Compared to some of my friends, my student loans are minuscule but nonetheless, it’s debt. And in the Personal Finance world, debt is as bad of a four-letter word as most cuss words.
Like most of us in this realm, getting rid of these debts was a main focus of mine for such a long time. It was an unhealthy obsession. I used to know exactly how much more we had left to pay. I used to know exactly how much we’ve paid in interest and I used to know that if we’d pay a little extra, exactly how much quicker we could become loan-free.
Those things were pointless.
Knowing those things isn’t fun. It isn’t going to help us get out of debt any quicker if I just knew the numbers but didn’t do anything about them. I know it was annoying to my wife because I wasn’t looking at the big picture.
It wasn’t helping anything.
All what it did was make me feel helplessly stuck and make me think that it wouldn’t be possible to enjoy life as long as we had these debts.
That’s complete and utter nonsense.
So I got to thinking recently and asked myself a couple of questions:
- Would I be any happier if I was debt-free?
- Would our quality of life improve?
- What would my wife and I even do with the money that we save?
So would I be any happier if I was debt-free? That’s a difficult question because happiness is a complex concept. I used to be very money driven. I chased promotions that I didn’t even want and I stayed in an industry that I hated for way too long because “that’s where the money was at.” Literally.
My wife hit the nail on it’s head when I was thinking about being a life insurance salesman when she said that “all that I see is the money and not what I’d have to do get it.” It was true.
I don’t think that debt was my problem. My job was.
I had this mindset that these debts were forcing me to stay at my job…that if I finally got rid of these debts once and for all, that I could finally leave my job. That’s probably why I was so obsessed with our debts in the first place.
I hated our brand new cars. I hated that I got into student loan debt to get a degree that I didn’t even want anymore.
I was full of hate and it was easy to place the blame on our debts and that’s what caused this obsession.
If you asked me if I’d be happier if I was debt-free about a year ago, I would, without hesitation, say most definitely, yes.
But if you ask me that same question today, I’m not so sure because that’s not what I’m so focused on these days.
At this point, it is what it is when it comes to our debts. They’re something that we’ve dealt with for a couple of years now so it’s just something that we go through each month. We made the decision to get new cars and get a loan for them so we’re dealing with it. They aren’t making or breaking us but it would certainly be nice to have at least one car paid off but we have other things that we need to figure out first.
I’m happier than I was a year ago with all the other major aspects of my life that these debts have taken a backseat to the more important things; mainly just enjoying life and being content with all that I have.
I didn’t want to change jobs because I didn’t want to make less money.
I didn’t want to get a dog because all I could see was the dollar signs.
I didn’t want to go on vacation because it would cost money.
What’s the point of working so hard if you can’t even enjoy it?
Back to the original question at hand….would I be happier if I was debt-free?
Yes. I would be a little happier but not as happy as I already am from no longer obsessing over debt.
Onto Question #2:
Would our quality of life improve if we were debt-free?
To a certain extent, yes. But I don’t think it would be such a drastic change. We’d still live in the same place, drive the same cars, work at the same job, and live the same lifestyle.
The only difference is that we’d be saving more.
Maybe we wouldn’t feel as guilty treating ourselves to eating out after a crazy day at work? Maybe I wouldn’t feel as bad spending so much money to go on vacation to Germany to see family so we’d go more often? Maybe life could be more spontaneous since we’d have a little more wiggle room when it came to disposable income? Maybe we’d buy a vacation home?
But if you aren’t having fun while you’re in debt, you probably won’t have much fun once you’re out of debt too. You’ll probably splurge on things you don’t really need because you “deserve” them for working so hard and depriving yourself for so long, that you’ll get right back into debt.
Last question: What would we even do with the money that we save?
Most likely, we’d save it.
When I first started my blog (nearly a year ago!) I had a page that was dedicated to my “financial commandments.” They are the rules that I try to live by and the ethos of this blog. After redesigning the website a few months ago, I realized that they had gotten lost in the shuffle.
The “commandments” were the reason I decided to create my blog and the guiding principles with which I try (and sometimes fail) to live my life. (J. from Budgets Are Sexy was also kind enough to feature the on my favorite blog ever—his own!)
A lot has changed in the 8 months since I wrote them: I paid off my debt, I
learned am learning how to be kind to myself, and I’ve made somebig life changes. But somehow, the “commandments” still ring true.
So without further ado, here they are:
1. Avoid Waste
99% of humans are wasting insanely large sums of money. Don’t be one of them
2. Only spend money on things that truly make you happy.
If it doesn’t make you happy or make you a better person, don’t even bother opening your wallet.1
3. Learn what happiness actually is
…and what it isn’t.
4. AVOID ALL FINANCIAL EXTREMES.
Never sacrifice important things like your relationships or self-care in order to get ahead financially. Instead, ignore societal norms and cut out pointless expenses. Never save money to the point of misery or spend to the point of excessive. Binging and purging is unhealthy in both eating and spending.
5. Debt is evil.
Dispose of it immediately and never take out loans again.
6. You can do anything you set your mind to
…even if it is not the norm or seems hard.
7. Saving money will make you1 happier than spending ever could.
8. Life is short and fleeting.
Financial freedom is about creating a life that allows you to focus on the things and people that truly matter. Never lose sight of those things (and people) as you work towards your goals.
Minimalism isn’t deprivation, but sometimes temporarily depriving yourself creates a path toward financial freedom. That was certainly true for me: I had six figures in debt—nearly half-a-million dollars if you include my mortgage—but today I’m debt-free. Of course, it took diligent budgeting to get there:
Cut cable TV, wrote more.
Drove less, walked more.
Cut credit cards, spent cash.
Stopped eating out, cooked meals at home.
Silenced satellite radio, meditated more.
Canceled gym membership, exercised at parks.
Lived without home Internet, used public Wi-Fi.
Sold large home, rented a smaller apartment.
Canceled magazine subscriptions, borrowed from library.
Ceased upgrading, found a détente with “outdated” tech.
Refrained from purchases, better utilized possessions.
Separated needs from wants, developed a comprehensive plan.
You see, I didn’t simply go without—I replaced expenses with alternatives, which made my momentary forfeiture feel less like a sacrifice. Interestingly, once I becamedebt-free, I was able to bring some of these indulgences back into my life, doing so deliberately, discovering which ones I could afford, which ones would add value to my life, and letting go of the rest.
Just like Jennifer Garner’s character in Thirteen Going On Thirty, I thought I’d have all my sh*t together by the time I reached the big 3-0. I’d be an adult. Let’s be honest, this is just a grown-up version of the thought that plagued all of us in middle school: “When I’m sixteen, I’m going to be incredible!” And as we got older, that number just got higher. I’m fully convinced that I’ll be 55 one day, thinking, “Oh I’ll probably have my life together by the time I’m 60.”
Truth be told, we probably won’t ever feel satisfied with certain aspects of our lives. And I guess part of the fun of being alive is never really feeling “done.” We always have to improve, and we always have to grow. That said, it’s kind of humorous (or, at the very least, pathetic) to look back on some of the milestones I thought I’d hit by the time I reached my third decade as a human on this planet. Some of them are sheer wishful thinking, and some make me cringe with embarrassment.
I may be “thirty, flirty, and thriving,” but I definitely didn’t meet these goals – and you know what? That’s okay.
1. Expectation: I’ll definitely own a house by age 30.
Reality: I still rent.
My husband and I live in the Boston area, which is basically the same as any housing market in any big city: ridiculously expensive. Even the suburbs of Boston are very financially challenging, with houses of decent size and quality rarely dipping below $350K. Buying a house is often perceived to be the ultimate “adult” milestone, but in my opinion, there are a lot of perks that go along with renting that I’m not entirely sure I’m ready to give up (aka the beauty of not having to shell out thousands of dollars when an ice dam causes major flooding, which is what happened to us last year).
2. Expectation: I’ll have a relatively fancy car, or at least a new one.
Reality: I still drive the first car I’ve ever owned.
While a new (read: new to me, but probably still used) car is possibly on the horizon for me in the near future, it definitely won’t be fancy by any standards. I currently drive an ‘05 Jeep Liberty Sport, and while it’s cute and practical for those Boston winters, it’s not shiny or glamorous by any means. No joke: my car sometimes makes farting noises, so that definitely wasn’t a part of my “vision” for the big 3-0.
3. Expectation: I’ll invest in a solid collection of high-end beauty creams.
Reality: If I’m dropping $$ at Sephora, it’s probably on NARS Orgasm.
There’s a little voice in the back of my head that often whispers to me, “Shouldn’t you be buying eye cream or something?” (Idk, isn’t that what we’re supposed to do when we leave our 20s?) The truth is though, I can’t bring myself to spend money on stuff like that. I’m sure it’s beneficial, and I’m sure there’s probably some beauty consequences that are headed my way in four or five years, but I’d just rather spend money on #LipKitByKylie, or something.
4. Expectation: I’ll earn a tremendous amount of frequent flyer miles.
Reality: I’ve spent a lot of time in coach.
While I do love to travel, I very rarely do it in style. I’m all about those flight/hotel/car bundle websites, like Expedia, which is great when you find a hot deal, but not as great when your flight gets canceled and you have to spend your entire trip arguing with customer service or waiting to fly standby. Anyone know how to get a private jet? A free private jet?
5. Expectation: I’ll have a closet full of shoes, à la Carrie Bradshaw.
Reality: I’ll wear my favorite pair of flats until they have holes in the bottoms.
Even now, when I watch reruns of Sex and the City, and even though I know it’s a TV show, I get so irrationally angry. HOW DOES SHE HAVE THAT MANY SHOES?! SHE IS A WRITER! I AM A WRITER! It’s just so unfair. Then again, Carrie Bradshaw didn’t have any money in her checking account because she spent it all on shoes, so there’s that.
6. Expectation: I will have a crystal clear understanding of various retirement plans.
Reality: I still need to google “What’s the difference between a 403(b) and an IRA?” on a semi-regular basis.
Nothing makes me feel dumber than meeting with financial planners. Hats off to those who work in finance, because I think you have a different brain than I do. I make it my mission to know as much as I need to know in order to maintain my retirement plan healthily, but when it comes to the details, I’m just as fuzzy as when someone tries to explain how football works. (What’s a “first down” again?)
7. Expectation: I’ll finally stop giving into impulse purchases.
Reality: Ooh, are those chocolate-covered gummy bears?
You know how some checkout lines put certain items on shelves that are perfect eye-level for children? I feel like most checkout lines appeal to me in the same ways. As much as I try, I cannot resist that chapstick that smells like pomegranate, or that ridiculously cute tiny notebook. I definitely try to cut back whenever possible, but I have no regrets about the occasional luxury gummy bear purchase.
8. Expectation: I’ll embrace the minimalist lifestyle.
Reality: I probably “spring clean” every month.
I don’t know how those self-declared minimalists do it. I would kill for a mostly-bare apartment with clean, Instagram-worthy countertops. But no matter how much I try to clean and purge, I still feel like I constantly have so much stuff. Part of my problem is the fact that I’m way too nostalgic and ask myself, “What if I want to keep this?” far too often. But it’s hard to part with things that have such sentimentality, and when you’re an overly-sentimental person, that can mean literally everything.
I’ve never gotten more push-back on a post than I have for my 30 Financial Milestones You Need to Reach by Age 30. It’s still Money After Graduation’s most popular post of all time, and since making the checklist the download that you receive when you sign up for my email newsletter, more protests are coming in.
In the time I’ve been doling out personal finance advice online, I’ve been called everything from privileged and out of touch, to colorful names I will not repeat. I know I don’t have the soft touch many other personal finance gurus have. But I have to be harsh with you because you need to know the truth:
If you do not get your financial shit together, you will not be okay.
If you do not aggressively save for retirement, you will not have enough money saved to leave the workforce on your own terms and live comfortably. If you do not pay off all your debt as fast as possible, you will not have the flexibility and security of keeping every dollar you earn. If you do not set aside money for emergencies, you will not be ready to deal with what life throws at you (and it will throw many things at you, and a handful of them will be horrendous).
But the painful truth is I cannot make any of the above easy for you. I can tell you how to do it and I can give you motivation and inspiration, but I cannot lighten the load. I cannot reduce your debts, earn you more money, or increase your investments. You have to do that part.
I also cannot (or at least, will not) lie about it. Which is why my advice sometimes comes across as “harsh” or “mean”.
It’s not easy.
Getting your finances under control is not easy at all. That’s actually why most people don’t do it. It is far, far easier to buy a house you cannot really afford, finance a car with a 7-year loan, make the minimum payments on your student loans, and use credit cards to fill in the gaps.
That’s what most people do. Don’t be most people.
You can save $25,000 for retirement in less than 5 years.
When you look at that number, you might think $25,000 over 5 years means you have to save $5,000 per year or about $417 per month.
If you invest that money in the stock market and earn an average rate of return of 5%, you only need to save $368 per month. This saves you just shy of $50 per month, or nearly $3,000 over the 5 years. Yes, you read that right. $3,000 of your $25,000 retirement savings is going to save itself. So you don’t have to save $25,000 — you have to save $22,000.
Don’t think you can earn a consistent 5% return? Fine. Find 3% and you only have to save $387 per month. It’s still $30 less per month than you thought.
You can save up a 3-month emergency fund in less than 1 year.
Some people think you need to save 3-6 months of your gross income as an emergency fund. This is a wonderful idea, but largely impractical in your 20’s and 30’s. You should, however, have at least 3 months of essential expenses on hand. Make a list of all the things you spend money on over the course of a month. Now, cross out anything that isn’t a necessity.
If you were without income, you would still need to pay for housing, utilities, food, and your cellphone, as well as make the minimum payments on your debts. But that’s it. You do not need to put money into savings when you don’t have a job. You can apply for forbearance on your student loan payments. You will not go out with friends. You literally will live on the bare minimum.
Is it your entire income? Probably not.
These are your essential expenses. I would guess they’re somewhere around $2,000 or $3,000 per month. Multiply it by 3, then divide by 12. That’s the amount you have to set aside each month to accumulate a 3-month emergency fund in less than a year. If you cannot save up a 3-month emergency fund in one year then your home is too expensive and/or you cannot afford your car and/or you can’t differentiate between “needs” and “wants”. Explore each category ruthlessly, then cut out whatever is holding you back.
So you save some of your paycheck, contribute enough to get your company’s 401(k) match and wouldn’t dare miss a payment on your student loans.
Nice. You’re on your way. But your journey might be longer—or harder—than it has to be. Because while smart steps like these will help you eventually reach your goals, there’s a good chance it’ll take longer than if you applied a little more strategy.
Want to travel a less painful path toward wealth? Make sure you’re not committing these common (and well-intentioned) mistakes.
You’re nickel-and-diming yourself.
You calculate how much you’re spending on happy hours and Shake Shack, then ban them for the sake of your budget. Your head’s in the right place, but your strategy is misguided if you’re striving to save $15 a week by cutting something you enjoy, but still paying $100 more than you need to for cable or $200 a month on a gym membership you haven’t used since January.
Related: Start saving $100/month on Live TV
“Not only will little budget tweaks not get you very far in terms of your overall savings, but they may bum you out, which will cause you to burn out,” says Dominique Broadway, a financial planner in Washington, D.C., making it tough to stick to your budget.
Instead of looking for small-ticket items to skip, start with the big stuff. Can you renegotiate your gym membership? It can’t hurt to ask. Are you paying too much for your phone plan? You may save hundreds over the long run by downgrading your data plan, asking about specials or switching to a competitor.
You’re putting money in a savings account, but not investing.
It seems like a smart move to transfer money from checking into your savings account each month—and it is. But it’s not enough to ensure a comfortable future.
Banks are paying an average of 0.5 percent interest annually on a savings account now, but the inflation rate is above 1 percent (and, over the long term, it’s averaged more than 3 percent annually). “So by simply putting money in a standard savings account, it’s almost like you’re losingmoney,” says Broadway.
An easier way to grow your money and take advantage of compound interest? Once you have at least three months’ worth of expenses in an emergency savings account, start investing leftover cash, says Mary Beth Storjohann, a San Diego-based Certified Financial Planner and founder ofWorkable Wealth.
Aside from retirement accounts, you can open a traditional brokerage account or keep it simple with an app like Acorns or another automated investment service.
You’re only contributing enough to get your company’s 401(k) match.
It’s easy to think you’ve got your long-term savings covered if you’re contributing a few percent of your salary each year and taking advantage of your company’s free match.
“But the amount that your employer will match should be the minimum you contribute. It’s important to remember that it’s not tied to how much you’ll actually need to save in order to be comfortable in retirement,” says Certified Financial Planner Cheryl Sherrard, director of financial planning at Clearview Wealth Management in Charlotte, N.C.
The average match is capped at around 4.5 percent to 6 percent of employees’ salaries—and not all matches are dollar for dollar. Advisors typically recommend contributing 10 to 15 percent of your salary (including match money). One relatively painless way to get there is to increase your contribution each time you get a raise.
You diligently pay the minimum on your debt each month.
When you’re in debt, it can seem tough to tack on any more than what you need to pay each month. Yet paying no more than the minimum required may mean you’re not actually making a dent in your balance because of interest accruals. “Depending on how much debt you’re in and the interest rate on the loan, you could make minimum payments for a year or more, and your debt won’t change at all,” says Storjohann.
Wipe out your debt—and start building positive net worth—faster by taking a hard look at your outstanding balance, interest rates and other habits. “Maybe you’re over-saving and could be putting some of that money toward your debt,” Storjohann says.
Even throwing an extra $10 a week against your debt can make a big dent in how long and how much you end up paying on it.
In case you don’t really know my story, here’s the sequence of events:
- Graduated from college, had $18,000 of student loan debt
- Got married (yay!)
- Together, we paid off the $18,000 and built up an actual net worth
- Got divorced (booo…), kept the house, and therefore was thrown back into debt because I owed my ex $22,000 of our equity
- Paid off the $22,000 in 6 months (whew!)
- Paid off the remaining $54,500 on the home mortgage in just 12 months!
In other words, I’ve been in debt, got out of debt, was thrown back into it, and then came out of it faster and stronger than ever. I quickly became a get-out-of-debt machine.
How did this happen? It certainly wasn’t by accident. Through the unfortunate life events listed above, I discovered the absolute best tool for getting out of debt.
Getting Out of Debt – Discovering the Tool
No, I’m not trying to sell you something. The purpose of this post is not to jack up your spirits and then tell you that it’ll cost you $49.99 to experience euphoric bliss. First of all, I’m not that cruel. Second of all, this tool for getting out of debt shouldn’t really cost you anything. Just a few moments of your own time and thoughts.
So what the heck am I talking about? What is this tool for getting out of debt?
Discovering My Tool: The 1st Time
When my ex and I were first married, I distinctly remember the day that my general nervousness turned to panic.
Our student loans came due, and that fateful bill came into the mail. The bill that we couldn’t afford.
It was in that moment that I put my foot down and shouted, “NO MORE!!”
No longer was I going to lie back and relax while my bank account was obviously plummeting toward the negative! It was either we fight this evil giant called “Debt” or we were going to let it rule us for the rest of our lives.
From that date when we said, “No more!”, we paid off $18,000 and cash flowed a $6,000 car in just 14 months.
Discovering My Tool: The 2nd Time
“I don’t love you anymore,” She said matter of factly. “I want a divorce.”
I crumpled to the floor and looked up in disbelief. I didn’t understood non-physical pain until that moment.But once I felt it, all I wanted in life was for it to go away. The only chance I had was to cut all the strings – to pay off my debt to my ex.
From that moment, it only took me just 6 months to pay her the $22,000 she “deserved”.
All ties were cut and I could breathe again. Finally, I could get on with my life.
Discovering My Tool: The 3rd Time
My ex was paid off, but something still didn’t feel quite right. I still felt owned. Something was still holding me back in life. This time, it was the bank.
I owned a house, sure. But was it really mine? If I lost my job tomorrow and could no longer afford the mortgage payments, what would happen? The bank would send me a letter, let me know that they were taking possession of “my” house, and then strong arm me out. As long as there was a mortgage on that house, it most certainly was not mine.
I was single, I had a decent income and had no other debt – it was time for me to truly own my house…completely.
After that decision day, it took me less than one year to pay off my entire mortgage.
Getting Out of Debt: With Motivation
In all of my situations above, there was one common theme that propelled me out of debt. No, I didn’t find the secret to have my student loans forgiven, I didn’t invest in some magical stock that took care of all my debts, and I also didn’t get rich by blindly allowing a piece of software to save money for me (Achhhmmmm, Digit…I’m still not a fan).
My debt vanished because of one simple tool: motivation.
On every occasion, when I was pissed off about my debt, I simply figured out a way to get rid of it.
When people today say that they just can’t seem to get out of debt, it just frustrates the heck out of me.
- Don’t you have a wife that works her butt off at corporate, but really wants to be at home raising your children?
- Don’t you love your kids and want to provide them with the best education possible? Isn’t that more important than that shiny Land Rover you’re driving?
- Have you ever thought about your retirement years? If you have nothing saved, don’t you realize that you’ll be trying to live on cheap pasta and tuna every day? Does that sound like fun to you?
For heaven’s sake, put a charge into yourself! Doesn’t anything motivate you? If you go through life in a “ho-hum” manner and never pull yourself out of debt, then there’s something seriously wrong with you.
Do you want to know the secret to getting out of debt? Get mad! Tell your debt that you’ve had enough! Look in your mirror TODAY and tell yourself that your spouse deserves to be at home loving on the children, your kids deserve to get a proper education, and your future self can absolutely retire with dignity! But you must start getting out of debt today!
When you’re suffering financially, struggling to make payments, or trying to break free from the debt you’ve accumulated over the years – you get lonely.
Debt can take a significant toll on us. It can completely change the way we view so many important things in our lives: relationships, careers, mental health, and beyond. These everyday things that used to feel so easy can become something completely different.
They can become fears and stressors.
“I can’t tell my partner I’m in debt or they’ll leave me”
“I can’t afford to pay for my child’s sports camp this year and it breaks my heart”
“I don’t remember the last night I’ve slept a full 8 hours”
It’s harsh. But it’s a feeling far too familiar to most of us. We’ve all been there.
So why do we feel so alone?
As much as I’ve felt money is a common conversation topic among my friends, family, and I – I’ve found that it’s only a common topic because I bring it up often. I encourage people to let me know their feelings and be honest in whether they can afford an outing. I feel guilty if I’m putting anyone into financial distress because that used to be me.
But it’s not a common topic of conversation among the majority. In fact, it’s not even a rare conversation. It’s more like a never kind of conversation.
Families can avoid talking about money together for their entire lives. They can assume it’s all going okay, or they can see that it’s falling apart. There is no in between. We never know the buildup, or how to help one another stop the path of destruction before it’s started. We just exist in our personal financial bubbles. Hoping that we get through it.
“More than 4 in 10 Americans with credit card debt (43%) say they would feel judged if their family members and friends knew how much credit card debt they owed.” – Time.com/Money
I think it’s time we change that. But how?
Talk money 24-7
I don’t mean that you need to boast about how much you make, the exact numbers in your monthly budget, or how much you put into retirement funds this year. I simply mean that we should talk more about money in general. Talking about pretty much anything can help put things in perspective, make others feel more comfortable in voicing their concerns, and provide the simplest way to avoid debt in the first place – education.
Create a safe zone
For me personally, my blog is a safe place for me to voice all of my financial concerns, and show others that we are all facing the same or similar issues. By creating a safe place – whether it’s a community meetup, or around your best friend’s table – you can provide a stress free moment in time for those facing financial insecurity.
Share your story
The reason I share my story of paying off debt so often is not to brag about how amazing I am for paying off debt (seriously not that arrogant you guys). It’s simply to encourage others to take the same steps. To fight back against the one thing that keeps us up at night. I hated the feeling of having no one to talk to because I was embarrassed. I turned to the online personal finance community and never looked back. And we can all do the same for our friends.
Find an accountability buddy
Much like it can be hard to go to the gym every single day, it can be hard to stay committed to debt repayment. By finding an accountability buddy to check in with you bi-weekly or monthly, you have a better chance of success. We need someone to rely on us, the way we once relied on our credit cards.
Let’s stop the vicious cycle that leaves those in debt feeling alone and unable to make the leaps we know they will. I’m here as an accountability buddy, a safe zone, and a place to share your story.
Imagine riding in the backseat of a car, cruising down the freeway.
Suddenly, you notice the driver is unconscious. The car is drifting off the road and heading for the ditch. From where you’re sitting, how much can you really do to save your life?
In all honesty– not much.
Granted, you can scream and brace yourself for the crash. But the reality is, your options offer little hope for getting out alive.
If you’re lucky (and that’s a big IF), you might come out with minor cuts and bruises, but most likely, the end result will be catastrophic.
You want to know a secret?
This is the financial state of most people.
Many of us have taken the backseat in our financial journey and have placed money (the unconscious driver) in control, to manage itself. Can you really get to your desired destination with this approach?
I don’t believe so. This might be why financial experts preach CONTROL.
With that being said, if you want to transform your financial condition and reach your target, YOU are going to have to guide it. You’ll have to start managing your money.
Are you in control of your finances?
SIGNS YOU MIGHT NOT BE IN CONTROL OF YOUR FINANCES
A recent study done by Prosper Market Place, operators of a leading online marketplace that connects borrowers and investors, shows that 60% of Americans do not have the needed financial freedom to enjoy life.
Only 29% feel confident about being in control of their finances. But the most alarming finding, to me, is that, “a full 22% do not even think about their long term stability.”
I’m still trying to figure that one out. You can read all of their findings here.
The point is….
Some of us are struggling to take control of our finances. If you are wondering whether or not you’re in this group, just take a look at your transactions.
Still can’t decide, or need more convincing? Here are a few definite signs that you might not be in control of your money:
- You have a habit of buying things even when you don’t have the money.
- You’re opening more credit lines to have enough to spend.
- You regularly come short in paying your bills and you have to push back the due date.
- You’re using credit cards to pay other credit cards.
The list goes on.
If you’re exhibiting any of these in your spending, chances are you’re not in control of your finances. But here is the good news…
You can take back control. If I can do it, so can you. Check out how I did it.
THE BATTLE FOR CONTROL OVER MY FINANCES
Just six years ago, I was cruising down a destructive financial journey of my own. The condition of my personal finances displayed clearly in my transactions.
I was careless. I was uncommitted. I was inconsistent with my financial obligations. Notorious for exhausting and abusing the grace period, I would regularly wait until the last minute to pay my bills.
And some months, I wouldn’t1 even bother.
The friendly reminder from creditors would come and go with no action on my part. I would opt to pay the late fee instead. Somehow, I convinced myself it was easier that way. (Foolish, huh? Tell me about it.)
My “awesome ideas” folder is piling up over here, so I thought I’d release some of them on you today to help turbocharge your goals 😉 All these come from emails and comments that YOU ALL have sent over the months, so big thanks for dumping out your smarts on us! It all helps!
See if any of these ideas stick with you:
#1. The financial notebook
This one comes from Sarah who shared it on Millionaire Day this year:
“I started keeping a financial “notebook.” I write in it every time I do something that moves me closer to the FI mark. (Ok, so I am rather liberal with what counts… reviewing the kids’ 529s counts, as much as paying an extra $100 to the debt monster.) Flipping through it helps keeps me motivated in the dry spells and reminds me when it’s time to review some bill or policy!”
So pretty much, a financial diary. Which is much more juicier than a normal one, if you ask me!
#2. An awesome way to charge your kids rent 😉
“I am going to provide my kids a (mostly) judgement free place to live when they are done schooling. My only Caveat is I will charge them rent, and that rent will be in the form of proof that they are maxing their 401(k) and IRA, and investing 50% of their net pay. As long as they do that they can live here ’till they get married.”
Another great benefit: they’ll be able to move out faster with all that money saved! 😉
#3. Chart your net worth progress against your goals!
LOVE LOVE LOVE this from Bill Furst:
“I wanted to pass along a neat little tracker I put together that I use monthly (now, and previously just yearly) with my own net worth updates. It basically tells me that I am on track for my retirement goal ($$ and time) with a visual chart. The larger the green section, the more ahead I am. You just input in the grey boxes and the yellow parts calculate for you.
I filled this in with your stats dating all the way back from 2008… I did yearly from 2008-2015, and then monthly from 2016 on. Line 8 is your historical net worth amounts. I don’t know what your time line is for your cool $1M, but if it’s 2020, you’re ahead of the game.”
So smart, right? Looks like the first year and a half I was falling short of my goal of “a million,” but from there we took off and are set to hit it earlier than expected. I really like this because it gives you a super fast idea of how well you’re doing or not in relation to your OWN goals and not anyone else’s. And it’ll now be yet another addition to my sturdy spreadsheet I’ve been tweaking over the years – woo!
I’ll have to make a template of it one day for y’all, but for now here’s the spreadsheet Bill created above for any of you who’d like to copy/test it out yourself: Net Worth Comparison Chart
Thanks Bill! (And your wife is right – you totally need to share your thoughts online somewhere! Start a blog already so we can check out all your other ideas you’ve got brewing :))
#4. “How much freedom will this cost me?”
Great way to think about all your purchases, by Free-Range-Nation.com:
“I ask my clients to think carefully about every purchase, and ask themselves how much freedom do they have to give up to work for someone else for this item? 15 mins … ? One hour… ? One day… ? One week… ? One month… ? One year… ? And then, is it worth it? If it brings tremendous value or return on investment, go for it. If not, sit on it awhile. Then, when they decide not to make the purchase, I suggest putting that amount into their Freedom Fund, or FU fund, as many like to call it. How about the Middle Finger Fund to keep the fun there and the profanity out. 🙂
#5. Pay enough extra towards your mortgages to see a $1.00 decrease every month
Another interesting idea by Richard, in response to staying motivated paying off your debt:
“One of the things that made it simpler for me is focusing on a small detail. I call it my magic number: $310. That is the number (rounded up to next $1) at which the extra principle payment reduces my monthly interest by one dollar. It is great to know that by paying that extra amount, all my future payments will include $1 more principle, and $1 less interest. It’s a benefit I can see on paper. I can also see the compounded effects of making those extra payments over the years. It soothes the number crunching addiction I have.”
I used to love seeing the interest portion of the payments going down by a dollar too. I never calculated “my number” to make sure that happened every month, but I did round up to the nearest hundredthevery month – for both our mortgages – which sped up the debt killing immensely.
A little over a year ago, I wrote the post “Monopoly and Debt Repayment“. In it, I lamented my losing streak against DD3 who, I was certain, had poor strategy in the game. An overly safe player, DD3 would choose not to buy properties she landed on because she stubbornly insisted upon keeping a good stash of cash. I, on the other hand, would buy every property that came my way – in the name of future wealth-building – and I’d usually have a full two or three sets before she had even one.
But when the time came for me to put houses on all of my properties, I couldn’t afford to. And if I could, I’d max out – always cash poor. Meanwhile, DD3, on her one measly set of properties, would slowly build up her houses – always maintaining what I considered to be an unnecessary amount of money just in case bad luck came her way – until she eventually traded up for hotels.
You know the rest. If she happened to land on one of my various properties, in its house-less or only-modestly-housed state, she would easily pay me the small sum owed. When I landed on her single set of hotel-ed properties, I’d have to mortgage some of my own and/or sell off a few of my poor houses just to make the payment. Until I lost.
And what have I learned?
You’d think that over a year later, I’d be equipped with a better Monopoly game plan. You’d think I would have mastered that balance between building up savings on the one hand, and investing in future wealth-building opportunities on the other. I got some great comments after that original Monopoly post. One, from my friend Laurie included some soundbites she remembered from her father, a successful property owner: “‘Over expansion ruins many a successful business’ . . . ‘Never bet more than you can afford to lose; “Never spend your capital.’”
Alas, I am still guilty of over expansion when I play Monopoly. I continue to bet way more than I can afford to lose. I consistently put myself in the position of having to spend my capital.
DD3 enjoyed a resounding victory this past week-end when we played a game. Early on, as I bought property after property, she became a bit worried. The toss of her dice brought her to spaces that didn’t offer the chance to buy, and then she’d choose not to buy when she actually had the opportunity. After one such decision not to buy a property, I said, “And THAT is the reason you are going to lose this game.” I then advised her against being too cautious and overly-picky. DD3 made it clear that she hadn’t asked for my commentary, so I kept smugly silent as the game progressed.
It was a slow, painful, and mortifying death I suffered. My smugness diminished into destitution as DD3’s worry blossomed into sheer joy. I had three full property sets while she had only one, but the old narrative played itself out. And you can bet I heard plenty ofher commentary when the inevitable end resulted.
The Power of Habit
I recently read the book The Power of Habit by Charles Duhigg, and it gives me some tools to use in tackling my poor Monopoly habits. (I’ve added the bold font.)
“Hundreds of habits influence our days . . . they impact what we eat for lunch, how we do business, and whether we exercise or have a beer after work. Each of them has a different cue and offers a unique reward. Some are simple, and some are complex . . . But every habit, no matter its complexity, is malleable . . . to modify a habit, you must decide to change it. You must consciously accept the hard work of identifying the cues and rewardsthat drive the habits’ routines, and find alternatives. You must know you have controland be self-conscious enough to use it . . . that control is real” (Duhigg, 270).
Step #1 – Acknowledge the habit: I have known for over a year now that I have the habit of over-extending myself when I play Monopoly, taking high risks that almost always end up with me going broke.
Clearly, the fact that I’ve acknowledged this habit has not meant that I’ve changed it.
Step #2 – Identify the cues and rewards that drive the habit’s routines: The main cue for me is landing on an unoccupied property. There is both fear and hope involved in a sense of urgency that I can’t pass up on this opportunity! Fear: If I don’t buy it, DD3 might, and then I’ll wish I had. Hope: If I buy this, I’ll get wealthy and win the game! The reward is what Duhigg calls a “subtle neurochemical prize” – meaning my brain gets a bit of a happy hit every time I buy a property or a house. Wooooo-hooo!
Step #3 – Be self-conscious enough to use the control I have to find alternatives: The next time I play Monopoly, my challenge will be to respond differently to the cue of landing on an available property. I know that my impulse will be a fearful, hopeful I can’t pass up on this opportunity! But I know better, and I will exert control so that I don’t act upon that impulse. I will buy or not buy based upon how much money I have and whether or not I have already purchased one of the other properties in that set. I’ll forego the Wooooo-hooo! happy brain hit, and open myself up to the possibility of new rewards that come not with maxing out, but saving up.
Connection to Personal Finances?
Of course there are connections to personal finances here! Mine in particular. If you’ve been reading about my journey out of debt for any amount of time, you know that I struggle with my discretionary money. I overextend; I spend on impulse in both hope (“This will be fun/delicious/interesting!”); and fear (“I’ll regret it if I don’t buy it.”); and at the end of every month, my discretionary account is at zero. Or less.