Reduce Debt Increase Wealth

Money In, Money Out

May 14, 2023 MIsterchuck Season 4 Episode 165
Reduce Debt Increase Wealth
Money In, Money Out
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Show Notes Transcript

That is what most checking account are doing. The first and most important part of debt reduction is tracking all spending and income. Doing this will help as knowing when and where money is going is key to understanding the debt problem. Once understanding debt then creating a solution is easier.

Article Link: By NerdWallet

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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. Money in money out. That's what most checking accounts are doing. The first and most important part of debt reduction is tracking all spending an income. Doing this will help as knowing when and where money is going is key to understanding that debt problem. Once understanding debt, then creating a solution is easier. If you like this podcast and you benefit from it, and you would like to contribute, he can go to reduce debt, increase Click on the support button and make whatever contributions you wish. Or you can go to the show notes, click on subscription page, it takes you to the same place. And thank you for doing so. So what is tracking? And why do you need to do it? I'm gonna refer to an article on my show notes. But nerd article finance, tracking monthly expenses. The first step to much money success. So when you start tracking expenses, you can separate your spending and to three categories. Needs once savings. Tracking your expenses on a regular basis can give you an accurate picture where your money is going, and where you like to go and stat. Then by using the budget, you can accurately account for all the bills you need to pay going forward. But before we can start plugging numbers into a spreadsheet or an app, take a minute to list out each of your monthly expenses. Sounds pretty simple. And in reality it is you can do this either on a spreadsheet, if you have a spreadsheet on your computer, you can manually do it. Or you can get an app to help you do it. There's a lot of them out there. I personally use Count I've talked about it in the past episodes, it's easy to use, I modified that category listening. So it lines up with my budget spreadsheet, it's easy to use and as $9.99. Before you start using them, go and look for a review count about that comm review and read about it. See if it's something that might work for you. That's all I'm saying. Now back to the article. Check your account statements is what they're saying is number one step. pinpoint your money habits by taking inventory of all your accounts, including your checking account and credit cards do you have looking at your accounts will help you identify your spending patterns. Your spending will consist of both fixed expenses and variable expenses. Fixed expenses are less likely to change from month to month. They include mortgage or rent, utilities, insurance and debt payments, you have more room to adjust variable expenses like food, clothing and travel. Another name for fixed and variable is needs, which are fixed the something you need you pay for every month and wants something you don't really pay for every month but something you might want that particular month or sometime in the future needs are things you need to have on a regular basis in order to live your life. I've group it and to housing, transportation, food. That's the most basic needs to start with. Because the article I'm referring to is gonna now talk about categorizing your expenses. And you begin by grouping your expenses. Some personal finance websites and credit cards automatically tag your purchases and categories like department store or automotive. He might find those impossible buys a target are costing you a lot. Or maybe you realize you're paying for reoccurring subscription service that you could do without, then sorting through these expenses and the needs and wants can help you organize your budget and prioritize spending, especially if you need to trim costs to make room for saving or debt repayment. Assuming if you're listening to this podcast, you're probably have a debt related issue. So you're most likely and looking for ways to help you get your debt under control. Or if you're trying to increase your savings, well, a good way to do that is to reduce your debt. When I say reduce your debt, I mean to get rid of it or to pay it off and not have it anymore. needs these are expenses you cannot avoid if you use that I don't use the 5030 20 budgets. And they they're talking about housing, mortgage rent, insurance, renter's insurance, utilities, that's all grouped under housing. Transportation is your car payment gas maintenance, auto insurance, public transportation, health care, health insurance, out of pocket medical costs, life insurance eternities which is part of housing, and natural gas, water sanitation, garbage, internet, cell phone and or landline. So they're putting your telephone service with utility just like I am groceries towards Lee's haircuts and other essentials, childcare, student loan payments or other minimum loan payments, child support or alimony payments. Those are things that you pay for and you cannot avoid. If you don't pay for it, if you don't have the service or he can't do it or you're not going to eat or you're gonna lose your your electric to your home. Or if you don't pay your rent, they can foreclose so you out, she don't Pam, you're gonna be hurting some. So that's nice, once or expensive may be harder to account for in a budget. And I don't think they are, as they don't always come with a set monthly fee. And that would be clothing and jewelry Dining Out movie concert and event tickets gym or club memberships, travel expenses, cable or streaming packages, I would put cable on streaming packages under Utilities and put it with housing because it's connected to that house. And you can control it by going eliminate yours yourself to either $1 amount or a number of streaming packages. I say don't have more than two streaming packages is what I have. I got one from my wife, which is she's Chinese so she wants to watch Chinese TV. So I have that. And then I have one for myself. I don't try to go overboard I try to minimize I don't have cable TV, because it's way too expensive. Self Care treats like spa visits and pedicures, home decor, the home decor. And all these items such as alcohol movies, concerts, are gonna be based on your lifestyle and most likely based on your age. So if you're in your 20s, you're going to be going out more eating out more going to concerts or events more often. Once you start having children and they're growing up, you're gonna do that less. So I'm looking at a lot of these ones as age dependent. But then again, once the older you get become more expensive a lot of times and hobbies is a once if you have a hobby, you can spend a lot of money in the hobby you don't ever get any return unless you can turn your hobby into some type of business, which is hard to do. Saving and debt repayment. This is the money you're putting towards your retirement, emergency fund and other savings and using to pay down high interest credit or other toxic debt like payday loans. It's also includes anything over the minimum payment on your good debts, such as your student loans and mortgage. So they're talking about emergency fund savings 401 K and Ira other investments, credit card payment, extra payments on mortgages and extra payments on student loans. If you're struggling to reduce your debt, quit making extra payments. If you feel like you're living paycheck to paycheck, you want to quit Let's make an extra payment. And we're going to explain why. If I don't explain it in this episode, I'm going to explain it and why he's already explained it in the previous on your debt reduction plan. And that's the main reason, what's a debt reduction plan? Well, that's the plan you have set in place that you're gone to follow to help you reduce your debt, quit using credit. Number one, make the minimum payment is number two, start an emergency fund, set up a savings account and have a minimum of $1,000. And an emergency fund. An emergency fund is nothing but a savings account. Within your savings account, the first$1,000 to start with is stayed there, only to be used in case of an emergency that will grow over time. As your debt comes down, your emergency fund is going to get bigger, nerdy tip, if you pay off your credit cards in full each month, classify these expenses according to what you buy groceries under needs, for example. However, if you maintain a balance, and our Q and enters and fees, list payments be on the minimum under debt repayment. Okay, nerdy tip. So what they're saying is, if you're paying off your credit card every month, you're using it like your checking account. So instead of waiting for payday to happen, where you have money, and then you're paying your bills, you're doing that kind of in reverse, you're using your credit rating your credit to pay your bills, and then you're making a payment on it. There are some debt repayment systems. That does that. I don't like to do it. Because my goal is to reduce my debt. And if I could, if I continue, using my credit card, some thing could happen in the future, that I'm not able to pay it off. And now I have a debt problem, I have more debt. And then the last tip, which I'm going to talk about next week, in the next episode, is build your budget. So we're going to go with that. So why is tracking important, as this article refers to, you need to be able to identify then once or your needs. And the needs are things that you pay every month, pretty much no matter what, unless you don't have the money to pay it. But we're trying to get you out of that particular cycle. We're trying to get your debt under control, because for most people, you probably make enough money to pay for your needs no problem, your housing, transportation and food, or you're getting in trouble is you're using credit cards way too much and buying things you can do without, then you're not able to pay that credit card off, the balance then starts to grow, gets a little bit interest added to it the next month, you do the same thing, it gets the camp pay it off, it gets a little bit bigger, and it's growing. And then you say well, I'm not gonna I'm gonna quit using that credit card, I get a second credit card. And now you have to you get behind on. And now you're starting to struggle because you don't have enough money coming in from your work to be able to pay all the bills that you owe, and you got caught in the debt trap. And that's a cycle. Maybe you even gone to the point of consolidating your credit card payments, or getting a consolidation loan, borrowing money from your bank or credit union or wherever, in order to pay off those credit cards. He didn't really reduce your debt. The only thing you reduce is the amount of interest you're paying out and you pay off their credit cards. Now when you do a consolidation loan, depending how bad your credit is, the lender may require you to cancel those credit cards. And then when you cancel those credit cards, your credit rating is going to take a hit because now you have less available credit so Your credit rating is gonna take a hit over time you can recover from that. But that's one of the problems with doing the loan consolidation. But if your lender doesn't require you to cancel that, and a lot of times you got to give them the card, and they will cancel it for you, before they give you the money, and they'll pay the card off directly, you never touch the money, the lender does all that for you. If that's happening, you probably have a pretty bad credit rating, or at least is not as good as it could be or should be. So beware there that that could happen. So one of the ways you want to avoid doing a loan consolidation is to take control of your personal finances. The reason you got yourself into these problems is because you lost control of your personal money. You know, it's money in money out, it takes forever, for payday to come along, and only takes an instant for your checking account to be down to zero again, or be down to $100. And it takes forever before you get your next paycheck. And then in an instant, it's gone. If that's what it feels like, that's where I was, I was behind the eight ball. And the reason I got my personal finances under control was I'm was looking towards retirement, I had some money saved up and not a lot. I inherited some money. But I knew if I want and to retirement, making have a lot less income was not as less as I thought I was gonna be making having less income, I wouldn't be able to pay my mortgage, I wouldn't be able to make car payments, I wouldn't be able to pay off those credit cards to pay down those credit cards. I knew I would be struggling, I wouldn't have enough. And if I did make those payments, how was I gonna pay for my utilities? How am I gonna buy food, I'm gonna buy clothes. So my retirement years were looking bleak. So I figured out, if I could pay off all my debt, I'd have enough money to get by on and plus be able to do more than that. And that's where I am today. As I said in past episodes, I paid off around$135,000 of debt, and three years, eight months, you could maybe do it a little bit faster, or it may take you longer. And one of the ways I got into debt was my income dropped. And I had a job that I enjoyed doing. But my income was way down. And I got started to get behind on some things wasn't credit cards, it was just paying my bills, then I had a major illness and I couldn't work for seven months. Luckily, I had short term disability insurance that I got by on that was able to cover most of my bills, so I didn't lose nothing. It's not like I had an easy life. When I figured this out. I struggled to pay my bills, most of my life. And while I was in my 60s, before I figured out what I'm telling you. And that's why I decided to do a podcast. I thought I have this information. I have this knowledge on how to help people reduce your debt. And if I do a podcast, I can relay that out to you. So tracking is important and why you track he gotta categorize all your spending and to once and needs. You got to keep track of it. You got to know how much money is coming in. You gotta know how much money is going out. It's gonna be help you when the money's going out. When are your bills due? When's your mortgage due when your car payments due when your insurance payments are due? And that and you looking towards the future? Looking what happened in the past is only gonna help you to set up that budget with your starting numbers. Looking towards the future What am I gonna Oh, and when going forward and to the future will help you even more, because now you can plan where your money's going, you can plan for what things you're gonna pay, you know, you're always have the money to pay for your needs, and you're paying them on time, each and every month. And then you can look at your debt. Now your needs also includes housing, transportation, and food. But it also includes the minimum payment on your credit card debt, or any debt that's not covered on their housing, transportation. So your personal loans, your student loans, your any, all that other miscellaneous debt, credit cards, and your plan should be to get rid pay off the items that have the highest rate of interest, I'm not going to talk about good debt versus bad debt. Good debt is money you borrow, to buy something does kind of help you make money in the future. Some people say buying a home is a mortgage is good debt, it is because the value of the home is going to go up over time, borrow money for a car is not good debt, because the value of the car's gonna drop over time as you use it. And it's possible that you could owe more on the car than what the car is worth. So that's not necessarily good debt. 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. It 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. Okay, tracking, the easiest way to do it is to use an application on your computer. And that's what I like about the one I'm using count about comm. And they're not paying me to promote them or anything. It's just the one I use. And I like it. It's easy to use, it's easy to edit, you can change things within it. And it works good. So why how are you going to do your tracking? In a nutshell, if you're an old timer, pre 1980s, to say, Everybody kept a check register. And you manually record every check you wrote. And you manually recruit record all deposits, you make a tracking application does exactly the same thing. The benefit of it is that does all the math for you. And the second benefit is you can generate reports from it that you can use to do your budget. So if you're looking to use a tracking app application, it's not necessarily important that it does a budget or does a good budget because I don't recommend using it. I only recommend using the tracking portion of it. And the reports deed and get from it, it makes it easy to do your tracking because the categories are already set up. And I do not recommend linking your bank accounts to it. Because it'll take you just as long to import in the last 30 days and go back and fix every transaction. So you're consistently correct, that A has the right information. You can enter the last 30 days almost just as fast and enter because the first time you enter say your grocery store. So I go to Kroger for instance. So if I would just be starting I would enter the date. Kroger category would be groceries and the dollar amount. The next time I enter Kroger, you just got to put in the date. Start typing Kroger, hit em, enter and it's going to put the category in there for you. You've put in $1 amount. So it's easy and it will become very quick once you get used to it. So I recommend going back 30 days if you never used an app or you're using a brand new one, go back 30 days and enter the last 30 days, generally speaking, the beginning of a month to enter them a month would be the best. That way you have one monthly cycle, and then enter all the information in to get you up to currently where you are. So if you're starting on July 12, go back to June 1, enter all of June and enter all July up to the date that you are. Now you got to be careful because some grocery stores sell gasoline. So if you go say to Kroger and you buy gas, when you go to enter Kroger is going to put in groceries. So that's why I name it Kroger fuel, and then save it as gasoline and then put it in. So the next time I would enter at a time start typing in Kroger, then I would select Kroger fuel when I have a gasoline purchase. So it's important you do this consistently. And it's important and you do it either daily or every couple days very least weekly. So you don't forget what you bought. Because if you just save a receipt, that's Kroger, and you forgot to put gas in the car, you might categorize it as groceries, but it's really gasoline. So your grocery budget amount would be off by that amount. That's the importance of being consistent. So once you go through and you have your 30 days, and then you can create a report by category from June 1 to June 30, by category is gonna generally give it to you in alphabetical order by category. And that's where I modified my category listing were my housing is like a one, my transportations a two. So it's a one space housing a one space, and that's the parent. And then under the parent account, I put a one utilities, I would say it's a sub account. And I make the parent account the housing, and just do that, once you get into it and see how it works, it's fairly easy to change. So what I did was I one, and I put a one b one c one for my needs. And then I did my once on our different classification system, maybe one a were, you know, reverse it, change it, different numbers, whatever 100 series for once 200 series for needs, whatever works for you. That way, when you read, reprint out your report by category for a particular time period, generally from the first of the month to the current date. So because you got to update your budget as you go through the month, or it's not going to do you in for any good. It's going to give you information, but it's not going to be good information. Let's it's current information. So your first pay in July, from July 1 to July 9, let's say you do a report, then your second pay in July is the 18th. So that would be from July 1 to the 18th is always the total to your current day. And then when you go in to your budget, we're going to talk about this later on your actual column column that's actually labeled actual, you would then just change all your numbers to what's in front of you based on the report that you have. And if you got an order, similar to where your budget set up, it goes real quick, it's easy and you're not looking for a number you don't miss a number. And it's easy and simple to use. If you find this podcast useful, and you'd like to make a contribution, you can go to subscription page in the footnotes in my show notes. Or you can go to reduce debt increase and click on Support and it takes you basically the same place. You need to do your tracking and you need to go back 30 days and get it caught up, you know the previous month plus the current month and you'll be get that done and get a report out by category. And the next step is setting your budget. And we'll talk about that next week.