If you have money woes, they may seem insurmountable and without you taking action that is usually true. Money woes don’t just go away – they’ll grow with fees, interest, and lost opportunities. Tackle your money problems and come out ahead in 2019. Here are 5 solutions that starting today you can use to turn your woes into wealth.
#1 – Know Your Worth
I went from over $100,000 in student loan and credit card debt to financial freedom in just under 10 years so take a page from my lesson book and write down your numbers – the good, the bad and the ugly. Total up all your monthly bills and expenses, total up all your debt, total up all your income. Write down what you’d like to make, how much you want to put toward retirement or investments, and the trips and experiences you want to have. To get ahead we have to know where we are and where we want to go. Then we draw the map from that starting point.
Over time we change our goals and adjust for unexpected situations. Those who turn the page on money problems all have one trait in common: facing the current situation, accepting this is where we are, and vowing to move forward one step at a time, no matter how small the step. Then we do it again and again as we motivate ourselves with the goals we have in mind.
Write down your numbers. Keep them where you can see them and inspire yourself toward the goals you have written down. Good finances really start from there.
#2 – Automate Everything
One of the best actions you can take to get your financial house in order is to automate your bill payments and investment contributions. This ends late fees and their host of detrimental fallout. We have so much to remember in the month. Paying the light bill and making contributions to your 401k or IRA shouldn’t be part of it.
Automation comes with more than peace of mind over preventing late payments and fees. It affects our behavior. We are strange and highly adaptable creatures. When that money goes to prearranged places, we quickly adjust and forget that “extra” money ever existed. We use what we have free. If it’s not free, we learn to live on what we have. It’s that simple.
For investing, if it’s hard for you to get started then begin with a small amount for a month or two. Then up it over the following months until you’re putting away 30% automatically by the end of the year. Done this way, you’ll have less mental pain over its absence. You may not even notice the difference, though you’ll definitely appreciate the visible growth in your net worth and financial security.
#3 – Tactically Bomb Your Debt Away
If you’re like most people, you have debt. Probably you have more than you want and maybe it seems endless. You also probably carry more than one debt. Not all debt is created equal. High interest rates will bury you and usually these come with credit cards. Get out from debt using two potent methods:
Method 1 – Prioritize on the highest interest rate
If you have two or more debts, like $9000 in student loans at 7% interest, $9000 in credit card debt at 16.99%, and a $9000 car loan at 5%, you’ll want to focus on paying down the credit card debt because it is killing you in interest more than the others – more than 2 or 3 times as fast.
The way to do this is through extra payments or finding a way to lower that interest rate. Sometimes you can talk the rate down with the card company. If your credit hasn’t gotten damaged too badly, you can usually transfer the debt to a 0% interest card like Discover for 12-18 months and focus on paying it down, then transferring once more at the end of the term if you have to. I did this credit card shuffle for a while until they were all paid off thanks to an overall healthy credit score. That gave me a huge break from crushing interest accumulation.
I recommend focusing on the credit card even after a balance transfer to a 0% interest account because credit cards generally have the highest rates, the most fees and penalties and for people with less healthy credit, are harder to transfer to a lower interest card. This makes them a land mine waiting to go off if you forget to make a payment – or can’t. Pay off credit cards as fast as you can.
Once you pay off the highest interest rate debt, move to the next one. Pay all your bills but make the extra payments to one debt rather than split across all debts. This will help you cut down the principal you owe – which the interest is based on. Spreading payments generally wastes more of your money on interest as most companies apply payments first to interest, then put the remainder to principal. Paying larger payments to one account means more money goes to actually paying down the underlying debt. Start there.
Method 2 – Prioritize the lowest balance
If you have more than one debt, you could also prioritize the lowest debt if you think you can pay it off in a much shorter time than the others with some focus.
For example, suppose you have $9000 credit card debt at 16.99% interest, $9000 in student loans at 7% but a $2000 car loan at 5%. In this case, if you think with some diligence you could pay off the car in a year, you could focus extra payments on it. While the other debts have higher interest rates, you’ll get a quicker psychological boost paying off the smaller debt and seeing it vanish. That will motivate you toward paying off the other debts. This really worked for me. I’d get excited seeing the number drop month by month until I’d get impatient near the end and just make huge payments to take it out.
Always Double Down
No matter which debt obliterating option you take, the way to succeed at complete debt demolition is rolling over the money for payments into the next debt. Most people pay off a debt and say “yay, now I have an extra $200 a month” that they don’t have to pay anymore. Instantly they start spending it. The wise person who becomes financially free takes that $200 and puts it toward the next debt as an extra payment. It never goes into the free spending money column in their finances until the last debt is paid.
These are the three methods I used on my debt and it bombed those debts away. Did I feel strapped for cash sometimes and look longingly at my friends who were out partying and taking wonderful vacations? Hell yes. But ten years later I’m financially independent and travel the world doing whatever I like while they’re buried in debt, constantly stressed about money, and will have to work until they’re 79. Which path do you want?
#4 – Put Your Money To Work
Freedom from financial stress really depends on having money working for you. This is money in an account – think retirement, investing, business enterprises, passive income – that earns money on your money. That’s money you don’t have to work for and it’s the best money you can have.
You’ll need money for retirement but money-making you money means that if you have enough and invest it wisely, it will make at some point enough for you to live on without you taking a cent from the principal. That’s when you are financially independent and can tell your boss to go take a long walk off a short pier without worrying what you’re going to do about income.
You don’t need that much income from your investments to lower your money stress. Having even $2000 set aside working for you takes pressure off your chest. If things go south, you have money that can bail you out. That’s called a feeling of security and it grows with your balance. This money doubles as an emergency fund but you really shouldn’t ever touch it until all other avenues are exhausted. It’s the money that makes you wealthy and let’s you travel the world or however you dream about. It is not money saved for a new car, college, a down payment on your dream house, or any other expense. These are liabilities and you won’t make money on them. This is the opposite of making money work for you. Save in a separate account for those things.
For your money-making account, put money into it every paycheck – 30% of your check. This will rapidly build wealth and it’s a healthy number. If you think it’s too much, then you have adopted the poor person’s idea of financial security. Living on 70% of your income is healthy and responsible. School and most parents fail to teach this 70/30 rule on spending and investing and it shows in our country’s horrible financial statistics. If more than 35% of your income is going toward debt, you can use some of the investment money to pay it down to more reasonable levels but this should really be the only exception to the 30% rule.
Bottom line: Adopt the successful person’s standard: live on 70% of your income and invest the remaining 30% in money-making avenues.
#5 – Focus on the Best of the Bunch
We live in a fantastic time and our problem is one of too many opportunities without enough lifetime to experience them. The ultra-rich may be able to fly into space for $1 million dollars but even the average American lives better than the decadent French monarchs of yesteryear. King Luis XVI, back in the late 1700s, may have lived in a palace but that palace didn’t have electricity, let alone a TV or Netflix, central air and heat, or modern plumbing. He couldn’t fly across the country – or the world – for Thanksgiving or Christmas or play video games all day. He couldn’t use the internet or his iPhone to order Indian food or Thai for delivery in 30 minutes either. I wouldn’t be Luis XVI for anything if I had to live under those conditions.
What’s my point? Today we have so much plenty that we take it for granted. Advertisers and marketers bombard us constantly with all the things we could have or do and make us feel horrible for missing out. There’s so much that it boggles the mind. The world is our oyster and it has a limitless number of pearls. The trick is not getting mesmerized by all the selection and instead focusing on what matters most to you. Choose the best pearls for you to spend your money on and ignore the rest of the dazzle and what others select. What’s your spending limit for expenses and fun? 70% of your net income.
We can’t have it all in one lifetime. The wise and financially secure know this. They know it’s a useless waste of time and money to chase trends and changing status symbols at the expense of greater happiness and stability. That’s why the 70% rule is so good. It’s REASONABLE in this world of overwhelming options clamoring for your every dollar and then some. Spend your 70% on expenses and whatever else your heart desires but remaining focused on what you most enjoy and want from life will help you stay within safe spending bounds. Get carried away and the money will evaporate on things without lasting meaning.
Find the best of the bunch for you. Ignore all the others clamoring for your attention and money. It’ll be there tomorrow – newer and better too. Save it for the next paycheck’s 70% or the one after that. The kaleidoscope of plenty isn’t going anywhere.
Financial Smarts for 2019
No matter your money issues, you can take action starting today.
- Know your spending and goals
- Automate bill payments and investment contributions
- Focus on paying down debt the smart way
- Put 30% of your income toward money-generating investments
- Spend only 70% of income and focus that on what you enjoy most
These are the simplest places to start and easiest to implement. Some might entail short-term pain. Maybe you’ll have to take on a part-time job to pay off a credit card you racked up in college. Curbing your spending to 70% of income may seem impossible because you want to do too much with the money you have. There’s no easy pill but there are easy habits to put you back on track and reverse actions that haven’t worked until now.
In 2019, adopt these smart money moves. In a short time you’ll be shocked by just how much your life has changed for the better.
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