Prosperity Mindset Month - Chapter 4

This month was dedicated to different types of debt that we take on during our life. After we talked about student loans, wedding expenses and mortgages, we will talk about how to plan our monthly budget so we can make sure we pay off all these debts and reach financial serenity.

I know that "budget" is a tough word in Americans' vocabulary. I will endeavor to make it easier for you, my reader, by telling you that by budgeting your money you are not giving up all opportunity for fun and things you desire. You are only planning all your desired purchases and you are also making sure that all your necessities are taken care of. 

I have to agree with the financial experts who tell you to track all your expenses, to the last penny. It is the best way to understand your expenses over a 30-60 day period and to be able to control them afterwards. However, I also have to agree that most of the people (including myself) don't have the patience or the discipline to track every penny spent and to plan where each penny goes. So I have devised a simpler system that has also been sustainable. And I will go over the 3 categories of expenses that I use in my own budgeting:

1. Fixed expenses
This category includes all the payments that are due every month and that have set amounts that cannot be changed, such as: mortgage/rent, insurance payments (all policies: homeowners, car, life, etc), retirement contributions (once you determined how much you contribute), car payment (only after you negotiate the best interest rate available to you), student loan payments, credit card payments (once you negotiate the monthly payments). This is what you must cover every month from your income. You will include all those payments that are a must, and once you have listed them all, you make sure your income goes to them first, before taking care of the next two categories.

2. Flexible expenses
This category includes all the payments necessary every month, that can be negotiated with the companies you have to pay, such as: utility payments (you can control how much electricity, gas or water you use), gas for your car or common transportation (whichever way you need to get around, most of all for work or your business), groceries and any food you eat out (if you have to go out for business meetings), any dues to professional organizations, any other activities that you need to pay for (like children's music and sport activities). 

3. Discretionary expenses
This category is for all the fun spending, such as purses and shoes, or clothes, or any other items you want to collect, as well as vacation money, and money for any other fun family activities. These expenses should not happen before any of the other two categories. I'm not saying to give up all the fun, I'm only saying that these cannot be a priority over the fixed and flexible expenses that you have to take care of every month.

Hope these ideas help you, as you build a better relationship with your money.

Prosperity Mindset Month - Chapter 3

Now that we have talked about your wedding, you are ready to start your new life and probably want what the American Dream is all about: your own house with a white picket fence. Great! Just remember, usually, this house comes with a mortgage - for the next 30 years or so. Most people want to buy a home, so the long commitment to a monthly payment is not a deterrent. 

Most of us sign on the dotted line and agree to the monthly payment without considering what the contract says, the only concern being that the APR is as low as possible, and the monthly payment manageable for the monthly budget. Everyone knows (or can find out) that the APR refers to the annual percentage rate. Though few know that is also influences the monthly payment for the mortgage. By having a smaller APR, your monthly payment will be lower - but have you thought that the amount of total interest is still high, because you pay less on the principal (the borrowed amount)? 

This is why, in order to pay less interest overall, you need to make extra payments, so you reduce the number of years you pay it all off. I know all the financial gurus out there tell you to pay an extra payment a year or to make payments every other week when you get your paycheck, in order to save a lot of interest and pay off your home in less than the 30 years usual mortgage is set up for. This may feel like a tough order if you cannot afford an extra payment annually. Even if that is the case, you may still benefit from this technique if you can pay something extra every month - you may choose to round up your monthly payments to the nearest hundred, or add an extra $50 or $100 each month... whatever fits your budget. Just make sure that you designate the extra payment as going towards the principal, because otherwise it is very likely for it to go towards both interest and principal, and therefore diminish the impact on lowering the amount you owe.

We will be talking about the impact of the interest payment on your taxes for the year in a later post, but for now all I want to emphasize is the benefit of paying off the mortgage earlier than the original schedule. If you can pay the property taxes and the homeowners' insurance separately from the mortgage payments, it will help decrease your monthly payments, so you can pay more - if you can afford to add anything to that payment. A word of caution here: if you make payments for taxes and insurance by yourself, please make sure you plan them into your budget, so you can keep on track. In my experience, your payments will add to less than what the mortgage company charges through the escrow account. 

Next week, we will talk about some budgeting ideas, to help you fit all this into your available money every month. 

Prosperity Mindset Month - Chapter 2

Now that you are all excited about getting out of student loan debt (see last week's post), let's talk about getting rid of another big chunk of debt that you may have hanging over your head, a.k.a. wedding expenses. If you are already shaking your head and telling me that you DESERVE a big wedding because it is your ONLY ONE, and because it is your special day... I'm not here to argue with your point. I have no intention to tell you that you should not get a big wedding. Nor am I saying that your should not give your daughter a big wedding. I'm simply suggesting that you plan beforehand, that you execute during and that you stick with the plan afterwards.

From a financial standpoint, I truly believe that you deserve to have anything your heart desires. I just also believe that planning for it is the best way to ensure you don't have regrets afterwards. When it comes to your big day, your wedding day, usually you have a long time to plan - it is not an impulse buy and it is not a small chunk of change. This is why you can make the wedding account your priority when it comes to saving during the year prior to the big event, so you can pay with your money instead of the bank's money (which you will be repaying with interest).  

Another suggestion for the entrepreneurs reading this post, is to check into bartering different things you need for your big day. If there are some services you can provide in exchange for photography, videography or even flowers and cake, this can be a way to lower your final bill. Many times it also helps to deal with smaller local companies - like the dress designer, the tailor for the bridesmaid dresses - because they may be willing to give you discounts, or you may be able to make arrangements for future collaboration and/or sponsorship.

If you already have a house and many of the items you need inside, you may not want to register at the traditional stores for the brides. One way to lower the price tag for the wedding, or to have more money left after your big day, is to register for honeymoon registry so you don't have to use your own money for any traveling you want to do. 

Prosperity Mindset Month - Chapter 1

This is the month when many lives change in the US. Whether it is the college graduation that launches the new adults into the real world, or the wedding that unites the lives of two people (formerly single), May is a month of changes in many lives.

I will apologize right now for playing the role of Debbie Downer! Since this a blog related to finances, and especially to YOUR relationship with money... we will talk about the increase in personal debt the month of May brings about: student loans that now need to get paid, wedding expenses that add up to a high balance on your credit card if you didn't plan it right, and maybe even a new mortgage if you timed your home purchase with your wedding.

Since we already learned that we always eat an elephant one bite at a time, we will tackle one of these scary debts in this first post - stay tuned next week for another exciting episode (LOL). Today we will talk about the student loans, and some information that may help you pay them down faster, or at least to plan appropriately for when you can be rid of them.

For those of you who are the parents of students, please think twice before co-signing on the student loans. Now, please don't get offended, and don't accuse me of not being sympathetic to your desire of being a great parent and helping your child financially. If you can provide the capital for them to go to school, by all means, do so. Even if you want to take on some loans to help them out, that is entirely your choice, and I can respect that. 

Having worked in the financial industry for more years than I care to acknowledge (since I'm still 25 years old), I have met a lot of people who have put their retirement in danger by taking on loans they could not really afford. If your budget doesn't suffer by adding another monthly payment (such as a student loan payment), then by all means, take on a loan for your child. Otherwise, please consider helping them in other ways that don't risk your ability to retire. One idea for you is to check out some grants offered by smaller organizations in your area. If you are not familiar with such organizations in your town and still have some time before your student goes to college, please consider reaching out to organizations in the community; it will be an opportunity to meet some great community leaders.

One great resource that I came across while watching Shark Tank (valuable resource for entrepreneurs) is an app called Scholly - provides a list of many organizations and companies that provide scholarships. This can cut down on your research time. 

Please feel free to share in the comments any resources you have that can help another un-broke woman with money for college and limit the amount of student loans.   

Money Friendship Month - Chapter 4

As we are building better relationships with our money and we are becoming friends, we want more of it to hang out in our own bank account instead of the credit card company. Most people know that interest can work in your favor or against you. That may be a cliche but it is also a truth. Every dollar bill you have wants to hang out with its friends - other dollar bills - so either it brings you more of said friends and they hand out in big groups in your wallet or your bank account, or it goes to a bigger company - credit card company, store - to find friends to hang out with.

If you want to build a friendship with your money, you need to make sure you give as little as possible to the creditors. Now, I'm not suggesting to lower your payments, just to shorten the time you pay - this in turn will reduce your paid interest. This same method applies to credit cards, as well as car payments or even mortgage. The faster you eliminate a debt, the less interest you are paying on that debt.

There are 2 ways to tackle debt, each with its pros and cons. One is based on paying the highest interest first, and the other one is based on paying the lowest balance first (known as the snowball effect).

They are both efficient and can be followed by anyone. The challenge is that we are humans, and we naturally procrastinate, and we also naturally get side-tracked even when we are working on the project. Therefore, when making the decision on which way works best for you, the most important to keep in mind is your personality and your motivation.

If you know you can stay focused, and if you want to pay as little as possible in interest, the “highest interest first” method may be your best choice. For the rest of us however, the most likely way to succeed may be the “lowest balance first” method. The reason is the increased motivation once a debt is paid off.

Either way you decide to tackle your debt, it is important to keep working on it and never give up. The best approach is to pay the minimum required on all credit cards and other loans, except for the one you are working on at the time – whether that is the lowest balance or the highest interest. On that one, you want to put as much money as you can, in order to pay it off as soon as possible.

The total monthly payments should stay fixed (or increase if possible – if you want to pay everything off faster). Once a card is paid off all the money that was going on it should be redirected to the next debt, thus keeping the monthly at the same amount but increasing always the payment on one debt until it is paid off. 

Remember we talked last week about building an emergency fund that would take care of unexpected bills. When you have that in place, you don't have to worry about higher credit card balances due to things you could not budget for. And after you obliterate credit card debt, make sure to tackle all your other debts, such as car loan, mortgage and student loans. None of them are your friends, even though your tax preparer may suggest you keep a mortgage in order to deduct the interest on your taxes. Chances are slim to none that you would be able to use that, especially if you have been paying for 5 years or more. Not worth making your mortgage company rich.

If you want your money to be your friend, don't pass it on to creditors! Encourage it to hang out with you more.

Money Friendship Month - Chapter 3

During the month of building friendship with your money, we have talked about saving money, so you can keep more of the money that already flows into your life; and we have talked about protecting your assets. By keeping your wealth and protecting it, you are building a positive relationship with your money. And after talking about the protection that would take care of your family were you taken away by an unexpected event, such as accident or fatal illness, we will now talk about protecting your wealth from other, non-fatal, events that can threaten it.

We will dedicate en entire post to getting out of debt (check out next week's post for that). Today, we will focus on having money set aside as a safety net, a.k.a. emergency fund. The number one reason why it is important to have an emergency fund in place, and to grow the amount in it to the level that brings you comfort, is that without it, you risk getting either deeper in debt or back in it if you just managed to get rid of it. 

I know there are some financial experts who would tell you to not use your credit cards, to put them in a place where you don't have easy access, or where you don't go on a regular basis... but I would like to argue that using a credit card for emergency situations is not the best idea. First, it defeats your hard work with getting out of debt - after car repairs for a couple of thousand dollars you find yourself back to square one with paying that credit card off. Secondly, now you also have to pay interest on the amount you borrowed from your credit card. And last but not least, sometime using a credit card may not be an option, depending on the type of emergency you are dealing with.

An example of an emergency that may come up in anyone's life is being laid off. Many people can attest to that who had great jobs before the 2007-2009 recession. Also many of those people had purchased homes during the real estate boom right before the recession. And the mortgage companies don't accept credit card payments for the mortgage. No need to even mention here the statistics related to the foreclosures from those years, right?!

When I talk to my clients about building up their savings in different accounts, such as for big goals, or vacations or even an emergency fund, I suggest that they call those accounts by a name that resonates with them - i.e. vacation account, BMW fund, or Fun Fund etc. For your emergency fund, I understand the connotation of the word, and I know that it is not wise to use words that have a bad vibe... so I suggest it should be call your Justin Fund. Why Justin? Because this money is for "just in case" something happens. 

If you are working on paying off credit card debt, or any other debt - long-term or short term - please consider setting aside some money for a rainy day, and don't send your last penny to the debt company. It may take you a little longer to pay the debt off, but the upside is that you will have the peace of mind if something goes wrong, and you will also be able to stay on track with paying it off because you won't have to "charge" any emergency bills.

Now that you are setting up an account to house Justin, please make sure the money is somewhere close enough and easy enough to access, though not that close that it starts to look tempting. Because no, a sale at Macy's on the best looking shoes still does not qualify as an emergency!  

Money Friendship Month - Chapter 2

We are talking about a better relationship with our money this month. And we cannot express good feelings towards our money without protecting it from the unexpected. Illness and accidents can put a dent in our finances, therefore we need protection in place to take care of our loved ones and to provide for the family, so the life style can be maintained. And that protection is covered through life insurance. 

Even though life insurance is an uncomfortable topic for many people, and it may scare some visitors away from today's post, I will ask that you power through the next lines, as you learn some information that will help you build your relationship with money on a friendly level. I will cover some basic points regarding life insurance, with a promise not to bore you by the use of jargon.

There are multiple types of life insurance available, and mainly they fit in 2 categories: term and whole life. The term lasts for a number of years (usually 10, 20 or 30 years), while the whole life lasts until age 100 or 120 – depending of the company and the product selected.

Most people believe they lose the protection at the end of the term; in fact, most of the term life insurance is guaranteed renewable and convertible. It sounds more complicated than it is. It means that you can re-new the coverage at the end of the term without answering medical questions again. It can also be converted into a whole life policy anytime during the term, or just before expiration – also without answering medical questions a second time.

There are 2 ways to figure out the amount of protection necessary: the expenses the family needs to cover when someone dies, and the value of the in-come the person would have earned had they lived. 

The first method is more popular, and the one most frequently used by financial professionals with their clients. The best known way of calculating the need for coverage is the DIME method. It stands for Debt (how much debt the family has to pay off), Income (how much money would have been earned until the youngest child turns 18), Mortgage (balance on the mortgage for the family home) and Education (cost for college for all children).

The second way is by multiplying the annual income by the years left to earn it. One other popular way is to use the children's ages and the number of years until they can provide for themselves. In this case, please keep in mind that your children will probably not be able to provide for 100% of their financial needs at age 18, or even at 21-22 immediately out of college.

My intention in writing this post was not to frighten you or to make dire predictions. I simply wish for you to put the protection in place that will provide peace of mind for yourself and your family, so the unexpected doesn't hurt you, your family or your life style. And if this post raises more questions for you, please don't hesitate to reach out; I'm always willing to answer questions and provide the guidance you need.