Your financial dream; this is the fun part, go ahead and dream, but make sure you dream BIG! Let your imagination go. What do you want your financial future to look like? Does it involve debt? Harassing calls from collectors? Living paycheck-to-paycheck? (that’s not a dream, that’s a nightmare)

 

According to the survey below, paying off debt is the number 1 financial priority. I certainly agree with that priority, but I would ask a basic question, WHY? I would say because most people want financial stability and the ability to build wealth. The best way to have financial stability and the ability to build wealth is to be debt-free!

 

To have the motivation to achieve your dream, you need to establish why you have the specific dream you have; otherwise, you might give up when times get tough, and they will get tough; the Bible says “in this world you will have trouble” (John 16:33);

 

“You hungry for failure? Maybe a side of unemployment? ‘Cause that’s what’s for lunch. ” Wolf from the movie Hoodwinked (Patrick Warburton)

Maybe you want to be debt-free in order to save up for that dream home. Maybe you want to be generous (help others) in retirement. Maybe you want the peace of mind that comes from being debt-free, true financial peace; imagine what that might be like (no debt payments to anyone!), give it a minute to soak in; paint the picture, burn that image into your frontal cortex.

 

Almost regardless of your specific dream, being debt-free should be job one because your ultimate goal will be that much easier to achieve without the burden and stress of debt. The Bible says the borrower is slave to the lender (Proverbs 22:7); I don’t know about you, but that doesn’t sound good.   .     .

 

I believe the very first step (#5 in the survey below) in any successful financial process should be to establish an emergency fund (at least $1,000), because an unexpected expense could derail that wonderful dream (owning your dream home, with a leaking roof and no money to repair it? Sounds more like a nightmare to me.)  I want it to be more than a dream though, (dreams only come true in the movies); I want it to be a goal – a goal with steps, milestones and most importantly, a plan! (aka a budget).

 

“A fool with a plan can outsmart a genius with no plan any day. And your mother and I think we have a fool with no plan.” Father of T. Boone Pickens. I have read his biography “the first billion is the toughest” – I highly recommend.

 

Top 5 money management priorities (per the Principal Financial Group Annual Financial Well Being Index 2016)

 

1)            paying down debt

 

2)            saving for retirement

 

3)            creating/maintaining a budget

 

4)            saving for a major purchase

 

5)            building a savings account for emergencies

Let’s set some goals (to get out of debt), goals that are:

 

Specific

 

Measurable

 

Achievable

 

Relevant

 

Time-Sensitive

 

See my previous post about whether or not debt is really that bad (hint: it’s kinda like a fried twinkie – its not that good for you.     .       .)

https://jimmysmoneytips.com/2017/10/27/q-is-debt-really-that-bad/

 

and another post about what’s so wrong with being average (hint: it’s involves way too much debt)

https://jimmysmoneytips.com/2017/12/04/q-whats-so-wrong-with-being-average-wait-for-it/

 

68% of Americans in debt doubt they’ll ever pay it off, according to a recent creditcards.com report. That’s a fairly alarming statistic and a really pessimistic view on life. I’m not denying there are real challenges/reasons for going into debt: medical debt, student loans, unemployment, etc.  These are real issues and real problems. My trite observations won’t magically fix all of these societal deficiencies; however, I don’t want this mindset to become an excuse; a reason for putting off the necessary and pragmatic steps – that you can take – to become (and stay) debt-free.

 

I believe the debt mindset is an excuse (for some) to spend beyond their means, because debt is a fait accompli (an unavoidable circumstance). If you accept that something is unavoidable then you don’t have to do anything about it (i.e., change your lifestyle) – just sing kumbaya (to achieve interpersonal harmony) – around a campfire of course (do you hear the crackle of the fire?) – and roast some marshmallows while you’re at it.

 

A permanent debt cycle is not something that I believe you should merely accept as part of your life. Permanent fixtures in your life should be faith, family, friends, not debt.   .     .

 

Having said that – many people reading this post will say my previous rant was nice and all, but also very irrelevant (and inconsequential) – they can’t change the past! – they already have debt. Chances are, that describes most of you. So what now?, Even if we accept the premise that debt is unavoidable (a debatable, but moot point for most); what’s the “procedure” if we have already become a victim of the debt monster?

 

Let’s tackle this particular quandary in two stages: 6 causes of debt (hey – some younger readers might have thus far managed to avoid the debt star), and 6 steps to help reduce/eliminate debt (if you already have it).  See a totally irrelevant (but really funny)  bit on a cannonball wound (Brian Regan)

Let’s start with some of the most common causes (per bankrate.com):

 

1)            reduced income/same expenses; i.e., living beyond your means and letting credit cards fill the gap. When your outflow exceeds your inflow then your upkeep is your downfall.

 

2)            medical expenses; probably numerous causes here but I presume lack of or lapse in health insurance are leading causes – along with chronic conditions.

 

3)            poor money management; not having a budget and generally not being aware of where the money went .   .     .

 

4)            saving too little or not at all; living paycheck-to-paycheck; spend it all baby! This becomes a significant problem when combined with an unexpected expense (e.g., roof replacement). Houston – we have a problem.   .     .

 

5)            underemployment – I’m going to consider unemployment in this category too. Close cousin to #1. For whatever reason, whenever you are unable to find a full-time occupation.

 

I’m gonna add 1 more bonus category (because I want to)

 

6)            student loans – seems like a common cause – at least anecdotally, and I was surprised it didn’t make the list anyhow.

 

I’m going to add some commentary on each of these common 6 debt causes and how to avoid – and deal with – these conditions (after your debt affliction).

 

1)            set (and keep!) a budget – be able to quickly adapt your expenses to your lifestyle (don’t over-spend).   Set and monitor your budget with mint.com. Start with the heavy hitters: housing, transportation, and food (these 3 probably make up 2/3rds of your budget anyhow). Having an emergency fund also really helps, should you experience an unexpected expense. Sometimes expense mitigation isn’t the only solution, you might also need to take a second/part-time job to increase the income side of the equation. If your household income is less than $50,000, I would submit that expense management might not be the only/best way to balance the budget.

 

2)            insurance – I strongly recommend that you consistently carry health insurance. Don’t let it lapse – even if you have to take out a cobra/continuation policy. If you already have medical debt; work with the provider to setup a reasonable short-term-arrangement (over communicate if necessary; don’t be an optimistic procrastinator – it won’t go away on its own). Work a part-time job, if necessary, to pay off this debt as soon as possible. Review the charges and make sure they are reasonable and customary – I know it’s time consuming but hospital billing errors are more common than you might think.  I also recommend you contribute to a health savings account to have a medical emergency fund.

 

3)            mint.com or everydollar.com; also see answer to #1

 

4)            start with a $1,000 emergency fund – sell some household goods if you have to. If you truly can’t save anything (with your current lifestyle) then I suggest you review your housing (might have to downsize/move), your transportation (might have to sell/trade), and food (I would avoid eating out/restaurants). See previous post on “my expenses are too high”

https://jimmysmoneytips.com/2017/06/28/my-monthly-expenses-are-too-high/

5)            I probably can’t answer this quickly and definitively for everyone. Might need to go back to school and get a different degree. Might have to move or commute to a better job location. Might want to read “strengths finder 2.0” to get suggestions on occupations you’re best suited for.   See previous post on preparing for a possible job loss

https://jimmysmoneytips.com/2018/01/15/how-to-prepare-if-you-think-you-might-lose-your-job/

6)            student loans.   This is probably a sticky wicket – or a hot mess (if you are in the south (like me). There are ways to avoid student loans: scholarships, community college (at least for the first two years), in-state tuition, part-time job during school, military service before college, and trade schools (e.g., HVAC technician). At least think about it. If you already have student loans: Refinance to a lower interest rate. Work a part-time job and pay-it-off as quickly as possible.  Get fannie mae out of your life!

 

To be honest, being successful in personal finance is a whole lot more than just a math problem; It’s a motivation problem. You have to really want to get out of debt. It’s going to take hard work and sacrifice. If it was easy, everyone would have already done it! I don’t want you to rationalize debt just because most of your friends have debt. Staying in debt isn’t the smart thing to do. Be different. Be weird. Be debt-free.  Think about all the things you could do with the money you are currently spending on debt – go ahead – dream a little – now go out and make it happen!

 

Set some goals to get out of debt, goals that are:

 

Specific

 

Measurable

 

Achievable

 

Relevant

 

Time-Sensitive

I’m going to take my own advice and set a goal to pay-off our remaining car loan.  We currently owe $22,658 (as of 1/1/18) (I know, I know – go ahead and roll your eyes at me.    .      .).  I’m setting a goal to pay it off by July 31, 2019.  Beginning in February I’m going to start making double payments – the 2nd payment will be principal only.  That won’t be enough fire power to get it done by July 2019 (that’s only 18 months – yikes) – I will have to also throw in some “found” money – tax refunds, bonuses, etc.  You can do it!

This is Sparta!  I know its random but I needed some motivation, so work with me.

 

I got a request recently for a blog post on this particular topic. I’ll be honest – I don’t think I have all the answers on this one; however, I’m going to give it the old college try and see if we can discover some steps you can take to be prepared (kinda-sorta-maybe) for the proverbial “pink slip”.

 

This isn’t going to be one of my normal posts – being prepared to lose your job isn’t your proto-typical financial problem. There are some financial steps you should take – more on that later – but I want to address the more philosophical aspect of this issue. To many, the prospect of being laid off is more than just a passing concern; it’s more like a personal fear. It’s a recession when your neighbor loses his or her job; it’s a depression when you lose your job.

 

This isn’t really a math problem – you need to mentally prepare yourself for the real possibility, at some point in your career, that some business-case analysis will result in your position being eliminated (accountants call them efficiencies). I have first hand knowledge of this particular phenomenon (I was laid off from Alltel in 2001) and will readily admit it can be quite disconcerting – for some this can even lead to bouts of depression. To many, their job is, in many ways, an extension of themselves. Being laid off can be a form of rejection that some struggle to quickly recover from.

I personally don’t think it’s particularly healthy to throw your very own pity party – I say mourn (briefly) and move-on. I want to solve this problem with faith, friends, and preparation.

 

Faith – I think most of you know that my faith is very important to me and my self-worth is not encompassed in my occupation. My job is not who I am – it’s what I do to help support my family. I’m a Christian and believe my value comes directly from the creator of the universe – he sent his son to die for my sins (John 3:16) – to give me a hope and a future (Jeremiah 29:11). I could go on but don’t imagine you tuned in for a sermon. For this reason I remain cautiously optimistic. If I lose my job, I will find another – this too shall pass. Wisdom, guided by experience, has taught me this is so.

 

Friends – I recommend you confide in someone about your thoughts – warts and all; someone who will unconditionally love you and listen to your concerns, fears, dreams, etc. I believe God created us to be social creatures and don’t believe it’s healthy to go through life alone.

 

Preparation – I believe there are many financial steps that you can – and should – take in preparation, should you find yourself unemployed – made available to the industry so to speak.   I’m going to list 5 steps that might help:

 

1)            Emergency fund – most financial experts recommend you set aside 3 – 6 months living expenses. This is really sound advice as this cushion is designed to handle the proverbial “rainy day” that will certainly occur should you find yourself without a steady paycheck. If your company announces a merger (politically correct way of describing an acquisition) then I recommend making sure you have at least 6 months set aside.

2)            reduce your expenses. I think this is important for a couple reasons. First, you might need to reduce your expenses to fully fund your emergency fund. Second, your next job might involve a lower salary and “right-sizing” your budget is a lot easier when you do it by choice, rather than by necessity. See below a previous post that will hopefully help you brainstorm some ways to cut back on your lifestyle.

https://jimmysmoneytips.com/2017/06/28/my-monthly-expenses-are-too-high/

3)            update your LinkedIn profile and your resume. Regardless of a pending job loss – I strongly recommend you maintain a good network of business contacts (i.e., others in your industry, leaders, recruiters, etc). This is a good idea because you can learn from others (stay sharp!) and this network will come in very handy should you need a reference or an idea of a good company to work for.

 

4)            talk to a recruiter – in many industries this a very valuable way to learn about job opportunities. For example, Robert Half is a well-known financial job placement firm. They can also help you assess what you can/should expect in a salary – based on your skills, location, industry, etc.

 

5)            read the book “strengths finder 2.0”; really more of an online assessment tool that helps identify your personal strengths to help narrow your job search to occupations you are best suited. This might be a great opportunity to explore a different field or occupation – don’t immediately take the next job that comes along. See below a link to a previous post.

https://jimmysmoneytips.com/2017/08/22/career-advice-2/

I think these 5 steps are a good place to get started but I hope you will also consider (ask a good friend as well) how valuable an employee you are currently and what you can do to become even more valuable. It’s difficult to find talented employees so take the necessary steps to make yourself the best version of you possible. The previous post also includes other tips to enhance your career path. I’m sure there are many other tools and techniques to deal with, and prepare for, being outsourced but I hope you found this post helpful.

subscribe to my blog!  At the bottom of this post (hopefully – might have to be on the full site, not the mobile site – sorry) you will see a box to add your email – then hit the subscribe button – you’re all set! – you will now automatically receive all my new posts directly to your email inbox (usually once a week) – woo hoo!

 

Drop me an email (jimmysmoneytips@gmail.com) or comment below about your thoughts about being prepared, should the corporate cronies give you your walking papers.

 

I know this is a boring topic – I hear ya – but drink a little coffee and let’s contemplate this exciting and esoteric issue – okay, okay, not so much .    .     .  but it’s important nonetheless.

One of the traits that millionaires have in common is that they strategize to minimize their taxes (from Thomas Stanley’s book “the millionaire next door”).

see below a link to previous post about other millionaire traits

https://jimmysmoneytips.com/2017/11/10/top-10-lessons-learned-from-actual-millionaires/)

How do they do it? (you might ask, in a Brian Regan voice).  I’ll give you a hint – It’s not an ancient chinese secret. The key is to plan early in the year and setup your income and expenses to take advantage (legally of course) of existing tax laws.

If you go to an experienced tax planner (I prefer a CPA – but I’m inherently biased) after the fact – he or she can only keep you out of jail – that’s it; CPAs are good and all but they can’t change the past. If, instead, you go to a tax planner before the fact – he or she can you help you set up your affairs in such a way as to minimize your taxes in the coming year, as well as going-forward.

 

Congress passed significant tax changes in late December 2017. Regardless of your political leanings, I encourage you to better understand these changes – specifically how it will impact your particular situation. I will provide a link (at the bottom of the post) to a good summary of these changes (it’s worth your time to read and understand). Depending on your situation, I strongly recommend you reach out to your tax professional (if you haven’t already done so) in the next few weeks to do some tax planning based on the new tax law.

 

I believe the recent change to the tax law is over 1,000 pages long, so tax planners are probably still processing how this new law will impact their individual clients. I guess my point is this blog post couldn’t possibly address each person’s individual situation; so I strongly encourage you to reach out to your tax preparer/planner, (even if you do your own taxes). This particular year is a great time (biggest change to the tax code in over 30 years) to have a face-to-face meeting with your planner to discuss what you should be doing, going-forward, to minimize your taxes (plan .   .    .  plan .    .    . and then plan some more). Think of it this way, you pay a lot in taxes, every year!

Let’s look at some of the most common:

 

1)            income taxes – Federal and State

 

2)            payroll – i.e., social security, medicare, etc.

 

3)            property taxes on real estate

 

4)            gasoline/road taxes

 

5)            vehicle registration and property taxes

 

6)            sales taxes – state and municipal

 

7)            miscellaneous – taxes included in your cell phone bill, other utility bills, etc.

 

I encourage you to calculate your total tax payments (at least once a year) and how much tax, as a percentage of your income, you pay. I believe my effective tax rate is about 30%, (when I consider all taxes); that’s more than my housing expense – say what?! (Ron Burgandy voice).

I know many of you will say there isn’t much you can do about some of these taxes, especially the usage taxes (like road taxes) – maybe so – but if you are aware of how much in taxes you pay each year – do some strategic planning to minimize each of these taxes and consider alternative ways that might reduce your taxes in the future. For example, you could get a more fuel efficient vehicle and reduce the amount of road taxes you pay each year.

 

At the risk of sounding preachy, let me ask you to consider the following  3 tax reduction ideas (to get your brainstorming started):

1. contribute more to your 401K – this tried and true method reduces your taxable income and also helps build up your nest egg for retirement.

2. contribute more to your health savings or flexible savings account – this reduces your taxable income and helps setup a health-care emergency fund.

3. contribute more to charity – hey, it’s the right thing to do; and you might be able to get a deduction on your taxes too.

 

Tax foundation summary of new tax law

https://taxfoundation.org/conference-report-tax-cuts-and-jobs-act/

 

 

 

As we celebrate new year’s, let’s look back and see how we did (financially, of course) in 2017. There’s good news and then there’s some bad news.  .       . Let’s start with the good news: I don’t have any credit card debt (woo hoo!), I contributed 15% to my retirement (including the company contribution), I fully funded my health savings account (HSA), our net worth increased by $56,000, we cash-flowed Mark’s private school tuition (after May), stayed on budget (basically – see miscellaneous comments below), and debt is $16,323 lower (still have mortgage and auto debt) – did manage to pay off my car note in 2017 though. We spent less than the national average on food, housing, utilities, transportation and entertainment. (see chart below)

 

The bad. Even though we stayed on budget (basically) throughout the year, the miscellaneous category was a big problem – more later in the post. We spent a lot on healthcare – medical care is really expensive (thank you captain obvious) – seems odd since they are still “practicing” medicine.  The mortgage debt doesn’t bother me too much (for now) – but I am disappointed that we still have an outstanding car loan – see my post about top 5 regrets.

https://jimmysmoneytips.com/2017/09/29/my-5-biggest-financial-weaknesses/

I analyzed my miscellaneous category and realized that I have gotten lazy and included too much in this category. When I re-analyzed I realized that some of these charges should be categorized as housing (e.g. new stove), transportation (e.g., car taxes) and entertainment (e.g., vacation).

 

My new plan in 2018 is to set aside money into a separate bank account and pay these “miscellaneous” charges from that account.  Most of these charges are recurring – even if they don’t occur every month (e.g., vacation). I am going to auto-draft the same amount from each paycheck and hopefully this “sinking” fund will pay for these miscellaneous charges – some of these charges are unavoidable (stove quit) and some are discretionary (vacation). However, both are a part of life and I should set money aside monthly – to do otherwise is whistling past the graveyard (i.e., ignoring the obvious).

 

 

	our %	National % per BLS
housing	29%	30%
transportation	10%	16%
food	9%	12%
ins./SS	15%	21%
healthcare	7%	7%
entertainment	4%	5%
charity	11%	3%
misc.	14%	7%
	100%	100%

 

I will provide a little commentary for each category (note the above percentages are after income taxes – remove federal and state income taxes (but not social security) before doing your own calculation).

 

1) Housing – pretty much in line (a little better) but I hope it gets better in 2018 because we replaced a stove and a couch in 2017; those were fairly large additions to this category that I hope don’t get repeated next year.

 

2) Transportation – a little better than average – which is kinda surprising because we still have a car loan – see my separate post on cars.

https://jimmysmoneytips.com/2017/09/16/car-buying-tips/

3) Food – a little better than average – which is also a little shocking because we could/should do better in 2018 – especially eating out at restaurants – see below a separate post on food.

https://jimmysmoneytips.com/2017/07/02/top-10-budget-busters/

4) Insurance/Social Security – kind of a weird BLS (bureau of labor statistics) category – we are actually under-budget here but I think that’s actually a bad thing because it means we should contribute more to our retirement. Including social security is a little odd but that’s the way the BLS did it.  See below a separate post on social security.

https://jimmysmoneytips.com/2017/11/03/q-will-i-really-get-any-benefit-from-social-security-in-retirement/

5) Healthcare – in line with the national average – at least we fully fund our health savings account (HSA) each year and get a bit of a tax break by paying for medical bills and prescriptions from the HSA – it also serves as a sinking fund and doesn’t impact our monthly budget (e.g. take-home pay) – because it’s funded via a payroll deduction.

 

6) Entertainment – a little better than the national average – probably because I’m a cord cutter, but we still spent a fair amount on vacation expenses and other entertainment (Go Braves!)

 

7) Charity – a good bit higher than the national average. I’m a Christian and believe that the Bible strongly encourages us to give to others – especially to the church – in order to help the needy and tell people about God.  We are supposed to be Christ-like and God was a giver – John 3:16 – just sayin’

 

8) Miscellaneous – a good bit higher than the national average – this is mostly due to Mark’s private school tuition – a choice I will definitely make again in 2018 because I know how much better Mark does when his education is specialized for his ADHD.

 

Let’s compare to how the rich spend their money.

https://jimmysmoneytips.com/2017/07/28/how-do-the-rich-spend-their-money/

Please send me your feedback about my posts, including ideas for topics I should write about in 2018;  jimmysmoneytips@gmail.com

Happy New Year!