Reduce Debt Increase Wealth

Financial Freedom

June 12, 2022 MIsterchuck Season 3 Episode 117
Reduce Debt Increase Wealth
Financial Freedom
Show Notes Transcript Chapter Markers

 Still working on getting credit cards debt reduced. Now the time to start tracking net worth. This will help in determining the progress made in debt reduction. W hat is financial freedom, is it worth the effort?

Treat all credit cards as cash, only charge what can be payoff every month. Put extra money into emergency fund, once have 6 months expenses the remaining into investments. 

 Article Link:

https://www.spaceship.com.au/learn/the-seven-stages-of-financial-freedom/ By Nicole Webb

 https://financebuzz.com/us-net-worth-statistics By Kerry Murray


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How to contact Misterchuck , for questions, comments, requests use this email address. Reducedebtincreasewealth@gmai.com

Charles McDonald:

Hello, I'm your host, Mr. Chuck, a retired accountant turn truck driver, I reduce my debt in a relatively short period of time, debt reduction to achieve financial freedom takes commitment, confidence, determination. Financial freedom, still working on getting credit card debt reduce, now's the time to start tracking net worth. This will help in determining the progress made and debt reduction. What is financial freedom? And is it worth the effort? Yes, it's definitely worth the effort. I'll answer that right away. Before I get started episode, I have a email address now reduced that increase well, all together one word NO spaces@gmail.com. If you have questions, comments, or like to request my budget spreadsheet, please do so by sending that to that email. And I will respond as soon as quickly. If you have questions, I'm going to accumulate them and do an episode and call it questions. So for now, those of you who maybe got most of your credit card debt pay down what to do next, I was gone to name this episode out of debt. Now what? So well start with that treat all credit cards as cash, only charge what can be paid off every month, put extra money into your emergency fund until you have at least six months of expenses built up, and then start increasing the amounts you put into your investments. If you don't already started doing investments, then get started doing investments. When I say six months of emergency fund, what I do is keep about 2500 to $3,000. In my local bank savings account with set that's connected to my checking account. That way I have some money, quick access to anything in excess of that I put into a high yield savings account. I know that's contradicting on terms, but a high yield savings accounts gonna pay you about tonos half percent in interest, it's not much, but it's gonna definitely be a lot more than what you get from your local bank. And they're generally online savings account. So do a search on high yield savings, and you'll find plenty of offers. I have two articles in my show notes to cover this episode. And the first one is Buzz is finance buzz.com. US net worth statistics, and the other one is spaceship com. The seven stages of financial freedom. So we'll get started. So I'm going to start with Net Worth. First of all, how do you figure what your net worth is? It's a simple calculation. And what you do is look at everything you own called assets. If you have a home, it would be your home, your automobiles, the furniture in your home, investments, savings, all those type II items and add the fair market value of them up at the time you're gonna do the calculation, then you take all your debt and subtract it from all your assets. And the resulting number is your net worth. So if you own a home that has a market value of 200,000, and you have a mortgage on it of 150,000. And that's the only thing you own, your net worth would be $50,000. It's fairly simple. I mean, I said furniture and stuff like that. But I would only include things that would be collectibles. If you're young does graduate from college, it is possible to have a negative net worth because of all your student loans and you may not have been working very long, he may not have any savings build up the just trying to make ends meet for now. So that's how you figure out what your net worth is. And you want to do that like every six months or at least once a year and put a date there. Create a spreadsheet, call it net worth, put the date that you figure it out and Now put, you know the value of your assets minus the total amount of your liabilities equals you whatever your net worth. But that comes out to simple math. And then you do that every year, and you want to compare how you're doing? Well, first of all you need to compare how you doing with yourself? Is your net worth growing every year? Is it getting larger every year? Or did it go down, maybe you bought a new home and financed 90% of it, and you have a whole lot more debt. So yeah, it's possible that your net worth could go down. But we got to keep this under control for yourself. To give you an idea, the median net worth the United States is $121,700, which is up around 17 and a half percent from the year 2016. And that's probably the best number to go by. But we also have some numbers in my show notes, the article I have a link to that gives you the value in net worth based on age. And let's go down to that. If you're 35 years or younger, the median net worth is $13,900, which is could be expected because if you're 28 years old, just out of college been working a couple years, we got a lot of student debt, you don't maybe own an automobile that you have a loan on, you know, 13,900 would be a decent number, if you're 35, that could be a little on the low side. But that's what the range is. From 35 to 44, we're doing 10 year increments, it goes up to 91,000. So we're starting to make some progress on getting our debt on our control from 45 to 54 is 168,000, we made a whole bunch of debt. And that, you know, 20 year period, so if you bought a home, you've been paying on 20 years, you're building up a lot of equity, and you hadn't borrowed maybe a line of credit against it, and you've been good and you've been increasing your savings, you have a 401k through work. So things are starting to add up in your favor, from 55 to 64, it goes up to$ 212,000, from 65 to 74, it's$ 266,075. And over it drops $254,000 Because they're probably retired and start taking money out of their investments. That's the median net worth, which is a good number, the meeting is the average of everybody grouped together in that category. And it's a different calculation than the average network, the average net worth is a much bigger number. Because it's taken the average of everybody, you know, if you got 2 million people and you got a lot of them are in the high percentage income and they got a low dat is going to have a much bigger net worth number. So the median, I think it's a good number to go by. And it's easier to remember $14,000 under 35 $91,035, to 44 $168,000 45 to 54 $212,000 55 to 64 65 to 74 $266,000. And then it starts dropping once you retire. That just give you idea how you stand with other people your same age, how are you doing? Overall, don't be too hard on yourself. Because everybody's situation is different. And and you may not, maybe you didn't get any help on down payment for that home. Maybe somebody else's parents help them with a down payment. So they had a larger down payment. So they have a bigger net worth, even though it's not money they actually made on their own, their parents helped them. So let's talk about financial freedom. And what is that financial freedom is when you have the ability to make any decision and not have to worry about the financial cost of that decision. That's truly is what financial freedom comes down to. And that's probably where I am in life. I mean, I My goal was to get out of debt before I retired and I did that two years before I retired. By using the strategies that I'm talking about that I'm trying to help everybody with. As far as the seven stages of financial freedom, I'll probably never make the top two or three stages of this definition. But I'm definitely have no worries, I can do pretty much what I want, when I want and not have to consider any financial considerations on when if I do that, unless it's something like buying a yacht that costs $200 million, which I don't have anywhere near that kind of money. And I don't have anywhere near that kind of income to afford. But that's what I'd like to have, wouldn't everybody, which reminds me were inflationary period. And Dan Ackroyd, and 1978 did a stitch on high inflation, inflation is our friend. Because in the next 20 years, a blue collar worker would make $500,000 a year. So everybody will be millionaires. And what's what's bad about that everybody should be happy. And who doesn't want to wear a $4,000 suit, who doesn't want to drive a $600,000 automobile, I should like to do that. But if I had the income to do it, I would be happy. So inflation is our friend. That was Dan and Craig 1978. Because in that time period, there was high rates of inflation. And we're gonna be heading that way pretty soon. But that got sidetracked a little bit. So seven stage of financial freedom spaceship.com. We think of financial freedom and have the ability to make certain choices without worrying about being able to financially sustain yourself, to reach true financial freedom using need a plan to get there. And this is what we tend to get stuck. We're often bogged down by day to day living, that's reaching financial freedom seems like a pipe dream. But if you think of reaching financial independence in bite sized stages, we find a goal becomes more achievable and realistic. It also makes the journey less overwhelming. If you manage to pay down an outstanding bill that's been hanging over your head, that's great. The point is that every action, no matter the size is likely to lead you closer financial freedom. The stages of financial independence also lead you to ingraining. Good money habits are a core part of Smart Money Management. If you don't have good money habits, you'd not have to worry about doing smart management of your money, because he won't have any money. You have a lot of credit card debt, he did something in the past that created that you need to identify your problem and solve that problem that got you to that place. Maybe you have a spending problem. Maybe you got laid off, you didn't have any emergency savings. And you had to live off credit cards for three months, six months, or whatever. And now you're struggling to get out from under him. Whatever the case, you need to have a plan, a financial plan. And you need to identify what the problem was. And you need to solve the problem and stay away from having that problem happen again. So where does this all start? want independence. At this level, things aren't easy, he might be unhappy with your financial position, you're likely financially dependent on others. And at this day, he can probably only continue on. And this way in the short term, I would say that's probably a college student is graduating from college, or high school student just getting out of high school and just started a first job and really don't have a whole lot. And you'd have sold the pendant somewhat on your parents to solvent solvency or survival is when you're out bowing in expenses are lower than your earnings. So you've done a good job, you're starting to make money, and you're making more money than what you're actually spending. So you start now in the right foot. And this stage, you're likely able to meet your financial commitments, pay all your bills and not rely on someone or something to help you cover your expenses. So you're good if you're number two, you're in good shape. And that's shortly a few years maybe from moving out from your parents. Three stable once your age to consistently meet your financial commitments, pay off some debt and you're able to keep your expenses down, then you can start saving, first for your emergency fund, then for your longer term growth, but you're probably not debt free yet. And that's okay. You may still have significant debts, like paying your student loan debt, or a mortgage, which you're chipping away at. And here's a note about that. Mortgage is not necessarily bad debt, especially if you just gotten an A last five years, and you have a interest rate 4% or lower, that would be good debt, because with rate of inflation going up, that is cheap money, and you're gonna be paying it back with even cheaper money because money is losing value. That's the theory some people have. I personally disagree with it, because in high rates of inflation, you're unlikely to get a pay raise from your employer. The comment here, saying that stage three, your became stable, meaning your income is growing, you're keeping your expenses at a minimum, you're not overspending, he should have already started that emergency fund. From day one, when you start working, he should put 2% 5% A small amount of money into your savings they find, and that is your emergency fund. Why? Because that's gonna help you down the road to keep from using credit member what the debt reduction plan. And even if you're just starting out, if you don't use debt he won't get and that he won't get behind on debt free simple. So we're at spory stable, and then we go to for security. Once you've built your emergency fund, we think it's time to consider investing. Hopefully, when you build a solid investment base, you aren't relying on your income to cover your basic expenses. You may successfully be building and managing your wealth and be on the path of earning your financial freedom. That's probably about where I am. But I would say you need to start investing as soon as possible, even if you're in stage two, which would be solvent. And if your employer offers a 401k, or any other type of retirement plan, and you're eligible to put money in there, no matter what stage you're at, start doing it, even if you only put $5 or $10 a pay in there, over time as gonna build up. And don't worry about if you leave that employer, maybe you don't like that job, maybe you think it's not going to be your career job, you can always transfer that money into a traditional IRA, if you leave that employer. But don't do it right away,

Unknown:

leave them employer,

Charles McDonald:

make sure you got all your paychecks, wait a few weeks after that, and then contact your employer about transfer the money to a traditional IRA. And you can go to any go your bank and set something up. No big deal. And if you get your next job, you don't have a retirement plan, he can always make contributions to your own traditional IRA. So that security, he should just start investing sooner than that. But that's what they're saying is that security level five is in this independence. At this point, you should have made solid long term investments and your investment earnings are enough to cover your current lifestyle. At this day, your good investments should literally pay in dividends. I never reached that. That's Step five, I'm at security is the highest I ever got. And I have no debt for the last almost two years. My investments are not painting thing near what I need to live on. So I got to rely on my retirement income, which would be from my government work plan and from the Federal which is Social Security. That's independence. You can do whatever you want. Now some people reach out earlier in life maybe at age 45. They made some smart choices. They saved a lot of money, they invest it well. They got lucky and they're reaping the rewards. Six freedom at this stage people often dream about you can afford the basics you should be able to afford comfort and luxury to hear you may be able to take bigger risks and opportunities. Now you can buy that like side holiday home Turn your interior design hobby into a career and travel

Unknown:

abroad Ragley.

Charles McDonald:

Okay, bigger risk and opportunities. So you got your investments, or pan back, you've been able to do whatever you want. And then number seven is abundant abundance, he should have enough investment income that you have more than what you need. Here, your focus should be on sensible stewardship of this wealth for any beneficiary, it will take time to realize financial independence, but a peace of mind confidence and control of your destiny may be well worth it. So there you have it, it's not easy to reach financial independence. Nor is it a well traveled road. But it is possible. Many people earn decent money but never get beyond the first few stages. I'm at stage five, I'm probably doing most better than most people, five, our seven, don't get overwhelmed by the thought of financial freedom. If you keep plugging away and make smart money choices, we think you could get there. Say I'm much I'm number four is where I am security. Yep, my investments won't cover my monthly bills. And I don't have all that may monthly bills. Now maybe it will, I'm somewhere between four and five, I really don't know, somewhere in that stage. But another point, investments, another type of investment would be anything that produces passive income. So it doesn't have to be investments in the stock market. It could be investments in some type of property, such as rental property, that's gonna pay you rental income, it's gonna have a mortgage, it's gonna have insurance, real estate tax and some maintenance. If you don't mind managing your own property and keeping

Unknown:

up on it, you'll make passive income. Remember,

Charles McDonald:

even though you're writing a check to pay that mortgage, in reality, that mortgage is getting paid by the renters. Because you're using your rental income to pay the mortgage, you're going to end up having a loss on paper for taxes. So it help offset your income tax. So you got a two fold windfall?

Unknown:

windfall. So it could be

Charles McDonald:

a good long term investment, because when you sell it, what happens to real estate, and generally goes up in value. So if you hold on to it for 15 years, 15 years later, it can be worth double or triple what you paid for it originally. That's just something to think about. If you're at that point, you can't afford it. But before you get to that point, you need to have no credit card debt, you maybe only have one car payment, maybe have your home almost paid off, and be comfortable. And then you can start using some of your investment money. If you haven't put it into a retirement plan. He have an outside of retirement plan so you can get to it. He can maybe sell some stocks and investments and take that money and put a big downpayment on a rental property. You get the idea. Do your homework, know what you're getting into before you do it. I'll be back in one moment was my final thoughts. I have an email address reduced that increase wealth, one big long word, no spaces all together at GE gmail.com. If you'd like to request my budget, spreadsheet, put budget and in that subject matter and just put a little note, please send me your budget spreadsheet. If you have questions, but questions in the subject manner and puts what the question is on accumulate questions and I'm going to do an episode. I may send you a link to the episode before it's actually released. So you can listen to it as soon as they get it done. And if you have any other comments or criticism, feel free to do so. Maybe you'll never achieve abundance and your financial freedom and freedom. But getting to stable or independence. You're doing pretty well. I knew that when I retired, my income was going to be less than half of what I was making. That was my motivation to pay off my debt because with the The debt that I had, with half the income, I would be struggling to even buy food, gasoline, the basics that I would need it, and it would have been retirement, I wouldn't have been happy. So by speeding up by debt payment, I'm now to the point where I have more than enough income when I retire, to pay my basic needs. What are basics, housing, food, transportation, clothes. Anything other than that is a want to cover your needs first, save as much money as possible, because it's gonna be someday in the future, a May income may be greatly reduced. And the more you have saved up, the better lifestyle, you can lead and financial freedom for your early retirement people or fire consideration people. Or you're willing to cut all your expenses down so far, that you can say 50 to 70% of your income, every paycheck, because that's the only way you're gonna achieve fire. Financial Independence retire early. And most of those people that really retired, they just retired from the job that they were going to on a regular basis, they're doing something else to create income, where they don't actually have to put the time in to earn the income. He can do that by investing. He can do that by having rental property and rental property. It could be real estate, it could be automobiles, it could be a boat, it could be anything that you own, that you can rent out to somebody else, and earn income, or at least earn money to help pay for that item. That's just an idea I'm throwing out there. It's up to you what you want to do. Member you struggled to pay off your credit card debt, you struggled to pay down the remaining rest of it that you want to keep it that way. Once you become debt free. You treat your credit cards as if it's cash, you only charge what you can afford to pay off every month. And if you get a weekly paycheck, only charge what you can afford to pay every payday paid off every week. That way, it won't get back into trouble. Build up that emergency fund, build up that savings account and keep investing for your retirement. start young. Invest regularly and be consistent. Keep doing it. No matter how difficult life might become or whatever is thrown at you. Keep putting money in that investment for your retirement. And when retirement time comes. You'll be glad you did so