Debt Dunk

Have you ever played the what if game? When it comes to opportunity cost of debt, we all play the what ifs. For those of you who are not familiar with the term opportunity cost, it is a term in economics that refers to the what you give up in order to do something else. For example, if you only had $20 and you wanted a pizza and you wanted a new video game, you have to make a choice. By choosing the pizza, you cannot buy the video. The video game is your opportunity cost.

When you go into debt, you have an opportunity cost, you give up everything else you could have done with all those payments. That dinner you charged on that credit card, that 90 days same as cash computer you bought four years ago, all the other stuff that is long gone or worthless all cost you a cash filled future. This is what you need to think of every time you go to spend money. Do I really need that new gadget or could I do better by paying extra to become debt free.

I am not against fun and new gadgets. However, if you have tons of debt, can you really afford it? If you behind on bills, you definitely can not afford it! The new gadget is your opportunity cost of having all that debt. Just think, if you did not have all those payments, you could save that money to buy your new gadget.

The old you would just pull out the credit card and say charge. This is not or should not be the new you. Gadgets are fun but they are more fun when you pay cash and can afford to pay cash. Do not fall for the instant gratification of obtaining everything right now because your future debt free living will be the opportunity cost of that debt. Just imagine what you can do when you owe no one. Your money will be free to enjoy.

I for one want to get to he point where I have money to give a little, spend a little, and save a lot. This will mean I will not be paying back money to other people and start paying myself. I hope you are all on the same road to debt free living and if you need advice or help, feel free to contact me.

I have heard people say they do not make enough to write a budget. This is one of the craziest things I have every heard. Everyone needs a budget. Let me repeat that EVERYONE needs a budget! Budgets are not just for people with lots of money, they are for the people making minimum wage all the way to those making billions.

First thing you need to do is figure out all your income. This is every source of money you have each month. If you have a fixed income, this should be easy, if it varies each month, this is a little more challenging. For the basic budget, we will focus on fixed income. Account for everything coming in even the smallest amount. Write it all down.

Now let’s look at your expense side. Start with the basics:

1. House ; rent or mortgage
2. Food : groceries (needs not wants)
3. Electric service and heat
4. Clothing
5. Transportation

These five categories should come before all others. If you can cover these categories, you have covered basic needs and now you can move on down the list. If you get to number five and find yourself short, you are living beyond your paycheck and you have two choices, cut expenses or earn more. Make sure one of the five is not causing a huge problem. Many people live in a nice beautiful house that is eating up most of their paychecks. If that is the case, this may be something you need to address by selling the too expensive house and renting for a while or if renting, you may need smaller place.

Looking at number two, if you are buying all name brands, you may need to change to store brands or start looking for coupons. Coupons are a great way to cut your grocery bill by a lot of money. Another way is to be in bulk when you have extra or if something is deeply discounted. Making stuff from scratch is not only healthier, it is cheaper too. There are always ways to cut down in this category, just make sure your families basic nutritional needs are met ( I said needs right?)

In category three, you can use more energy efficient bulbs, make sure to not leave lights on all the time and turn the thermostat down a couple of degrees at night and even lower when no one is home. There are tons of energy saving tips available online that are easily done with little cost.

I know people love their clothes. However, this is a category where people tend to look at wants over needs. You need to look at the value of clothing before buying it. If you have a professional job and you need to dress nice for work, consider the value of each purchase. Do not buy a pair of pants for twice the cost because they last a year compared to three months if you are only going to wear them three months. I personally have never been an over spender in clothing because I see no value in it. I paid $150 for a nice pair of running shoes (most I ever paid do a pair of shoes) and I was scared to wear them. For six months, I would not wear them if it was rainy or if there was a chance to get them dirty. They had little real value to me. They fit great, looked good but lost all value in the fear of wearing them. Buy for value and need. If you can get name brand clothes for the same as a cheap brand, by all means buy them. Otherwise, always compare value to use to figure out how to save in his category.

The final category is where many so called normal people get into trouble. They want to impress so they drive a new car or SUV every couple of years. Ever meet that person who owns the nicest car around and lives in shack? Paying payments for something that depreciates as fast as a car is stupid. I have been guilty of it. I never owned a new car until I got married, my wife really wanted (not needed one) so I gave in and we bought one. I used my negotiation skills and got a great price but still had payments. Stupid, did I say Stupid? I now drive a 2000 SUV and my wife a 2003 mini van. Both are paid for. The SUV was the last vehicle I ever bought on credit in 2005 and we paid cash for the van last year. If you can’t pay cash, you are buying too much. If your car payment is killing you, sell the car and buy something you can afford. The saying, ” A fool and his money will always part” applies no better place than when buying a new car.

Once you list out you income and the top five expense categories, how does it look? Do you have any money left? If yes, that is good news and we will continue the budget next post. If no and you already did some trimming to the categories, you have only one choice, increase your income with a better job or adding a part time job.

Many are now saying, you just do not understand! I have been there, I understand but reality is, there is no magic to money. You can cover your expenses by borrowing for only so long. At some point you have to come to grips with where you at and either earn more or spend less.

As always, I am here to help and will give you honest advice even if it is not what you want to hear. Leave me a comment or contact me through the contact us page. I will continue the budget process in the next post, subscribe to my feed so you never miss out.

It is much easier to account for your money when you are single. You do not always make the right choices but it is your money and you are the only one you have to answer to. This is good and bad but it is yours all yours. However as you get into a serious relationship and get married your life chances and so does the money part of your life.

When you are married, the finances are combined and so are both the rights and responsibility. This is where communication is key. If both husband and wife are spending freely with no regards to where the money is going, it will catch up to them and in a very bad very real slap in the face reality way. At all times, I repeat, at all times, both spouses should be able to know where the money is and where it went. If this does not describe your marriage, YOU HAVE A PROBLEM! Excuses like., my wife always handles that or my husband handles all the money is no excuse at all. If you are not a partner in the finances, you need to educate yourself and become one.

This is not to say that one spouse can not do the majority of the financial paperwork and keep the books. Most couples have one who is more equipped or willing to do that job. This is not to a bad thing and in my marriage, I am that person. However, at any given time, you should know where the money is and how much of it there is.

One of the top reason for divorce is money. People go through life sailing along debt to debt and spending freely. One day, the train of credit cards slow down and they realize they have hit their max. How are they going to pay all the debt. That is where the fights begin. First it is anger at the situation, next it is anger at one spouse or both blaming the other. How many couples do you know or have you  heard of who have lost everything because they maxed out? Many times you hear one of them say something like, ” I had no idea, John always handled the money.” Ignorance is no excuse!

If you are reading this, the first step is to ask your spouse, “where is the money honey?” Second is for both of you educate yourself on the matters of money. Take a class, read a book, research online, or ask a financially responsible friend or family member for help. Make sure you know where the advice is coming from! If it is a book written by a credit card company or another debt related company, skip it. Learn from those who have been there and recovered and are no longer a slave to debt. If you want to lose weight, do you go to the biggest person you know? No, you go to the person who has loss weight and kept it off. If you want to succeed in money, you do not go to a person who is broke or in extreme debt.

Finding financial success means opening your eyes and learning from your mistakes. If you are in debt, borrowing more will not fix it. Join hands with your partner for life and form a new partnership, the Financial Us. Working together and knowing all about the money will secure your finances and prevent a bankruptcy of your marriage.

If you have a question or need help, maybe I can help, leave a comment here or got to the contact us section and send me a private message. I will try to address it as quickly as possible.

How many times have you looked at your wallet and your checkbook just to say I am broke? If this has never happened to you, congratulations! For almost every else, including me, it has happened. It is not a good feeling to have no money. That is the main reason you need to be prepared for everything. Preparing means knowing where the money comes from and where the money goes.

This is the first of a two part post about the in and the outs of money. Money comes from many sources. You can earn money through a job, you can get money through investment returns, government entitlements, you can win money, inherit money, or just be given money as a gift. No matter what way you get money, you have to understand that money is never unlimited; even for Bill Gates. Understanding that mere fact will start you on the road to financial freedom.

Most people are not so lucky to get money handed to them so we work for a living and earn a paycheck. You can either work for yourself by owning your own business or you can be employed by someone else. Either way, you are still working for a paycheck. It does not matter if you earn a million dollars a year or twenty thousand dollars a year, the concept is the same. We have what we earn and that is all we have. When deciding what to spend, we need to look at our earnings and compare that to what we want to see if they match up. If they do not, you can not afford what you wanted. It is so clear but many fail to see the facts.

What to do if you want something you can not afford. You must either borrow the money (bad plan) or save up for it. The other way is to increase the money coming in. This can be done by taking on more work or selling something you already own. Yard sales and Craigslist are two great ways to sell stuff to earn extra money. However, this is limited to what you have on hand. The best way to get extra money is to get a part time job. There are many simple part time jobs that can bring in extra income. Currently, working for the Unites States Census is a flexible good paying job for many people to earn extra cash. Other jobs, include newspaper delivery, Internet business, lawn care, pizza delivery, and many more. Most of these offer flexible hours that can be arranged around your full time job.

The next option is to find a better paying fulltime job. This can be done by better educating yourself, learn new skills, or moving to an area that is better paying.

The main point is that you need to know where your money is coming from and if you want a better lifestyle, you have to increase your money coming in. Credit cards is not another source of income. Because the local car dealer will give you a loan to buy a new car, it does not mean you can afford the car. Even if you can afford the car, you have to understand that the money must come from somewhere. Increasing the money going out means you need to increase the money coming in. Once you build a realization of where money comes from, you will better be able to understand the limits of your money.

Check back soon for part two “Where does the money go?”

One key point I have spoken of before and I am a big proponent of is doing a budget. When you do a budget, your eyes become wide open on how much money you really have. Sometimes this is good news and other times it is not. For most though, it is like finding money you never knew you had.

There are many ways to find money that you thought you didn’t have. First, take a look at what you are spending your money on. Eating at restaurants and fast food places can be one of the biggest expenses in many budgets. I would like to say I never eat out but that would be a lie. There are ways to cheapen the bill though. Buying a soda or other beverage now can cost up from $1.25 to $3.00. This is not good for your budget or your waistline. Ask for ice water and you could save $5-$15 a week on average. That adds up to between $260 and $780 a year. Not a bad little find is it?

What about desert? Do you eat desert at most meals out? They can range from $1.25 up to $6 or more. Some deserts cost as much as the meal. Say you only have desert out three times a week. That is between $195 and $936 a year. Now that is nothing to sneeze at. try to eliminate the deserts or splitting with a partner and you could see you waist line shrink and your wallet grow. These are just a couple of examples that you can save from eating out. There are so many that you could find that will help you find money.

Alright, maybe you are more disciplined than I am. Maybe you do not eat out at all or very rarely. Let’s take a look at other ways to save. How many of you still pay your bills by mailing a check each month? If you only send out seven bills a month, you overspend by $30.24 a year plus the extra costs for buying checks. If you pay bills online, it is easier, cheaper, and you can pay instantly. Better yet, automate the ones you can and save more time and leave no chance of forgetting a bill.

So are you seeing a trend in how the small things add up? Look at your utility bills and cable bills. Can you cut out extra features you don’t need? The phone company is one who loves to add the extra charges. Make sure you are not paying for features or services you do not need. Do you have HBO or Showtime? How often do you really watch them? If you do not use, ditch them and save $100 or more a year. Does your cable or satellite company offer smaller packages? Sometimes they also offer discounts for loyal customers. It does not hurt to ask.

When trying to become debt free, you need to reevaluate everything in your life and see of it can be cut, eliminated, or reduced. Baby steps in reducing your expenses can be like finding money you never knew you had. Be a pauper now and you will live like a king later.