Debt Management Archives - The Free Financial Advisor

My Goals for 2020

January 1, 2020 by Jacob Sensiba Leave a Comment

Now that we’ve turned the calendar to another year, another decade, it’s time to figure what goals we would like to set.

Specifically, in this post, I’m going to go over the goals that I’m setting for myself, why I’m setting that goal, and how I’m going to put a system in place to achieve that goal.

What are my goals for 2020?

Get out of debt – Bought a house in 2019 and bit off more than I could chew. The divorce also threw a wrench in my financial planning.
Save for retirement – I’ve put my savings on hold for the time being due to poor financial decisions that led to the debt, etc.
Incorporate a meditation practice – I’ve harped on it and studies show how much it helps. I need to do this.
Journal every day – When I remember to journal, those are generally good days. I need to do this consistently.
Read every day – Reading can only help me, so why wouldn’t I do it more? I’ll learn something new and it’s shown to provide some meditative benefits.
Spend more dedicated time with my son – I’ve found myself over the last month or so having my phone out more than normal. I mean, I’ve had quite a lot going on with work and mentally, but that’s no excuse. He deserves better.
Exercise regularly – it’s good for my body and my mind. It’s a must.

Typically, when you’re setting goals, you should be very specific. You’ll notice, that I wasn’t. I get more granular with my goals in the systems section.

My systems

Getting out of debt and saving for retirement we can lump into one system, as they both revolve around finances and me reigning in my spending.

Until April, this will be incredibly challenging, as I am currently paying my mortgage on my house and the rent for my apartment.

So until I get my house rented (I have tenants set to move in, in April), I’m kind of stuck. Once that happens, however, I’ll have the debt repayment pedal down to the floor.

Simultaneously, I’ll contribute $20 per month to my retirement account, just to get in the habit of doing it again. Start small, enforce the habit, then increase the dollar amount.

Meditation

Of my goals, incorporating meditation practice should be relatively easy. I know my preferred style – I’m not one to sit pretzel-legged on a cushion. I lay down on the floor, on my back, which some relaxing music playing.

The hard part is a) making the time for it and b) doing it consistently. To start, I’m going to set my alarm for 5 minutes earlier than normal.

5 minutes might not seem like a lot, but if I wake up 5 minutes earlier, that gives me 5 minutes to meditate. If I do that consistently for the next, say three weeks, those extra 5 minutes won’t seem that, and I can scale it to 10 minutes.

As I noted in last week’s article, when forming a habit, you have to start small and then scale up.

Reading

Reading every day. This is a must-do for me. It’s good for my mind, it’s good for my soul, it’s good for everything. I have a great many books on my list, but they will all fall into a specific genre – finance, philosophy, religion, or biographies.

The first one will help with work. The last three will help with life.

Every day, before bed, I’m going to read for 15 minutes. That’s my starting point. Once I get into the habit, the amount of time I read will increase.

Spending time with my son

Spend more dedicated time with my son. This is an easy one. Just stay off my gosh darn phone.

Keep it in my room or in the kitchen. Not in my pocket, where I can easily access it. Put the ringer on and leave it alone.

If it’s an emergency, someone will call and I will hear it.

This will also eliminate a distraction, so if he goes to bed for the night, I can immediately pick up a book without getting sucked into the social media black hole.

Exercise

Exercising every day. I read recently in a book about the Dalai Lama that exercising your mind is more important than exercising your body, so I’ve put that on the back burner.

I have a pull-up bar in the doorway to my bathroom and I do 5 pull-ups every time I go in, but that’s not enough dedicated, consistent time for exercise.

I think doing it in the morning makes the most sense. I’m too tired in the evenings to exercise. The question is, do I do this before or after meditation?

Probably after, as I need my mind at ease when I meditate.

So instead of waking up 5 minutes earlier, I’ll start by waking up 20 minutes earlier. Dedicated 15 of those minutes to exercise and the remaining 5 for meditation.

Simple Solutions for Repaying Student Loan Debt

December 13, 2019 by Susan Paige Leave a Comment

As valuable as education is, it’s awfully expensive. Most students these days look to outside help for finances to help them get through school and land their dream job with the help of a degree or certificate. Unfortunately, getting to that dream can often cost us thousands of dollars in student loan debt. The good thing? Getting over that hump of paying back our student loans is not nearly as insurmountable as it sounds. Check out these helpful ways that will lead you down the path to financial freedom and out of debt.

Live Modestly

It can be hard to live within our means sometimes. We want to go out and socialize, have a few drinks, catch a movie with our pals. The unfortunate truth is that these little expenditures add up in a big way. It’s okay to go out and live your life, or buy some snack food every once in a while, but remember to stay within your means. Whether you’re about to graduate and begin paying back your student loans or you’re already done your education and are in the process of paying them back, spend as little as possible, when possible.

Figure Out Your Options

Repaying your student loan debts doesn’t have to be done all by yourself. Asking for help or reaching out for support isn’t something to be ashamed of either. It’ll alleviate some of the stress in your life to research how you can pay your loans. Consider all your options; savings accounts, Elfi, loan assistance services, borrow from family, work a secondary job. These are among the many ways you can help chip away at those pesky loans and allow you to feel mentally and financially free, ready to take on the world with your career. There are always options to help you out, don’t be afraid to exercise them!

Pay More Than the Minimum

This tip feels really straight forward but it’s worth mentioning because it is often overlooked. Paying more than the minimum payments for your loans can mean the difference in months of how long it takes to fully pay off your debt. It doesn’t mean you have to pay a massively increased amount each month, but simply paying a percentage of the minimum added on, will reduce the overall time. Another good trick is to split the payments in half for each month so the money you spend doesn’t take chunks out of your rent, groceries, or other necessary bills.

Conclusion

Repaying student loans is an unfortunate reality for many students and graduates. Although it can feel defeating to get your education and know you have to take chunks out of your paycheck each week, the goal of financial freedom is one that requires some sacrifices at times. Keeping these tips and tricks handy is a good way to set yourself up for success in paying off your student loans and is also a great way to develop responsible spending and saving habits when it comes to your money in general.

Incidentally, if you are interested in learning about some radical solutions to the student loan debt problem, the Saving Advice Forums has an excellent discussion about a 5,000 year old proposal for paying off student loan debt. Basically the idea is to cancel all Federally held student loan debt in the country to improve economic growth.

For more great articles on The Free Financial Advisor, consider reading our pieces on:

How Long Should You Keep Financial Records After A Death

What Are Some Of The Advantages And Disadvantages Of Keeping Money In The Bank

Financial Planning Basics – The Finance Pyramid

Image source: Pixabay.

How To Pay Off Your Student Loans Quickly

December 9, 2019 by Susan Paige Leave a Comment

Student loan debt is becoming a common financial crisis in the United States. A majority of students are graduating with huge amounts of debt and feeling crushed by the financial burden. More and more graduates are searching for ways to pay off student loans quickly so they can experience financial freedom before making other financial investments.

It’s unfair that an entire generation of young Americans have to wait even longer than older generations to purchase a home or start saving for retirement simply because they wanted to get an education. Therefore, if you have student loan debt it’s a good idea to employ every strategy that you can to pay it off quickly.

This article will go over a few general tips and strategies for how you could quickly pay down your student loan balances, so you can become financially independent once more!

Make Sure to Fit Debt into Your Budget

When making your monthly budget, whether you are single and just out of school or budgeting for a family, always take your student debt into account. Budget in your student loan debt, credit card debt, title loan debt, mortgage, and any other debt you may have. Make sure you include your debts into your budgets as they should always be the main priority. Try to allocate more money toward your debt than what is required.

Pay Extra on Higher Interest Loans

If you are going to make extra payments on your student loans over the minimum, then put that extra cash towards higher interest loans. The interest rates are constantly growing your debt load and paying off those loans with the highest rates first will save you money in the long run. And when paying more than your minimum, tell your servicer to apply that overage to your current balance and not simply to next month’s payment.

Determine Whether Refinancing is Right for You

When trying to decide whether refinancing is a good idea or not, it is not a clear black and white determination. It completely depends upon the situation; whether your loans are federal or private, whether you have good credit and a good job, whether your loans are subsidized or unsubsidized. Research your options, calculate how you might save or lose money, and make the decision that is best for you.

Enroll in Autopay

Make sure that you never miss a payment or get charged a late fee by signing up for autopay. Enrolling in autopay can even get you a minor interest rate discount with federal servicers. Along with the discount, you will be able to set up multiple payments and ensure you pay your loans as a priority.

Pay More than Once a Month

Instead of just paying once a month, you can trick yourself into paying way more and cutting down your repayment schedule drastically by simply making two payments a month instead. This doesn’t even mean you have to pay double a month, but just twice. That will still make a difference.

Persistence and hard work will take care of your student loan debt once and for all. Just stick with it and follow these suggestions and before you know it, you’ll see that the diligence was so worth it.

For more reading, consider checking out this article from Nerdwallet on how to pay off your student loans fast.

Image source: Pexels.com

Debt Collectors With Attitude

November 20, 2019 by Jacob Sensiba Leave a Comment

Debt collectors and debt collection agencies are a real pain! They’re persistent, and sometimes, they can be downright mean.

However, there are still laws that govern them. If you come in contact with an aggressive collector, here’s what you have to know.

Fair Debt Collection Practices Act

The Fair Debt Collection Practices Act (FDCPA) is the law that governs what third-party debt collectors can and can’t do.

Things they can’t do include calling before 8 am and after 9 pm based on your time zone, call you at work, harass, oppress, or abuse you, lie to you, threaten you with jail time, conceal their identity, disregarding a written request from you to cease contact or dispute a debt.

Debt collectors also can’t reveal any personal information about your debt to people, except your spouse or your guardian (if you’re a minor).

Mail correspondence can’t show that the mailer is from a debt collector. Also, if you hire an attorney and the collector has your attorney’s contact information, they must correspond with your legal counsel, not you.

If the debt collector violates any of the parameters set by the FDCPA, you have one year from the date of the violation to file a complaint. You can do that by using the online form, here, or by calling (855) 411-2372.

Take notes

If it ever gets to the point where you file a complaint or sue the collector, copious notes will help you make your case.

Get as many details as possible. Time, date, name of the collector, the agency they work for, the debt they are calling about, etc.

Hang up or don’t answer

If the call is from a number you don’t recognize, don’t answer. If the call was important, they’ll leave a message.

Typically, debt collectors are dialing for dollars (calling A LOT), so they typically won’t leave messages. If they do, listen to it and do your research to confirm if it’s legit or not.

In a lot of cases, consumers don’t know what they’re rights are. Even though collectors must abide by the laws set forth in the FDCPA, they might not if they think they’re speaking with an uninformed individual.

If they start badgering you, use aggressive language, or violate the law in any other manner, just hang up the phone.

Write a letter

You can write a letter to a debt collector for two reasons.

One, asking them to stop. They HAVE to stop if you put it in writing. Two, dispute the debt. If you believe that the debt they are trying to collect is fraudulent or not yours, write a letter to dispute it.

Cool heads prevail

Debt collectors are ruthless. Their objective is to get as much out of you as possible before they sell the remaining portion of your debt to the next collector in line.

It’s human nature to get worked up or downright pissed off in this situation, but getting angry won’t help you.

Collectors have been conditioned to withstand a verbal thrashing from consumers. Staying calm will keep your blood pressure down and help you think straight.

How to Take Control of Your Finances and Get Out of Debt

November 11, 2019 by Susan Paige Leave a Comment

If you have a large amount of debt, you’re not alone. Statistics say that many people are living with debts. But the truth is, no matter the situation you’re in, you can get out of it, invest, and make more money. Just make a decision then plan wisely. Having an appropriate plan will help an individual get out of debt quickly and take control of their finances. That said here is how individuals can get started. [Read more…]

Benefits of Bridging Loans For Your Financial Needs

October 1, 2019 by Susan Paige Leave a Comment

Woman thinking about a bridge loan.

Depending on your circumstances, you may see bridging loans to be an affordable and accessible financing option when it comes to dealing with properties. They refer to a type of loan that allows clients to purchase a new house while they’re still in the process of paying and, later on, selling an existing home. Because of this, bridging loans have become a popular method of funding a property purchase.

If you haven’t heard much about bridging loans, let’s take a look at how these loans can become beneficial for your financial needs.

Quick To Arrange

Gaining access to a significant amount of money can sometimes require a few weeks or months. This setup, for instance, is typical to business loans and other residential mortgages. So, if you’re looking forward to borrowing money in the quickest way possible, then a bridging loan can be an ideal choice. So long as you have adequate equity in the property and a few properties for security, the loan you’ve applied for will be there in your account in less than 48 hours.

All Types Of Property As A Security

Another essential benefit of applying for bridging loans is the type of property you can use as security. Whether you have flats, shops, development land, offices, farms, commercial units, and many more, you can utilize all of these properties to secure a bridging loan and think about how you can get the most out of the money for your financial needs. In short, this type of loan doesn’t require any specific property before you can get approved and enjoy its benefits.

Unlimited Potential Applications

In addition to properties as a security, a bridging loan comes with limitless potential applications. While most conventional banks and lenders pay attention to the intended purpose of a loan, it’s different when it comes to bridging loans.

With this type of loan, you can use it for whatever purpose you like. All you have to do is prove your ability to pay back the loan, and your application will go smoothly without giving justification to it.

If you find yourself needing a bridging loan to cover a particular purpose, many private lenders like www.novellusbridging.co.uk in the UK and other places can help you.

No Need For Monthly Payments

Typically, bridging loans don’t require monthly payments during the first few months. Thus, the entire process becomes easier since you don’t need to fret about your monthly payments along with your other expenses.

Moreover, a bridging loan can also provide you with adequate time to sell your existing home and pay off your loan, again without worrying about the monthly payments. This is what makes this type of loan a flexible funding option these days.

Low Fees And Interest Rates

By its very nature, a bridging loan seems to be more affordable than the loans and mortgages offered by traditional lenders. Since the loan will be completely paid off within a few months, you can be sure that you’re not going to pay annual or monthly interest rates and other fees.

Security Over Properties In A State Of Neglect

As mentioned, all types of properties can be used to secure a bridging loan. However, one other good thing about this type of financing option is its ability to accept real estate properties that are in a state of neglect. Even if your existing properties are in urgent need of repair, applying for a bridging loan allows you to use them to secure a loan. This is another benefit that this type of loan has over traditional ones.

Conclusion

If you need funds to shoulder your personal expenses, a bridging loan can be the best solution. Just keep these benefits in mind so you’ll know what to expect when applying for this type of finance. Lastly, find time to shop around and compare all your options before diving into your first loan.

In Tough Times Put Your Head Down and Keep Going

September 11, 2019 by Jacob Sensiba

Since this site is primarily geared towards finances, I wanted to write a reflection about my own personal struggles with financial matters.

I might toss a few other non-finance related items in there as well, but we’ll see.

I’ve been duped

There are two instances that come to mind, where I learned the hard way about investing/handling money.

The first is from early childhood when Pokemon was all the rage. This one day, a kid from the neighborhood wanted to sell me some cards of his. I ran home, opened my piggy bank and took out $5.

I ran back to the kid and bought one card with that $5 bill. I later found out that you can get a big deck of cards for that much. I’d be swindled.

Fast forward several years. I’m in high school now. This infomercial came on with a guy raving about how much money he made using Google search. Specifically, Google Adwords.

All you had to do was pay for the program. Said program would walk you through the steps to setting up a website (I now know the site was to be an affiliated sales rep).

A $90 lesson. But mistakes are made so we can learn from them.

Young and dumb

Before I begin this section, you need to know that I did not know I was going to be a financial advisor, and financial education was limited in my household and was not taught in schools (unfortunately, very common).

That said, I made pretty typical mistakes. Got a credit card, and another, and another. I had spent too much money that I didn’t have and I’m still paying the price for it.

So when I talk about getting out of debt and using a credit card wisely, it’s because I learned first hand the negatives of using it irresponsibly.

More often than not, when individuals make financial mistakes, it’s on the personal finance side of things. Things like saving money, debt management, budgets, etc. Get those things down, the rest takes care of itself.

Budget item

One part of my finances where I continually struggle is my budget. Very specifically, it’s one particular item, and that’s eating out. I am a sucker, no doubt, for restaurants. Whether that’s drive-thru or a sit-down place. It just takes all the hassle out of preparing a meal.

As good as it is sometimes, it’s also costly. My resolution was to actually include restaurant spending on my budget. I gave myself $50 for the month for take-out. This limits how much I actually spend and also scratches my itch for eating food outside of my home.

If there is an item you know you’ll spend money on, put it in your budget.

Related reading: Your Go-To Budget Guide

Personal Reflection

On the more personal side of things, it’s been a pretty challenging year for me. Had a mental health diagnosis that created some hurdles for me to jump through. As I write, I’m still jumping through these hurdles, but I’m starting to see the benefits of doing so.

By hurdles, I’m referring to medications and therapy. As well as things I can do on my own time, like exercise, journaling, and meditation.

Those last three items have been difficult for me to do consistently, but when I actually do them, I feel much better.

Another challenge of mine is that I am in the middle of a divorce. This has been incredibly difficult. It’s caused a lot of anger, sadness, doubt, among many other emotions.

What it did, however, was it forced me to turn the microscope inward and figure out the parts of me I don’t like, the parts of me I do like, and the past experiences that shaped me and the lessons to take away from those experiences to continue to grow.

Reflection Benefits

With all of the battles I’ve fought this year and as taxing as this year has been, it’s also been one of the more life-changing periods in my life.

For me, it was extremely difficult to look inside myself and analyze what makes me, me, but I’m glad I did it. It’s given me a better understanding of who I am, how I function, and what I can do to continue to grow and improve.

It’s given me the tools I never thought I would have. It’s helped me be a better parent. I’ve been able to focus more on the things that matter. And I’ve been able to be more present and limit the amount of forecasting I do for the future. (Don’t worry. On the finance side, I’m still looking ahead).

Takeaway

My advice to you is to just keep moving forward. At times, life is stuff. Navigating your finances can be challenging, but we, as humans, are resilient creatures.

Different Ways To Think About Money

August 21, 2019 by Jacob Sensiba

Your money philosophy and how you think about your finances make a big difference in the decisions you make.

Whether you’re just starting your financial journey or you’re well into it, it’s a good idea to take a step back and define that philosophy.

Money is a tool

Sure, there are monetary goals you would like to achieve. For example, $1 million nest egg has long been touted as the number you need to hit for a comfortable retirement, but hitting, somewhat, arbitrary numbers aren’t everything.

Money is a tool. If used properly, you really can achieve financial success. Taking the money you’ve saved and putting it to work for you is a very simple, yet effective way to use it.

Another monetary tool is a credit card. Credit cards offer a variety of reward programs, like travel miles, cashback, among others. Additionally, it enables you to build and strengthen your credit report.

It is important, however, that if you are using a credit card, you must do so responsibly. Accumulating credit card debt can really set you back, financially.

Related reading: A Deep Dive Into Credit Cards

Focus on the solution, not the problem

Often times, we focus too much on the issues with our finances. I have too much debt, I have too little saved for retirement, or my expenses are killing my ability to save.

Instead of focusing on the problem, focus on what can be done to fix it.

If you have too much debt, develop a plan to pay it down. If your retirement savings are low, figure out how you can increase your savings rate. Expenses hurting your ability to save, cut your expenses.

“Whatever the problem, be part of the solution. Don’t just sit around raising questions and pointing out obstacles.” Tina Fey

Related reading: How To Cut Spending

Money using emotional bandwidth

It is true that money is relatively important. I say relatively to try and redirect to my first point when I mentioned that money is to be used as a tool.

It affords you food to eat, clothes to wear, and a place to live, among other things. If your basic needs are met and future goals are being worked towards, you have to try and stop worrying that you don’t have enough.

This is extremely challenging to do because we, as a society, are so fixated on money and material items that money can buy. It also doesn’t help that comparing ourselves to others is essentially baked into our DNA.

Believe me, I know that learning to stop worrying is incredibly difficult, but retraining your brain to view your finances differently can be extremely liberating.

Related reading: The Psychology Of Money

Think long-term

To be a successful investor or to be able to financially plan effectively, you have to think long term.

The market is going to have its ups and downs. As an investor, it’s important to ride out those down periods and continue to invest. If you have 15+ years until you need that money, you should be able to recoup your losses.

With regard to saving, I typically take the “bucket” approach. I have three buckets, short-term, medium-term, and long-term. Be advised: the following is how I define these time horizons.

The short-term bucket is for items under 5 years away. For example, when I want certain debts paid off or a down payment for a house.
Medium-term is anything 5-15 years away. The main one in this category is my son’s college savings.
Long-term is retirement savings, exclusively.

Related reading: How To Make Long-Term Investing Decisions

Buying experiences versus buying stuff

Money to a certain extent can buy happiness. As long as it’s being spent on experiences rather than stuff.

Memories with family and friends, visiting different destinations and attractions are the things we’ll cherish most.

Stuff breaks and toys are outgrown. What people won’t forget, however, is the time you spent with them.

Make that a priority. I know, as a fairly new parent (my son is almost 2), that I am constantly aware of how finite time is and that I need to make the most of those moments I spend with him.

The way you think about money pulls weight in how you use it. When creating a financial plan, I would prioritize figuring that out. How you think can lead to how you act.

The Questions You Need To Ask Yourself

August 14, 2019 by Jacob Sensiba

Questions are a fantastic way to understand things better. They are vitally important in our everyday lives.

One area where I think they are underutilized is personal finance.

You NEED to ask yourself questions on the regular so you can discern if you are doing the right things and taking the correct steps for YOU.

In the following article, we’re going to explore the various questions you need to ask yourself in order to be financially effective.

What is my goal with money?

This is a fairly general question, so we’ll break it down into three buckets: short term, medium-term, and long term.

Short-term (Under 2 years) – If you are saving for a short-term goal, what is it? A vacation? Down payment on a house? No matter the goal, that money will be used soon so the best place for it is in a savings account.
Medium-term (2-10 years) – This could be anything from a down payment for a house to saving for your kids’ college education. What you do in the interim depends on when you’ll need it and the goal you are saving for. If it’s less than 5 years, I’d still recommend a savings account or short-term bonds. Something that can earn you a little interest, but is still relatively safe. That 5-10 year period depends on the goal. If there’s a particular dollar amount you need to it (down payment, for instance) I’d go no more than moderately aggressive. You want to earn a little, but you don’t want that saved amount to go under what you need.
Long-term (10+ years) – Most often, a goal that’s over 10 years away can be invested in the stock market, though the percentage of your assets that’s actually in the market depends on the risks you are willing to take and when you need to access those funds.

Related reading: Financial planning for all ages

How much am I willing to lose before I sell?

I almost always propose this question to new clients because it gives me a good understanding of their risk tolerance.

If they are only comfortable with losing 10 percent of their portfolio, they’ll be invested pretty conservatively.

On the other hand, if they can tolerate a 50 percent drawdown and not bat an eye, then we can “put the pedal to the floor”, excuse the expression.

Determine how much of a loss you can stomach and that will give you a good idea of how to allocate your assets.

How long will it take to adjust my allocations?

Questions regarding asset allocation, typically, pertain to risk and time horizon. For example, if you start saving for retirement when you’re 25, the majority of your portfolio will be in equities (stocks).

This allocation, generally speaking, is suitable for you for a couple of decades. At which point, you’ll probably (again, speaking generally) want to shift a little more of your portfolio to bonds.

Your allocation will, and should, shift over time, and once you get within a few years of your goal, the primary objective of your portfolio becomes capital preservation.

Related reading: Why asset allocation matters

Are my actions suitable for my current financial situation?

Financial situation takes everything into consideration (income, debt, spending, savings, etc.) Actions can be anything related to those items.

Specifically what I’m talking about is how much you are saving, how much you are spending, and how much $ you’ve dedicated to paying down debt.

If you have a sizeable amount of debt and not a whole lot of savings, it’s time to cut your spending. Conversely, if you’ve paid down your debt and are ahead of the game with your savings, it would be alright if you loosened up a little and enjoy yourself.

Like everything in life, your personal finances are a delicate balancing act, and when you ask questions, you can figure out how to shift your priorities.

How is my money being spent?

Kind of related to the last point. Tracking your spending to find out exactly where all of your dollars are going is an important step.

Another recommendation I usually make is to create a financial playbook. Here’s a brief outline of how I create a financial playbook:

Big picture – List all assets and liabilities. How much you have saved and how much debt you have.
List your necessary expenses – These are things that you have to pay (rent, utilities, transportation, food, minimum debt payments, etc.)
List your monthly income
Total up your monthly necessary expenses and your monthly income and see how much you have leftover. What’s leftover will help you discern what to do with it.
I would list another line item for “fun,” though I would keep it to a minimum.
What’s left after fun should be saved and used on debt.

Related reading: How to cut your spending

Conclusion

As I said in the beginning, questions help us understand the world, and ourselves, better.

Having a better grasp on why and when we make certain changes or do certain things is a must if we are to be more effective in managing our finances.

Your Wealth: What You Shouldn’t Do

August 7, 2019 by Jacob Sensiba

Establish an emergency fund, pay down debt, save for retirement, and grow your wealth! Much of your financial life is focused on the things you should do.

However, what I think to be more important are the things you shouldn’t do!

Educational Debt

There’s been a lot of literature/news over the last few years about how much of a problem student loan debt is. As of 2018, total student loan debt was $1.47 trillion. With a T! (Source)

That said, here are some things you should avoid.

Taking on too much – Some degrees/professions require a lot of schooling, which can lead to large amounts of student loan debt. And I don’t mean to speak ill of any degrees/professions, but if your desired career requires a “basic” 4-year degree, it’s probably best to find an in-state university to cut costs. Better yet, start at a local 2-year university or tech school until your Gen. Eds. are complete, then transfer.
Not having a plan for after – I think this is a common fear for Millennials and Gen Z, but you have so much time to figure things out. Don’t just go to college to get a degree. If you need time, take time. Once you figure out what you want, determine what you need to do to get there.
Not researching options – There are SO many student loan options. Depending on what type of loan you choose (private or public), you could have a wide range of payback methodologies. I wrote about student loan options and payback options in two previous posts. Check them out!

Credit cards

There are two BIG problems with credit cards. People who use them irresponsibly and people who don’t use them at all.

Using irresponsibly – This one pretty much speaks for itself. This pertains to people who spend way more than they ought to. A good rule of thumb is to only buy something using a credit card if you have the funds readily available to pay the balance off. Don’t have the money, don’t put it on the card. Doing so will cost you in interest and can really set you back.
Not using at all – Better than the first point, but still not great. Using a credit card can help your financial situation if you use it correctly. Most of them have rewards of some sort. It’s another credit account on your report. Charging and paying off right away establishes a good payment history. All good things for your credit score.

No emergency fund

Establishing an emergency fund is Step 1. If you don’t have money set aside for unexpected expenses, you’ll have to charge it. This leads to the point above about irresponsible use.

Save $1,000 for emergencies, turn your attention to high-interest debt (credit cards), and then shift your focus back to your emergency fund once that debt is paid off.

Spending

Paying bills late – Not paying your bills on time, especially ones shown on your credit report is a big mistake. The #1 factor in calculating your credit score is payment history. Paying ONE bill late will knock your score down. Just one. Don’t do it.
Spending too much – (See irresponsible credit card use) This is especially harmful if you frivolously spend BEFORE taking care of important “budget items”. Things like saving, debt payments, and bills.
Being too frugal – Though frugality is helpful in building wealth, it can also hurt you. There comes a point when you are too frugal. A vital life skill is doing things in moderation. If you pinch pennies and forego rewarding yourself, you run the risk of breaking the bank on a “bender”.

Investing

Waiting – I cannot stress enough the importance of investing early. What helps you make the most of your retirement savings is compound interest. The more time you have to invest, the more compound interest works in your favor.
Panic selling – This is a timely point since the market dropped almost 5 percent in the last week. Selling out of fear is always bad. More often than not, when you “panic sell,” you’ve already experienced the majority of the drawdown. Now, this depends on your particular situation, but it behooves you to stay invested during that period.
Using generalities when setting up an investment plan – Your investment plan needs to reflect your goals, risk tolerance, time horizon, and behavior. Using generalities is good for someone who writes about this stuff, but it’s not good for YOU. Your plan has to be tailored to YOU.

Life and Wealth

Sticking with a job you hate – Sometimes money and comfort makes us do things we don’t want to do. Being unhappy at your job is not worth it. It’s important, however, to thoroughly think through this decision. Quitting is tough, but if your family counts on you for income, you need to have a plan in place before you jump ship.
Comparing yourself to others – I’m going to encourage you to develop a new mindset because society taught us that wealth looks like fancy cars and big houses. I want you to think about stealth wealth. It’s probably my most favorite phrase/term. Someone with stealth wealth lives within their means. They live in a modest home, drive a car for transportation only, but saves more than the average person. They don’t “look” wealthy, but their retirement account says otherwise.