Reduce Debt Increase Wealth

Personal Finance Mistakes

September 17, 2023 MIsterchuck Season 4 Episode 183
Reduce Debt Increase Wealth
Personal Finance Mistakes
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Show Notes Transcript

Most problems start with mistakes, in personal finance not doing things is a mistake. Knowing what to do is the best way to avoid the debt cycle and budget crisis staying inform with finances is the way to start. 

Article Links: By Emily Norris


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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. Personal Finance mistakes. Most problems start with mistakes. And personal finance not doing things is a mistake. Knowing what to do is the best way to avoid the debt cycle and major budgetary crisis. Staying informed with finances is the way to start. I have a link in my show notes to two articles. And if you're interested in reading them, you go ahead I'm going to be referring to them. If you find this podcast useful, and you'd like to make contributions, I would appreciate it very much. He go my show notes and link on my contribution link. And you can make whatever amount you wish for as long as you wish. And I thank you for doing so. And as the top 10 money mistakes people makes, and number one would be spending more than you earn. Which we all kind of know what that leads to leads to use them more credit cards and then more debt and putting off financial planning until tomorrow. Again, not doing something is a mistake, not saving for emergencies, postponing retirement say it savings until later in life putting things off. Same thing as not doing it take a long time to pay off high interest debt. Always buy in now this is something you are doing, always buying a new car without considering a used car option. And not monitoring your credit scores and credit reports. Lacking an investment strategy, or if you do have one, you're not sticking to it and not having a will. So those are major mistakes, and not having insurance for your home,


auto health, disability,

Charles McDonald:

whatever life insurance is another mistake. Not only do you have to focus on keeping your debt under control, and make sure all your bills are paid on time, but you need to plan for the worst and hope for the best. That's where insurance comes in. With insurance. If something bad happens, it's gonna help you with your finances. So you're not really too bad of shape. You're not as good as you could have been. But you're not devastated as you could be. And here's an example. I paid off my mortgage just two, three years ago, I could have canceled my homeowners insurance. Why pay that $1,000 a year for homeowners insurance? Well, because I know if something bad would happen, and damage was done to my home, I would need the insurance to help cover the financial part of that damage. So what happened on July 23 of this year, we had a hailstorm in my area. I have roofers come by and they checked my roof I was not allowed on but I did. And they said there's significant hail and wind damage up here. You make an insurance claim. So if I did not have insurance, a new roof would cost me roughly $28,000. But with insurance, because I got the 1% clause in there. It's 3500 3500 I can cover with my emergency fund 28,000 Not so much. You see the point. Same thing with auto same thing with your health ailment, short term disability, long term disability, there's all types of insurance to cover whatever you're worried about happening. I had short term disability and I got sick I was off work for seven months and at say my but I was able to pay all my bills on time. I had the money to do it. And there was less financial stress on me while I was recovering from my illness. So that is why not doing something is a financial mistake. We need to plan And another mistake that I know most people are at least a majority of the people might be doing is they rely on their bank online bank account. If they're going to buy something, and they're not sure they have enough money, they go online, they check how much money is in their checking account, if they have enough money in their checking account, they buy whatever that was they're looking at, but they never consider what bills are gonna be due coming up before the next payday. How much money do they need to cover those bills, they didn't think about that. There was only concern, do I have enough money to buy what I want today, and they're not planning or looking ahead to see so they can pay their monthly bills on time every month. And they wonder why they have a poor credit rating, you got to check your credit scores, and you got to check your credit reports. And case somebody else is doing something, maybe you paid some little late, maybe it was one day late, and the the whoever was reported it to the credit bureau? Well, you could probably dispute that and say, I asked I was late, it was one day, and I'll give me a break. And they might remove it and they might not not mine enough insurance common coverage. Not having insurance is a big mistake, not buying enough to cover what you're trying to cover. So if you have homeowners insurance, and alowing covers the first 50,000, and your house is worth 500,000, you may be saving on insurance, but it's not going to do much good when you make a claim. And always buying a new car and always buying a new car within two or three years, there's two problems with that. The minute you drive a car off the lot, it's gonna drop in value as much as 25%. If you need a new set of wheels, consider buy and use, buy and use means the depreciation has already come out of the previous owner pocket, not yours, the loss of value is a car is far less than three to six years from the years one the year three is mean, you get more out your money back when it's time to come to sell the car, buying a car that's about two to three years old, has already depreciate it, you can keep it two to three years and sell it and get most of your money back. The reason buying a new car is back. And if you finance it for five years or even longer, you lose the value and you still owe the what you owe on it. And if you trade it in two years later, you're not gonna you may not even get enough to pay off the loan. So it was because the value of the car is dropped, especially if we're gone into some type of recession or something bad is happening, he might even get less for it. So that you might have to roll over the unpaid portion of that car loan and to the loan of the next car making it more expensive. So you're losing on both ends, you're losing by a new loss of depreciation, trade in not getting enough back to pay off your loan in lost twice on that deal. buy a used car, I've bought used cars most of my life on most of my cars maybe have bought two, two new cars in the last 40 years. Fortunately, the wife total the second new car I bought. And the first new car I bought was 30 years ago, long before I was married and taken to loan to pay off high interest debt. high interest debt is credit cards. If you have credit cards, you're carrying a balance on them, you're paying way too much interest. And if you keep using them, it's going up and up and up. Your minimum payment is probably just barely just paying the interest, maybe a couple dollars towards the principal. So you're not making any headway. Even if you're making that extra 50 or $100 a month payment on there. You're not making a whole lot of headway. If you keep using that card. You got to quit using your credit and you got to focus on paying it down. And you do that by having an emergency fund so that if something bad would happen, you don't have to use your credit cards, postponing retirement savings to later in life. The earlier you start saving for retirement, the less money you have to put aside and the more money you're gonna have in the long term because a little bit of money over a long period Due to time is gonna grow into a significant sum of money, the longer your way, the more you have to put in there to have enough for your retirement to live the lifestyle that you're used to. And they have examples in the article, failing to save for emergency, and then 60% of Americans don't have enough money in their savings, to count to pay for an unexpected $1,000. Such as a sudden, car repair, surprise medical bill, millions of people without a safety net. And even one accident could be devastating to the finances. I'm gonna say it's 60% can't cover a$400 unforeseen expense, you need at least three to six months of your expenses set aside in your emergency fund to cover anything that might come up. If you've been following my podcast, and if you've been doing my debt reduction plan, you know, I say $1,000. So if you put $1,000 in there and maintain that, you're gonna be better than 60% of the people who don't have that. So you'll be in the 40% of the people who have $1,000. So it's important, and then build it up even farther, that use the excess over $1,000, to pay off a debt, and do two, three to 4000 at a time, because you want to keep the money in your emergency fund, as long as possible. Make sure that all your bills are being paid on time, and nothing unforeseen is coming up, no surprise bills are coming up in the near future, at the how those things apply, then you can take that extra excess over$1,000 and apply it to a debt, preferably a credit card high interest debt, and you'd be much better off. And number one, spending more more than you earn. And how do you do it by you do it by using your credit cards, you're spending more money than what your net take home pay is on your paycheck. And you're doing it on a fairly consistent basis. Pay Period after pay period month in and month out. Those credit card balances are slowly keeping up. Maybe a year ago, you were paying them off every month. And then maybe you was almost paying them off and it was just a little bit and you thought all catch up next month. And then that little bit grew and little bit bigger and a little bit bigger. And now you're carrying a two or $3,000 balance every month on your credit card. Or maybe it's 10 or$15,000 balance, because you had an unforeseen expense pop up that really jumped it up way far, we have a $20,000 credit limit. But at 19% interest, it's expensive. And you don't want to have that type of loan, you want a loan that's around 5% or less similar to a mortgage, you need to get your spending under control, you have to identify you might have a spending problem, or at least need to identify what caused this problem. What started it? Was it an unforeseen expense? Was it's an illness or a medical bill? Or did was or an accident? Or did you have a major appliance breakdown in your home such as a furnace, or your air conditioner. There was all kinds of things that could cause you to get into these problems. But again, if you had had an emergency fund, no matter how small it was, it will help you get through those problems. So if you have three months to six months, has significant amount of money and an emergency fund, and it doesn't have to be in a savings account. He can once you get more than two or 3000 You can set up a money market or a high yield savings and get a higher rate of interest. I'm getting five and a quarter percent interest that's added on every month. And it's a money market account. So I'm doing now okay, a lot more interest than what the local bank would be paying me. They probably only be paying me about two or $3 a quarter and I'm getting $100 a month, so significantly better. So if you have an emergency fund, that's three or 4000 is the minimum consider setting up either a high yield savings or some type of money market account where you can get a higher rate of interest and then it will grow little bit faster. Yes, there's taxes on that that is not going to kill you. Having that grow having your money work for you, as a lot better than working against you sadaqa arco is basically the same thing, but they have something different inherent, having never ending payments. Ask yourself if we really need items they keep you keep paying every month, ask yourself is really neat items that you keep paying every month, year after year. Things like cable TV, music service or high end gym membership can force you to pay unceasingly, but leave you owing nothing. When money is tight, he just wants to save more. Creating a leaner lifestyle can go a long way to fattening your savings, and cushioning yourself from financial hardship. I've been saying in the past, you should do away with cable TV, if you're paying more than $100 a month and get some streaming service and limit it to two streaming service. And if you're one of those streaming service you're not using on very much, get rid of that look for a second one that you might use little more or don't add any more. Same thing with music service. Same thing with anti virus service for your computers. Same thing with gym memberships. If you're not using them on a regular basis, or most of the year, cancel, save your money, quit giving your money to somebody else, keep it for yourself. In if you're living on borrowed money, you're using credit cards to pay for groceries, gasoline, every day living expenses, you're really in trouble, get away with the never ending payment items, and reduce that credit card debt and get your life under control. buying a new car and they say the reasons for it. Same thing as before. 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 were only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant long term debt and your monthly payment, do not buy more house than you can afford. At the time you're buying the house, you can only afford what you can afford. Don't think I'm gonna get a pay raise two years from now or three years from now even next year. And I'll be able to make this comfortably. So I can buy this low more expensive house because that's what I want. If you cannot afford the payment today, you cannot buy that house because it's just gone to be financial ruin, not doing your homework and knowing how much you can afford. And don't rely on the router to tell you how much you can afford. Because what do they know, they know how much your monthly income is. They know what your bills are, maybe they know how much rent you're currently paying. And they're gonna say, Well, you can afford this house because it's only 200 More than the rent you're paying. What they don't know is whatever hidden expense you didn't tell them about. Maybe you have child support, or alimony, back taxes or some other loan you didn't tell them about that will affect how much you can afford. And another mistake is using your home equity like a piggy bank, you do not do that. You only use it to either refinance and pay down high interest debt or to do some type of remodeling on the home or it's going to add value to the home. You don't use it to buy a car, you don't use it to pay for your groceries. You don't use it to pay for everyday living expenses, or even to pay other debt down. Unless you're paying off some credit card debt. You don't use it to make the monthly debt payment. Or you're gonna get yourself in trouble because a home equity loan is generally a variable rate and means that just it goes up and down. And now it's going to be going up because the rates are so low. living paycheck to paycheck is what a lot of people fall into because you have too much debt because you fail to plan and one of those planning things you need to have is a check register. If you don't keep a check register we I call it tracking. If you don't track your income and your expenses, you're gonna have no idea what's coming up what may be due how much money you have, if you just look online and see the balance in your bank and say I got enough to pay for this, and you're not thinking rents due next week, and I don't get paid for two weeks, you're gonna be in trouble. And if you're not making your rent, mortgage, car, and utility payments on time, it's gonna hurt your credit rating. And it's a start, it's a sign that you are in financial trouble. 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 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. And if you're interested, send me an email at reduce debt increase And I'll send you the information about this online software that worked great for me, for those of you that are not doing anything on your personal finances. And thank you don't have to good luck, if you're struggling to pay off debt, or if you're living paycheck to paycheck. Or if you're not sure how you're gonna pay for something, or you're paying your monthly bills late every month, you have a problem. You need to get your personal finances under control. And you start by doing something, because the mistake you made is by not doing whatever it is, the first thing you got to do is start keeping a check register, where you record your deposits and withdrawals in there, like you did do not rely on the bank. You can get yourself an app, you need a budget, why and a B is a very good app if you can afford it. If you can't afford it or don't want to afford it at this time, you can get a nother app, where you can do a check roaster and a roaster for all your credit cards and your savings account, Count and does everything you needed to do do not pay for any of the options. It will do everything you need. And it has the categories already set up. Later on. You can adjust those categories to match your budget when you get to that point. But if you're not doing anything at all, that's a mistake. If you don't have any insurance on your auto your home, your apartment, your health, that's a mistake. Not doing something can cause you greater harm on your finances, then what actually paying the money out today is doing. So you have to start planning. You have to know how much money is coming in how much money is going out. When is it due? When is your rent to how much is it when utilities do How much are they when your car payment is due? How much it is? What's your average grocery bill? What's your average auto fill up? All these things are important. When is your auto insurance do and your homeowners insurance do? A is it through an escrow? Are you paying it separately. If you don't know what an escrow is if you're paying your mortgage and then include your real estate taxes and your homeowners insurance, you're paying it through an escrow. You have to have a plan and you have to set goals. So if you have nothing at all, your goal should be is to start tracking my finances and start an emergency fund and build it up to $1,000. That's your two goals. If you've already started doing it, then you need to increase your emergency fund and you need to go more deeper in your tracking He, or maybe start set up a budget. So ya have to get these things under control. And that's the start. If you do all these things, you're not gonna have any surprises. If you're interested in learning more and detail about how to do these things, keep listening to this podcast, my next podcast on on, go talk about tracking, doing a check, register, how to do it, what to bow, why you got to do it, then creating a budget how easy it is to do once you've been tracking, and then a debt reduction plan. What is it? You have to have a plan? You're gonna have more peace of mind. You're gonna be more comfortable with your finances, and there'll be no surprises and you'll be glad you did. So