Reduce Debt Increase Wealth

Plan Ahead

January 01, 2023 MIsterchuck Season 3 Episode 146
Reduce Debt Increase Wealth
Plan Ahead
Show Notes Transcript

How to plan for tough times and be ready when troubled times happen. Getting personal finances in order and keeping positive in life. Review goals and changing goals based on what the economy is doing. 

Article Link:
https://www.principal.com/individuals/build-your-knowledge/step-step-guide-build-personal-financial-plan 

Contact: ReduceDebtIncreaseWealth@Gmail.com
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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. Plan ahead, how to plan for tough times and be ready when troubled times happen. Getting personal finances in order in keeping positive in life, review goals and changing goals based on what the economy is doing. In my show notes, I have a step by step guide to build a personal financial plan. Before I get to the article, I'm going to talk about planning ahead. I just talked about recession. And this recession has a high rate of inflation, which came down a little bit in the past week or so. But it's still fairly high. So what you need to do if you have goals already set, and if you don't, you need to set some goals because they things may change based on the current conditions of the economy. So you need to review the goals you had in the past, and see if they still are going to hold up for what you try and to do. For example, if one of your goals is to save money up, so you can take a three week vacation that might cost you five to $10,000. Maybe based on the current economic conditions, he may want to consider putting that as instead of your first goal may be a goal that you're gonna do a little bit later in life, maybe a year or two later, you need to make sure you have one of your goals to keep your credit card debt to zero. And not only credit card debt, but all your high interest debt as low as possible. And hopefully to zero, that would be credit cards, personal loans of line of credit that has an adjustable rate, because interest rates are going up. If that's not your number one goal, it probably should be that I can't predict the future. And we don't know what's coming along. But let's just look at what's been happening in the economy in the last few months. There's been layoffs, granite, it's been in the tech industry, it may or may not affect you. But sooner or later, this is gonna catch up because inflation is driving the cost of everything up with the cost of oil going up. Everything related to oil is getting more expensive. So you need to one increase your emergency fund. If you only have $500 in there, you need to increase it to 2000. If you have an asset at 2000, you need to increase it to three to 4000. For those of you who are working on reducing your debt, you can do that by just the land which debt you pay off this make it a few weeks later than what you normally would so that you would have more money in your emergency fund for a longer time period. If you're in an industry that's subject to layoffs, then you probably should increase your emergency fund to account for that. If you're working in an industry that's not subject to layoffs, then you probably not gonna have much of a problem. Also, with the increased costs of the things that you need to buy on a daily basis, such as food, gasoline, utilities, clothing, everything's going up in price. So you need to account for that. He may want to go into your budget or your control center if you have one and increase the amounts you have a budget for those particular items to so that you can stay on track with whatever goals you're trying to achieve. For those of you who don't have goals set, maybe you don't have a personal financial plan in place. You should write this stuff down. If you have a computer open up a word processor and is write these things down. Now let's get to the article step by step guide to build a personal financial plan. When it comes to your money and your plants it can be hard to balance short term wants long term dreams and those unexpected events that It's out of your control. And that's what your emergency fund is designed to do is to take care of unexpected, unexpected events that's out of your control from the groceries you need to the retirement you want and the car repair bills that's limit, it can be hard to figure out how to tackle bills at the same time you plan for your future. And this is a series of articles that kind of help you do that. So the first thing is setting financial goals, it's always good to have a clear idea of why you're saving your hard earned money. And they have a PDF worksheet that can help you create your financial goals. And then number two is to create a budget consider you this your monthly cash flow and saving investment plan. Give yourself permission to decide on where and how to spend your money. With our budgeting worksheet, again, another PDF to help you create a budget plan for taxes. I've not talked about taxes very much. But if you are in a tax bracket, it's fairly high, you need to have a plan for taxes, it can go a long way towards helping you keep more of your money next year. And specially if you're a homeowner, and you're thinking about maybe replacing windows or doing insulation things in your home to help it make it more energy efficient. Because the cost of energy is going up. You need to look at your taxes and see what kind of things you might be able to get some type of tax credit for. You can work with your your tax advisor on these particular type of issues. And build an emergency fund all the plan in the world won't help if life throws you a curveball and not prepared financially. That's where an emergency fund comes in handy, then Manage debt. Understanding and manage debt is a key part of creating a financial plan. For those of you who are trying to reduce your debt and get out of debt. Even if you achieve those goals, you still need to manage that. You need to manage how much you're gonna borrow in the future. And be aware of things that you might want to purchase that's going to require you to take out a loan, such as a car, or maybe a home, and you protect everything you own with insurance. life can change in an instant people with good financial plans hope for the best, but plan for the unexpected. And insurance helps with that. And that also not only homeowners insurance, car insurance, but then again, we want to look at disability and life insurance. If you're the only bread earner in the family, you definitely need some type of life insurance and plan for retirement. Even if it's a long way off. Think about what you want your money to do for you when you retire and create a plan to make it happen. The earlier you start saving for retirement, the more you're gonna have when you retire. And the less amount of money you need to set aside earlier in life you start because it's gonna grow over the long term. And then invest beyond your 401 K to reach your mid and long term current goals. Take your savings strategy and put an engine behind it. That's what investing can do. How make your money work for you is what that saying. And then finally, create an estate plan. You don't have to be wealthy old Mary or a parent to need an estate plan, which also lays out who makes financial and health care decisions for you. If you can't make them for yourself. Maybe you're an auto accident and you get hit in the head really bad. And you might have some brain injury, and you're unable to make critical decisions on your own. Well, if you have an estate plan, and you have somebody set up to help you with your finances, when something bad happens, then that's going to make your life much easier. So that's all there is to it for as far as financial planning. If you have those things in place and keep them up to date, you're gonna be in fairly good conditions, no matter what the economy is gonna be doing. But how do you do that? How do you get to the place where you feel comfortable? Well, you got to start out first is tracking your spending in your income, you got to know where all your income is coming from, how much is coming in every month, and how much is going out every month. And as I said before, you first you have your needs, which is housing, transportation, food and clothing. And that's the very basic, including housing is all your utilities, all your energy for your gas, your electric, your water, and sewer, your internet and things like that in your cell phone. And then we go to transportation, transportation costs was going to be your auto loans, gas and oil for the car to keep it running, repairs to the car, and insurance, oh, also insurance on your own. Then we have groceries, groceries, if you're tracking your groceries and how much you spend in the last couple of months, you have a fairly good idea of how much you should be budgeting for if you're using an app, which you should be these days. And you shouldn't be doing this manually. Because apps are cheap and easy to use, I use count about which is under $10 a year, a can create reports that's gonna help you set up the dollar amounts you need for your control center or your budget. And once you get that done, then it's a matter of fine tuning. What I mean by fine tuning is you go through everything that you're already spending your money on, and you look for ways to reduce what you're spending, can you maybe do away with something that you no longer need or use, then you cancel those type of items. If you have items that you still need, you can look around to see if you can get a better pricing. And that would be mostly your cell phone, your internet service, and your cable services for TV or entertainment as always a better and cheaper way. And it's always changing. So these things should be reviewed at least once a year. You can even save money on your insurance by shopping around before your next insurance comes due for the next particular year. Now I pay a lot on my insurance not once or twice a year, my homeowner's is once a year, my car is twice a year, because that's the biggest, the most all my other insurances is a yearly thing. So review your insurance needs and wants, and see if he can get a better pricing for at least the same coverage, if not better coverage with inflation. And you're not sure what's going on. It's important to keep a reserve or your emergency fund. Emergency Fund is nothing but a savings account that you put money in and you save it for when it may be needed. And items is not for items that you pay on a monthly basis is for items that comes up that's unexpected, such as you blow a tire on your car. Now you need two new tires. Or maybe your hot water heater starts leaking, you need a new hot water heater, you have the money set aside that you can pay for that without increasing your debt. And this is a plan to help keep your debt under control and even reduce your debt to zero. And this is the only thing I've done. I was just thinking when I was younger, and I was living in apartment, one of the things I did to help reduce my energy costs was put plastic in a Windows I had his big bay window in the front of the apartment that leaked air something terrible and you could just feel the draft. So I went out I bought some one by one wood and I made a frame I put plastic over it and stretched it around the sides of the woods. So the plastic would act as a seal when I put it in place. And it was a snug fit so as soon as I got it in place at boat out and that was all the air was keeping from coming into my apartment, thus making it a lot more efficient to eat or a sea and mostly heat. So I was able to lower my temperature and save my costs on my heating bill which was natural gas at the time. And that helped me save up more money so I had a bigger down payment for when I was ready to buy my first home. And another thing I did to help buy my first home was I had a car payment. So I sold that car and I bought myself a good used car now was a 1977 Granada's six cylinder with a four speed on a floor, it was 100% factory, a got good gas mileage, and I drove that car for five or six years only paid $2,500 for it. And I sold it five, so years later and got 1500. So I had a car that only cost me $1,000 For five years, you're not gonna find that today. But it's the same principle. If you have a car payment, and you're looking to increase your down payment on your home, so you are so you can afford a home, if you can get out from under a car payment, getting a mortgage is going to be much easier, even though the mortgage rates are around 7%. Roughly, that is not really too bad of a interest rate for a long term mortgage. And remember, if you even borrow money, say at seven and a half percent, and you have it for seven or eight years, and the interest rates for mortgages dropped a couple percent, you can always refinance it, and when 567 years down the road, you're gonna have a lot more equity. So you can borrow less money at a lower rate of interest and reduce that monthly mortgage payment down significantly, a couple to $300 a month, if not more. So don't look at I can't buy a house because the rates are going up, you just need a larger down payment, and you need to have a lot less other debt. So getting rid of car payments is helpful. Having zero credit card debt is going to be helpful. And all these things gonna help you achieve your goal of owning a home. And that's what I did. It's not all that tough. Now, once you're in the house, you're gonna might want to remodel, but you do that over time, your taxes are gonna be greatly reduced, because you got mortgage interest to write off. So that's gonna give you a bigger tax return or less taxes, you have to pay in less giving you more money in your budget to set aside to help with monitoring and repairs. It all comes around. And it's it's all not that difficult. But with the economy looking bleak. With layoffs, that's been happening, interest rates, inflation being up interest rates going up, the economy is definitely slowing down. So if you are in an industry, where layoffs generally happen, if you work for the auto manufacturers right now, they may not be laying off, but they could start slowing down. And in next few months, as their inventory is starting to build up because people are holding back and not buying new cars. Which also means that the price of used cars are gonna go up because there'll be more demand for used cars, maybe you're still struggling because of COVID. And you were unemployed for a while during COVID. And you got little bit behind on some of your goals. And maybe your debt grew more than what you want it. So take the time, plan ahead. Tried to know where your money is coming from and where it's going to have a control center, so that you can keep an eye on everything from month to month, and tried to keep your your needs spending to the least a minimum amount as possible. So that you can increase your emergency fund so that you can pay down your more debt. If you're planning on buying a home or would like to, maybe you should wait six months to a year from now, as the economy is not going to be bad forever, inflation is not going to be up forever. And sooner or later it'll start coming down. And if the economy is struggling, because there was massive layoffs, and there was a high rate of unemployment of say eight or 9% then the mortgage rates will start coming down because they will want to tie try to stimulate the economy. So it's a matter of timing. It's a matter of being aware of what's going on around you and being aware of what may happen in the future. And you want to try to take advantage of these changes to your particular benefit no matter what it is you're trying to achieve. It's always good to buy low and sell high, that should be your plan on everything, whether you're investing in the stock market or trying to buy a home, or a automobile. So if you can get a deal somewhere along the line and save a few $1,000, that's gonna help you over the long term. Be back in one moment with my final thoughts. If you're interested in learning about an online software that help myself get out of debt, it does tracking, budgeting, and keeps track of all your assets and all your debt. And even tells you how much and when to transfer money into your savings account, and how much and when to transfer money to your debt, and which debts to pay off in order. First, it's not cheap. It's a one time payment. But it will definitely be an investment, something and yourself and an investment in your personal financial life. If you're interested, send me an email at reduce debt increase well@gmail.com. And I'll send you the information about this online software that works great for me. Stay positive on setting your goals. They're not impossible to achieve. In fact, the more control you have on your personal finances, tracking, knowing what's coming in and what's going out, reduce your spending as much as possible in areas that you can control. And don't overspend. Keep your debt under control. If your debt is out of control, get it under control and get it to zero if possible. We all have to borrow money when we buy our home and automobile because they're so expensive. It's difficult to say lay up enough money to pay cash for these items. So that debt is unnecessary debt, there ain't gonna need that keeping all debt under control should be your first set priorities. And that will go a long way in helping you achieve any other goals you want to achieve. Whether it's making a $10,000 emergency fund, so that you don't have to worry about anything, or whether is saving up pay big down payment so that you can buy your first home, or buy that new car that you've been wanting for the last couple of years. Remember, it's not gonna happen overnight, it's gonna take some time. And with time, it means you have to control it, you have to be aware of what's going on, not only in your personal finances, but in the economy as a whole. Everything affects everything else, basically, in a nutshell, without having to describe much that pretty much describes about everything. So if there's going to be layoffs, the economy's gonna slow down, when the economy slows down, then maybe you're at risk of becoming unemployed. So that means you need a bigger emergency fund. Maybe the inflation is gonna remain high for multiple years. So that means maybe you have to put off buying expensive items a little bit longer, until their interest rates come down somewhere, he can make it more affordable, based on your particular situation and income. Remember, what you borrow is based on your income, ie when you borrow for a home, the only thing they're gonna look at is how much other debt you have. If you have too much debt, you're not going to get a home mortgage. If you're trying to borrow for an automobile, they don't really care how much your mortgage payment is, they only care about how much gross income you have. If you have enough gross income to cover your mortgage. They don't care if you have enough to pay any other bills, but then they'll give you a loan for that automobile. And that's where people can get in trouble. So if you don't take everything into consideration, before you go out and get that next loan, you could be in trouble on trying to make those monthly payments, because you're gonna eat every day. You're gonna have to pay utilities every month. You got that mortgage payment every month or your rent every month. And that's gonna happen no matter what. So anything that you can control and everything that you can control and keep down to the minimum amount possible, the better off you're gonna be because you'll be able to save more money, increase your emergency fund, increase your savings and you're gonna achieve some of your goals quicker. If you do all these things and be consistent in doing them, you'll be happy you did so