Reduce Debt Increase Wealth

Overview Plus

March 24, 2024 Season 5 Episode 211
Reduce Debt Increase Wealth
Overview Plus
Reduce Debt Increase Wealth +
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Show Notes Transcript

This is a overview of everything needed to reduce debt. Lost word file for not sure of links.

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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. Over view Plus, there are things that I may have missed in the past, starting with tracking, budgeting, then ending with that reduction. Throughout the episode, we'll have tips on how to save money. This is considered an overview. And I'm trying to rehash the things I feel is important that you should know and consider and have a better understanding of. So let's start with those of you struggling with debt. Here, first thing you need to do is figure out why you have the problem, did your income go down for some reason? Or are you just spending more money than you make. And along the way, if you do this step by step with tracking, budgeting, and then your debt reduction, which kind of lays over all that you'll learn and see where you're having problems. And then you'll be able to adjust things to make it easier to reduce your debt. Now, it's not gonna be a short, easy journey, as something that you have to adjust your lifestyle for. And you need to understand the reasoning on why you're doing these things. And once you get your debt under control, you got to continue doing these, or you're gonna get back out of control. Again, if you're just spending more than you may, that is the start of your problem. But how do you spend more than you make? Well, by using your credit cards, maybe it's something that you thought you want it in you had to have it so you bought it, even though you may not have been able to afford to pay the credit card at the end of the month, or when the balance become due, or maybe you had an injury and an emergency. And you had to put it on a credit cards in order to pay for it. Or maybe you temporarily lost your job. And you use credit cards to buy food and, and gas for the car. And then you when you got your got a job back he was unable to catch back up. But the reason for what how you got yourself in that bad place. And that bad places you're living paycheck to paycheck. So it's a matter of understanding your personal finances, and what is personal finances. To me, it's all the money coming into your household. Last all the money going out of the household, which includes using credit cards, buying things on credit, your mortgage, your car loans, things like that. So in order to have a more comfortable life is put it this way, if you have an understanding of what's going on, and how much you should be spending out of your income, in order to pay for certain items such as housing or your car, even though these are only guidelines, but if you can kind of get close to him, you're gonna have a more comfortable life. So as far as tracking go, you can do it manually, which is I don't think anybody just a day and age are gonna do that. You can do it on a computer spreadsheet. And then you'd be able to sort it out by category and get totals and things like that. Or you can just do it the easy way why reinvent the wheel when somebody already did the work for you by using an app. He have apps out there that are fairly inexpensive. The one I use is less than $10 a year. And then I use a spreadsheet to do my budget. And you'll figure out why if you've been listening to my episodes, you know why I don't connect to the bank because one I don't want to risk losing help somebody hack in my bank account and to the more you manually enter things, the more aware of how your spending is going and where you're spending as you become more in tune with your personal finances per se. Now when you're looking for an app, it should be easy to use, easy to understand. Most of them don't come with any directions or instructions, but they're fairly easy to learn and pick up He should be able to edit your categories. And the reason you want to be able to edit your categories is so that you can arrange them in the order to match your budget. Because if you just would do a report by category by a date range is going to come out in alphabetical order, which is not going to be everything you need grouped together for your budget. So that's the main reason there, don't be afraid to make mistakes, or you can change them. And that's the reason why you reconcile reconcile on from your app, to your bank account online, as merely saying, What is my bank balance today? What's the balance in my app do they match, if they don't match, then you either left something now the app, put something in there twice, or put a wrong dollar amount in. If the dollar amounts match, you've pretty much got everything entered. So you can rest assured you have a good report, when you print a report for your your budget, there are apps out there that does the tracking, and does your budget. Most of them I didn't like but there's some out there, they're good. You need a budget, why an A B is a good one. I've watched their YouTube videos, and they have a lot of training available. And they have a little different approach to things, but it's really the same approach. And now they sign your money a job, so that you don't spend it twice, which what a lot of people probably do. So you know, you have money set aside to pay next month bills, and they're looking forward, which is I recommend, you got to know what's coming due in the future, before you make that decision to spend money today, especially if it's more than a couple $100. So if you have awareness of what's coming up, then you can control what you're spending so that you have the money available for when that big bill comes to tracking is just the start of things. But it's probably the most important, just doing tracking by your self may help you with some of your debt reduction. But it's not gonna be the end all solution. It's a combination of using tracking a budget, a monthly budget, so you know, what you expect to spend, versus what you're really spending currently, and then a debt reduction plan. So you know what to do and how to how you're going to go about reducing your debt. And it's fairly simple is not all that difficult. Once you get going, it doesn't really take a lot of time. But it's important that you take the time, where it's once a week or every day to enter your transactions and your tracking app, and then weekly to get that report and then update your budget so you can see what's going on. And the part that's important is knowing your percentages. Based on your gross income. Your budget is based on your net income, the amount of money that gets deposited in your checking account. That's most of the time your net income unless you're self employed, but it's your income less taxes, less 401k, less health insurance, less Penny child support, maybe, but it's the amount of money that you deposit, here's what you have to pay your bills. Your gross income is only use to figure percentages. What percent of your gross income is your monthly mortgage payment, your gross income meaning monthly gross, before taxes and anything deducted for a month. What percent is that? It should be somewhere around 35%. If it's 40, you're probably okay. If it's less, you're even better. But the reason you need to know that is because if you that percentage is too high, then you have to cut back on your spending someplace else. So maybe when you bought your home, you kind of stretched your budget a little bit in order to get the home you want. But you didn't have any car payments. And then five years later, you had to buy a car because your car broke down, whatever. Now you have a car payment somehow and maybe that's part of the reason why you're struggling paycheck to paycheck. And then you add in some credit card debt, maybe your student loan debt, and you're not putting money aside in your savings account the build up that emergency fund, that unexpected thing happens, then you gotta use more debt, in order to or credit in order to get through that particular unforeseen event. ways you can do when you're first getting started to save some money because at the beginning, I've never tell you that cut back spending. At the start, we're only looking at what we did in the last 30 or 45 days. We're looking at our history, and then we're creating a budget based on that. And then we're seeing to the next month, are we staying in the same in line with what we did last month, if you're still spending even more you then you have a bigger problem. Maybe there was a reason why the previous month was high holidays, Christmas spending a birthday party, whatever the case, only you can figure that out. But if nothing, if it was a normal month, and the current month is a normal month, and your current month is you're spending more than you need to look at ways to reduce your spending, why are you spending more is what you got to ask yourself? And why how are you doing? Did you get a pay raise? Did you get a bonus? Are you just spending more money on a credit card? Are you getting deeper in debt? Those are the things that at the beginning, you have to look at and understand what's going on in your personal finances. And that second month will give you some guidance of what you need to do, or you need to adjust. Maybe you're eating out too much having food delivery, you know you're buying the most expensive food you can buy. So you can adjust there by going to the grocery store and cooking your own food. Or maybe you're driving a lot for whatever reason, maybe every time you need to buy a meal, you drive five miles and back five miles, why if you go to a grocery store, and you make one or two trips a week, you're knocked on the back and forth, every day, you're gonna cut back on your driving. So one thing could affect the other thing, which is gonna help you control your spending, whether you're saving five bucks a day, or $10 a month, it doesn't much matter when you donate, you're looking at ways to reduce your spending. So you can increase your emergency fund. So eventually, y'all can then apply the access over the your minimum to a debt. Once we get into budgeting II know you're gonna have a problem when you're first set up that first but monthly budget, because at the top, you got your income, and it's only income that you have coming in, it does not include credit cards. So you have your total income, then you're going to list all your expenses, housing, I do it and by needs and then wants, housing, transportation, food, credit card and other debt savings, those are your needs, then your wants entertainment, dining out maybe if you do excess dining out any hobby, you know, there might be other needs in there like child care, day care, things like that. But it's all gonna depend on each individual situation, I'm just giving you an overview guidelines when you set that up the first month, and you got your income in there for what you actually made for the current month, because we're going to use the previous month for your budget or your control numbers. And then your actual numbers are going to be the current month that you're in. When you get that control numbers. If your income less your expenses turns out to be a negative number, that right there at the very beginning, you know, you're spending more money than what you make. There's a big tip, if your total income last year total expenses is a negative number, you're spending more money in you're doing it by using credit cards. That's your first thing you have to solve. Because on a debt reduction plan, step one is quit using credit. Step two is make the minimum payment. Step three is set up an emergency fund and build it up to a minimum of$1,000. That's the savings account. It's all it is. Then after that you keep building up your your emergency fund until you have about 4000 in there. And then once all your bills are paid and everything's looking good, you got enough money to cover everything going forward. You take the mount over your minimum and you apply it to one of your debts as your debts coming down your emergency fund should be increasing a little bit. And you do that by just taking out a little bit less money, or you build up, maybe you build it up to 4000 for three or four times, and then you build it up to 4200. But then you only take out 4000, so you left 1200 in there. And gradually over time, you want to build that emergency fund. Also, if you spend a lot of money for Christmas gifts, you can do the same thing. But then the money over your minimum can be used to buy Christmas gifts, the next following coming up. So those are ways and tips that you can gradually increase your savings. And you're not even going to notice and it's going to help protect you. Because personal finances is about controlling your money, trying to keep as much as possible, and then protecting your assets. And we'd look at the percentages or only apply, you can do the total expenses and 2% of your income. So find out how much your total household expense housing expense relates to your gross income. But don't important numbers are the loan amount, how much is your mortgage, compared to your total gross income? How much are your car payments compared to your gross income, your housing should be somewhere around 35 to 40%. Now that's for the loan only time you get everything else your real estate taxes, if you don't have escrow, your housing, your insurance, your repairs, your utilities, which includes your cell phone and things in your internet, that could be 60% of your gross income, and then your auto expense could be another 20%. We're up to 80% annually and gives you 20% to pay down that debt and to save money. And that's why we want to make the minimum payment and all your debt. So that you that extra money that you've been putting on that credit card, and whether it's 50 bucks extra a month, or$100 extra a month, that's gonna go into your savings, and that's gonna help build up your emergency fund. So if that unforeseen event happens, you'd have don't have to use credit. Number one on your debt reduction plan is quit using credit so that you can quit using credit, you'll have your emergency fund there. In case something bad happens 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. If you're interested, send me an email at reduced debt increase And I'll send you the information about this online software that worked great for me. I said that I would put in tips about how to save money. I think I did but you probably missed it. And the first one is when you set up your budget the first time. If your total income less your total expenses is a negative number. You got to cut back on your spending. That's tip number one. That's the obvious. I didn't catch that. You're gonna probably struggle with all this type of process. Try to only spend the amount of money you make and that includes paying all your monthly bills, and then paying for everything you need. Then everything you want. If you don't make enough to buy something in one pay period, you save your money until you have enough because anything that's going to cost you more than $100 You should be asking yourself, Do I really need this? Why do I need it? I never had in the past and I got by Why do I need it now? Is it just an advertising thing that makes me want it? Or is it something that's gonna help? Save me some time make my life easier, plus a washing machine meaning, for example, or a dishwasher, they save you time and make your life easier. But if you can't answer those questions to satisfy yourself, why are you buying it? Or you shouldn't? So always think about why you gone to buy something specially higher, more expensive dollar things, you got to be able to justify the cost to yourself. So that if you can't justify it to yourself, how are you going to justify it to your spouse, or somebody else when they see when you say I bought this, and it cost me X amount of money? And somebody said, Well, that's expensive. How could you afford that? Well, really, you couldn't afford it, if you're struggling with that. Cable TV is very expensive with the streaming now, the way I viewed it was, I'm paying for Internet service, but I'm not using it to the max. If I stream my TV, I'm going to be using my internet service more to its max. Therefore, I can justify I've had my internet service. So I'd done away with cable TV, and I have two streaming service. When you do this, don't go overboard, don't get a whole bunch of different streaming services that you pay 50 bucks a month,$75 a month that data because you'll be right back to where you were limited to no more than three streaming services. And that's a way you can cut your spending down, then you have things that you should be looking at a yearly basis, your cell phone service, your insurance on your car, your home and everything else, look for similar plans at a lesser price. They're always offering these deals to get new customers, that if you are an existing customer or new column and say, you know, why did my plan go up, I'm gonna go somewhere else, I need to get the same service or better service for a lesser price. And they'll they'll find something for you because they don't want to lose you as a customer. And if they don't, I guess they lose you as a customer. Because you could find another provider, they get a better service or the same or better service for a lesser price. That is a yearly thing you should always be done especially on cell phones, cable subscriptions, insurance, things like that you can control look for things once you start your tracking? Or did you put anything in there that you don't really know why you're paying for it. If you find things that you're paying for on a monthly basis or lot of these things are subscriptions, you sign up for it and forget about that you may be paying for it, you're no longer using new lawn or longer interested in or no longer need. Cancel on that it will save you some money and you save some money to help build up your emergency fund and then eventually pay down your debt is all and then anything and duplication or you're paying for the same service twice for whatever the what comes to mind to me is anti viruses for a computer, you had a computer you had you bought a new computer and you sign up for another service, you probably your old service probably would have worked with the new computer. So why do you have to get rid of one of us the one to his maximum potential. So it's not only is knowing what you already have, but not knowing what you don't actually need to have in the future. It's gonna save you money in the long run. putting gas in your car, I know a lot of people fill up once a week. If you're living paycheck to paycheck, and you're struggling, this is an area where you can save some cash nightmare, not necessarily reduce your expense, but save some cash because if you if you fill up your automobiles, and then three days later, you're short of money for going to the grocery store and you put it on a credit card. You put all your cash in your gas tank. Don't fill all the way up. limit how much you put in your gas tank to get you by the next week or the next pay period and then try to limit your driving. That way you're freeing up some money to go to the grocery store so you don't have to use that credit card to buy groceries. I done that a lot I would put in$20 in my gas tank because that's what I need the amount of gas I needed to get by for them up to my god some more money. And then I could use that cash to buy groceries or pay for something else that was coming up due. It's a matter of knowing how much money you have, when your bills are due, what's coming up in the near future, and how much you need to set aside and keep on hand to pay those bills, and how often you go to the grocery store, how often do you fill up your gas tank, things like that is all has to be managed, it'll become second nature over time, he won't even think about it, you'll go to the gas station, and you'll put in 10 gallons, because that's all you need. And that's all you pay for. And then you'll have extra cash to go to the grocery store to buy food to have dinner. Another area you can really save a lot of money on is having food delivered dining out and entertain where you go to like Happy Hour bars and stuff. I'm not saying don't do it, he just got to limit how much you spent. When I was younger, when I want out the happy hour on a Friday night or whatever that case, I only took them off money with me that I knew I could afford to span. And then once I ran out of money I was done. I would go home, I was done. That's how you control it. That's what you got to do. If you're struggling paycheck to paycheck, you have debt to tele control, you're wondering how you're gonna pay it off. And you're not really sure what to do with the wet you got to do is quit using credit. make the minimum payment and all your debt, have an emergency fund a minimum of $1,000 and then continue to build it up to you have 4000 Use the amount over your minimum, apply it to one of your debt. And repeat. Keep doing the same thing. All the time you're doing that you're tracking all your expenses, you're getting reports out on a regular basis. you're updating your budget, you see where your money is gone. You see oh, I'm spending a lot on shopping what kind of shopping my doing groceries, why does my groceries so high, we need to cut back on groceries. Maybe we need to buy less a beef and more Chicken Pork because beef is so expensive. Or maybe we need by storebrand products because there are some of them are good. Some of them are not so good. Do whatever you can to say money that's ongoing if coupons. I only use coupons if it's something I need to buy. I don't use coupons to try new products. I don't use coupons is because I have a coupon because a lot of those things I never need and never use so I never buy so I never had need to use a coupon. But if you can do use them to save yourself some money. Go ahead and do so there's ways to reduce your spending. He does have to work at it. And the more you identify your spending, the more you know where your incomes coming from, the more you know where it's going, the better off you're gonna be, and you'll be glad you did. So