Money - Debt - Credit - Winning
Our journey and tips to get spending under control, create a plan to eliminate debt, resolve any current personal financial crisis, and sharing ideas for how to build a secure financial future
Living above our financial means is just one of the major pitfalls of living in a consumer debt driven society. I'm by no means an evangelist for preaching debt is bad, but debt is usually what starts the vicious cycle of destroying household finances. Being constantly bombarded with clever marketing and plenty of consumer debt offerings, it is tough to have the financial discipline to use debt only as a tool and not just to buy things we can't really afford.
Basic personal financial knowledge is mostly absent from the teachings of traditional school education in America. You have to educate yourself and for many people that realization unfortunately comes only after debt has been accumulated. Just know you are normal, and you can learn new habits to change your financial destiny.
If normal is broke, are you ready to be a little weird?
By the time most folks admit they are in financial trouble they are feeling the daily concerns of bills piling up that they can't pay. A crisis has probably been building for quite some time and thinking about bills coming due, or those that are past due, becomes very consuming. If you are simply seeking knowledge to keep yourself from ever arriving at a crisis, good for you!
Having a solid plan to manage your income and bills is the only way to a sustainable financial path. Paying bills twice a month, on roughly the first and fifteenth, should be your ultimate objective for how you manage money.
If you are currently in a crisis where you can't pay all the bills, the thought that you just never have enough money probably enters your mind regularly. If you are currently unemployed, or there is no household income whatsoever, that may be a valid temporary view. The fact for most people is that you have income. There just isn't enough money coming in to pay all of the bills coming due.
I haven't talked to very many people that showed me a list of bills that didn't include credit card debt and other non essential bills. Seeing a gym membership when the mortgage is two months past due sticks out like a sore thumb. Most people that are struggling are still trying to pay everything, including the type of expenses they need to realize they can no longer afford or could never afford in the first place. Spending is always the behavior that has to change. The reality may just be that you can longer pay everything.
Knowing exactly how much money is coming in and your budget telling your money exactly where it will go is the only answer to develop a plan that works.
Think of your household finances as a compass that you need to accurately point you toward the north. There are always many components, or demands (magnets), pulling at our finances.
The challenges include:
- Consumer driven behavior to spend money on things we don't need
- Spousal communication that lacks healthy dialogue about money matters
- Being marketed to for numerous options to use credit
- Kids having their hand out for money and never lacking wants
- Poor knowledge of basic budget skills
- Stress drives already poor decisions to be made worse
The important components:
- Having a budget system and spending plan that works
- Protecting the basic necessities you must have to live
- Realizing the difference between wants and needs
- Finding ways to start saving to build financial security
- Developing a mindset that leads towards a debt free lifestyle
If you are currently in a crisis there are four key components of your finances you need to give most of your attention. These all get paid first, no matter what other obligations there are. You must eat, you must have a place to live, you must have appropriate clothing for work or school, and you need transportation.
Creditors, especially credit card debt, will try to disrupt this thinking. Most often the fear of affecting your credit score is the intimidating factor that can cause priorities to be misaligned. If you are at risk of neglecting your 4 walls of necessities, everything is bound to crumble in time. You have to prioritize where the money you have available is going and these four categories of expenses come first no matter what.
Just about every book I've read, and every talk I've heard, related to personal financial crisis recommends the same starting point. A "Rainy Day Fund", or emergency fund, is where you draw your line in the sand and start a new path. The commitment to saving $1,000 and guarding it with your life is a small victory that you want to accomplish as soon as possible. The $1,000 will then be off-limits for anything budget related. It will serve as your last resort protection of the 4 walls mentioned above.
I'm going to guess that after completing a proper budget and spending plan, based on your actual income, that you are going to be unable to pay everything you are currently accountable to each month. But don't worry, getting to that point is going to provide clarity as to what debt obligations can actually be paid. It is imperative that you have a complete understanding of the current reality. Get to work creating a budget that includes what has to be paid and focus on sticking to it while you build your emergency fund.
The life markers are foundation steps that some can achieve in just a few years time. For others it may be a lifelong pursuit. Don't concern yourself with that timeline right now. Right now everything is about getting yourself to a stable starting point and making some real progress.
If you've attempted a written budget in the past you know it can be an eye opener to see how much money you really need each month to pay everything. Sticking to a budget is much harder than making one. Ultimately your budget is the "Engine" of your finances and managing that budget is your top priority.
Where most people fail in managing personal finances isn't in the actual creation of a budget, it's the way they manage income received and that typically lacks a spending plan altogether. The spending plan is the component that will offer you the ability to pay bills twice a month. Your spending plan takes into account all of the money you bring in at specific times of the month and designates what budget items it will be allocated to.
Your primary checking account is where you handle all deposits and all of your money starts each month. It is also where you pay for monthly budget items that need to be handled electronically, such as online bill pay or payment of utilities with your debit card.
On the first and fifteenth of the month you will also begin to make a cash withdrawal that accounts for all of the money in your budget for items that will be paid for in person over the next two weeks. If you are spending money in person it must be cash. Remember, you can't overspend what you don't have and paying in cash creates that certainty.
Your emergency fund is a completely separate account. If you might ever be tempted to use your emergency fund inappropriately, open this account at a different bank that you don't use for anything else. Decline having a debit card for the account and only use it for in person deposits when adding to your emergency fund. $1,000 as soon as possible in this account is the goal.
The fourth category is the account you will use for non-monthly budget items. These are bills or expenses that don't occur every month. For example, you have a child that will play soccer but the registration fees are only once a year, or your car insurance may only be paid once every six months. You will need to accumulate the money for that expense to be paid when the time comes. This account is where the budgeted amount gets transferred to on the first and the fifteenth to accumulate those funds.
When you use a single checking account and debit card to manage your finances there are many pitfalls. You may have a good budget that accounts for everything, but it still doesn't account for the time of month you receive income vs the time of month bills are due (cash-flow). It also doesn't provide any means of accounting for the funds you need to be accumulating for expenses or bills that do not occur every month. Ultimately it is much harder to keep up with and stick to your budget with a single account and paying for everything with a debit card.
Having a single checking account to manage all personal finances usually contributes to both spouses utilizing a debit card for in person payment. This makes it very difficult to stay within your budget because at the moment of making payment you probably have no idea what you have available in your budget to spend. Switching to paying for everything in person with cash can be a very uncomfortable change at first. But you have to focus on the positive point of knowing every time you spend money that it is truly money that you can afford to spend.
None of these details should be construed as legal advice or instruction to take any specific action based on the comments made. I am not an attorney and do not have any professional designations for providing advice. You should consult a competent attorney or financial professional in your area to seek specific advice.
Debt, especially delinquent debts is a tough topic. The laws of each state are very different on this subject. You have to consider the specific debtor rights of your state when making decisions in this area. In Texas the state has some pretty great protections for consumers regarding unsecured debt. For example, wage garnishment isn't allowed for any form of personal debt, including those that are awarded a court judgement. In Texas we also have a full list of personal property that is basically exempt from the actions of any debt collector. Some states don't afford much protection. So I am going to keep the following details very broad related to debt collection.
If you've already reached the point that you are not able to pay all of your debt obligations, then you will begin to see various forms of collection letters and receive collection phone calls. This can be very unsettling and stressful to be faced with. My personal viewpoint is that you have to find a position of peace with the situation by growing your knowledge and knowing that you are beginning on a path to change your future.
Just about any letter you receive in regular mail from an unsecured creditor isn't very important in the larger scheme of things. Your options remain the same no matter how threatening or demanding the messages may seem.
On the other hand, you need to pay special attention to the messages from your secured creditors, such as mortgage and auto loans. The lenders that involve property that you hold in your possession are first in line to be able to protect their interests. So you must communicate with your lenders that involve secured loans, but do it on your own time schedule.
I recommend setting one day a week that you sit down and open mail, listen to voicemail, contact various secured creditors and focus on where things stand. When your talking to collection reps at your secured creditor, be honest with them and stay as calm as you can. You have to keep in mind that the person you're talking to isn't who you owe, they are just doing their job.
Explain to any creditor that you talk to that you are in the process of a major over-haul of your budgeting practices and trying everything you can to get things back on track. If you've suffered a temporary loss of income explain that to them as well. If you have a new job starting they may be receptive to the fact you will have new income coming within a reasonable amount of time.
If you find yourself being bothered too significantly with phone calls from creditors, you do have the right to request they no longer contact you by phone. You must make the request to the creditor in writing. You will still continue to receive mail from the creditor, but Federal law restricts a creditor from calling you after you have made a request for them to cease calling you.
Where things materially escalate is when a creditor decides to take legal action against you. That would typically be in the form of filing a lawsuit to seek a court judgement for the debt owed, or in the case of a secured creditor they take action to foreclose or repossess. Up until this point you can probably manage well enough in dealing with things on your own. If you haven't already, once you have been served with notice of a lawsuit your best course of action is to seek legal advice. You may not have many options in defending such a lawsuit, but there are tactics that can still prevent the creditor from successfully being awarded a judgement by the court.
Here is an example of a basic letter template to request that a creditor no longer contact you by phone. You should utilize Certified US Mail with return receipt requested when mailing such a letter.
Below is the complete document provided by the Federal Trade Commission related to Debt Collection facts:
It's important to stay focused on the positive outcomes that are in your control. Depending on your particular situation you may be able to transform your personal financial reality in a very short time, or it may take several years. Whichever it is, focus on the fact that you are learning new skills that will benefit you for the rest of your life.
If you're in a crisis than jump into action, don't put your head in the sand, and get started with the most basic emergency fund, budgeting and spending plan. If you are fortunate enough to have a good handle on your basic finances than I challenge you to revisit some of your current methods to see where you can strengthen them and then move on to the next foundation step in further securing a strong financial future.
Whatever your particular situation may be, take action, stay positive, and know that this will be a topic of history at some point!
Feel free to leave a comment on this blog post. If you have questions I will be sure to answer to help in any way I can.
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