Let’s Celebrate!

April is more than a month where we get to play practical jokes on unsuspected victims, it is also designated as Financial Literacy Month!  During Financial Literacy Month there are events taking place daily that attempt to educate the public about money management.  The goal is to help both young and old realize that Financial Literacy is nothing to be afraid of, but instead embraced and conquered.  I know that your own financial life can be overwhelming at times, but hopefully I can give you a few starting points that you can implement during the last thirteen days of April.  April is just the beginning, the idea is to keep going until you master your own financial life!

Steps:

1.    List your short (3-6 months), intermediate (3-5 yrs), and long term (10-15 yrs) goals for your life on a sheet of paper and put it on your refrigerator.

2.    Open a savings account and start saving a certain amount each paycheck. Even if it is $10 just save something!

3.    Write down all your debts both small and large. (Face the fear of knowing the total)

4.    Determine how much money you have coming in (paycheck) versus how much money is going out (bills). Write it all down on a piece of paper.

5.    From that piece of paper (budget) determine which are needs and which are wants.  Determine what can be cut back or cut out.

6.    Once you figure out in your budget where you can save money start adding that extra money to your smallest debt and pay it off fast! Then repeat with the next smallest debt until all debts are eliminated.

7.    Find an accountability partner.  Someone who will encourage you to keep going when times get tough and remind you of those goals you have on your refrigerator.

I know that personal money management can be overwhelming.  It can feel like you are trying to eat an entire elephant all at once. Just remember to take one piece at a time and eventually that elephant will be completely gone.  That is why I put seven steps instead of thirteen for these last thirteen days so you can take your time and get it done by or before April 30^th.  The steps are simple all you have to do is say to yourself “I am ready to make a change for the better in my financial life” and the rest will take care of itself.  Don’t give up; complete the journey because in the end all of the financial strife that use to be a part of your life will just look like a bad dream and all that will be left is financial success!

Will you take the first step TODAY?

I Can’t Do That!

You would be amazed at how many people say that sentence when it comes to getting out of debt.  They say “I CAN’T” save an emergency fund, “I CAN’T” pay off my student loan, “I CAN’T” pay off my car loan, “I CAN’T” stop eating out or going on vacations. I CAN’T, I CAN’T, I CAN’T!  Every time I hear someone say those two words I think back to my childhood tennis coach David Lash who use to always respond when I said “I can’t” with the question “are you American?”  Confusingly I would say “yes” and then he would continue with “you need to understand as an American you are an Amer-I-CAN!”  It was simple, but it made sense.  He always instilled in me that I can do anything if I put my mind and energy into it. 

I recently learned of a single mother who had an annual salary of $21K and she paid off $17K in eighteen months!  This woman obviously erased “I Can’t” from her mindset and instead buckled down, cut back, and put all her extra money towards the debt.  She got to the point that she said to herself “ENOUGH IS ENOUGH” and she made a life altering change to her finances and as a result she is DEBT FREE!  People who don’t want to change their financial situation usually come up with all kind of excuses.  Excuses such as I don’t make enough money, I deserve a vacation because I work so hard, I don’t have time to cook so I need to go out to dinner, so on and so on.  What is really happening here is that the person has not reach the point of ENOUGH and they continue to pile on debt and when ENOUGH does come, the reality will set in of the opportunity lost because they continually said “I can’t”. 

I use to be one of those closet “I can’t” people when it came to my finances, but then I was slapped in the face with a lay off from my career.  Right then and there I had to grow up and realize that when I use to say “I can’t” I really was saying “I don’t want to” because in my mind it was an inconvenience to the life I was use to living.  I would have to stop eating out, buying new clothes, new shoes, going on vacations, etc if I wanted to truly get out of debt and live a prosperous life.  Everyone has a choice to make when it comes to their own finances and the first decision has to be to stop saying “I can’t” and replace it with “I CAN!”

If you are still in debt, after reading this will you move from “I can't” to “I can” and change your financial future?

When Will We Ever Learn?

I am sure you have heard the definition of insanity, but in case you have not the gist of it is “doing the same thing over and over again and expecting a different outcome”.  Between the years of 2000 and 2008 America was flying high above the rest of the world and everyone was prospering, at least it appeared that way.  The prosperity that majority of Americans were displaying was actually an illusion.  The reason is simple and complex at the same time.  During this time there was a housing boom and everyone who could breathe or spell their name was able to qualify for a mortgage.  Credit was flowing freely from banks and individuals as well as companies could borrow to the max.  If people had equity in their home they would cash it out to buy cars, go on trips, pay for college, start businesses, etc.  All majority of Americans did for these eight years was spend money they didn’t have and live the illusion of the “good life”.  Want to know what Americans didn’t do in those eight years?  SAVE!!!  During the same period there were times when the savings rate was in the negative meaning that people were spending more money than they were bringing home in income.  Everyone thought this illusion of prosperity would continue, that their home values would continue to rise, and that banks would continue to lend, but then 2008 arrived and the magician revealed that the past few years was all a trick and the unfortunate treat was upon us.

In 2008 the economy collapsed and a snowball of catastrophes hit America from all sides.  The “why” behind the collapse is complex, but a broad overview would be this: Banks were like the Americans giving out more money than they had on hand and dealing in risky business practices.  Banks gave mortgages to people who eventually would not be able to afford them.  Homeowners mortgage rates started to rise and as an added insult companies were laying off people left and right and so there was no income to go to paying for the mortgages that these banks were so carelessly handing out earlier in the decade.  The banks being so heavily invested in these mortgages started dropping like flies, the most famous one being Lehman Brothers.  I still remember the night I was looking at CNBC watching the employees coming to empty out their offices, such a sad sight.  Americans were losing their jobs, homes, cars, retirement savings, and families.  As a result of all this loss behavior started to change.  People went from spending all they had to saving everything they could. In fact the savings rate was at an all time high of 4.2% (of disposable income) in December 2009 and it appeared that Americans had learned their lesson and had turned away from habits of the past.  You can say that the insanity had disappeared, but not so fast as of February 2012 the savings rate is back in decline (3.7%) and Americans are heading right back to the habit of spending more than they bring home in income.

  

I am sure you are asking the question why would people go back into this insanity?  Why would people go back to car loans, buying expensive shoes, going on trips, taking out home equity loans, etc?  The only answer that I can come up with is that people are starting to feel safe again, because the economy is improving and jobs are coming back, but that does not mean that you should run right back to the edge of the cliff with your finances.  We all have to learn our lesson from how we felt in 2008.  That uncertainty made us change our habits and we have to resist the urge to go back.  When the economy went off a cliff in 2008 a month later I was laid off by Pfizer and my family was in $48,000 worth of DEBT.  We had to change our behavior towards our finances or become a casualty of the economy and another statistic.  That is exactly what we did, we stopped borrowing money and paid off everything.  We also built up an eight month emergency fund of expenses because we are determined to never let the American economy affect our personal economy again.  If the economy ever decides to take a nose dive again we will be ready this time.  Insanity is NO LONGER welcomed at our home!

Have your finances become a victim of insanity?

So What Do I Do?

Last Wednesday I discussed in depth the types of insurances that should be avoided.  Two of which are life insurance on a child and whole life or cash value insurance.  What I did not discuss in that post is what insurance you should get as an individual.  Term Life Insurance is the best option for individuals because it is has a low monthly cost with high amounts in case of death ($500k, $1million).  Depending on your needs you can get 10, 20, 30 year Term Life Insurance and depending on what you choose that is the time the insurance will be in place.  For example you can sign up for a 30 year $1million Term Life Insurance policy.  Most people ask me what if I live past 30 years what am I going to do then?  The point of the policy is to give you the cushion of insurance while you get out of debt and save up enough inheritance that when you do die which might be in 50+years your family will have enough money to bury you and still have money left over to distribute as you see fit in your Will.

Another concern that older individuals come to me with is that they think Term Life is only for younger people and that they would not be able to afford it.  I went on a popular insurance website quoted a 50yr old woman for a $500K 20yr policy in very good health for $85 in good health $93.  Also I looked up a 70yr old woman $100K 10yr policy in good health and it is $104 so it is doable.  All that you need to do is the homework and get the best possible Term Life Policy premium you can find.  Another question that I get asked on this type of insurance is how much should I insure myself for?  I always tell them at least 10X your annual income because this will allow your widow if you have one to invest the amount as well as live off of it.  Take me for example I have a $500k 20 year term policy because that is enough money to pay off our home, send both kids to college,  bury me, and still have more than enough to replace my annual income.  Everyone will have different needs so only you can make the decision on the policy needed.  If you are married each person needs to have a separate policy and a Will in place to execute your wishes.

The other insurance that you need to consider if you are 60 years old and up is Long Term Care Insurance.  What this insurance guarantees is that you won’t go broke after a couple years in a nursing home.  There are nursing homes that cost $40K+ a year and that price can definitely eat up a nest egg quickly.  Where couples run into problems is that the husband goes into the nursing home first uses up all the retirement savings and when it is time for the wife to go in usually after the husband has passed away there is no money left and she ends up in a Medicaid/Medicare nursing home.  If you have ever visited anyone in this type of facility you know it is somewhere you don’t want to spend your last years.  With Long Term Care Insurance you also have the opportunity to stay at your home for a short amount of time and someone can come in for minor tasks such as taking vitals for your physician, help with feeding, clothing, and bathing.  Once your health deteriorates to a certain point you will have to go to a nursing facility.  Long Term Care Insurance is vital for anyone over the age of 60 and should be purchased immediately.

After reading both posts on types of insurance what will you be doing differently so that your family is taken care of once you are gone?

WHAT A RIP!

There are a lot of items out there on the market that are blatant rip offs and people would never dream of spending their hard earned money on them, but there are other products that are not so clear and people end up wasting valuable income for decades.  One product in particular is life insurance.  Of course not all types of life insurance are rip offs, but there are a couple that stand out and they need to be avoided at all cost.  The first insurance is any policy that covers a child in the event of their death.  First and foremost any life insurance that is taken out should be for the sole purpose of replacing that person’s income in the event of their death.  God forbid that a child should pass away, but there is no income that needs to be replaced because children don’t contribute financially to the household.  Different companies push life insurance to parents by pointing out that not only will they receive a death benefit if the child passes away, but they also have the opportunity save money within the policy for college.  This policy sounds fantastic on the surface, but when you look closer it is a total RIP OFF!  I looked into one popular company and entered my son’s age which is four years old to see what kind of savings I would come away with when he turned eighteen and it was time for him to go to college.  The policy quoted if I put $51 in monthly for fourteen years I would come away with $10K in savings not including the death benefit.  $51 a month for fourteen years ends up being $8,666 by itself which means the savings only grew by $1,334.  How about a different option for that $51 a month?  Instead of putting it in this life insurance I will invest it in a mutual fund that averages 12% return on investment for the same fourteen years and instead of having $10K at the end I will have $22K!  I think that is a great return for my son’s college fund.  As you can see there truly is no need to take out life insurance on a child.

The next type of life insurance to avoid is Whole Life or Cash Value.  This is another life insurance which tries to convince people to save money within it, but also has a terrible return on investment.  Recently when I was upping my Term Life insurance the agent for the hundredth time tried to sell me Whole Life insurance on my four year old son.  Whole life is not needed for anyone no matter the age, but especially not a four year old.  I politely took the quote because I wanted to see exactly how much a rip off it really was.  The policy would cost me $306 a year for a $50K death benefit.  After forty years the policy would only have accumulated $12,240.  After FORTY years he only has $12K that is RIDICULOUS!  $306 a year comes out to be about $25 a month, so if I invested that same amount in a mutual fund with a 12% average rate of return for the same forty years at the age of 44 he would have over $294K!  So which do you think is the better offer?  On top of the terrible return on investment if you pass away before taking the cash value out, the insurance company gets to keep your money and they only pay your family the death benefit you signed up for.  Now that is a RIP OFF!

If you are in either one of these policies do you plan to get out?

Till next Wednesday!

IN CASE OF AN EMERGENCY, BREAK GLASS!

Most individuals do not know what to do if an emergency came into their life.  They tend to break the glass and use whatever is inside?  Usually what is inside is a credit card or a bank loan because the individual is not ready when life happens.  The problem with this tactic is that it leads to an endless cycle of debt that keeps the person from achieving generational wealth.  The main reason that someone would have to turn to debt to cover an emergency is because they were not prepared in the first place.  An emergency fund is essential in building wealth because it turns potential catastrophe into an inconvenience and it erases stress from the situation. 

I always advise clients to have at least an emergency fund of $1000 if they are trying to get out of debt and four to six months emergency fund if they are out of debt.  Once I make this request I usually get the following request, “How am I going to find $1000 to put into an emergency fund?”  Once I have this push back I have to point out to the individual that it is not going to be simple and they will have to sacrifice to get this emergency fund fully funded.  If they are serious about getting out of debt they soon realize that life as they know it has to change temporarily in order to get ahead.  I must admit that it is a fair question that they put before me about the “HOW” and so I make sure I give them various money finding options to get them started.

Journey to $1000:

   1. Sell everything and anything: I am actually about to list a living room set on Craigslist for $1500 and if it sells I would have my emergency fund with one sell if I was in debt.  Also most households have more televisions than people living there.  SELL THEM! You get the picture sell, sell, sell.

   2.Cut off some services: house phones are ancient so if you have a cell phone cut the house phone off and add the savings to your quest for $1000.  Cable TV is also not a necessity when you are getting out of debt so cancel that service and save over $100 a month.  Haven’t been to the gym in the month? Get rid of the membership!

   3.Don’t eat out at all.  I am talking about all restaurants big and small.  No McDonalds, Burger King, Wendy’s, etc.

   4.The shopping mall and retail store are not your friends if you are in debt.  Wear the clothes and shoes you already have in your closet and don’t buy new items!

    5.Have multiple yard sales.  It is unusually warm right now so why not get an early start on selling some items out of your home.  If this weekend is too soon start getting out the items that you would like to sell and put them all together so that they are ready to sell in the summer months.

These five suggestions are just scratching the surface of what an individual can do to get the emergency fund fully funded over the next couple of months, but in order for this to be possible the person has to be sick and tired of being sick and tired and is ready for a change.  It won’t be easy, but I promise it will be worth it!

How would you come up with a quick $1000?

Till next Wednesday!

WHAT NOW?

It has finally arrived. Not the latest gadget that you bought from Amazon, but your student loan bill.  When that loan statement arrives it is usually the first time that a recent graduate sees exactly how much was borrowed in their name for that college degree. Depending on what university they attended that overall number could be overwhelming.  Even though the number may be overwhelming a lot of these adults just shrug their shoulders and say “I will pay it over the term” which could be a decade or two and then they go out and buy a new car.  I want to change that way of thinking and say why not pay that student loan off as fast as you can.  When my husband and I found out he had a $25,000 loan it was indeed overwhelming because it was as if someone had hit me in the face with a brick!  I thought he went to college on a four year basketball scholarship, but come to find out one year was not paid for and it cost him $25,000! Did I mention that was only for ONE year!  We had to come together with a plan to pay the loan off as soon as possible, because it was no way that we were waiting until 2030 for this weight to be from around our neck!  So what are some of the steps that we took that you can take to pay off student loan debt for good!

First you have to find the extra money to pay off the loan faster, but this is usually where people get stuck and eventually get frustrated because they feel they are living paycheck to paycheck already.  If you have a new career you now have much more money coming in than you did while in college, but where most people fail is that they start spending that new money on an expensive apartment, a new car, dinners out, etc and all of a sudden there is a struggle to pay their student loans.  Here’s an idea, how about living on the same amount of money you did in college? You don’t have to get the best apartment in town, you can drive a paid for used car with no car payments, and the ramen noodles you ate in your dorm room still taste the same so cut back on eating out.  Want to find even more extra money?  Cut off the cable and watch your favorite shows on Hulu.  Reduce the minutes on your cell phone plan and cut off your home phone because neither is needed if you are tens of thousands of dollars in student loan debt!  Next look around your home and see what you can sell.  We sold everything we could from clothes to electronics.  We had multiple yard sales and visited the local pawn shop frequently.  We stopped buying new clothes in fact we didn’t see the inside of a shopping mall for the two years we were getting out of debt.  We saved on clothes by wearing the ones we had longer and shopping consignment and thrift stores.  Last, but not least the fastest way to pay off student loans is to get a part time job because let’s face it you just graduated which means you are still in your twenties and have the energy of a bull! The extra income will lighten the burden and bring you closer to being DEBT FREE!

There are so many other ways to find extra money for paying off student loan debt, but this post would go on forever.  Just remember that all of these sacrifices are temporary and if you are committed to paying the student loan debt off it will take no time to become student loan DEBT FREE!  These ideas will free up hundreds of dollars a month and that extra money should be thrown at the student loan and nothing else.  Trust me it works my husband and I paid off that $25,000 student loan and a $20,000 car loan in 2 ½ years! You can do it too!

What are some of the things you did to pay down student loan debt?

Till next Wednesday!