES, for college students.

2. Arrange with employer to have check AUTOMATICALLY deposited in your savings account.

3. Use an on line account or bricks and mortar bank or credit union.

4. Ask these questions and only open if they say NO FEES in writing:

Do you have an account for college students with no fees at all?

Does this account offer free ATM withdrawals?

5. If you need a loan for school expenses, go straight to the Financial Aid office for HELP. Work with them as long as it takes to get the money you need. That’s what they’re there for!

6. TOTAL ALL YOUR INCOME- Estimate income from job, loans, parents, scholarship, and aid. WRITE DOWN YOUR INCOME IN A NOTEBOOK or chart like this one. Categorize by month or lump sum.

7. Complete a chart like the following and write down every expense you are responsible for; cell phone, tuition, rent, utilities, car payment etc.; include amount; date due; how paid. These are charges that are FIXED and don’t have much flexibility.

8. Add up your expenses write in the last line of the chart.

9. Next, add any expenses that you control; beer, restaurants, entertainment, etc. These are your DISCRETIONARY EXPENSES. These are the easiest places to cut spending.

10. TOTAL ALL YOUR EXPENSES.

11. If you have a credit card, use only for emergencies. If you don’t have the cash, don’t spend it!

12.  If you have a credit card, PAY THE BALANCE DUE IN FULL AT THE END OF EVERY MONTH.

13.  The money that is not due monthly, like your tuition or insurance, should be in your savings account. Make sure that the amount you will need for these infrequent payments stays in the savings account until you need it.

14.  Pay every bill early. At least a week before the bill is due, pay it.

15.  Bunch up bill paying into 2 times per month.

16.  Look at your income and expenses-Are you spending on things or experiences that are worthwhile to you? REALLY THINK ABOUT THIS ONE. If not, curb your spending.

17.  Read The Secret to Saving without Sacrifice here.

18.  Studies come first, but if you have extra time, consider partying less and get a part time job.

19.  Every month, put your discretionary money from each category in an ENVELOPE and label it. For example, $80.00 cash goes in an envelope at the beginning of the month. After you spend that $80.00 you are done with entertainment for the month!!!

20.  At the end of the month, analyze your income and spending. Complete another Income and expense tracking sheet. Make changes according to the info from the prior month.

ACTION STEPS:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

1. Read the entire article again.
2. Choose one or two steps to begin immediately.
3. Write in your planner the steps to take.
4. After completing the first steps, repeat until all are completed.

Write in with your questions and experiences.

YAKEZIE PERSONAL FINANCE BLOGS

After every article for the next several weeks, you will be introduced to several Personal Finance web sites in the Yakezie network. Each one has their own unique voice and style. The consistency in all is their desire to help others. Consider visiting a few each day!

 The Debt Hawk
The Millionaire Nurse Blog
The Saved Quarter
The Wealth Artisan
Ultimate Money Blog
Watson Inc

EXCITING NEWS: I was selected to deliver a national training in San Francisco this November entitled: Personal Finance Solutions for Busy Mental Health Professionals. This 3 hour workshop includes material from my upcoming eBook about Investing. Stay tuned to get first crack at the NEW EBOOK; and it’s FREE to my readers.

The following is a guest post from Crystal at Budgeting in the Fun Stuff, where she writes about finding the balance between paying your bills, saving for your future, and budgeting for the fun stuff along the way.

Free Money Finance (FMF) had this post  which went over an article from Yahoo that listed the worst paying jobs for doctors.  The absolute worst paying position still brought in $175,000*.

Well, based on past posts  at FMF and others I’ve seen online, some commenters argue that doctors still carry high debts because they “have to”  live in the nicest neighborhoods, drive the best cars, and send their kids to expensive private schools.  They also have student loans.

FMF’s post argued that even with liability insurance and student loans, a doctor should be able to build wealth quickly.  I completely agree.

Let’s say a doctor has to spend 50% of his/her salary on insurance, taxes, and expenses like that.  That would still leave the worst paid doctor with about $87,500 a year.  I’ll also say that this hypothetical doctor has $150,000 in student loans as the average college debt for doctors was listed at $140,000. 

Well, if  I made $87,500 a year, I’d live and save a little off of $40,000 and put the other $47,500 towards my student loan debt.  I’d be debt free in less than 4 years.  Then I could send that extra towards my average $200,000 mortgage in Texas (paying it off in less than 5 years) or even add more to retirement savings.

This would mean that I could be completely debt free within 9 years of graduating and own a really nice house to boot.  I’d also have $2 million saved for retirement within another 21 years if I could get an average return of at least 6%.

What about the nice car and expensive private schools?

Well, do you know what your doctor drives?  I have no idea.  That $40,000 a year budget could easily include a car payment of $350 a month (ours did).  If I was a doctor, I’d drive whatever I’d like that could comfortably and consistently get me from Point A to Point B.  I like the Toyota Prius, so I’d buy one of those with cash or use my awesome credit to get a low rate in the beginning when I’m strapped.  I’d still have it bought outright within my first 2-3 years out of college.

I don’t have kids, but even if I did, the public schools where I live currently are one of the highest rated districts in Texas.  My kids could go there.  If they needed more mind stimulation, I could hire them a personal tutor or even afford to send them to private school with cash by the time they were in middle school.  I might have to drive a worse car or retire on less or push back retirement a few more years, but I could remain debt free.

Some of you may argue that it is impossible to live on $40,000 a year.  It’s not – we do it and live pretty happily.  We make about $60,000 a year after taxes, insurance, and benefits.  We save about 40% of that ($24,000) - 30% for retirement and 10% for shorter-term goals.  We live on the other $36,000 a year.  We have a pretty nice house (1750 sq.ft. 3 bedroom that was built in 2004), 2 cars, and even fun extras.

This article made me regret not liking science, math, or college enough to pursue a medical degree. 

*That $175,000 is an average and doesn’t take into account the doctors that make scraps working for charities or non-profits – please don’t yell at me for them. 

How about you, could you build wealth pretty quickly by taking home “just” $87,500 a year?

YAKEZIE SHORT CARNIVAL

Enjoy this personal finanance reading; stop by their sites to read more.

 How to Create a Budget-Setting Goals at KNS Financial

 How do you know if you are rich? at Living Financially Free Ministries 

Crank Up Your Money Saving Goals With SmartyPig at Free From Broke 

Summer’s a time when you can kick back, relax and read a bit more. In that vein, I’d like to recommend some enjoyable and informative articles I’ve come across recently. Get a taste here, and stop by the authors’ sites for the full versions.

Could the Free Market have Ended Racism?

Let me state, I am not a fan of racism (As a matter of fact, some might call me a “liberal.”)! I don’t think the free market is enough to end racism but read on to hear a fascinating discussion at The Amateur Financier:

“ ‘The free market, as usual, will address the problem.  It punishes racists.  A business that doesn’t hire blacks will lose customers and good employees.  It will atrophy while its more inclusive competitors thrive.’ (John) Stossel raises an interesting point: could the free market have ended discrimination without government intervention?  Or were the government actions like the Civil Rights Act and its prohibitions on employment discrimination a needed remedy to the segregation era?”

2010 Tax Brackets; Which Income Tax Bracket am I in?

No one is enthusiastic about paying taxes, that being said…. the more you understand about the system, the more likely it is that you will KEEP MORE OF YOUR CASH! Read on about this important issue at The Oblivious Investor:

“The Federal income tax is referred to as a “progressive tax.” Of course, it’s not progressive in the same way that a social movement could be said to be progressive. What the term means in this case is that, as your taxable income increases, so does the rate at which you are taxed. People will often make statements such as “I’m in the 25% tax bracket.” For example, as you can see in the table below, a single person with a taxable income of $40,000 would be in the 25% tax bracket. People frequently misunderstand this to mean that all of the person’s income is taxed at a rate of 25%. In reality, the person’s overall tax rate will be much lower.”

The TAO of the Intellect

Loved the title, and the content gets you thinking… just not too much! Read more at Early Retirement Extreme:

“Another very human trait is to weigh recent information more than historical information or worse, weigh it higher than  “what is not seen”. The latter causes an enormous amount of confusion. One might almost say that the entire field of economics is dedicated to solve this problem (the broken window fallacy), at least after a couple of beers.”

Six Tips from Yorkshire’s Top Thriftiest Grannies

Who wouldn’t want to read this post? The grannies have the best tips; here’s a sneak peek, read more at Miss Thrifty:

“TOP TIP 4 – Pack junk mail into the empty cardboard toilet roll tubes and use them as firelighters.”

Good Debt vs. Bad Debt 

I agree with MOST of the content here… but read on and see what YOU think. Young and Thrifty has a great writing style, enjoy….. 

“Yes.. I mentioned the “D” word. Debt. Just letting that word roll off your tongue makes you feel like you have halitosis. Well, get that tongue scraper and Listerine out, because as surprising(and somewhat crazy) as this may sound, there is such thing good debt AND bad debt.”

Crank up your Savings Goals at Smarty Pig

Right now, get a (relatively) high yield at this unique goal-oriented savings site as discussed at Free From Broke.

“Whether you want to save up $500 for back to school shopping, or $5,000 for a family vacation, it is possible to use SmartyPig to reach that goal.  The concept is fairly straightforward, and works simply.”

Could you Give it all Away?

The uber-wealthy Bill Gates and Warren Buffett are doing just that? Join the discussion at Beating Broke:

“At the real bottom of this is a more important question.  Why do we build wealth?  What purpose do we give our lives that we strive to attain wealth.  In Warren Buffetts case, I think you could argue that he has always seen it as a challenge.”

Buying Blogs, Selling Blogs: How I Built my Blogging Business

Sam at the Financial Samurai is somewhat of a “rock star” in the personal finance blogging world as founder of the Yakezie Network. This guest post on his site is a real peak inside the “business of blogging.”

“This is a guest post written by Mike, a young financial planner / web entrepreneur who is pursuing his dream of running his online business. You can follow his progress at The Financial Blogger and read his other financial blogs at Green Panda Treehouse and Intelligent Speculator. 3 years ago, I was told by many bloggers: “You will never make money blogging. And if you do, $200/month will be your highest peak ever”. Three year ago, The Financial Blogger was averaging 500 visits per month and I was ecstatic when I made my first deal of $10 for a link. Three years later, I now run three financial websites, bought 2 of them and flipped a blog within a year.”

My Teen-age Son, the Cell Phone, & a Bill for $1,055.20

Len Penzo dot com is one of the most hilarious personal finance writers around. He DOES NOT DISAPPOINT with this uproarious post about his son’s adventures with texting & a new cell phone:

 ”I can’t remember the exact day he first requested his own cell phone, but I am quite certain the first letters he learned in school weren’t A-B-C.  They were A-T-(T). When Matthew turned 12 last year, we decided it was finally time to grant his wish.   The only condition was that he had to pay us $25 per month to maintain his account.  Knowing that he could easily earn $40 per month by simply mowing the lawn and doing chores around the house, Matthew readily agreed – and so we got him his phone.”

CARNIVAL of Money Stories 2 featured my article this week; Reduce Stress Get Rid of Dysfunctional Money Behaviors-Part 2. Read my article as well as other money stories at this informative round up.

“Overcome a Passion for Procrastination (in dealing with financial matters). ‘Procrastination is like a credit card: it’s a lot of fun until you get the bill.’ Christopher Parker

This young actor hit the nail on the head! Avoiding and procrastinating seem fine, for a while. Later- the price you pay for procrastination is quite HIGH. Charge away with the credit card; if you don’t have the cash to pay it off every month, you are walking on a treadmill of pain.”

ACTION STEP:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

Today, and every day, LEARN SOMETHING NEW!

What do you think about this summer reading? Agree, disagree, join the discussion……leave a comment.

Overcome a Passion for Procrastination (in dealing with financial matters)

“Procrastination is like a credit card: it’s a lot of fun until you get the bill.” Christopher Parker

This young actor hit the nail on the head! Avoiding and procrastinating seem fine, for a while. Later- the price you pay for procrastination is quite HIGH. Charge away with the credit card; if you don’t have the cash to pay it off every month, you are walking on a treadmill of pain.

MAIN TOPIC: Behavior is Everything-Avoid Financial Procrastination

This article is the second in a series relating poor money behaviors with stress. The topics are inspired by an article entitled Emotions, Money, & Financial Stress by Nancy Losinno, published at the US Department of Energy, Brookhaven National Laboratory website.

Procrastination is an evil and insidious behavior. It starts out benign and continues until it ruins everything it touches. Our summer guest Juan, discovered the problem with procrastinating the hard way. When he got his first credit card Juan checked on the balance on line, charged a few things, and didn’t pay the bill the first month. OK, not too much of a problem. But the reminders to pay came, and JOSE ignored them! Avoidance is procrastination’s ugly brother. He pushed the card out of his mind. It seemed too “complicated and difficult” for him to deal with. 

Lo and behold, the second month, after not paying the bill, his card was refused at a merchant. It disturbed Juan, but he quickly put it out of his mind, with an explanation to himself, “there must be something wrong with the card, I’ll worry about it later.”

After several months of non-payment, Jose racked up late fees and finance charges equal to his original balance. But he didn’t notice as he continued to procrastinate and avoid dealing with his bill. 

Juan had the money to pay the bill, but continued to avoid paying because it seemed complicated.

In our efforts to get Juan on track, we walked him through the payment process. 

Total time spent paying the credit card bill online: 15 minutes

Total late charges and fees: $125.00

 

Unfortunately, the story does not end here. After paying the bill in full, he attempted to use the card to pay for his summer school tuition. THE CARD WAS DENIED.

All of this stress and expense, not to mention potential damage to his credit rating, occurred because he PROCRASTINATED. 

PRACTICAL APPLICATION; How to Combat Money Procrastination 

Money is a great big mystery and secret for many of us. There are couples who don’t talk about it, overspend, don’t tell their partners what they buy, etc. Individuals use shopping as therapy and then PROCRASTINATE dealing with the bills. Overspending is bad enough, procrastination in dealing with the spending is worse.

PROBLEM 2: PROCRASTINATE handling money matters.

PROCRASTINATION in paying bills leads to problems; poor credit, debt, and stress. Just like other unhealthy behaviors; eating junk food, lack of exercise, money procrastination can be turned around.

Begin changing the PROCRASTINATION HABIT & reduce money and life stress.

SOLUTION:  

1. Be honest and ask yourself: “HOW HAS PUTTING OFF DEALING WITH FINANCIAL MATTERS WORKED OUT FOR ME?”
2. Schedule time on your calendar to deal with money stuff.
3. Make an appointment with your partner to talk about money.
4. List your debts.
5. Put every bill in a basket near where it is to be paid.
6. Pay bills 2 times per month or better yet, arrange to have regular bills taken out of your bank account.
7. If you miss a payment, do not compound the mistake by “ignoring it.” Call the merchant, and inform him that you are paying immediately, then DO IT.

New habits do not occur overnight. Habits are developed over time with regular practice. Day by day, rehearse these “solution steps.” When you catch yourself slipping back into the “passion for procrastination”, immediately, correct course and go back into action.

DO A MONEY TASK TODAY and reduce stress.

Stay tuned for part 3: Money & Relationships-Make it Work!

ACTION STEPS:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans. 

• Make a “MONEY to do” list of tiny action steps.
• Do one difficult money task each day.
• PRACTICE dealing with the bills even though it is unpleasant.

 Write in a talk about how you tackle the insidious passion for procrastination.

Image credit: [j]t

YAKEZIE SHORT CARNIVAL:

Check out these personal finance articles by talented Yakezie writers:

This 1 Question Will Change Your Spending Habits at Financially Poor           

Save on Gas-11 Extreme Tips at Car Negotiation Coach             

Is it OK to Splurge When You’re in Debt? at Cool to be Frugal                   

Categories: credit, debt, goal setting, life

“Say NO out of love, and yes out of weakness.” Suze Orman

This means, NO to yourself for frivolous spending, NO to your kids. And NO to extravagances (you cannot afford) or wasteful spending. You will increase love of yourself and those around you when you practice the discipline to say NO.

MAIN TOPIC: The True Cost of Debt

Keep positive-debt sucks, you got yourself in trouble, accept it, and move on. Until you face up to reality and make a decision to get rid of the pain. You will continue to perpetuate it.

Here is the cost of making the minimum payment:

Let’s say you have $5,000 credit card debt.

 With an interest rate of 20%

If you pay the minimum payment of $133.33/month (declining slightly in later months) it will take ALMOST 23 YEARS to pay off the debt, and you will have paid $7,732.00 interest. That’s right; you will have paid a total of $12,732.00 for the privilege of buying $5,000 worth of goods.

With an interest rate of 9%

If you pay the minimum payment of $87.50/month (declining slightly in later months) it will take ALMOST 21 YEARS to pay off the debt, and you will have paid $3,373.00 interest. That’s right; you will have paid a total of $8,373.00 for the privilege of buying $5,000 worth of goods.

Now triple the $87.50 and pay $261.00 each month.

With an interest rate of 9% and a monthly payment of $261.00 it takes only 21 months to pay off $5,000.00 and you will only pay $418.00 in interest.

FACE REALITY; you need to pay down debt, for these reasons:

• Reduce stress
• Secure your financial future
• Reach you goals
• Add your own reasons:
• ______________________
• ______________________

 PRACTICAL APPLICATION; Here is the Plan

There are all sorts of calculators, systems, and plans for debt reduction. I’m not suggesting they are bad, and if they work for you, great. But, my premise is consistent; MAKE IT SIMPLE. Debt reduction does not need to be complicated. Let me repeat this; DEBT REDUCTION DOES NOT NEED TO BE COMPLICATED!!

Here is a strategy to get rid of debt, NOW. I don’t know how long it will take, and if you want to find out, feel free to check out one of the debt calculators above. But the BarbaraFriedbergPersonalFinance premise of debt reduction is like the “NIKE” school of thought: Just do it! Don’t obsess on how bad it’s going to be or how long it’s going to take, just follow these simple steps and begin!

1. Stop using all credit cards. NO EXCEPTIONS!

2. Renegotiate your interest rates – Lower your interest rate(s) now and decrease the total amount of interest you end up paying.

Call the number on the back of the credit card and ask to speak with customer service.

Here’s how Luiza did it.

Luiza: Hi, my name is Luiza and I currently have a $5,000.00 balance on my “CREDITSTINKS” credit card. The interest rate is currently 20% and I would like to lower the rate to 9%.

Customer Service: I’m sorry, I don’t have the authority to do that.

Luiza: Please connect me with a supervisor.

Supervisor: What can I do for you?

Luiza: Hello supervisor, I would like to lower my interest rate to 9%.

Supervisor: I’m not sure I can do that.

Luiza: Well, I would like to keep my business with your company, but if you cannot lower my interest rate, I will need to transfer my balance to a card with a lower interest rate.

Supervisor: We want to keep you as a customer. We can only lower your interest rate to 14%.

Luiza: Then I guess I will need to follow up with one of the other companies who offer me a 1.5% rate for a balance transfer.

Supervisor: Well, I guess I can lower your rate to 9%.

Time spent: 10 minutes

3. Repeat process on every credit card. Don’t worry about calculating how long it will take to pay off your debt.

4.  Pay at least TRIPLE the minimum on THE SAME CARD EVERY MONTH.

5. Pay double the minimum on the remaining cards.

THAT’S IT. You are done. Look, if you can pay more, wonderful. DO IT! If you can only pay triple on one card (and not double on the others), do that and just pay the minimum on the others.

When the first card is paid off, move on to triple the minimum payment on the next one. As you see the balance on your debt declining, your motivation to pay it off goes up.

No purchase is worth the pain of being in debt!

ACTION STEPS:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

1. Make the call to lower the rate on ONE CARD TODAY. Don’t delay.
2. Read about  RichMomSingleMom’s  heartfelt pain of debt, and let it motivate YOU like it motivated her! (She’s now well on her way to wealth!)

RELATED POSTS:

Help I Can’t Save, I’m too Far into Debt-Part 1

Help I Can’t Save, I’m too Far into Debt-Part 2

“It is imperative that we make consumers more aware of the long-term effects of their financial decisions, particularly in managing their credit card debt, so that they can avoid financial pitfalls that may lead to bankruptcy.” Daniel Akaka 

Not really much to add to this quote except—-PAY ATTENTION TO YOUR SPENDING!

MAIN TOPIC: What Happened After Esmerelda got her Credit Card?

In Understanding Credit Part 1 you learned of Esmerelda’s foray into the world of credit. Let’s revisit Esmerelda and find out how she faired with her first credit card.

Esmerelda gets a credit card and uses it a few times. Flash forward a few months; Esmerelda got a letter from a credit agency reminding her to pay her past due credit card bill. It turns out that she never paid ONE bill on her new credit card. How did this happen?

This is how Esmerelda explained it to me…..

“I was so proud of myself when I got the card, and I went directly to the web site to input my bank information for direct payment. I patted myself on the back for how responsible I was,” she said to me. After that introduction, I was somewhat perplexed at the bill collection letter she received on behalf of the credit card company.

So I responded, “So, what happened?”

Here’s where the story goes downhill. “I went back to check that my payment had been received,” reported Esmerelda. The credit card site said the payment had not been received. So Esmerelda did what I suspect some of you have also done. She ignored the message and assumed there was just a problem with the site.

Esmerelda went on about her life, and forgot about the message stating the credit card bill was unpaid. Esmerelda didn’t worry too much when her credit card was denied for payment. After all, she still had her debit card. She was a master at “compartmentalizing” and so just forgot about the issue.

As a close confidant and financial resource, she came to me for help. After some prodding, it turns out she input her debit card number instead of her bank account and ABA bank routing numbers into the credit card web site. Had she put in the correct numbers, everything would have been ok.

In the end it worked out ok. Fortunately, her credit was cut off before she had the chance to do much financial damage. She returned to the site, input the correct numbers, and paid the bill. It remains to be seen whether this will impact her brief credit history or not!

Practical Application: The BIG LESSONS!

What are the take-aways from Esmerelda’s unfortunate credit card adventure?

• When you get a credit card, you must pay the bill on time or else………….. bad things happen. There is no way to avoid paying the bill. It will not go away.
• If you do not pay the bill within the allotted time, the credit card company adds on MORE CHARGES, called “finance charges” and “interest charges.” That means you are borrowing money from the credit card company. For that privilege, you pay a fee (finance charge) as well as interest (a percent of the outstanding bill).
• If you continue to avoid paying the bill, then the fees and interest charges (18%) continue.

• Still haven’t paid after 2 months? You owe $173.46 and your bill now goes to a collection agency. That is a company that is hired by the credit card company to collect their debt.
• The bad thing about going to a collection agency is….. you still have to pay the bill, the interest and fees continue to accrue AND the CREDIT AGENCIES are notified of your delinquent account.
•  Once you have a non-payment or late payment reported to the credit agencies, more bad stuff happens.

 In life and credit, you must pay your bills. Don’t buy something you cannot afford to pay for AT THE TIME OF PURCHASE. Going into adulthood is difficult.

 Learn to pay your bills early and make life easier for yourself.

ACTION STEP:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

 For a month, pay for everything you buy with cash.

Write and share how it works out.

YAKEZIE SHORT CARNIVAL:  Pay Off Highest Interest Or Highest Balance Credit Card – Analysis Paralysis @ Free From Broke -   What Scrooge McDuck Taught Me About Finances @ Saving Money Today -  Are you a Monthly Payment Buyer or Budgeter? @ Car Negotiation Coach

Categories: credit, debt

“I can’t speak for them, of course, but I believe that most economists would accept the view that, while you sometimes can make a score by sheer luck, you can’t do it constantly, unless you’re willing to put the resources in. “ Merton Miller

There is minimal luck in achieving a high credit score! As in most life endeavors, even maintaining strong credit takes effort.

MAIN TOPIC: I’ve Got a Secret

When I first started buying real estate, I had no idea what a credit score was. People didn’t talk about credit scores and I just assumed there was ONE interest rate, depending on the term of the loan. In other words, if you took out a loan for 30 years, then you got the banks prevailing interest rate. Now, I did understand that each bank or lender banks might charge a slightly different rate, but I had no idea that the rate varied based on the CREDIT SCORE of the borrower! As ignorant as I sound today, back in the last century, most borrowers didn’t know much about the ins and outs of the CREDIT SCORE.

 Did you know?

You might earn $500,000/year and have lousy credit.

Even those of us who pay off our cards every month might not have the top credit scores!

According to the Consumer Federation of America, only 31% of consumers know what a credit score means. So don’t feel bad if you are one of the 69% who are clueless about them.

PRACTICAL APPLICATION: Here are the Key Facts about your Credit Score!

 What is a credit score?

• It is a number used by lenders to determine how trustworthy you are to pay back a loan. The more trustworthy you are, the lower the interest rate on your loan.

 Where can I find my credit score?

• My fico.com. You’ll probably have to pay for it.

 Why should I care about my score?

• You can save money when you borrow 
• Be more competitive when vying for a job
• Maybe save money on insurance
• Qualify to rent an apartment

 How much could I save on a mortgage with good credit?

• FICO score 760-850; Interest Rate 5.82%: Monthly payment $1,764
• FICO score 500-579; Interest Rate 10.31%; Monthly payment $2,702  (30 year fixed mortgage rate for $300,000 loan)
• Difference between best and worst score; almost $1,000/month

What goes into a FICO score?

• 10%  Type of credit used
• 10%  New credit
• 15%  Length of credit history
• 30%  Amounts owed
• 35%  Payment history

How to get and keep a good credit score?

• Get your credit report from annualcreditreport.com. It’s free. Fix any mistakes by following the credit bureaus’ directions.
• Pay your bills on time.
• Only use 10% of your available credit.
• Pay off your excessive debt. See why here.  

Where did you get this information?

 Most of this information came from 1-2-3 Money Plan by financial columnist, Greg Karp.  

ACTION STEPS:

 Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

1. Get your free credit report
2. Pay off your credit card every month.
3. If you can’t pay the bill in full, pay more than the minimum and don’t charge any  more until it is paid off.

Categories: debt, credit

“Banks introduced the installment plan. The disappearance of cash and the coming of the credit card changed the shape of life in the United States.” Jerzy Kosinski

It’s amazing to consider that 50 years ago, credit cards where rare. Most people paid cash for their purchases. And what happened if they lacked the cash? You guessed it, they didn’t buy!

MAIN TOPIC: A Story of Esmerelda’s First Credit Card

Without mentioning any names, let me just say, someone very close to me got her first credit card. Well, on second thought, let’s give her a fictitious name, Esmerelda.

Upon receipt of her card, Esmerelda asked, “What do I need to know about the card?”

 I said, “First of all, you have a spending limit on this card; do not spend any more than your limit. Second of all,” I continued, “Pay off the total balance due on your card every month.”

She then asked, “Is there anything else?”

I replied, “If you do those 2 things, you’ll be fine!”

As far as I knew, that was the end of the conversation. … until Esmerelda asked if I could “help” her with the card.

I said, “What’s wrong?”

And she responded, “It’s not working right.”

Now, I’m not sure what happened because we never finished the conversation. She mentioned subsequently that the card was not accepted when she tried to buy a train ticket with it. But, that’s all I know. Esmerelda did not bring up the topic again.

PRACTICAL APPLICATION: How to Stay Out of Trouble with a Credit Card

There is an incredible amount written about the evils of credit cards and some thoughts on the other side about the benefits and rewards.

In today’s society, credit cards can be helpful when used responsibly and occasionally.

You can’t rent a car without one. You need one to make airline and hotel reservations too. When you get ready to buy a home, lenders like to see that you have used a credit card responsibly.

 They can also cause a mountain of trouble if you charge more than you are able to pay off completely at the end of the month.

Credit cards are kind of like guns. People are responsible for the deaths associated with gun violence. And people are responsible for the debt accrued with improper use of credit cards. Learn to use credit wisely and no one will get hurt.

These tips, if followed RELIGIOUSLY will keep you out of credit card trouble and get you started using credit responsibly.

Get a credit card with NO ANNUAL FEE

Get a MasterCard or Visa, because they are accepted everywhere.

Sign up to have the FULL BALANCE of the card deducted from your bank account every month. Double check and make sure it happens EVERY MONTH!

When you make a purchase on your card, save the receipt and keep a running total of EVERY purchase made with your card.

NEVER go over your spending limit.

Hold no more than 2 cards. You do not need any more credit cards.

That’s it, you’re done. No exceptions, no more.

 If you want something and don’t have the money to pay for it this month, DO NOT BUY IT.

I promise, you’ll live without buying things you can’t afford and your life will be lots happier without credit card debt.

ACTION STEPS:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it to keep all of your personal finance goals, thoughts, activities, and plans.

1. Cut up any cards you have over 2; if you owe on these extra cards, make sure you pay off the balance.
2. If you cannot afford to pay for something, do not buy it! Get in this habit and your life will be much happier!

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Categories: investing, life, money management, & debt

“What is important for kids to learn is that no matter how much money they have, earn, win, or inherit, they need to know how to spend it, how to save it, and how to give it to others in need. This is what handling money is about, and this is why we give kids an allowance.”
Barbara Coloroso

Investing sounds exciting and glamorous. At the start of my investing career, I thought it was so cool to research investments and invest in the stock and bond markets; UNTIL I HAD MY FIRST LOSS. When I saw my first stock pick drop 50% in price, I WAS NOT HAVING FUN!

Investing is not a game, but an important activity to facilitate the accumulation of wealth. In the short run, investing is also an activity which can facilitate losing wealth.

Barbara Coloroso’s advice to kids holds equally true for ADULTS. For that reason, this list tells you in plain English what to do before you even think about investing* and why.

MAIN TOPIC

1. Open a bank checking account-You need to this account for your monthly expenses. Internet or bricks-and-mortar banks are ok.

2. Open a bank savings account-This is where you keep all of your short term savings. Build your emergency fund in the savings account. Internet or bricks-and-mortar banks are ok.

3. Write down your income and expenses for a month-I know this is a pain in the —–. You MUST do this to be in control of your cash. There is no way out! Start with a small notebook or day calendar. Pledge to do it ONLY one day first. After the first day, continue; one day at a time.

4. Make a budget or spending plan-I know this one is painful too; but do it anyway. Find one that works for you. Once you find out where your money is going, you can decide if you are getting enough pleasure from your spending.

5. Follow the spending plan-Do the best you can, you don’t need to be perfect. Adjust along the way. Maybe when you go out for drinks, you’ll decide a beer is as much fun as a martini, and more than half the cost.

6. Pay off all credit card debt-You cannot move forward financially with credit card debt.

7. Transfer a specific amount regularly into the savings account-Don’t worry about the amount in the beginning. Just develop the saving HABIT.

8. Save enough in the savings account to equal 6-8 months living expenses- Allocate this savings for unexpected emergencies and replenish after using.

9. Buy inexpensive TERM life insurance if you have someone (spouse &/or kids) depending on your income-Term insurance doesn’t cost much and if you die, your family/spouse do not end up in the poor house. 

10. Enjoy LIFE and the PROCESS OF LIVING! After all, you’re not doing all this planning to have a miserable life or ONLY for some far reaching goal.

 You must live and have fun along the way.

 *Caveat: If your employer matches your contribution to a retirement plan, then contribute enough to get the employer match. If you don’t contribute, you are throwing away free money.

ACTION STEPS:

Get a notebook and label it: “(your name) Personal Finance” and keep it by the computer. Use it for all of your personal finance goals, thoughts, activities, and plans.

1. Choose one step to take today.

2. Complete one step per week. Enlist a friend and complete the steps together; it will motivate you to continue.