Welcome together, we're gonna explore our personal finances and figure out how to improve them. Whether you're just getting started in life on your finances, or you may already have a home and a car payment and you're struggling to get credit cards under control, are you getting a later start in life on saving for retirement, ReduceDebtIncreaseWealth.com is a podcast to educate those to improve personal finances, whether it's eliminating debt, or making smart investments. So let's now get started. Last episode, I read an article about DIY. Do it yourself plan, a debt reduction plan? I feel that you got yourself into debt all by yourself. Why can't you get yourself out of debt all by yourself? Why should you pay a debt counselor or go to a company that specializes in debt cancellation? A debt cancellation of cost you 15 to 20% of the debt cancellation? How? how's that gonna help you better put that money towards paying down debt? That's strictly my opinion. I just wanted to make that point. That was last episode so I'm going to talk more about my plan, or your plan, what you should be doing. First of all, your plan should be to reduce your debt as quickly as possible, and as least expensive as possible. The least expensive as possible, what I'm referring to is not paying somebody else to do it for you. Not paying for a debt cancellation service, not paying for an attorney to file bankruptcy unless it's really bad. I mean, don't get me wrong. I'm talking about those people who just got some out of control debt. You got there by yourself, you've qualified for that debt. So you should be able to pay that debt off. Now, unless a major event happen in your life, such as unemployment or medical related issues. He shouldn't need to file bankruptcy or do any of those other things, you should be able to take care of it. So as a matter of getting your spending under control, and those are the people I'm reaching out to. So your plan or the plan that I think you got two major accounts that you use your checking account and your savings account. The idea is to Minimize all your payment on all your debt. That way you can look for and pay your necessities such as, you know, your mortgage, you know, housing, food, clothing, and things that you actually need to pay on a monthly basis. Then if you look forward one or two pays, the farther forward you look, the better idea you have about your expenses coming up. So you look forward to figure out how much discretionary income you have this particular pay period. He didn't take that money and transfer it to your savings account. And I remember the savings account you can only make six withdrawals a month. That's that's federal guideline rules, as not the make as the federal FDICA So six withdrawals a month, keep that in mind. So you cannot use your savings account, you know, put the money in there this week and take it out next week or put it in on payday and take it out on Monday and stuff like that. So that's the idea. You want to pay down your debt as quickly as possible. You want to incur the least amount of expenses as possible. You want to look at what you're spending money on, and try to renegotiate in a new terms. Try to get better plans for everything across the board. And I've had articles that I've put out there that pretty much tells you the same thing. But today, I have found an article of the three accounts you need. I found this article USA Today.com personal finance. Here are the three accounts you need to manage your money and give yourself financial security by Adam Shells. specialty USA Today. When it comes to personal finances sticking to the basis can do wonders for your bottom line. And that means making sure you have all the must have financial accounts to manage all your household money needs. Five minutes from now or in 2050. A few accounts are critical for financial security and well being and every American should have them says Michael Gershman, CEO a Dallas based financial planning firm Gershman Financial Group. Here's a list of accounts financial advisors say you need. Keep in mind that each serves a different purpose, such as savings for an emergency or building a retirement nest egg. It's also important to know that each account becomes more valuable and useful to you and your family when they work in tandem. Think of these counts as key links and a chain and if every link is intact, your personal finances will be much, far sturdier. Number one savings account emergency fund. Having a little money squirreled away that you can access quickly in the event of an emergency or temporary job losses basic building block up personal finance. a savings account is necessary for the accumulation of wealth, as well as for housing and emergency fund in the event of an unexpected expense that hasn't been budgeted for. So Grossman, adding that how much you should save depends on your personal situation. money market account, he says can be a good alternative to a savings account, as they often pay a higher rate of interest. But you want to make sure that money in a savings account is as accessible as possible, says Christina Elser, founder of financial website, the venue. Many savings account or money market accounts he points out typically limit withdrawals. Six per month. I rule of thumb is set aside three to six months worth of living expenses can Maloney CEO Maloney assets management, having a peace of mind that you're able to keep up with the bills or pay for car or home repairs. When an emergency strikes will allow you to focus on other key parts of your financial life. He says one more thing, resist the temptation to tap your emergency fund unless it's necessary. Don't be dipping into it to pay for drinks on the weekend. Maloney says tip people should have a plan in place that allows them to put a certain percentage of each check into saving says Gershman. This can ideally be done through direct deposit, set it and forget it. Number two, check an account. Everyone needs an account that the money flows into and out of on a regular basis. A place where your paycheck can be direct deposited, and you can use to pay the monthly bills and account that you can Access easily by mobile app phone ATM or visiting a branch bank branch. a checking account fits the bill. checking accounts are built to be cash flow manager Elser says these accounts also allow you to record transactions that you can refer reference later and the event of a dispute or you need proof of payment was made. Elser adds. If you set up direct deposit of your paychecks, many banks were waived fees she adds tip. low fees and convenience should be paramount. Grossman says with the advent of virtual banks and online banking as pretty simple accomplish these objectives. Number three, retirement savings account. retirement accounts like 401 Ks and IRAs are the places you park cash for the long haul and received tax break from the government to do so. This is not money earmarked for March. In order to build a down payment on a house you want to purchase in a year or two. These accounts are for the future. Elser says they should not be trading accounts, structure that account to fund your long term goals, not your short term whims. Both 401 Ks and IRAs allow your money to grow tax free. Traditional versions let you sock away before tax dollars and make you pay tax upon withdraw. Roth IRAs and Roth 401 K's by contrast, are funded with after tax dollars, but offer tax free withdrawals. There is a huge tax benefit to these plans, Kurtzman says this is a huge benefit. The downside to retirement savings account is you could be subject to early withdrawal penalties and tax payments. If you access the money before IRS designated cut off ages, retirement savings plan benefit from your money growing and then earning interest on Prior gains or or earning interest on interest I concept known as compound interest. Your personal retirement account is an income stream to tap into retirement and addition to Social Security or an employer funded pension. If you work at a company that still pays out a traditional pension, when you retire Maloney says you don't want to rely on Social Security tip. These accounts should be fun on autopilot via regular payroll deduction or systematic withdrawals from checking accounts to make them effortless. Elser says, For people contributing to an IRA determine at the beginning of the year how much you'd like to contribute, divide that by 12 months and make that contribution each month. Gershman says for those who've already set up these three must have accounts lists above here are a few more accounts to consider cash value life insurance policy. This type of insurance not only has the death benefit, but also bills equity in the form of cash value. I consider cash value life insurance to be the Swiss Army Knife of your financial portfolio. Grossman says this is the most underrated asset that I've seen. This type of insurance can be used for short term cash needs such as an emergency fund. He says it can also be used as a retirement Supplement Plan. When you tap the cash value of the policy, there are no penalties or any requirements to pay it back. Grossman says that death benefit though is reduced by the amount of cash taken out he says mobile payment account for per convenience and to provide fill in when small businesses don't take credit cards. mobile payments account like PayPal or Venmo provide a useful role says Elser or the venue brokerage account. These funds laid invest without withdrawal restrictions that come with retirement accounts. They also provide a place to invest money that's not needed for the short term or targeted towards your Retirement brokerage account are the sweet spot for the goals about five years out or to fund short term accounts where they when they are needed. Elser says they give you the ability to earn higher returns on your money than you would and I savings or checking account. Very good article, it's stressed the point that I may need a savings account for your emergency fund. And you need to build up your emergency fund at least one month's worth of expenses. I say expenses. Some people say income. I say expenses because that's what you need to pay out. That could be more than one month's worth of income to a checking account, where you keep track of everything you're paying, you actually record things so that if you have a dispute on a payment in the future, you can go back and look at one did I pay it to? Yes, I did. When did I pay it and how much did I pay So you have some evidence of your bills that you're paying to prove to somebody if they would dispute that you didn't pay it or not. And then the third account, which I mentioned slightly off and on is a retirement account, a 401. k, if you don't have a 401k, or retirement account through your work, you should have a traditional IRA set up where you're putting the money in there yourself. The yearly amount you're allowed to put in is 6000 a year. Now you want might want to check with your tax advisor to make sure that that's correct. And depending on if you're over, I think it's 55 you can put in an extra thousand dollars, so that would be 7000 a year if you're over 55. So those are your three must have accounts the other accounts at the end of that article, brokerage account, the Life Insurance. Those are if you don't have problems with your debt, all your credit cards are paid off, you got your debt under control, you're building up excess money the excess money, meaning it's more than what you would need to have in your emergency fund, then you could invest it through a brokerage account. I've talked about that in past episodes, I would recommend a robo brokerage account first, until you get more money in there. And then once you get 25 or 30,000 in investments, then then I would seek out a financial adviser because they can keep track of it a lot faster, they can make sure you're diversified, a spread across all the market segments. So if there's a down there's not really a great hurt, and if there is a big up you don't really have a big game, but again, as when there's a down you don't get nailed. So that's it. That's more about my plan. A, you got to keep at it. It's not a, you know, six month thing that you do and you're done. It's ongoing the rest of your life. It's like a lifestyle change if nothing else, that you could get all your credit card debt paid off in, say two years, depending how bad it is, it could be less. And then you can start working on other loans such as auto loans or line of credit against your house and then again, your first mortgage. And right now that's where I am, I'm starting my fourth year, and I got my auto my last auto loan will be paid down to zero within 30 days, and I'll start working on my first mortgage. So and that will be paid off within the next 10 to 11 months. So by the end of 2020, I'll be debt free, and then I will definitely be aggressive in saving Mining and building up my my retirement accounts. So with that, keep in mind and since the number one debt most people have is credit cards, I got a couple articles about credit cards coming up next. Now a quick word from my sponsor isotonic I said tonic is a vitamin it's a way you take vitamins how your body is built to take vitamins with isotonic rapidly is soared by the body highly concentrated of vitamins and minerals and maximum results. I've been taking isotonic vitamins for the last six years and I rarely get sick. I highly recommend taking isotonic vitamins. With standard tablets you have minimal assumption and diluted nutrients. I take the daily essential kit which is all the daily essential vitamins that you need for your body on On a daily basis, go to my website Reduce Debt Increase Wealth.com dot com. upper right hand corner click on the heart, go to the website. Let us show you the future of vitamins. This article creditcards.com eight things you must know about credit card debt. By Erica Sandberg summary, credit card debt is not inevitable. Here are some basic credit guidelines to keep you out of debt. Despite what you hear about credit cards getting into overwhelming debt with them as not inevitable. In fact, millions of credit customers charge regularly and never pay a penny and finance charges or other fees. Here's how you can you too can use plastic to your advantage. One, you don't have to Oh, it's entirely possible. To use credit cards regularly and stay out of debt forever, how, by charging what you can afford to pay when the bill arrives, use credit cards as a payment tool, not as a revolving debt instrument. To make this payment method work, you got to track charges and cash flow to know when short term loans make sense. Sometimes financing a purchase with a credit card is prudent as long as the repayment timeframe is short. For example, let's say you want 1500 dollars worth of living room furniture but don't have the cash to pay for it immediately. If you charge the line items direct credit card with an 18% interest rate and cover the balance in four months. The finance fees would just total just $57 not a bad deal. If you stretch it out over two years, however, you pay an extra $300 quite a markup. Three owing is easy repaying as hard. Without careful attention sinking to overwhelming debt is remarkably easy. When card holders start out their credit card limit is usually low over time it typically rises, which makes overcharging, tempting. paying down debt is difficult because the as the balance climb, the interest compounds and payments increase with funds promised to pass spending less money is available for current and future expenses. Three debt affects your credit score. Not only is it wise to remain debt free for your own bottom line, holding on to a high balance negatively impacts your credit score. To maintain a high score your account balance must be under 30% of your available credit limit says Lucy dunny, a consultant that works for us TransUnion and many personal finance expert advice Keeping your credit utilization as close to zero as you can. timely payments are also vital. If you fall behind and skipped a billing cycle your your creditor will report the delinquency after 60 days to three major credit reporting bureaus TransUnion Equifax and experience and you score a drop those really miss more payments and see a dramatic downturn in your credit score. And these negative marks don't fire it off your credit report for a full seven years. Five, develop a repayment plan. Even if you're in deep you can probably climb out of debt with a commitment and a plan. Norman pure Nutter, author of How to settle your debts suggest going into crisis money management mode, limit spending to basic needs to free up cash to pay down debt as creditors that they reduce your credit cards interest rates, prioritize payments by interest rates pay the high interest balances first, suspend charging while in repayment mode. Six can't make a payment ask for help. While your credit card company is under no obligation to accept less than the minimum requested payment Do not fear. Try to work with your credit card company to work out payment arrangements urge. Let us Epstein author of the complete Idiot's Guide to improving your credit score. If that's unsuccessful work with credit counselor from the National Foundation for credit counselor counseling to come up with repayment plans. She says seven settle cautiously. Want to sell your credit card debt for less than the actual balance. It's possible but you need to offer a lump sum and most creditors require borrowers to be at least a few months behind. Arrange in such a deal on your own as best as company that facilitates often charges substantial fee and aren't very replicable. Still settlements should only be attempted after less radical steps to eliminate the debt fail as a result in substantial credit damage and tax problems. forgiven debt it's often reported as taxable income says parole Nutter and unless it's result from bankruptcy or your debts are greater than your assets, when you make a settlement, you will have to pay tax on it. Eight, you can't go to jail for non payment. But if you're worried about spending time behind bars for not paying your credit card debt, now there's no debtors prison in United States. However, there are other legal precise repercussions of which you shall be aware, a creditor can shoot sue you in a court of law and if they win a judgment they may be able to garnish your wages or take non exempt property and assets. Living debt free is within every car haulers capture capability. The key is to always be aware of charging imbalances and dress credit problems immediately. Some very good points in that article, one he should be using a credit card as cash that was number one, don't carry a balance. So and a lot of people do that according to that lady in the article. I think the maybe the older generation is more prone to doing that higher income, maybe children you know, empty nesters. So they have the money to do it. But if you're going to use a credit card, treat it like cash. Even if you don't have the cash to pay right away, put it in your budget. Make sure that if you buy that 1500 dollars with our furniture that gets paid off in four months. That example the crisis mode is a gentleman there Nutter forget his name, talk go if you get behind on your credit cards and you start building up a balance go into crisis mode. I call that debt planning mode. Same thing, reduce your expensing, only spend what you have to try to get the best deals and everything you possibly can have everything in your budget, know what you what expenses are coming up in the forward. So you know how much you can pay on that credit card. Or if you have a emergency fund, you might be able to borrow from your emergency fund, say half of that 1500 dollars, and then you can pay off the other half so $150 and then put it back into your emergency fund. So pay yourself instead of the credit card, that's what I like doing. I'd rather be paying myself first and not to credit cards because they're gonna charge you interest where if you have a high yield interest savings account, you could maybe make a little bit of interest. With that said in the future years coming up way the government's been spending money lately, inflation could start kicking in, which means interest on savings account could be going up. I'm not predicting anything, I'm just, you know, government spends a lot of money the economy is shut down. So it's ripe for inflation to start kicking in and may not. So that's all I have to say about that. Don't use a dedic counselor unless you absolutely have to don't use a debt cancellation service unless you absolutely have to try doing it yourself first. But if you use a debt cancellation service, you got to remember that all the debt that's forgiven, becomes taxable income on your income tax return, you will get a 1099 form From your lender, and they're going to report that to IRS, they're going to expect to see that in your income tax return. So that's going to increase your taxes. You really don't want to do that either. So I just thought I'd throw that out there. Again, you could check with your tax advisor if you don't believe that. That's the end of another episode. I hope you found it useful. And if you'd like to share this episode with your friends, please do so. I'm open for any suggestions for improvement, or for information that you'd like to talk about in future episodes. He can go to my Facebook page and leave me a message more than glad to comply. To find my Facebook page go to ReduceDebtIncreaseWealth.com and click on the Facebook icon to go to my Facebook website. Transcribed by https://otter.ai