By Jeannie Rodriguez | Dr. Budgets
Daniel and I met in 2011. We knew right away that our relationship was special, so it might not surprise you to learn that we started talking about some pretty serious stuff early on: kids, marriage, and, especially, money (he is Dr. Budgets, after all!). Before too long, Daniel had looked at where I was spending my money and made some suggestions to pay down the debt I had been struggling to eliminate. Dr. Budgets was founded about 1½ years after we met*, and so that makes me Dr. Budgets’ first client! As the “OG” client of “Dr. B,” I have some insights to share 🙂
Dr. Budgets has had many success stories… Clients have done amazing things! But, after you accomplish your financial goal, what comes next? Can anything top the feeling of paying off the debt that has been weighing on your shoulders? The answer is YES! What comes after paying off your debt is EVEN BETTER. If you stick with your spending plan, the accomplishments that follow continue to add to your overall sense of well-being. Maybe what I’m trying to describe is best said in a previous blog post:
“I soon realized I wasn’t worried about money at all. I never need to worry because we have automatic payments and buffers, and anything I need or want to buy is accounted for in the budget.”
Can you imagine that? Not having to worry about money? Let me tell you, it’s a beautiful thing. It took some work to get here though. First, I had to learn to live without my credit cards to pay off debt. Then, I had to learn to spend within my (and, eventually, our) spending plan. I also made some lifestyle changes to pay off my debt even faster, including renting out a room and getting a side gig to earn money on the weekends (but I was able to let go of both of those after I paid off my debt).
Now that I’m on the other side of debt and well into my “coaching” with Dr. Budgets, I can say my feelings about money have never been better. For example:
- I love my job, and I continue to love to work after having our daughter. But it’s nice to know that I don’t have to work at my job if I didn’t want to work anymore. I’m not a slave to my job, and I think that makes me love my job even more! Life is too short to hate what you do.
- I love our home, but it’s not our forever home. We’re working toward buying our dream house – not just a “it’s bigger than what we currently have and we need the space so we’ll take it” house. We’ve talked about amenities and location, and it’s within reach. I can actually see our daughter happily playing in the backyard of our future home. Paying off debt felt good, but debt is the past… Now, we’re working toward our future.
- We live in uncertain times and sometimes I’m nervous about the future. When I was in debt, I was VERY nervous about the future because I was one emergency away (car breaking down, a trip to the ER, losing my job) from being in a financial crisis. When I paid off my debt, I was able to create a financial safety net. Having savings gives me a sense of security.
Those are just a couple of examples of how life is better after paying off debt. But, besides these incredible side effects, what comes next after paying off debt? Here are some ideas, from Daniel:
Evaluate your spending plan. You’ve likely had a line item for debt repayment that can be re-directed. Determine how much of that you want to go into savings and other items in your budget. Maybe you want to give yourself a little breathing room in discretionary spending, or maybe you’ve become very comfortable with your spending plan and can put that money entirely toward your next financial goal.
Celebrate! You’ve accomplished something remarkable! Take a moment to acknowledge your sacrifices and reflect on your achievement. Set a budget and treat yourself to something to celebrate… you deserve it!
Create or Increase Emergency Savings. If you were able to put money toward emergency savings while paying down debt, that’s great! Maybe beef it up a bit to cover a longer stretch of time (6 months instead of 3 months, for example). If not, creating an “emergency savings” or “short-term savings” account should be your first priority.
Set your next financial goal. Get excited about your next financial milestone! Do you want to take a debt-free vacation? Save for a house or buy a new car?
If you’re working toward a financial goal, such as paying off debt, good for you! Keep it up! If you aren’t (but know you should), you may not have realized all the wonderful things that come along with achieving your financial goals… hopefully, this will help motivate you to get started! As always, if you want help please contact Daniel for a complimentary consultation – you have nothing to lose!
*Fun fact: I came up with the name Dr. Budgets… It’s a play on Daniel’s initials “DR”
- Published in Debt
By Daniel Rodriguez | Dr. Budgets
Debt can help you fulfill your dreams and move you forward in achieving your financial goals. Debt can also turn into your worst nightmare if you aren’t careful. So how do you use debt, rather than letting debt abuse you?
Step one is to get yourself out of credit card debt. If you are in credit card debt, then you need to figure out why you are still in debt, then take the necessary steps to pay it off. You can use a debt payoff calculator (like this one from The Simple Dollar) to get you going.
Step two is to stay out of credit card debt. It can be easy to use debt in a way that does not support your financial goals. Using a credit card to buy the latest gadget, that new pair of shoes, or to take that vacation when you don’t have the money can have harsh long-term financial consequences… this is when the Rule of 72 can work against you! Unfortunately, poor spending habits can be hard to break. As your income increases, you develop more expensive tastes, and your credit card balance continues to rise. It is a cycle that, sadly, isn’t broken by many people. Don’t be a part of those statistics!
So once you are out of credit card debt and are able to stay out of credit card debt, then there are many ways you can use debt to further your financial goals. You could use debt to purchase a property, purchase a car (be reasonable here!) so you can commute to work, or invest in your business. My wife and I have a low-interest rate mortgage that allows us to live in a place we love while keeping our monthly payment relatively low and stable.
Debt can also be used properly for short-term use, such as taking advantage of rewards or cash-back credit cards. The key is to use them wisely and pay them off every month to avoid interest charges. My wife and I use the American Express Blue Cash Preferred credit card for all of our grocery store purchases to receive 6% cash back… and we avoid paying interest by having it set up on automatic payment to pay the full statement balance every month. This way we earn the $360 annual maximum cash-back reward without ever paying a cent in interest! We also use the Target REDcard to receive 5% off at Target and free shipping at Target.com, and the Amazon Store Card to receive 5% off at Amazon.com, which in essence pays for our Amazon Prime membership.
There are definitely ways to work the system and use debt to your advantage. Carrying a credit card balance is not one of them, which is why that is step one. So, if you are still in credit card debt, bookmark this post and come back to it when you are out of credit card debt. If you are ready to get out of debt so you can start using debt to your advantage, contact us or schedule your complimentary consultation today to get started!
- Published in Debt
By Daniel Rodriguez | Dr. Budgets
You have a balance on your credit cards and you have decided to pay them off in two years. That’s great! So you simply take your total balance and divide it by 24 to find out what you should pay each month… then, two years later, you’re out of debt, right? If only it were that easy!
Paying off debt isn’t just about figuring out the numbers. There are a lot of emotional considerations involved that may make it hard to pay off debt, which might explain why the average American household carries $15,762 in credit card debt.
Here are the 5 reasons why you are still in debt…
Lack of Motivation. Maybe you tell yourself you want to get out of debt every year, but at the end of the year you have the same amount (or more) debt than you did when the year began. You have a desire to pay off your debt, but your actions are painting a different picture… your desire to purchase what you can’t afford is stronger than your desire to pay off your debt. The reason why you are still in debt is because your goal to pay off your debt isn’t strong enough (or at least not stronger than your desire to swipe your credit card).
Lack of Knowledge. Maybe your goal to pay off your debt is strong, but you just don’t know how to start paying it off. Do you pay off the credit card with the highest interest rate or the one with the lowest balance? Do you do a balance transfer to a 0% credit card? Do you continue to use your credit cards while you are paying them off or do you cut them all up? You can pay your debt in a variety of ways, but if you don’t start somewhere it won’t pay itself off! My recommendation is you start by putting your credit cards away and stop using them until you are completely out of credit card debt. Once you put your cards away, you can then decide whether to pay off the highest interest rate or the lowest balance card first. If you haven’t started because you feel you don’t have enough knowledge, then this is probably the reason why you are still in debt.
No Budget. You can have the motivation and a plan for how to pay off your debt, but without a realistic budget (healthy spending plan) your progress will be limited. If you don’t know where your money is currently being spent and you don’t have a plan for how to spend it, then you can easily miss opportunities to make a significant dent in your debt balance. So, figure out how you are currently spending your money using a spending tracker like Mint.com, then develop a budget so you can allocate as much as possible toward your debt repayment goal. If you don’t have a budget, that could be the reason why you are still in debt.
Financial Emergency or “Financial Emergency.” Sometimes true financial emergencies happen… unexpected hospitalization, major auto repairs, or having to take a last minute trip to attend a funeral. Most of the time, though, they are probably only a “financial emergency.” Needing new tires or routine maintenance on your car is not a true emergency. Having to pay your car registration is not an emergency. Your annual insurance bill is not an emergency. Taking that last minute trip with your friends is not an emergency. I could go on and on, but the point is that all of these so-called “financial emergencies” are all things you can plan for in your annual budget. If you find yourself constantly encountering “financial emergencies,” that may be the reason why you are still in debt.
No Accountability. So, you have the motivation, knowledge, and a budget that factors in “financial emergencies,” but you are still not making much progress toward paying off your debt? The biggest reason could be a lack of accountability. When you have someone hold you accountable to your goals, something magical often happens… you start achieving those goals! Accountability is often the missing ingredient to achieving your goals because with accountability you have someone to report to about your progress. And it is much more enjoyable to tell that person you are on track with your goals, rather than having the conversation that you are failing miserably. So, have someone hold you accountable, whether it is your spouse, a friend, or a Dr. Budgets money coach. If you find that you have done everything, but you are still in debt, then the lack of accountability is probably the reason why you are still in debt.
- Published in Debt
Happy December! I hope you had a great Thanksgiving Weekend! If you are like most Americans, you probably did some shopping over the weekend, and you probably did some online shopping yesterday. But December doesn’t need to mean holiday debt! This month I want to share a few tips that can help you stay out of holiday debt.
1) Create a holiday gift budget (and stick to it). First you should determine how much money you want to spend on gifts in total this holiday season. Don’t forget to account for many of the often-overlooked details as you can – shipping costs, wrapping paper, stamps, and hostess gifts all add up! After that, create a list of everyone you plan on buying a gift for, and then calculate how much you are going to spend on each person. If you end up spending less for someone on your list, then put that money toward your goals rather than going out and spending it.
2) Avoid using credit cards. One surefire way to stay out of holiday debt is to not use your credit cards. Your gift budget should not exceed the amount of money you have, so you shouldn’t need your credit cards. If you have gotten yourself into holiday debt in the past, then leave the credit card at home to force yourself to stick to your budget.
3) Agree ahead of time. Be purposeful about your gift-giving by agreeing with your loved ones on a gift limit, or even no gifts at all if it makes sense. If you agree ahead of time to limit the dollar amount of the gifts, then you will have set expectations and boundaries with each other, which will make it much easier to stay within your budget. If you have a large family or a close group of friends, you could decide on a white elephant gift exchange to limit your spending on gifts (and have fun at the same time!).
4) Creative gifts. Does everyone love your spaghetti sauce? You can give jars to family and friends, offer to make a spaghetti dinner for a night in, or print out recipe cards and gift them with all the spices – the possibilities are endless! Turn to Pinterest for inspired packaging or Christmas present ideas and get creative this year! If you’re not the crafty type (like me), you can always get creative with a $10 or $20 per person spending limit. One of my favorite gifts ever was an Aztec Basketball t-shirt (about $20), proving it doesn’t have to cost a lot to be meaningful.
5) Remember what is most important. Ask yourself: Would my family and friends want me to go into holiday debt on gifts for them? This time of year, there is so much that is more important than giving gifts – especially if it means that you’ll be paying for them until next Christmas! Slow down and try to soak in what really matters.
BONUS TIP: Save on electricity. This last one is not gift-related at all, but can save you money for many holiday seasons to come! The holidays create a lot of lights, and those lights use electricity. You can save money in the long run by using LED lights instead of incandescent lights. LED lights use about 80-90% less energy than incandescent lights, but often cost 10 times as much to buy, so replacing them all can be very expensive. A simple way to save money is to put your holiday lights on a timer. Electricity can be expensive, so a timer is well worth the investment.
So, those are my 5 tips to help you stay out of holiday debt. If you have any tips, please share them in the comments section below. I hope you had a wonderful Thanksgiving, and I wish you a very happy holiday season! If you want more tips please visit our Facebook or Twitter page where we’ll be featuring our favorite tips and articles this month. Also, if you’d like help with your budget so that you can save for presents throughout the year contact us today to set up your complementary consultation!
- Published in Debt
Yesterday was Labor Day and the unofficial end of summer. Scores of students headed back to school in recent weeks, and many of those students are college students. In the spirit of “back to school,” we’ll be focusing on money and kids this month, and we’re kicking it off with a few thoughts on student loans.
Many people would classify student loans as “good debt” because it allows someone who otherwise couldn’t afford an education to go to college. On the spectrum of “good debt” vs. “bad debt”, student loans fall somewhere between a mortgage (“good debt”) and credit card debt (“bad debt”). I am all for getting a college education, and even took out some student loans myself, but oftentimes students end up taking on more debt than they should.
Here are three things you can do for your son or daughter who is off to college to minimize the student debt burden that plagues far too many young working adults today:
- Community College. Consider having your child start their higher level education at a community college. Attending a local community college for two years can cut the cost of a four-year university education in half. Community colleges also typically offer programs that allow for easy transfer to a four-year university after earning an associate degree.
- Free Money. If your son or daughter is accepted into a more expensive school, then put in the extra effort to apply for as many grants and scholarships as possible. Having $100,000+ of debt coming out of college is not the best starting point of a career. Minimize the expenses as much as possible with the resources available to you. If you can’t obtain scholarships or grants (or pay for that prestigious school out of pocket) then ask yourself if it is worth the extra money compared to your local State university.
- Don’t Use Student Loans for Pizza. If you must take out student loans, then only borrow enough for tuition and/or books. Don’t use loans for living expenses such as food, housing, transportation, etc. Find a way to cover these expenses without debt. As a parent you could help your son or daughter by paying some of those expenses, and having them contribute by working a part-time job. The bonus of working while in college is that it builds a more well-rounded student, which is an advantage for the freshly minted graduate looking for a career-oriented job.
The decisions you and your kids make about college today will affect them financially for the rest of their lives. Take the time to weigh your options in order to minimize the amount of debt your children will have to pay at the start of their career. Debt, when used properly, can allow you to do things that enhance your life. If used improperly, it can cause a lifetime of financial stress. What are your thoughts on student loans? Please let us know in the comments section below or on our Facebook or Twitter page.
- Published in Debt
Have you heard of the Rule of 72? According to Wikipedia, it is a method of estimating an investment’s doubling time. This rule is useful for quick calculations.
For example, if you invested $10,000 today at a 6% return, the Rule of 72 determines that your investment would double to $20,000 in 12 years (72 ÷ 6 = 12). Taking this a step further, your investment would double to $40,000 in 12 additional years. So in 24 years your investment would have quadrupled from $10,000 to $40,000! As you can see, this is a very simple and easy way for you to determine how quickly you can grow your wealth.
Unfortunately, when you hold high interest DEBT, such as credit card debt, the Rule of 72 works against you. Let’s say you carry $10,000 in debt today at an 18% interest rate, and you don’t pay down the balance. In this scenario your debt would DOUBLE to $20,000 in 4 short years (72 ÷ 18 = 4), then DOUBLE again to $40,000 in 4 more years. After 12 years your original $10,000 in debt would have ballooned to $80,000!
If you were to compare the $10,000 investment to the $10,000 debt balance over time, this is what it would look like in 36 years:
This table illustrates why it is so important to pay off your high interest credit card debt before you do anything else. This is also why it is so difficult to get out of credit card debt when you get in it too deep.
Is getting out of debt one of your goals? You are not alone – over 70% of Dr. Budgets’ clients contacted us to help them create a healthy spending plan to pay off their debt once and for all. Most often, though, “staying on track” with your plan is the hard part – so, to be successful most clients rely on a budget coach to hold them accountable to their spending plan.
Are you ready to get out of credit card debt and start making the Rule of 72 work FOR you? If so, call us today at 619-800-3030 to get started. For easy savings tips, “Like Us on Facebook” and subscribe to our monthly newsletter.
- Published in Debt