In God We Trust

Teaching You How to Get OUT of Debt and Live Debt-Free

Archive for the ‘Discipline & Habits’ Category

Feb
10

Sometimes it takes a few hits to your backside to get your attention. It did mine, that’s for sure.

The Setting

The other month, I signed up for a credit card from somebody – for the purpose of saving 15% or getting Free Shipping or some other some-such benefit. Gotta save where you can, right? Seems like the charge was $10 bucks or so.

The bill arrived in due time, and I put it in my Bill Place. (Keeping your bills all in one place sure makes the bill-paying process so much easier.) Somehow, that month, I got a bit pre-occupied, and didn’t sit down with my bills on schedule, and let it slip a week or so – probably more on the “or so” side…

The Hit

To my dismay, the Due Date for the new card was a few days earlier than my Bill-paying session… Arrrrrrgggghhhhhhhh!!!!!!

I sent the check anyway.

The next month – you knew this was coming – I got a new bill that included a $39 Late Fee charge. Thirty-Nine Bucks! And, a $1.50 Minimum Service Charge Fee…

Oh yeah! I’m the Financial Wizard, I am…

The Lesson

So, the lesson is two-fold.

1. Don’t sign up for credit cards just to “earn” some sort of Reward.

2. Pay Your Bills On Time.

Rewards

If you have and use a credit card, it seems reasonable that there should be some Rewards for using it – right? I mean points to use for travel or gifts, cash back, lower interest rate on other accounts with the same outfit.. Things like that.

That way, whenever you use the card, you are being a Good Steward and getting double-duty from it.

The trouble is that these rewards will become a primary decision point between using the card or cash. They will also tend to cause you to spend a bit more on something than you should. “It isn’t on sale – BUT! I’m getting points…!”

Ignore the points when you go to use your cards. Think, “Can I pay for this?”

Paying Bills On Time

The major lesson is that paying bills late costs plenty. Well, you already know that, I’m sure. But how to get out of the whirlpool of increasing debt – THAT’s the question…

Obviously, paying your bills on time will eliminate those horrendous Late Fees. So, paying bills with a system makes it easier to avoid these fees.

The Envelope System

One of the ways to pay on time is to handle the bill once. Open it when it arrives. Write the check for whatever payment you have planned for that account. Put it in the envelope, stamp it, and put the “Mail Date” in a corner of the envelope. File the envelope in a convenient place. Enter the amounts in your budget tracker.

Every day, look at your bills and put the envelopes due that day in the mail… Done.

Two troubles with this method. First, You are constantly reviewing your bills. I guess this is actually a benefit early in getting control. But, it can be stressful.

Second, you really don’t have as much control of your finances as you think. You can’t take the time to review your budget and progress every day that a bill arrives. You might have something else planned, so you put off handling the bill – Ooops. Late again…

The Pay When Paid System

I preferred this system when I was working. I got paid twice a month with one company, and every 2 weeks with another. I made it my habit to sit down with the bills a couple of days after payday and paid upcoming bills.

The advantage here is that I’m only dealing with my finances a couple times a month. I can concentrate on the task at hand. It is a planned activity. I can also get all my due bills off at once.

Who cares if they have my money for a few days longer than they could? The benefit to me would be fractions of pennies, while the benefit of having it gone is that it is PAID on time.

The Automatic Payment System

I’m finally a convert to online banking. It took me plenty of time to get used to it. But, now it is the best thing since MP3 Players…

On all my credit cards, I have arranged the monthly bill to be paid in full and on time. This takes that bill out of my hands – sure, If I need to, however, I can modify how they handle This month as my finances dictate. So, though it is an automatic withdrawal from my bank account, I am still in charge.

And, I avoid those stupid Late Fees.

Conclusion

Late Fees cost Americans Billions. These Billions go to the banks and financial institutions – as they should. However, by avoiding them, Consumers can better choose to spend those dollars in ways that benefit the family, not the banks.

Pay On Time…

Apr
11

When you are unemployed, it is far more important to manage your financial life than ever before. You need to preserve what little income you have. You need to severely monitor and control your cash-outflows. You need to continue normal life functions. You need to find another job. This lesson addresses financial management and how you should proceed with your financial life.

There are Four Principles of Financial Management that you need to know about. These principles apply at any time in your financial life. In fact, if you had followed these Four Principles, your financial situation would be pretty easy to handle. But, that’s enough “I told you so…” Start embracing the Principles, now, and you’ll make it through this current unemployment challenge, and you’ll be on the way towards weathering any future unemployment bouts, as well.

The Four Principles

  • Honor God with Your Life
  • Spend Less than You Earn
  • Avoid Debt
  • Provide for the Future

Honor God With Your Life

We all want to please God. We all try to live a good life. But God wants more… He wants your every waking minute. God asks you to deny yourself and follow Him. He asks that you help other people. He asks that you be a good steward of all the assets entrusted to you, for what you have is not yours, but His.

Take a moment to reflect on what you have typically spent your money on. How much of what you buy makes you look good, or feel good, or sound good? How many of your expenditures glorify you? How many of them glorify God? How much of what you spend helps other people?

Chances are that you have been spending at least 98% of your income on you. Chances are also good that you have been spending more than 100% on you. Most families spend more than they earn as seen in ever-increasing debt-loads. Their bills get bigger with time, not smaller.

Now is the time to re-balance your financial life. If you are not giving regularly to your local church, then you need to begin doing that, today. You don’t need to begin by tithing (giving 10% of your income) but you need to earmark something for God each week. You need to do this before you spend it on other things. You won’t notice the absence.

“But John, we need our money to live on…”

I assure you that by indicating your submission to God by giving to your local church, God will take care of your needs in ways you can’t conceive of. God is not an accountant – But He is the creator, and He loves you.

Measure your current and future purchases using this prayer: “Lord, does this purchase glorify you? Should I be buying this?” Listen for the answer. If He says, “Yes.” then you’d better buy it! But if He says, “No.” or is silent, then you had probably better pass on this purchase.

This doesn’t mean that you can’t buy anything. It just means that you need to be more thoughtful when you shop. Remember that you are to be a good steward. This means making good decisions about how to take care of what isn’t yours. Don’t spend extravagantly or to gratify your selfish desires. If you don’t need it, don’t buy it.

Spend Less than You Earn

This leads to the second principle. If you spend less than you earn, then you will have a surplus. The surplus will accumulate over time to provide for your future. This is a key discipline you need now more than ever. You need to cut back on your spending to better match your new income. You need to do this in spite of your optimism about getting a new job, because you need to prepare your life for an extended unemployment span. It will probably be anywhere from three to twenty-four months before you become re-employed in a satisfactory position. You need to be financially able to weather this time. You do this by becoming disciplined at Spending Less than You Earn.

This means that you need to examine all areas of your expenditures and make adjustments, and you need to do it immediately. You need to keep track of every dime that comes in to your household, and you need to track where and how it exits. You begin by constructing a Spending Plan based on your current situation, and your future expectations. The Spending Plan identifies all areas in your life where money gets spent. You examine each of the areas and then decide, today, how you will spend in this area for the future. This is stewardship.

How can you cut expenses? They are so locked in… Actually, they aren’t. Every one of your current expenses is optional. You need to have this attitude when you examine your expenditures. You do need to spend something on housing, but if necessary, you can move to a less expensive location. The same can be said about transportation – you can trade down to a less expensive car or two. Your insurance expenditures can be reduced. Your utilities, food, clothing, entertainment – every expense you have – can be reduced. But you choose what and how to reduce them.

Here are some examples. Turn off all the lights in rooms you aren’t occupying. Turn the temperature down in winter or up in summer, and dress accordingly. Limit the number of trips to McDonalds each week. Walk or ride bikes for errands (and exercise). Only shop at the grocery store with a list. Include sale items, and coupons. Eliminate or stretch out hair appointments. Cancel subscriptions and memberships, certainly as they come up for renewal. Return recent purchases for credit. See the list for more examples.

Avoid Debt

This means to avoid taking on any new debt. Ordinarily, this principle advises that you get out of debt as quickly as possible. Unemployment means that the avoidance is primary. Getting out of debt is attractive, but not the priority.

In your attempt to keep cash-flow in balance, you may be tempted to add charges to your various credit cards or even take out a home equity loan to tide you over. This is a bad decision. You may satisfy a short-term desire, but you jeopardize your long-term financial viability. You are far better off cutting back on expense than you are trying to keep up appearances by charging. Avoid debt.

However, don’t cut up your credit cards. You may, indeed, need to use them from time to time. It is important to keep that available balance available. Instead, put them in a drawer for safe keeping. Don’t take them out for a day of shopping. Stick to the list.

What you should do with your credit cards, however, is to try to negotiate down your current interest rate – without trading cards. Most companies will meet your request for a lower limit if you ask them. The reason is that they want to keep you as a customer, and know that you can move to a different card company. Go ahead, call them, and ask. The worst they can say is, “No.” Then you can take steps to move to a different credit card company.

You should also stay current on your credit card bills. Late-payment fees will drain your cash faster than you can afford. Send those checks off in plenty of time to wend their way through the mail to the payment address. Be sure you aren’t bouncing those checks, too. You’ll get a double-whammy if you do – once from the bank, and a second one from the merchant. Some merchants even send the checks back for a second attempt, so it could be worse.

Provide for the Future

If you had done this, your unemployment adventure would be less stressful. You would ideally be living off your six months of living expenses set-aside at this time, not scrambling to try and make ends meet. This set-aside gives you time to consider your changes or circumstances. It allows you to discuss and reject inappropriate employment offers. It lets you examine your options in far greater detail. Even now, you should be setting aside a small amount for just-in-case needs. When you get re-employed, make this fund a priority.

In the meantime, providing for the future while unemployed means to re-examine your future-related expenses and take appropriate action. Look at your insurance, taxes, and retirement fund situations, and act.

For example, you might have a 401k retirement fund amount that looks awfully attractive right about now. But like getting farther into debt, tapping into this fund should be an absolutely last resort action. When you take early withdrawals from your 401k, or 403c, or IRA accounts, you pay an early withdrawal penalty in addition to any owed taxes. This can take up to 50% of the value of your account. This isn’t good stewardship. It is Ok to think about temporarily decreasing your spouse’s contribution amount, but don’t eliminate it. Keep something going towards the retirement fund.

Your insurance needs don’t automatically continue at the same level as before. Your previous employer owes you COBRA coverage for 18 months, but you have to pay for it. The employer’s plan may be far more than you actually need. If you or your family are reasonably healthy, then a plan with very inexpensive office calls and very cheap drugs may cost you more in premiums than you would ever make up in savings. On the other hand, if you have serious pre-existing conditions, don’t jeopardize future coverage by dropping coverage now. You have to make those good decisions, but you should examine each and every insurance policy and determine if you need it or how much you can afford to do without. Remember. Having insurance does not prevent occurrences, and not having it doesn’t cause something to happen. Insurance lessens the financial impact of an event. Balance the cost with the benefit. This is good stewardship.

Finally, consider taxes. If your spouse is currently employed, consider upping the number of W-4 exemptions being claimed. Use the worksheet available from the IRS or your employer and calculate how many exemptions you should claim for withholding purposes. You can make a change at any time, and by increasing the number of withholdings claimed, the take-home pay is increased a small amount. Certainly avoid claiming zero exemptions as this only pads the government’s treasury with no benefit to you.

You need to increase your cash inflows as much as possible, and you need to decrease your cash outflows as much as possible. You provide for the future by making good choices.

Your Action Plan

Start this very day gaining control of your financial life. Commit yourself to living the Four Principles beginning now.

Give something to the Lord, today. Examine your lifestyle in light of Honoring God. Help someone else get through life. Spend time with the Lord – He will give you comfort and wisdom, but you have to ask.

Build a Spending Plan, immediately, and make spending decisions about your lifestyle to bring your outgo to below your income. Watch every expenditure and take them all captive to the Spending Plan.

Keep your credit cards – just don’t use them. Stay current on your credit card bills. Negotiate a lower rate. Don’t take out consolidation or home equity loans except as a very last resort.

Examine the need for continued insurance. Re-calculate your tax withholdings. Stay away from your retirement accounts. Put a bit aside for unexpected expenses – don’t use the credit cards.

Conclusion

You can weather this set-back. You will survive. You may not emerge with the same lifestyle or earning power, but that isn’t the end of the world. Use this opportunity to re-establish a strong relationship with God, your Spouse, your Family, and your Friends. Become a better person by being a better steward.

Mar
7
Factors contributing to someone's credit score...
Image via Wikipedia

I am not a proponent of paying a lot of attention to my FICO Scores or Credit Reports. Since our goal is for you to get Out of Debt and to live Debt-free, spending too much time fretting over scores seems unproductive.

That said, they are a great tool to use for status checks.

There are 3 companies whose only business is to compile and report on the credit history of consumers. The 3 are Experian, Equifax, and TransUnion. They rely on a credit granter to send them regular reports on total balance, minimum payments, if late and by how much, and total credit available. They then compile this info and send it to member merchants if you should need credit from them.

Congress Did a Good Thing

The House Financial Services committee meets. ...
Image via Wikipedia

Yes, I can admit that the US Congress isn’t totally inept. A couple of years ago, they forced open the secret world of Credit Reports, and gave us all a peek at our own records.

Credit Granters, or merchants, could always pay a fee to any of the 3 Credit Reporting agencies and get your various credit history results so they could decide whether and how much credit to grant you. In order for you to get a peek, you had to pay a fee, too. One exception – if you got turned down for credit, you could request a free report.

I used to review those reports, and they were a pain to read. It took a special concentration to get the rhythm of the entries and what they meant. And they used to cost a pretty penny. And corrections??? What a pain.

So, to help consumers have it easier to make corrections in the notoriously erroneous reports, Congress made each of the reporting agencies provide consumers one free report each year. But, you have to ask for it.

Get Your Report

Don’t go to the reporting site. You’ll be able to get a report, but you’ll be enrolled for a fee in a program of frequent monitoring. You don’t need that.

Instead, go to AnnualCreditReports.com.

There, you enter your State, and then select which company’s report you want.

We recommend that you get one at a time, and get another one in about 4 months. That way, you will be able to track your status fairly regularly without cost.

Get one for each of you – there might be differences. Print them out.

Now What?

Once you get your report, take a few minutes to get the lay of the land. See what they are keeping track of. Look at the accounts they are tracking. Some are open, some closed, some negative, most positive (we hope).

If you note any glaring errors, you have the right to have them corrected. Each company has their own process. Be sure to initiate the process to get those errors corrected.

Otherwise, Staple the report together and file it away for comparison with the next one.

Conclusion

Go ahead and get your reports, and be sure they are correct. However, don’t obsess over them.

Pay attention to getting out of debt. The credit reports will eventually take care of themselves.

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