Month: June 2019

11/06/2019

Totally Awesome 10-Step Strategy for Debt Reduction

  • We’re a nation drowning in debt
  • Money is the leading cause of marital disharmony
  • 10 easy-to-follow, clear steps to get out of debt
  • How to go from no debt to debt-free
  • Not doing #3 is the reason most people fail

 

Debt is at an all-time high in pretty much every country in the world and particularly in the western world.

We lurve our debt.

We wanna have all that stuff, all those things. We want to spend, spend, spend and the banks are more than willing to give us the cash to go out and buy all the things the ads tell us will make us happy, more beautiful, sexier, smarter, better.

Of course, the banks charge a premium for giving us this money, but, hey! What price our happiness, right? We deserve all these things because we work so hard, we’re amazing parents, we’re stressed out, we just deserve to have it all.

And we deserve to have it right now. Why would we want to wait till we’ve saved up? We can have that happiness whenever we want it….

…at a price. Between 14% and 24% annual interest rate. Compounded.

But hey! Like I said before, what price happiness, right?

The bank hands us an (unasked for) increase on our credit card because we’ve been good little customers and maxed out our old limit. “Here’s some more money for you to go out and spend!” they say, “Go and enjoy yourself, you deserve it!” So, we do. We go out and splash out on some new clothes, a fancy dinner, some flash new parts for the car, a holiday, and we feel great. “Man, it’s so good having that extra money!” we say to ourselves, “I’m so glad the bank gave us that increase on our card!”

The following month, we get our new credit card statement. We look at the minimum payment that we have to make… and wonder how we’re ever going to do it.

How are we ever going to pay it off?

Our happiness at the new shoes or souped up car or the week spent on the beach in Bali suddenly evaporates as we look at the length of time and the amount of money that it’s going to take us to pay for that brief little boogie of blissfulness.

Here’s some stats. Grab a cup of how, sweet tea, because you’re going to need it.

Say you have a credit card with $2,000 on it. The bank helpfully gives you a minimum monthly payment amount, which we pay, right? We take out the credit and then pay off the minimum.

So, if you have a $2,000 credit card debt with an APR of 17.99% (that’s an average kind of rate for a credit card), the minimum monthly payments on your statement will tell you to pay $41 a month.

“Coolio!” you think, doing some quick calculations in your head, “I should be paying this little charmer off in… just over 4 years: $41 x 49 months = $1,968. That’s a long time, but, hey ho, you can maybe live with it.

Wrong!

Time to pay off the card if you make the minimum monthly payment and – most importantly – don’t charge anything else to the card:

A whopping 18 years and 8 months!

You’ll be paying off those shoes or that holiday or the souped up car parts for almost 19 years, probably 15 years or so after whatever you purchased ended up as landfill or “18 years ago today” reminders on Facebook.

And you’ll pay a total of $3,684 in interest.

On a $2,000 loan. You’ll pay almost double the amount you borrowed in interest alone. You still have to pay off the actual amount you borrowed.

Avoiding debt – or getting out of debt – is something most of us don’t appreciate until we’re swamped by debt. We take out the cards, pay off the minimum monthly amount and keep that sucker maxed to its limit.

We also do the same thing with our Line of Credit mortgages because that’s way cheaper than credit cards, so that’s okay, right?

If you have any loans at all, my advice is to get rid of them as soon as possible. The weight of having to pay them, month in, month out, is dragging us under.

So, set yourself up to win: follow the Terrific 10-Step Strategy to Becoming Debt-Free

1. Get a grip

Take Ownership – The most important step in becoming debt free is to take responsibility.

The credit card companies and advertisers may have encouraged us to go and spend to but it’s ultimately us who racked up those charges.

Stop complaining, stop blaming and start taking control of your life.

Understand That This is a Problem – The banks won’t keep lending you money forever and ever, and you’ll just get further and further into debt.

At some point (probably soon if you’re reading this), you’ll reach your credit limit, there will be no more money available, and you’ll spend the rest of your life paying for all the stuff you’ve bought so far.

Stop wishing that the problem will just go away by itself and start dealing with the situation.

Debt is a problem.

Start reducing what you owe immediately and stop thinking that you can just drag it out infinitely.

2. Get the full picture

Start a Budget – People don’t budget because it’s boring and it can be very, very confronting to face up to how much you actually spend.

Plus, it can be hard work (not to mention depressing) to stick to a budget.

But having a budget is absolutely essential.

Knowing where your money is going is the first step to figuring out how to save more money. The more money you save, the more money you have available to repay loans and get out of debt.

Make a Plan – Trying to get out of debt without a plan is like trying to head off somewhere in your car without a map. You need to work out where you’re going and how you’re going to get there.

The other great thing about having a plan is that you get to see progress. It’s so satisfying to tick things off when you’ve achieved them.

3. Get Support

Have a Regular Meeting About Your Finances – Schedule a regular monthly meeting with your spouse/partner.

Check on where you’re at, how everything is going and figure out whether you can save more money, whether you can pay off your debt quicker than you’d planned, and then list out the actions for the next 30 days.

Just remember: you are unlikely to stick to anything if you feel deprived. Make sure that you allow enough of a buffer to give yourself a few treats.

Find a Debt Reduction Buddy – I can’t encourage you to do this enough.

Having someone to talk to, hold you to account and encourage you when you’re down is crucial.

On top of that, you get to support them when they’re not feeling crash hot about the whole thing, too, and knowing that you’re making a difference to someone’s life is always a fantastic feeling.

Find a friend (not your spouse/partner, have someone outside your close relationship) to work with so you can support each other while you both head towards being debt-free.

I chat with my Debt Reduction Buddy every day for 5 or 10 minutes, just to check on how we’re going and whether we’re on track. Every few weeks, we’ll have a longer call and share in depth where we’re at (my buddy and I live 3,600 kilometres apart!).

But if you can’t talk every day, make it at least a weekly chat, preferably more. Any longer than that and you’ll likely fall off the bandwagon.

4. Educate yourself – give yourself the advantage

Learn the Power of Compound Interest – I discovered the power of compound interest when we first started learning about the whole wealth creation thing. I just never thought about the fact that while compound interest is wonderful at increasing your investments, it’s just as wonderful at increasing the banks’ investments, i.e. the interest on the loans and debts that I have with them.

Read the Fine Print – The majority of us don’t pay any attention to the fine print when we take a loan or apply for a credit card. It’s small print, it’s designed so we just ignore it. It’s generally in legal jargon, it’s boring and so it becomes confusing.

Considering how much the detail can affect us (hidden fees & charges, payout fees, ongoing fees, etc), if you can’t read it yourself, pay someone (a solicitor or legal advice kind of person) to read and explain it all to you.

You’re likely to save far more than their cost when you find out what’s in that fine print.

5. Take care of the pounds

Consolidate Your Debt if Possible – Unless you can keep up with all the bills, sometimes it’s easier to consolidate your debt.

It might make sense to get a low rate personal loan, for example, to pay off all the different credit cards and small loans if the interest works in your favour. It’s a lot easier to manage one loan instead of six.

Credit Cards are Loans – Understand that using your credit card is borrowing money.

When you borrow money, it needs to be repaid.

With interest.

6. Take care of the pennies

Get Rid Of Your Credit Cards – I personally don’t like credit cards. I know a lot of people who use them for business purposes so they can get the rewards or the flights or whatever, but personally, I think they’re too tempting.

It’s so easy to just not pay everything off one month, and then the next month, you can’t pay it all off, it’s too big, and so the cycle of debt starts again (hands up if you’ve done this. Mine’s in the air and waving around like a lunatic).

If you’re like me and you have a hard time keeping yourself from splurging, just get rid of them.

Get a a Visa or Mastercard debit card attached to your bank account, then you can still buy stuff online but it’s not on credit.

Send Multiple Small Payments Instead Of One Big One – Some loans compound daily (read the fine print to find out which ones, or call the lender and ask) so the sooner you can send in payment, the better.

Instead of sending money once a month, send in smaller amounts whenever you have money and it will save you heaps on interest over time.

Ask for a Lower Rate – Call your bank and negotiate your rates.

Do a little research and find the current offers on cards or loan rates, then call your lender and tell them that you’re thinking of moving banks so you can save some money on your payments. But you could stay if they could match their competitors’ rate…

You’ll be amazed at what you can get if you ask for it (like a 1% drop in mortgage rate that saved me $800 a month!).

Sweat the Small Fees – Small fees add up. A couple of dollars here, several late payments there, and you are looking at hundreds of dollars each year.

Our bank fees last year (including business banking) amounted to over $1400. $132.50 of that was in those $2.50 ATM charges. We switched our bank to ING who refund all of those ATM charges, an instant $132.50 a year saving.

Every penny counts.

Instead of paying the banks that money in fees, use it to pay off your loans.

Keep Trying to Trim Your Bills – People are always coming up with ever more intriguing and exciting ways to save money.

Keep scouring the internet, pinning on Pinterest and finding new ideas.

7. Get moving towards debt-free

Debt Snowball – Debt snowball works because you are concentrating on one loan and the psychological benefit of paying each one of them off is tremendous.

The idea is to concentrate on paying off one debt first and then work your way through the rest. You can either pay off the loan with the highest interest rate first or you can pay off the smallest loan first. Choose whichever works for you.

8. Bring in some extra money

Create a second income – The quickest way of reducing your debts  is to put more money into them. Since the amount you can earn from your job is probably limited, you’ll have to increase your income by creating a second income.

You can either build up some form of passive income online through blogging or building an online store or something, or you can get a part time job or build up a part time business such as mowing or dog walking.

Make More Than The Minimum Payment – When people pay the minimum amount due on their card/loan payment, it’s a dream come true for the banks.

Do you really want to take almost 19 years to pay off your card AND pay back almost THREE TIMES what you borrowed?

The only time it’s okay to pay the minimum is while you’re debt snowballing and that’s one of the loans waiting to be paid off.

Sell All the Stuff You Don’t Need – On eBay, Craigslist, Gumtree or anywhere you can. Have a garage sale or go down to the local Car Boot Sale.

9. Keep on track

Don’t Upgrade Your Lifestyle with Income Increases – It’s so easy to instantly upgrade your lifestyle whenever your income increases.

Getting a pay rise or a promotion is brilliant, but before you go out and spend the extra money, put the new figures into your debt reduction plan and see what a difference to your timeline (remember the power of compound interest!).

Just make sure that you allow yourself some celebration splurge to congratulate yourself.

Don’t Keep Up with the Jones – When all your neighbours and friends are buying new cars and going out to fancy restaurants, it’s hard to not want the same thing.

Just remember: this is about delayed gratification. You might not go out for dinner or have the flashy car now but in the near future, when you have no debt…

Fancy Doesn’t Mean Better – We’re taught to equate price to quality. If something is more expensive, it automatically means that it’s better, right?

You know what the best thing is for your health and lifestyle?

Being debt free.

Seriously. Imagine not having to stress about paying bills or whether or not you can afford something. Most marital arguments are about money; get rid of the debt.

10. Structure your life for success

Have Constant Reminders – Reducing debt is about changing the way you think about money. It’s about changing your relationship to money completely, and that’s going to take time and effort before it  becomes automatic.

So, set yourself up to win. Use an app to manage your finances and remind you about upcoming bills or outgoings or put reminders in your calendar or set an alarm on your phone.

Do whatever you can to trigger your mind about your path to financial freedom.

Focus on the Prize – Motivation is one of the keys to succeeding with paying off your debt.

Get a Post-It, write down your total debt and tape it to your computer monitor or the mirror in your bathroom. Seeing the number go down is a huge motivator.

Success Breeds Success – Start hanging around people with the right mindset and avoid people who don’t share the same values as you.

You might find that your whole social circle needs to change, but the right support system will ensure that you accomplish your goals and that you accomplish them as fast as possible.

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11/06/2019

These 7 Small Shifts Will Give You Irresistible Results With Your Money

  • The one thing you must do before you spend any money
  • How to:
    • get out of debt
    • manage your money
    • secure your future against unexpected expenses
  • Why we need to be debt-free
  • The Big Secret that all millionaires know

Why becoming debt-free is like going on a long car trip

I realised that I have such a lot to say about this topic that I tend to write lots and lots of words…

And my articles end up quite long. Detailed and lots of fabulous information, but too long for a Coffee Break read.

So, here’s the short version of this article and there’s a link to the more detailed version at the end, if you want to go into more depth…

Say you wanted to drive from Dallas to Toronto, you’d know to head kind of north, but beyond that, how would you get there? You need to have a car to get you there and you need to know how to drive it. The car also needs to work. If you don’t know that you need to look at the fuel gauge, you’ll soon run out of fuel. Plus, you need to make sure that you have enough money to buy whatever you might need along the way, right?

Our finances are like that long distance car trip: if you don’t know how to drive, you don’t have a car that works, don’t have a map, no money for fuel or food or places to stay, you’re not going to get very far.

But, if you manage the trip well, do a little preparation and pay attention to things, it’ll be an amazing experience.

It’s time to plan the trip…

1. Check your vehicle: Check your money DAILY

As your dad probably used to tell you, before you take any long car trip, you need to check the car over, make sure there’s enough fuel, water, oil, make sure the tyres are okay, that kind of thing.

We need to do the same thing with our finances.

So, how often do you look at your bank accounts?

When you’re at the checkout to make sure you have enough money to pay for your groceries?

When you get a notification to say that a payment has bounced?

While you’re burying your head in the sand like I did, you’re always going to feel out of control, irresponsible and not good enough.

Get an app for your computer & phone (such as MoneyWiz, Budget or Debit & Credit), load all your information in there and check your bank account…

Every. Single. Day.

You have a certain amount of fuel for your trip, you need to manage it, know how long it’s going to last, what it needs to cover, when it needs topping up and whether you need some extra fuel (money).

 

2. Decide where you’re going: Set Goals for Your Money and Review Them Regularly

The more complex our goals, the less likely we are to stick to them. This goes for most things; let’s take this long distance car trip as an example. If someone gave you detailed instructions for the whole trip, they’d be pages and pages long and you’d just go straight into overwhelm.

Instead, set clear, concise, easy-to-understand goals and be realistic about them!

Setting a goal of saving $500 a week when you earn $1,000 a week is neither realistic nor achievable. Not unless you’re living in a tent on a self-sufficient allotment, anyway.

Instead, make your goals SMART: Specific, Measurable, Achievable, Realistic and Time-Framed. Write them down and track your progress against them.

Don’t beat yourself up if you’re off track, just honestly reassess things, create a new goal and get back on the road.

You will also need to review your goals because you’ll find that as time goes on and this new savings thing becomes a habit, you’ll find it much easier to put away a lot more money than you first thought was possible.

3. Pre-Start Check: You Must Do This Before You Spend Any Of Your Income

Here’s what normally happens when our pay cheque arrives: we pay the bills, pay the mortgage or rent, buy some food, maybe go out and have a drink or splurge a little on some new shoes, then whatever we have left is “savings”.

Only, most of the time, there’s nothing left.

Here’s what you need to do: pay yourself first.

Now, let me share with you what I thought ‘pay yourself first’ meant for many years. I thought ‘pay yourself first’ meant ‘go out and buy what the hell you like and then use whatever’s left to pay your bills’.

And I wondered why I was in financial hell.

But no one had explained to me what ‘pay yourself first’ actually meant. It means invest it, save it, put it away for your future, but do not spend it now.

Scott Pape, aka the Barefoot Investor, suggests that you pay yourself 40% of your income away BEFORE you pay anything else.

David Bach in his bestselling book, The Automatic Millionaire, suggests you pay yourself for one hour each working day.

However you decide to do it, save first and spend what’s left over.

4. Be Prepared: Plan For Emergencies

Think about our car trip; what could go wrong? All cars must carry a spare tyre or a run-flat tyre in case of punctures.

How often do we do that with our finances, though?

We may have thought about it and even tried on several occasions to squirrel away a nice little saving fund only to have the entire amount soaked up because the car breaks down or one of the kids gets a broken tooth or the washing machine dies. Suddenly, our nest egg is back to being an empty collection of twigs (and we give up on the whole savings thing because it just never works).

We need a fund that really will see us through those emergencies.

Scott Pape, the Barefoot Investor, recommends you put away 20% of your income as your own insurance against all of those things that life throws at you.

Imagine how much more easily you’ll sleep, knowing that no matter what life throws at you, financially, you’ll be okay.

5. Use Your Resources Wisely: Spend Less Than You Earn

Imagine we’re bobbing along on our car trip. We have a certain amount of money for the trip to buy fuel & food and every night, we book ourselves in to a 5-star hotel, order room service and a maybe nice bottle of Champagne.

Pretty soon, our money has run out. As we’re walking down the street, feeling a bit depressed and uncertain, we see a sign in a shop window saying “Run out of money? You can get some here!” So, in we go to get some of the money from the nice people. We’ll have to pay it back at some point, sure, but at least we’re okay right now and off we toddle to our next five-star hotel.

Unsurprisingly, pretty soon, we find ourselves out of money again. We see another sign: “Need money fast? We can help!” and in you run to get some more money quick. And on it goes.

It sounds silly, doesn’t it, but this is how we are around money:

we borrow more and more, get more and more cards, until we’re drowning in debt.

In his book, The Secret Language of Money, David Krueger says “through justification, luxuries have a way of evolving into necessities overtime. The special coffee becomes a routine, the better restaurant becomes the assumed standard and our expenses sneak upward and expand laterally”.

What this means is that if you go over your spending limit one month, then the chances are you’ll think, ‘oh well, I can do it again’, the next month. But this is a slippery slope, one that you don’t want to start on, so avoid spending justification at all cost.

6. Learn How To Drive and Read A Map: Become Financially Savvy

We’re not allowed to drive a car until we’ve passed a test to say that we know the road rules, then we have to take lessons to learn how to safely control the vehicle before we go for another test and show someone that we can drive well enough and safely enough to be allowed to drive by ourselves.

We don’t consider money in the same light, yet how much emotional misery is caused by money because we don’t know how to handle it and we head for disaster unknowingly?

Reading is one thing but doing is something else. Playing games is incredibly effective in having us understand what we read and helping us learn how to apply the principle, and there are two games that I’d recommend:

  • Robert Kiyosaki’s Rich Dad’s Cashflow 101, and
  • Brad Sugar’s Leverage (Brad is the founder of one of the biggest and most successful business coaching companies in the world: ActionCoach)

Learn how to use your money and what impact every little financial action that you take has on your goals.

7. Use Your OWN Car Not Someone Else’s: Get Out of Debt – and Stay Ou

Picture this: we’re about to set off on our Big Road Trip but then we look across the road and we notice that our neighbour has a much nicer car than the one we’re about to set off in. It has air conditioned leather seats, shiny bits on the side and it just looks cool.

As a society, we’re taught that buying more things will make us happier. We’re constantly encouraged to go further and further into debt.

You know what The Millionaires Next Door all had in common?

No debt.

None.

Of any kind.

Ever.

Debt kills off our ability to grow financially.

No matter how much debt you have right now, you can pay it off much quicker than you think you can.

We feel great as we’re setting off for our road trip in the flashy car, but then we realise that the payments on the car are eating up all our spare cash and then some. We can’t pay for fuel. We have to sleep in the car because we don’t have enough money for a hotel. We can’t go anywhere because all of our money is going towards payments for the car. We’re stuck. We can’t move.

That’s how we live. We live in a constant state of fear about debt payments.

Make it your priority this year to pay off as many of those debts as you can as quickly as you can.

Over to you…

What small shifts can you implement this year that will have the biggest impact on your finances?

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