What’s Your Financial Panic Point?

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What’s your zero?

In other words, what’s the point at which you start to obsessively worry about your money and actively start looking for solutions? Is it when your account balance hits $1,000? $100? $10? $0?!?!!

Yeah, me too…..or at least it used to be $0. I used to feel super relaxed about our money as long as our bank balance wasn’t at or below $0. Of course, as soon as it would dip below the zero, my solution was to let our credit card debt accumulate.This crazy tolerance for zero kept us in a spiraling cycle of debt for years!

So when we paid off our debt (the most recent and final time), I added a crucial step to my financial plan….I reset my panic point. And I added new panic points that didn’t even exist before for our credit cards.

So now I have a tolerance for zero, but it’s our credit card balances that need to stay there.


 For better viewing: click on the YouTube icon in the bottom right hand corner of the video’s window.

 

How to Totally Simplify Your Cash Flow Tracking

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No doubt about it, budgeting and cash flow tracking are the most tedious parts of getting your finances in order. Tedious, but unfortunately, necessary. I simplify my tracking process by ignoring as much of my money as humanly possible.

What does that mean? It means I have a budget category called “already spent” that is comprised of all the monthly and annual bills that I can’t avoid. Mostly, it’s the bills that stay the same every month (i.e: mortgage, insurance, property taxes, annual vehicle registrations, etc.). I budget for them separately, using Excel (see my Excel video series for step-by-step instructions), and then I roll them all up into one category. The amount of money in that category is “already spent”, so the only money I need to actually track daily are the variable spending categories that are left (i.e: clothing, groceries, gas, entertainment, etc.).

I do put the hydro and heat expenses in the “already spent” category, even though they can fluctuate, but when I’m making my new budget each January, I pad them by about $100-$300 over what I spent in the last year to make sure that each pay period, enough is accumulating in my account to cover those payments.

I automate as many of those payments as possible and when the bills come in for the others, I just pay them and rest assured the money’s there to cover them.

Watch my newest Excel video to see how I use the “already spent” category.


For better viewing: click on the YouTube icon in the bottom right hand corner of the video’s window.

 

 

Make credit a rewarding experience

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There’s a lot of online buzz lately about using credit cards for the rewards. This is something I’ve been doing with success for a while and it’s a big part of my financial strategy. I use my credit card for every single purchase I make every day; large and small and earn about $1,200 a year in cash back rewards. That’s enough to over my entire Christmas shopping bill!

The danger, of course, is you run the risk of accumulating debt. The way to avoid this risk is 2-pronged. Obviously, the first part is, don’t just spend haphazardly. You need to stay within your budget even if you’re using your credit card.

The second part is to pay off the credit card promptly to avoid paying any interest (which would effectively defeat the purpose of using the card in the first place). There seems to be some debate about how often to make those payments. I pay mine daily. Sounds crazy, but it literally takes about 30 seconds of my day and this habit guarantees me:

  • Ultimate budgetary control: I immediately see what I or my husband has spent
  • I pay no interest: the purchases show up in about 2 to 3 business days so I pay them off before they accrue any interest
  • I can ignore the monthly bills: by checking the details of what we spend online daily and paying off new charges as soon as they appear, the monthly statement becomes moot
  • I catch any potential mistakes on my credit card statement immediately

If you try this strategy and find you can’t pay off the new purchases daily, then STOP using the credit card right away. Re-visit your budget. Something’s gone wrong. Take the time to fix whatever isn’t working on your budget (refer to video #2 in my Excel series) and then only use your card for things that are budgeted for.

So, which rewards will you choose? My American readers can use this awesome tool to see which card is best for them.


 For better viewing: click on the YouTube icon in the bottom right hand corner of the video’s window.


Credit cards; Friend or Foe?

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Are you frenemies with your credit cards? Do you act like BFF’s in public, taking them out with you, using them shamelessly, but privately you resent the Hell out of them? It’s just unhealthy, so this week we’re doing couple’s therapy for you and your card!

In a few simple steps you can learn to love your cards again:

  • Choose a card that has a reward that makes you happy.
  • Apply for and receive your new rewards card.
  • Use your card for every single purchase you make every day….BUT only for things that are in your budget (this is usually where your relationship goes all wrong).
  • Pay the card before any interest accrues on the purchase and watch the rewards pile up.

It is totally possible to maintain a healthy and downright lucrative relationship with your credit card!


For better viewing: click on the Youtube icon in the bottom right hand corner of the video’s window.

 


 

The 2 Most Evil Debts of All

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What are the 2 most evil debts of all? Nope, not credit cards…..can you guess what they are?

The answer: Payday loans and “Buy now, pay later” offers!

First, payday loans. Recently, most provinces have enacted laws limiting the interest these businesses can charge to around 21% to 25% (gee, only?), but in New Brunswick they have yet to do this, so it’s legal for them to charge up to 60% interest in that province! My advice is to avoid these places like the plague. And stop to think, if you’re spending your pay before you even get it, it’s time to make some drastic changes to your lifestyle, not the time to rack up some crazy 25% debt. Dude! That’s a quarter of what you’ve borrowed!

And topping my list of sneakiest  and most evil debts is the “buy now, pay later” offer. What most people don’t realize about these offers is how they calculate interest. Let’s create an example where you buy living room furniture for $3,000 on a “don’t pay for 18 months” offer.  The offer advertises “no payments and no interest for 18 months”. They’re not lying, you don’t owe them any money until after 18 months and technically, they don’t charge interest for those 18 months, but here’s the sneaky part; if you don’t pay the entire balance on that 18 month due date, they charge interest retroactively, right back from the date you originally purchased the item (18 months ago, remember?), usually at a rate of about 36% or so!

In other words, when they say “no interest for 18 months”, what they mean is you don’t have to pay that interest IF you pay up by the due date, if not, then you DO have to pay all the interest that was calculated over those 18 months and into the future until you pay the remaining balance.

So the only effective way to buy something on a “buy now, pay later” offer is to figure out what the monthly payments would be on the item (taking our example above, that would be monthly payments of $166.67), put that money aside each month for the 18 month period, and then pay the entire balance owing on the exact due date to avoid any interest being added to the price. However, if you’re disciplined enough to do that, why not just put the money aside every month and go get the furniture once you have the money in the bank?


For better viewing: click on the Youtube icon in the bottom right hand corner of the video’s window.

 

Spread Too Thin

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Can you save and pay down debt at the same time? Maybe, but should you? In my opinion: no.

If you carry consumer debt, then my advice is get it gone as soon as possible. And in the world of high interest consumer debt, every dollar counts. The faster you obliterate the debt, the faster you can get down to the serious business of saving and investing those savings.

What if you already have savings….should you use those to pay down the consumer debt? At the risk of sounding like I’m contradicting myself, again I’m going to say no. And then I’m going to sound like I’m waffling when I say, unless the only debt you carry is all at 20% or more. And even then, before cashing in your savings to reduce debt, do everything in your power to get the interest rate on the debt reduced first (remember last week’s video?)

Three reasons for this logic:

  • The interest you could be making investing those savings is probably more or equal to the interest on the debt if the debt is at 10% or less.
  • Seeing your savings wiped out in one swoop would be a hard blow to take.
  • Chances are, if you’re still adjusting to your new-found budgeting ways, you may not be 100% successful in keeping the debt gone once you pay it down, and then you would have effectively emptied the coffers for nothing.

Believe me, it took us 3 cycles of racking up and paying down our credit cards before we finally were able to get it right and make enough lifestyle adjustments to keep the debt away for good! Using my savings wouldn’t have made a difference to our spending patterns, and it would have been very depressing to start at zero again in accumulating those savings.


For better viewing: click on the Youtube icon in the bottom right hand corner of the video’s window.

 

 

Minimum Shminimum

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Let’s do the math, shall we?

You owe: $10,000

Minimum payment: $100

Interest charged: $162.64

freedigitalphotos.net-surprise

See what happened there? Your credit card company got you! You thought that by making your minimum payment you were making a dent, but uh-unh, they got you, your balance is still going to be more next month. And let me quickly calculate when you’ll have this card paid off……umm, never.

You most likely didn’t even notice because at the same time as they were pulling that fast one on you, you weren’t helping; you were charging more on the card.

So, there are two steps to making progress on paying off your credit cards. Firstly, stop exacerbating the problem. Immediately. If you don’t have the money, don’t buy the thing, simple as that.

Secondly, don’t just automatically assume you should pay the minimum payment they’re asking for. Quickly compare it to the new interest you’re being charged. Take whichever of those is the bigger number, add at least $1 to that and voila, you’re officially making a dent!


For better viewing: click on the Youtube icon in the bottom right hand corner of the video’s window.

photo: freedigitalphotos.net