Reduce Debt Increase Wealth

Identity Debt Problems

April 09, 2023 MIsterchuck Season 4 Episode 160
Reduce Debt Increase Wealth
Identity Debt Problems
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Show Notes Transcript

 The first step in reducing debt is identity the problems too much spending or too little income. Everyone makes mistakes but those who correct mistakes are much better off. What are the mistakes most people make in personal finance.

Article Link: By Emily Norris 

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Charles McDonald:

Hello, I'm your host, Mr. Chuck, I am 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 and identified debt problems. The first step in reducing debt is to identify the problems, too much spending or too little income, or both. Everyone makes mistakes, but those who correct mistakes are much better off. What are the mistakes most people make and personal finance. Before I get started, I have two links in my show notes. The first one I'll be covering his Top money mistakes. And the second one is investor Most common financial mistakes and and not what you're thinking. If you'd like to support the show, if you have some benefit from listening to the show, and you'd like to give me some support, you can do so in my show notes. And here's a link to support. Or you can go to reduce that increased and click on the support button. And you can remove it and anytime you wish. And you can do it for as long or as short at a time you wish. And thank you in advance for doing so. I'm not talking about the most common like you spend more than you make. Well, that's for me, is pretty often obvious. And that's the number one thing in my first link, spending more than what you earn. The number two is putting off financial planning until tomorrow now know what they're calling financial planner. But if you don't have to go and see a financial planner, it's just a matter of getting everything lined up in a roll setting some goals and figuring out what you're going to be doing and how you're going to achieve the goals. So if the goal would be to buy a better automobile, and you save up some money, or your goal would be to save up the money to have a downpayment. So you can have a payment on your loan that's affordable. That would be some sort of financial planning, failing to save for emergency not having an emergency fund. If you don't have one, and something comes up a car breaks down, you get injured, you gotta go to a hospital or an appliance and your home breaks, then you have to use credit in order to pay for it. If you have an emergency fund, you can avoid using credit. And you can put that off and keep you finances more under control. You don't get a high because you have to make a bunch of credit, postponing retirement until later in life. The sooner you start saving for retirement, the better off you're gonna be, the more you're gonna have, you can start with smaller amounts, and throughout your life. If you do it for a longer period of time. You don't have to set aside as much money unless you want to, you know, save a whole bunch. Taking a long time to pay off your high interest debt, getting too comfortable with credit card debt carrying balances on multiple credit cards. That is the start of your financial problems right they're always buying new cars without considering the use option. You shouldn't have ever buy a new car because the minute you drive a new car off the lot is valued drops by as much as 25%. And with you need a new set of wheels consider a used car buying us means the depreciation has already come out of the previous owners pocket, not yours. Let somebody else take the hit not you. The loss of value in a car is far less from years three to six, than from years one to three, which means you get more out your money back when time comes to sell the car, you pay less for the car, you find miles for the car. You get a little more back when you sell the car if you keep it three or four years, not buying enough insurance. Insurance is to cover those emergencies. That's the intent of insurance you have a homeowner's insurance in case something bad happens whether your roof get blown off by heavy winds, you get hit by a tornado, you have a fire, something happened. That was an event that damaged your home and insurance is gonna help you We'll repair it. So you don't have to pay for it all 100% out of your pocket. That's an example. Same thing with car insurance. Same thing with health insurance. Same thing with life insurance, not monitoring your credit and credit reports, you need to check your credit reports to see how you're doing, you need to check your scores on a regular basis, if it goes down, all of a sudden, you didn't finance nothing recently, or he didn't check on getting any loans. And maybe somebody is using your credit. So you need to check lacking an investment strategy or not sticking to one and not having a will. So in the worst case scenarios, you die tomorrow, what will your loved ones be provided for? If you pass away without a will, a court will determine who gets what based on your state laws. And if you're married is going to go to your spouse if you're not married, and you have no children and might go to your parents, or it might go to a sibling if you don't have any of that. And they can't determine anybody's going to go to the state. So if you want to give your money to charity, have a will, if you don't want to state getting all your money, have a will. So those are the basic things everybody does wrong, that we probably are kinda aware of, not having a savings account, not planning, not setting goals, start saving for retirement too late in life, carrying balance on your credit cards way too long. spending way too much, we all kind of understand that those things over time will cause you to have a debt problem. And now I'm gonna go to my second article, which is investor PDF, financial mistakes, the 10 most common and these are a little bit different, but pretty much the same, or said in a different way. Number one access and Phil was spending, good fortunes are often lost $1 at a time, and may not seem like a big deal when you pick up that double mocha cappuccino, or have dinner out or order that pay per view movie. But very little items add up to $25 per week spending on Dining Out cost you $1,300 per year, which could go towards an extra credit card, and an autumnal peel payment or several extra payments. If you're enduring financial hardship, avoid this mistake really matters. After all, if you're only a few dollars away from foreclosure or bankruptcy, every dollar counts more than ever. Watch your spending, keep your spending under control. That's why I say you gotta track all your income and all your spending and have a budget tracking is your lifeline. A budget is your control center. Think of it like that. If you don't like those terms, and don't want to do it, you just get in the habit of tracking everything. And it comes easy. It only takes you a few minutes every week. If you keep up on it. It's not that hard. And it gives you a lot of information when you start getting those reports. And you can see where your money is gone. You now you know, oh, I'm headed to trouble. Maybe I need to cut back somewhere. You've got an idea of where you can do that to never ending payments. Ask yourself if you really need items that keep you paying every month, year after year. Things like cable television, music services, or high end gym memberships can force you to pay unceasingly, but leave you owing nothing. When money is tight, or you just want to save more. Creating a leaner lifestyle can go a long way to fattening your savings and cushioning yourself from financial hardship. Everything that you pay month after month, he should be revealing. He shouldn't be thinking to yourself, how can I get this same service at a lesser price? I talk about that multiple times in past episodes. Cable television can be fairly expensive 150 $200 a month if you have all the premium channels, all the movie channels, it can be expensive and then you have a music service on top of that. How often are you using both of those? Are you using the music service at all? Our gym membership when you don't go to the gym, you go to the gym four weeks out of the year you'd be better off to pay each week as you go and then when you quit going you don't pay Those are just things you should be thinking about and considering. A big mistake here is living on borrowed money, using credit cards to buy essentials has become somewhat commonplace. But even if an ever increasing number of consumers are willing to pay, double digit interest rate on gasoline groceries and a host of other items that are gone, are gone. Long gone before the bill is paid in full. It's not wise financial advice to do so. Credit cards, interest rates make the price of the charge items a great deal more expensive. In some cases, using credit can also mean you spend more than you earn. using credit cards to buy things that you use up on a regular basis. It's not a good idea. Those should be paid with cash, and are talking about gasoline groceries are things that should be in your budget they should be paying cash for living on borrowed money is a quick road to debt problems for buying a new car. Many millions of new cars are sold each year. After shoe buyers can afford to pay for them and cash ever. The ability to pay cash for a new car can also means an inability to afford the car. After all, being able to afford the payment is not the same as being able to afford the car. By borrowing money to buy a car that consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Or shed. Many people trade their cars in every two or three years and lose money on every trade. buy a used car, don't take the depreciation. If you bought take buy a used car you depreciate and much slower because it's already been eaten up by the previous owner. And when you go to trade it in, you can get closer to what you paid for. spending too much on your house when it comes to buying a house bigger is not necessarily better. Unless you have a large family choosing a 6000 square foot home only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant long term dent in your monthly budget? What they're saying here is buy the house based on your needs. Not your once if you I mean I always bought a three bedroom house because I was thinking of resale value. And the average person is a husband and wife with one or two children. So a three bedroom home is your boy you have a girl and you have the couple, three bedrooms, one bath. Now if you have a bathroom half, so much better. I did it for resale purposes. thing says if you're one person and you buy a 6000 square foot home and has five bedrooms and six bathrooms, the only one person we're going to do with all that is going to cost you more in taxes, more maintenance and more utilities, along with a bigger house payment by reasonable by what you need, not necessarily what you want, and buy what you can afford. Using home equity like a piggy bank. Oh, that's a no no refinancing and taking cash out your home means giving away ownership to someone else. In some cases refinances might make sense if you can lower your rate or if you can refinance and pay off higher interest debt. I don't really recommend that either. However another alternative is open a home equity line of credit he loc This allows you to effectively use the equity in your home like a credit card. This could means paying unnecessary interest for the sake of using your home equity line of credit. And do not use your line of credit on your home to buy a new car. Your goal should be to pay off your home in 15 years or less. And seven living paycheck to paycheck most likely because you have too much debt. US household personal savings rate was 9.4% surprise it was that high. Many households make may live paycheck to paycheck an unforeseen problem can easily become a disaster if you're not prepared to cumulative effect of overspending plus people and to precarious position, one in which they need every dime they earn and one missed paycheck could be disastrous. This is not the position you want to find yourself in when economic recession hits. If this happens, you have very few options. Many financial planners would tell you to keep three months worth of expenses in an account where you can access it assets it quickly, loss of employment or changes in the economy could drain your savings and place you in a cycle of debt paying for that a three month bumper could be the difference between between keeping or losing your own aid, not investing in retirement. If you do not get your money working for you in the markets or through other income producing investments, you may never never be able to stop working, making monthly contributions to a designated retirement account as the central for a comfortable retirement. That's all I have to say about that. The sooner you start, the less you have to do for a longer period of time. Just keep that in mind. paying off debt with savings, you may think that if your debt has cost and 90% in your retirement count is 7%. Swapping the retirement for the debt means you'd be pocketing the difference is not that simple. One, you don't want to take money out of your retirement account to pay off any debt, because you got a 10% penalty for early withdrawal, plus the loss opportunity and money and not gonna have down the road when you retire. And if you lose your job, or get laid off, that loan you took from that retirement plan, if it was through work, gotta be repaid within so many days. So beware 10 Not having a plan your financial future depends on what's going on right now. People spent countless hours watching TV or scrolling through their social media feeds, but spent but setting aside two hours a week for the finances is out of the question in need to know where you are going. Make spending some time planning your finances a priority. And that's include tracking your income and your expenses, doing your budget, keeping your budget up to date, keeping everything up to date, thinking about where you want to go and be later in life. And what you want to do, you really want to retire when you're 40. Or you retire when you're 70. That's the difference it can make. If you don't have a plan, and you don't care about anything, and you're unlocked, look and take care of yourself, nobody else will be taken care of you. I'll be back in one moment with my final thoughts. If you're interested in learning about an online software that helped 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 and 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 And I'll send you the information about this online software that works great for me. If you would like to support this podcast, and my show notes, you can click on the link titled subscription page. Or you can go to reduce that increase and click on this support button. I thank you in advance if you do so I've talked about some things in this episode that most people do that are consider financial mistakes. One of them is buying a brand new car and financing it for a long period of time or another one is buying more home than you really need and putting a strain on your budget. If you tried to avoid some of these mistakes, the first one you can buy a used car and not take the depreciation on it. Because you're financing an asset does kind of lose value. So it's not a good investment. As far as your home it should go up in value over time. So if you know you're gonna have a family, you know you need a bigger home. I'm not saying not to buy a big home. I'm just saying plan before you do anything, making plans, setting goals, achieving your goals. So they carry out your plan is what personal finances is all about. One way you can meet your goals of saving more money is not making bad purchasing decisions. And a lot of people will tell you that's what buying a new automobile would be. Also just overspending period, spending more money than what you make. using credit cards to pay for your every day, month to month consumables, such as on a gasoline and groceries, that's a mistake, you got to set yourself up for financial success. And in order to do that, you have to make informed decisions. And if you do that, you'll be much better off. So how can you tell if you're in a bad place? Well, if you're using credit cards to pay for consumables, groceries, gasoline, things like that, that you should be paying cash for, you're heading down the wrong path. If you use one credit card to make the monthly payment on another credit card, you're in dire straits, you got to get things under control. So in order to keep your personal finances under control, you need to track all your income coming in, and all your spending going out. Second, you need to have a control center, set up yourself I budget on that saying you're setting up the budget and cutting things out. You set up a budget so you can see where your money is gone, and how much of your money is gone. So that you can make informed decisions and plan your friend nancial future an example of this is on your housing. If your mortgage on your home is more than 43% of your gross income, you're gonna have a difficult time making that payment, and you'll be unable to finance other things you may need such as a good used car, he may be unable to get additional credit cards to replace the bad ones that you have. Whatever the case is gonna set you back, it's gonna put a strain on your budget, unless you know, for a fact that your income is gonna go up. Whatever the reason, then don't do it. Try to keep your mortgage payment, around 30% of your gross income. And things you should think about on a semi regular basis. Whether it's every a couple months, or every six months or once a year. What can you do to increase your income? Do you need to maybe look for a new job, get a new employer in the same career, maybe you're in a career you don't like maybe you can change careers, whatever it would take, that would be one of your goals. That's something you should be thinking about on a regular basis how to make more money. The second thing you should be doing is reviewing your spending. How can you reduce your spending? And why do you want to do that? Well, you want to reduce your spending so you can increase your savings. And the biggest mistake almost everybody makes is don't do not start saving for retirement at an early enough age. And the longer you wait, the more money you have to contribute to retirement plan over a shorter period of time to end up with the same amount of money. So for example, if you start when you're 25, maybe $100 A pay or a month versus say a month is gonna end up over 40 years ban around $500,000 If you wait until you're 50 you're gonna have to triple that or more because you gotta make up for lost time and which you cannot ever do. And you got cuz you have a shorter period of time for the money to grow. So these are things you need to be thinking about for your personal financial life. Make smart buying decisions. don't overspend. Use your cash or debit card to pay for things that you pay on a regular basis, your monthly expenses, its rent, your mortgage payment, your utilities, some of your streaming, or your cable TV, your cell phone, your transportation, your car payment, your gas, your oil changes your food, groceries, and dining out, you should be paying for that as you go and not putting it on a credit card. I know everybody starts out thinking of charging on my credit card, and I'll pay it off at the end of the month. But there's gonna come a time, sometime in the future, are not able to pay off that credit card, whether you have an accident, whether you get unemployed, whether some big breaks down, you have a big, large expanse, it's nice to start out when something bad happens with credit cards was a zero balance. And then if you have to use them, you have more available to yours. Another mistake people make is you don't don't say money money. He don't have any money for an emergency, you don't have an emergency fund, he had basically no savings. Maybe you're saving for retirement. And that's through work, but you don't have any savings on your own outside of your retirement account. You do not want to pull out their money out of a retirement account to pay for any type of emergency or anything, whether it's an emergency you're gonna pay for, or whether you're thinking you're gonna pay now in high interest credit cards, you cannot pull money out. One because you would have a 10% penalty for early withdrawal. And two, you'd have a lost opportunity. If you get a loan from your retirement account. Are you gonna stay at that job for long term, it may take you five to 10 years to pay that loan back. And you're still missing out on last opportunity because you have less money invested in it gonna take you longer to pay it back then what you're thinking, be smart. Plan ahead. Know your budget. Know how much money you have coming in, know how much your monthly expenses are and have plans. If you want to buy a newer used car, have a big enough down payment so that the payment when you do buy it is something you can afford and it's not going to cut into your savings 110% If you take this all in consideration, and make an attempt to do it in you keep up with your tracking on a weekly basis. And you keep up with your budget control your control center your budget on a weekly basis. You'll be much more aware of what's going on and your financial life and you'll be glad you did so