Reduce Debt Increase Wealth

Setting Goals

November 06, 2022 MIsterchuck Season 3 Episode 138
Reduce Debt Increase Wealth
Setting Goals
Show Notes Transcript

Why is setting goals important when trying to reduce debt. Once realized that debt has become a problem setting goals to reduce debt is key to staying on track. Goals that related to reducing debt is covered in this episode. 
Article Links:

https://www.lucidchart.com/blog/the-ultimate-goal-setting-process-in-7-steps


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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I retired accountant turned truck driver, I reduce my debt in a relatively short period of time. debt reduction to achieve financial freedom takes commitment, confidence, determination. Setting goals, why is setting goals important when trying to reduce debt? Once realized that debt has become a problem setting goals to reduce debt is key to stay in on track. Goals that relate to reducing debt is covered in this episode, I have a link in my show notes. The ultimate goal setting process seven steps to creating better goals from the lucid chart.com. So what is goal setting, some people may have trouble sticking to goals because they don't distinguish their goals from more casual, everyday self improvement efforts. Just because you decide to start running every day doesn't necessarily make that consi as his goal, let us revisit what goal setting means. Goal setting is a purposeful and explicit process that starts with identifying new objective skill or project you want to achieve. Then you make a plan for achievement and you work to complete it. Instead of running into no particular purpose. A true goal would be more along the lines of starting a training program to complete a specific race, say a Thanksgiving Day half marathon which require much more careful planning, motivation and discipline. So why is goal setting important? When you set goals you take control of your life, or your works direction. goals provide you as focus, the decision you make an actions you take should bring you closer to achieving these goals. Setting Goals keeps you moving, increases your happiness and significantly benefit your organization. When you set goals, you create a vision of what your life or your business could look like when you start pushing yourself and your team to get the best results possible. What is goal setting theory proposed by industrial organizational psychiatrists, and Locke goal setting theory recommends how to set the most effective kinds of goals lock found that employees perform better and are more motivated to complete goals. If the goals are difficult. In other words, you can't cheat, the easier the goal, the less you work to achieve it. If you set hard but not impossible goals, he actually put in the highest level of effort. So how the second set goals and seven steps? One, think about the results you want to see. So if you're trying to reduce debt, what results are you wanting to see? You just want to pay off all your credit cards? Or do you want to pay off all your debt? Or do you want to pay off somewhere in between, maybe you want to pay off all your credit cards and maybe your automobile loans. So whatever it is, think about the results you want to see. And now it's okay later to expand on that. And if you become successful or when you become successful, because if you stay motivated, and you stay focused on getting your debt reduction done, it will happen. I did it and three years and eight months and paid off over $135,000 and I was only making between 55 and 65,000 a year. Before you set a goal. Take a closer look at what you're trying to achieve and ask yourself the following question. Is this goal something you you truly want? For debt reduction? Yes. Is it important enough to pour hours of time and effort into it? Of course it is. Now when you're reducing your debt you may not be pouring hours of time and effort into it. It's more of the in the planning stages and getting started. Once you get going and get going down that road, the time and effort becomes less and less. If you're not willing to put in the time a may not be worth pursuing. While you should be willing to put in the time if your goal is to reduce your debt. Create SMART goals. Once you've zeroed and on what you actually want, ensure your goals meet the smart criteria. Specific, Measurable, Attainable, Realistic, time bound. And reducing debt is exactly what that is. Pacific. Which debts? Do you want to get paid off? First? Measurable? How much do you owe? attainable? How long is it gonna take? Is it realistic? Can you achieve it set a time period for you that is achievable, and it will be realistic as long as you still working. So Specific, Measurable, Attainable, Realistic, time bound, the most important part of SMART Goal setting is to make your goals specific. So you can could clearly track your progress, and know whether you met the goal. And that would be you know, pay off credit card debt first. As you get one paid off, you know, you're you're you're making progress. When you get them half paid off that same, same thing. Right, your goals now, and this is a good idea, write down in the order, you want to pay off your debt. When you write down your goals, they become real and tangible instead of a vague idea that only resides in your mind. So if you write down which debt you want to pay off, first, the order you want to pay them off, and how you're gonna achieve that you're gonna be and then keep that in front of you at your desk, or wherever you pay your bills, have that in front of you, so you do not forget what they are. And then of course, create an action plan. An action plan for debt reduction would be a debt reduction plan. Now, the debt reduction plan is gonna help guide you what you want to do and how to do it. But there's two steps you must do before you get to the debt reduction plan. Now you wrote down your goals, but you need to start tracking your spending and all your income and expenses. And you need to set up your control panel, or your spending plan or budget. We're trying to call a budget something different. So because people don't like that word. So a spending plan. Most people can relate to that. But really, it's nothing but your control panel, where you can see where your money is gone. How much of your money is gone, and worry may be overspending and particular area of your life. And create a timeline they're talking about a timeline maker on a counter a timeline creates a sense of urgency, which in turn motivates us to stay on schedule and finish your goal. A timeline should be I want to pay off my first credit card was in three months, I want to have the second card paid off within nine months or 10 months, I want to have all paid off within 12 months. And it's gonna vary on how many credit cards you owe. And then of course, take action now you plan everything out, you have your debt reduction plan in place, you wrote down what you goals. Now, you got to do it. And what you need to do and reducing your your debt is one, make the minimum payment on all your debt to create a savings account and start building up your emergency fund. That's the first two actions you need to take. And until you get an emergency fund of a minimum of $1,000 don't want to pay any more than the minimum. Also, II gotta quit creating a new debt. Quit using your credit cards to pay your monthly bills is fairly simple. That may take you three months. It may take you three weeks, it's hard to tell. Seven as you go through your process reevaluate and assess your progress. You need to keep your motivation strong to complete your goal. Consider scheduling a weekend weekly evaluation I would say a monthly would be probably good enough, which could include measuring your progress and checking your schedule. Once you see how close the finish line is you'll feel more motivated to push through to the end. If you're a little behind schedule, make necessary adjustments and keep going. Start setting goals makes you succeed faster and more effective. It can fuel your ambition and help you achieve tangible results. A goal setting process will help you to termen how to set goals that are specific, timely and realistic. Let's go back to SMART is an acronym for specific, measurable, attainable, realistic and time bound. So when you're first starting the first very first thing, once you identify, you have a debt problem, once you decide you're gonna do something about it, you start making the minimum payments on all your credit cards and all your debt, you do not pay any more extra on anything, you set up a savings account, and emergency fund, and you start building that up, if you already have a savings account, and maybe it's got $200 in there, build it up to $1,000, you just a little bit ahead of the game by accident, maybe. But you're a little bit getting ahead. Once you get 1000, you keep doing the same thing, you keep building up the savings account, until you have about $3,000. Then once you have $3,000, you're paying all your monthly bills from your regular source of income, you're not using credit to do that. Now you can apply that extra $2,000 to one of your debt. And that should be what your goal was, is look at what you set down as a goal, which debt Do you want to pay off? First, you want to look at the high yield method, which you pay off the highest interest rates first, or you want to use the snowball method, where you pay off the lowest balance first, I kind of do a mix the very first one, I use the snowball method, I paid off the credit card with the lowest balance. So now I have a credit card with a zero balance, do not cancel it because it will hurt your credit rating. Keep it open, but don't use it. Once you achieve that, then I switched over to paying off my highest interest rate. And what why is the reason for that interest rate that the highest rate is gonna take you longer to pay off. Because when you make a payment, the payment goes 100% to interest first, then anything left as applied to the principal. So when you're making the minimum payment, it's going to be 90% of that payment is going to be interest and 10%. That's going to be principal. So at the beginning, specially if you have a higher balance, say like $12,000, or something or more, ie gonna have a lot of monthly interest, that minimum payment, maybe $250.02 $125 is going to entrust. So it's gonna be a long and slow process. But as you pay that down and pay it off, it's going to speed up, because the interest is going to become less, the principal is going to become more, and it's going to speed up over time. And then once that one's paid off, you're going to have more money available, you're going to save it up quicker. So you will be applying more money to the next one sooner. And as it goes along, you're gonna slowly speed up, it's gonna be a very slow process in the beginning. So when you're setting your goals, and you want to be realistic about how long it's going to take, give yourself a long time, maybe give yourself three months to pay off that first credit card, then maybe give yourself three months or four months to pay off the second one. And then the third one may be two and a half to three months. And you can see where we're going here. So you're wanting to be smart when we're setting our goals. And you need to write this down. You need to write down which that you're gonna pay off, and the order you're gonna pay off, and then stick to it. Because you're gonna analyze all this upfront, you're gonna look at how much they owe, who they owe, what's the interest rate, when it's due? When's the due date, all that information? And you're gonna analyze, which one is I'm better off paying off first. Which one do I pay off second, and then put it in that order and stick to it, do not change it, stick to it no matter what happens. And you got to maintain not using credit because if you continue using credit, the whole thing won't work. You have to stop using credit. The because the credit it's growing, you're not making any headway. So once you stop using it as gonna grow a little bit slower it should stop because if you're making all the minimum payments, I believe it's wall, at least in Ohio, that you, when you make a credit card payment, or loan payment, it has to be a certain percentage of it has to apply to the principal. So you're gonna, you're gonna reduce the principal, which can then in turn reduce the amount of the interest, which then is going to increase the amount of principal you're paying off the next payment. And you can see how things are speeding up over time, and your action plan, create an action plan to determine how exactly you will meet your goal. And that's the read debt reduction plan. And I'm gonna go over that right now. So get a pen and paper out, because I'm gonna need to write this down. And the number one is stop creating new credit, stop using credit. Number two, is make the minimum payment on all your credit. Number three, is set up a savings account, if you don't have one, if you have one, start increasing it. Because as an emergency fun, it's gonna be there for you to use. So you don't have to use credit if something bad happens, whether you have a breakdown on your automobile, or injury in your family, or maybe something in where you live in your home needs repaired, you're gonna have a say at least most of the money, if not all the money. And then once you use that emergency fund, you got to build it up first, before you start applying money to credit, quit using credit, minimum payments, emergency fun, accumulate, once you get enough money, apply it to whichever the list of your debt, and then repeat. Keep doing that over and over RS four steps. do that over and over, until you get your credit cards paid off, you meet that goal. What's your second goal may be to get your car loans paid off. And you do the same thing over and over and over. But how do you really do that? You got to know where your money is coming from, from your work from the income and you need and how much. And if you're married, if your spouse is working, you need to know her income and your income if you got a joint checking account, and then we're the money is gone. What is due and when is it due? The first thing you need to focus on is your needs, housing, transportation, living expense, living expenses, being food, and clothing. That's about it. Anything else is extra you can do without it. Entertainment is not necessarily a requirement. That don't mean you don't need need to have it. You just maybe could cut back and spend a little bit less in that area and save up some money. That's something I hadn't talked about when you are tracking your income or your expenses. And you get the first month done. Getting started reducing debt. The last episode I talked about this, you start tracking and you use an app to do it. And don't use your online checking account. app, because that's only one because you might have credit cards from different banks. So you need to track your checking account, your savings account, and all your credit cards. Whether you're using them or not, you need to know what's the balance, why how much interest so they charged me every month, what's my payment to it, you need to know. So you need to track it, you need to know what the bounce is at all times. So that's where that app comes in handy. Then you create a report by category and you use that report to create your spending plan. Or as I call it, a control panel, you have column A and in the spreadsheet would be a description of what it is column B, you can leave it control panel, you can label it spending plan spending, see would be actual D is the difference. The difference is negative that's mean you're spending less and then what you did the previous month, or the amount that you have set up just bad at it means you're saving more money, which means the more money you save, the faster your savings account is gonna grow, the sooner you'll be able to apply it to debt And this is what I have not talked about. Once you get that set up, you can look into the detail and see, one thing to get rid of is items you're paying for that you're no longer using. cancel them and get rid of it. That could be maybe you have three, maybe you have three different subscriptions for an anti virus plan for your computer. And the reason was, you every time you got a new computer, you got a new subscription, you only need one of those cancel the other two, that's an example. Maybe you have a cell phone plan, that you've had the same plan for three or four years, call your carrier and see what's going on, find out if you can get a better lower rate for your cell phone service. Same thing with cable TV, TV, if you still have cable TV and you're paying for it, and it's over $125 A month or even over $100 a month, you're spending too much money, you need to switch to streaming, you can cancel that cable, but whatever it is so 125. And you can stream those same things that you watch for maybe $30 a month, you say $90 and makes a big difference. When you're coming to paying down debt. Look for areas where you can reduce your spending, either eliminated altogether, or reduce what you're paying for the service you're receiving. And cell phone service, cable TV streaming service, keep it two or less, I think I have three because my wife has is from China. And she wants to watch China TV. So that's International. So I got one for there, then I have a streaming service for all the major cable stations like history discovery and all those. And the one I'm using is the one that doesn't have any news or sports. And I think that's about it, the rest of them, I tried to use free services. Now I was at one point, since the streaming services are month to month, I would be on one service for three to six months, I would cancel it, I would go over to another service for three or six months, when I got everything there that I wanted to watch, I would cancel it and go back to the other one. If you do it often soon enough, it's everything that you set up. As far as you're saying programming, it's gonna be still be there, because you're gonna be on the same account, you just got to reactivate it. So it works really good. You can switch back and forth, but you're only paying for one service at a time you're not paying for to them the same month, while maybe when you do the month you switch you might. But most of the time, you're only paying for one or two of these services. And you're saving 30 $40 a month, which doesn't sound like a lot. But what's $30 times 12 months, that's three $360 a year, that's that much more debt you can have paid off. And if you do that times two, or three or four, it's a significant amount of money. So within your budget, which is why I call it a control center, you can see where maybe, and your current month that you're actually in one of your categories, you may be gone over that you can look at the detail and figure out why. So the example I use and getting started reducing debt the last episode was on my housing, it was up $1,000 of why am I spending $1,000 more I don't remember, I looked at the detail I found out Oh, I paid my house house insurance, which is do yearly and only pay it once a year, it was $1,000. So now I know the reason for the cause. And I don't need to adjust my budget. Because I know that's a once a year thing. So my budget is still pretty accurate and close as far as the utilities and in my internet service that I have category under housing. I put my streaming service under housing because I can only watch him when I'm in this house. When I'm out of the house. I don't really watch them. So it's part of my housing costs. Now when I'm talking about percent of income to your housing, only referring to your mortgage payment, How much is your mortgage payment? And what percent of your mortgage payment is it based on your monthly income, it's got to be less than 43%. Because if there's over 43%, nobody's gonna lend you money for any reason. Anyway, a good number is 25 to 35% of your monthly income, your mortgage payment should be around that general area or less. If it's less, everything else is going to be much easier to do in life, and you'll be much better off. So when you're setting your goals, these are the things you need to do, you need to write it down. He needs to be smart, he need to identify what it's gonna be, how long is going to take the pay it off, how much is going to be paid off, and then write that down and keep it in front of you. So when you pay off that first credit card, did you meet your goal? Oh, my I was two weeks longer than what I said, Oh, that's pretty good. But it took it a little bit longer. So your next goal, you might want to adjust the date, maybe I need to add another 30 days to that and then to see if I can match it or maybe get it in a little bit quicker. So it's important to write it down, have a plan, and a course take action. You can do all the planning you want, you can have the best plan that's ever been made up. But unless you do something and take action is not going to do you any good. I'm gonna be back in one moment with my final thoughts. If you want to contact me to request my spreadsheet for the budget, or leave a comment or ask a question, you can send it using my email, reduce debt, increase well@gmail.com. reduce debt increase wealth is all together no spaces. If you like to ask a question, put question in the subject. If you'd like to request my monthly budget, put a budget spreadsheet in the subject matter if you want to leave a response of any kind is put comment in the subject matter. I will get back to you as soon as possible. Reduce your debt and setting goals. Setting Goals may seem a waste of time, because you can see how much debt has gone away. Maybe if you write it down and keep it and a year from now. Maybe you forgot that you owe a balance on four credit cards. You can go back and look. How am I doing overall, I've been working on my debt reduction plan for a year, it seems like I'm not making any progress, I still have too much debt, I still have one credit card, I can't ever get paid off, I still have those two car payments, maybe a motorcycle payment and a line of credit. And I'm not making a whole lot of progress. If you go back and look at your goals that you set, you'll see oh, I've already paid off three credit cards, I forgot about those. And look at my balances. If you record the balances at the beginning, how much as is the balance been reduced on all your loans, because you're actually making the payments every month. And when I say make the payments, I'm talking about timely payments, because you're not gonna get all the debt. If you keep making late payments, and you got to pay additional fees and charges. You're not, that's not gonna help you. But if you have all that route written down, and you know what your beginning balances were, and you compare it a year later, I paid off roughly 28% of what I owed in one year. And that's going to speed up over time because your first three to six months is still gonna be the slowest. So maybe the second year you're gonna pay off 35% That gets you over 60% You're almost half over half done. You're two thirds of the way, almost two thirds of the way of being debt free. And you did it in two years. And it's going to speed up over time as you go. So it's important to keep track of your starting point is important to keep your goals handy. And look at them and don't forget the reason why you're doing it. Maybe you're getting your debt under control so that you can Buy a new home, maybe you're getting your debt on in control, because like me, I was getting close to retirement, and I didn't want to go into retirement was a lot of debt. I wanted to be debt free. And I did it. And I didn't start until I was in my 60s. And then three years, eight months, I paid off $135,000, roughly. I thought that I did pretty good. Based on the same income I was making. Now, I did change jobs. And my income did go up drastically. That helped a lot. I changed jobs, not because I want to pay off my debt faster, because I want didn't want to make more money. I change jobs because I didn't like the job I was doing, because they changed what I was doing. And I didn't like it. No longer I liked the people I worked with the work for, but I didn't like what they wanted me to do. That's the reason why I changed jobs. And when I did, and I absolutely fell into a job, or I'm close to home, I'm home every other day. We're truck driver, that's pretty damn good. I'm making more money. It's convenient. And I'm happy. And I actually got my debt paid off, you can do it too. Just follow these guides. Remember the debt reduction plan is for things, quit creating new debt, quit using credit, pay the minimum balance on all your debt, set up a savings account. So you can build up your emergency fund to a minimum of at least 1000. Now as your debts coming down that emergency fund should be growing, it should grow up to from 1000 to maybe 1500. And then maybe six months later to 2000. Because you're building up your savings account faster. You want to leave a little bit more in there to cover a bigger expense. mergency no matter what it is. Maybe your car is getting old. My car was like 18 years old 200,000 miles, I finally just had to get rid of it. It wasn't worth anything and buy a new used car. I think new cars are a waste of money. Because you lose a lot of money as soon as you drive off the lot. That's my personal opinion. Do what you want. But you can buy a decent used car and save significant amount of money, which again will help you reduce your other debt that you have. Stay focus. Create your goals. Write it down. Take action. You'll be glad you did so