Time and Money – so much of what we worry about, fight about, stress about come back down to these two things.
We’ve talked about time (Check out How to Get More Done AND Have More Free Time)
Now let’s talk about money…
Everyone has a “money story,” this is our relationship with money. Whether we feel like there is never enough of it, scrimping and saving, feeling anxious about spending. Or maybe we are spend recklessly or use shopping as therapy, feeling better when we surround ourselves with what money buys. However you feel about money, my guess is you have goals related to money (getting out of debt, going on a big vacation, buying a new car) and getting to that goal may feel daunting.
That’s why I brought in a ringer…Phillip DeJong is a Financial Planner and is bringing us some great advice!
Phillip’s reason for saving!
“I want to save more money and pay down debt.”
That is one of the most common things I hear as a financial advisor. Let’s be honest, you’ve tried to be better at not spending money and keeping a budget, but in the end you still feel like your savings account is not where you want it to be and you just can’t seem to get rid of that cloud of student loans, credit card debt or both. Saving for college, your retirement, a new house, etc… all begin to feel like a pipe dream.
So where do you begin?
Throw out most of what you’ve read online (I know, this is online… sh, stop over thinking it).
Here is what you have likely tried before:
You get your paycheck…
then pay your bills…
you spend money on whatever you may need or want…
then whatever is left over is what you have saved.
The idea being that if you spend less each month, you will have more left over to add to your savings. You continually try this plan again and again and then become frustrated, or worse, you feel guilty because once again you’ve failed to accomplish your goal of creating savings and decreasing debt.
Instead, let’s stop the never ending cycle and start doing something that does work.
First, let’s assume you pay your bills on time and you pay them faithfully each month. Instead of treating savings as the final step in your monthly budget process, start treating your savings like a bill that must be paid on time every month. Open a separate savings account, but don’t link it to your other accounts. If you are paid by direct deposit, have HR redirect 10% of every paycheck into your new account. If you get paid by check, setup an automatic draft from your checking into your savings twice each month for a predetermined amount.
It’s important to make it automatic and simple to ensure that you will be successful.
This process is beneficial because it allows you to get out of your own way, allowing someone else help you save. To maintain this savings, there are only two reasons you should withdraw from this account: For an emergency, such as an unusual expense, or for a goal you are trying to accomplish, such as a vacation or a house.
Paying Down the Debt
Once you’ve created savings, it’s time to face the beast…the next step is to begin decreasing your debt. Start by building up your savings so that you have at least 3 months worth of expenses. Don’t pay anything extra on your debt until this is done. The most frustrating thing about working to get out of debt is when you have to go further into it after life throws you a curve ball!
Paying off your debt can seem impossible, but it really is as simple as the snowball effect. Have you ever seen a cartoon where a snowball rolls down a hill and gets progressively bigger until it eats everything in its path? This is the best approach to take on your debt.
Step 1: Figure out where you start
Begin by writing down each individual debt you have incurred, including the current balance, minimum payment, and interest rate. Once you have lined up your debt in order of lowest balance to highest, begin by paying the minimum monthly amount on each one and add anything extra onto the debt with the lowest balance.
Step 2: Roll it in
Once you’ve paid off the first balance, take the amount you were paying to that bill and add them to your monthly payment on the next highest balance and so on, until everything is paid off.
Step 3: Celebrate
This method gives you the opportunity to eliminate your debt quickly and efficiently! Keep a spreadsheet of your progress and celebrate each achievement. It’s important to see your debt eliminated because it gives you the drive to continue toward your goals!
Break The Credit Card Habit
If you have credit card debt, it’s important to break the habit of using credit cards as a free loan, and to instead view it as directly linked to your bank account. Every time you swipe your credit card, you should mentally deduct that amount from the balance of your checking account.
If you struggle with this, the best solution is to stop using them entirely until you are using them responsibly, by paying the balance in full every month. Once you have paid off your debt and have created credit card guidelines you are able to stick to, you can always request a new card. Don’t forget to keep saving money in the meantime. When life decides to try and derail your plan, this ensures you can maintain your goals and stay on track!
Extra tip: Your income is your most important asset and is the only driving factor in accomplishing your goals. Make sure to protect your income by speaking with a professional about getting the right amount of life insurance and long term disability protection in place. A premature death or long term disability is the most devastating thing that can happen to your finances. Make sure to have a basic estate plan in place as well. Having these plans in place are important ways you can protect your goals and your family. If you would like to speak about putting together a personalized plan to intentionally create the life that you want, by aligning your finances with your values, please reach out to have an introductory conversation.
Philip is a Financial Advisor working with Northwestern Mutual. His passion is to help people intentionally create the lives they want by aligning their money with their values. He will work with you to come up with a vision, set goals then work on a comprehensive plan to accomplish those goals. He specializes in areas of retirement, college planning, investments and insurance. You can contact him at firstname.lastname@example.org