How I Stopped The Debt Cycle In My Life

Writer Auditions - Author Erik Folgate - Offer Your Feedback

It was March of 2002, and my mother was dropping me off at our local community college. It was that point that I realized my life had come to a low point. I had no car, no job, and I was in a ton of debt at the age of 20. I came home from an expensive Christian school where I racked up $12,000 in student loan debt and $4,000 in credit card debt in just a year and a half. I made a big mistake by picking a school that I couldn’t afford. I made a bigger mistake by signing up for a credit card at the age of 18. I had no clue how to manage money, but I stopped the bleeding. I enrolled in an affordable community college, my dad gave me an old family car for free, and I started working two jobs. But, it wasn’t until a year later that I started changing my financial habits.

I was driving around Gainesville, Florida one fall evening and I was flipping through the radio stations. I came across The Dave Ramsey show, a radio show about personal finance. Many of you are familiar with Dave Ramsey and his style of teaching. I listened to the entire three hour show that night, and I realized that I needed to drastically change the way I handle money. I was listening to various callers express their joy about getting out of debt, and I found myself wanting to get out of debt as fast as possible. I stopped the debt bleeding, but I hadn’t stopped the debt cycle. I wasn’t getting into more debt, but I also wasn’t doing anything to prevent myself from getting into more debt.

Here are a few steps that I took to stop the debt cycle.

• I cut up my credit card. It was time to get rid of the vice in my life. I relied too much on my credit card, and it was too tempting to use. I racked up $8,000 in just four years. It was a combination of horrible decisions, emergencies, and numerous small purchases that quickly added up. I put gas, food, eating out, car maintenance, and various other expenses on that card without paying it off at the end of the month. The worst charges were the expenses from a backpacking trip to Europe that I couldn’t afford. You may be responsible with your credit card, but is it really helping you to keep it? Do you think that using a credit card will help you become wealthy? Getting rid of the debt cycle means taking away the things in your life that tempt you to buy something you can’t afford.
• I built up an emergency fund. I built up a huge debt on my credit card, because i had no money saved up for emergencies. When the alternator died in my car, I charged it. When I was evicted from my apartment and lost my security deposit, I took a cash advance from my credit card to pay for another security deposit on an apartment. When i married my wife after college, we always keep at least $1,000 in a separate savings account specifically for unexpected expenses.
• I attended a public university. I left an expensive private college and transferred to the University of Florida, a Florida public school. At the private college, I was taking out $5,000 in loans per semester. At the University of Florida, all of my tuition was paid for the Bright Futures scholarship, and I received a Federal Pell Grant that went in my pocket for living expenses. It was a big financial turnaround in my life, If I would have stayed at Toccoa Falls College, I would have graduated with $40,000 in student loan debt. Instead, I am currently paying off $15,000 in student loan debt.
• The monthly budget became my best friend. I started spending my money on paper before I spent it. I paid all of my monthly expenses and set aside a specific amount for groceries, gas, entertainment, and clothing.
• I educated myself about personal finance. If your parents don’t teach you sound financial principles, no one will. High schools and colleges significantly lack the capacity and the desire to teach young people about personal finance. If you don’t understand compound interest, the stock market, budgeting, and interest rates, you’ll never learn how to make good financial decisions. The fastest growing wealth of free information about personal finance is the blogosphere. There are hundreds of great personal finance blogs out there, including Money Smart Life, dedicated to helping you learn about personal finance and make better decisions.

I’ve paid off $10,000 in debt in the past two years. My wife will start working this August, and we will continue to pay off all of our debt. We plan on being debt free in two years, and we will get the chance to call up the Dave Ramsey Show and yell at the top of our lungs, “We’re debt free!” I stopped the debt cycle in my life, and you can too. But, there must be a point in your life when you tell yourself that you are sick of being in debt. Then, you must take the specific steps necessary to break the debt cycle in your life.

Money Tips for New College Graduates - Spending, Saving, & Budgeting Advice

What college student do you know that isn’t cheap?  When you’re in school every penny counts and you learn to manage your money on a very tight budget. Saving money simply becomes second nature to you. I was so cheap in college I used to:

-Wear every last piece of clothing to delay paying for the laundry

-Ride my bike everywhere so I wouldn’t have to pay for gas

-Keep the heat turned as low as possible

-Eat breakfast in the dark to save on the electric bill

-Use water on my cereal so I wouldn’t have to buy milk

–Buy the cheapest beer possible, no matter the taste

-Eat the cheapest food possible, rice & beans almost every night

Any of those sound familiar?  I’m sure you could give many more examples of ways students save money.   The question is, now that you’re finished with school do you still have to live like a broke college student?

Making Money
Once you start your first job you may feel like you’re rolling in the dough.  You go from making zero money to earning a regular income every payday.  Although it may not be much, it’s a lot more money than you’re used to having.  As my parents used to say, your money may be “burning a hole in your pocket”.  You’ve been scraping by for years and now you may be eager to buy the things you’ve needed or wanted but couldn’t afford.  Before you go out and blow your new income on a shopping spree think about the following story.

Starving for Money
A man is rescued from a desert island after four years of surviving on nothing but coconuts and fish.  He’s taken to an all you can eat buffet and gorges himself on the food he’s dreamed about for the last 48 months. His body goes into shock at the massive amount of food he’s taken in. He becomes very ill, his bodily systems shut down, and he almost dies from the health repercussions.

See any parallel there between that guy and a new college graduate who finally earns money after 4 years of being broke and goes on a spending spree?  Of course you won’t die from overspending but you can literally kill your financial future for years to come if you go on a buying binge.

One of the greatest assets you have as a recent college graduate for building your financial future is the value of compound growth over the next several decades.  How you choose to spend, save, and budget your money now can determine whether you struggle with money for the rest of your life or have the financial freedom that many people only dream about.

Your Financial Future
If you’re a single adult earning a salary your options for building wealth are pretty promising. You don’t have to support anyone else. Your money doesn’t have to pay for diapers, engagement rings, or your spouse’s credit card bills.  You don’t have to discuss with anyone how you’re going to spend your money or why. 

Your money is all yours to do what you wish, just don’t blow it.  You likely won’t always have this kind of financial freedom so spend your money wisely now.  Here are some tips on how you can maximize the amount of money you keep in your pocket.

Avoid buying that brand new, flashy car.  If you believe it is a good investment, realize that just driving it off the car lot decreases it’s value tremendously.  Additionally, use an auto loan calculator to show you just how much you are paying for the car with interest included.

Avoid expensive rent.  Do you need to live downtown in that luxury apartment?  The fact is, that’s cash you are spending that you may not need to.  Look for a lower end apartment that fits your needs and pocket the rest of your money.

Do think about cheap real estate options.  With the real estate market so affordable right now, chances are good you’ll be well on your way to making a sizable investment long term if you buy now.

Look for a roommate.  Sharing the expenses of owning a home or renting an apartment is a great way to save plenty of money.

Avoid credit card debt.  While credit cards can be a good financial tool if used properly, they can also get you into a lot of trouble financially if you abuse them.  In a later article we’ll cover some of the best credit cards for college graduates.

Managing Your Money
In addition to saving money on your biggest expenses like cars and rent and avoiding credit card bills, there are a few other key points to managing your money.  You’ll want to simplify things by following a system to plan and track your spending. You’ll also want to protect yourself also unforeseen events with an emergency fund and insurance.  Here are some details on these money tips:

Create a monthly budget and stick to it.  Figure out how much you’d like to spend, how much you need to spend, then find a happy medium.  Be realistic, don’t create a budget you won’t follow. Use your mobile device to record your spending and use software like Quicken, or even a simple spreadsheet, to track and analyze it.  Watch out for things like eating out, bar tabs, and buying gadgets those add up faster than you realize.

Build an emergency fund available to you in an easy to access savings account.  Use these funds instead of a credit card when you need money. Open an online savings account with ING Direct or Washington Mutual.  Setup a direct deposit to start building up your fund right away.

Use online banking to stay on top of all of your balances and to know where your money is really being spent.  You can download your transactions into your financial software to make tracking your spending easier.

Buy health insurance to protect you from catastrophic expenses and medical debt in the event of a major health issue.  Make sure you have adequate auto insurance to cover your liability in the event of an accident.

College Graduate Finances
Leaving university for a job in the real world is a pretty exciting time.  The money that comes with a job is nice after being a poor student for years.  If you can combine the frugal tricks and habits you learned in college with the spending, saving, and budgeting tips we’ve covered you’ll be able to have fun with your newfound cash and still build a financial future for yourself.

For more financial advice for college graduates see the articles below:

• Paying off student loans
• Investing tips
• Buying health insurance

 

Financial Tips for New College Graduates - A Cheatsheet for Managing Your Money

Were you in class the day they handed out the financial tip sheet?  You know, the one that covered how to buy insurance, invest your money, pay off your student loans, manage your credit cards, and budget out your new salary?  I think most of us missed that day so here’s another copy you can use to make your money work for you.

They say it’s pretty easy for college students to manage money. When you’re in school, you’re usually so broke that there’s no money to manage!  The thing about college is that everyone pretty much expects you to have no cash, to scrape by on a part time job and student loans.

Suddenly, after graduation society instantly wants you to become financially responsible:

• No more sleeping through class, now you have to get up and go to work. 
• No more borrowing thousands of dollars a year, now you have to start paying back your student loans.
• No more student tax credits, now you’re earning real money and the government wants their cut.

These realities can be a rude awakening, some mornings you’ll think about adding another major and going back to school for a few more years, just to get away from all that responsibility.

Making Your Money Work for You
Of course, the good news is that now the money’s rolling in.  You spent all those years learning a profession and now you’re hard work pays off each month when you get a paycheck.  If you have to get up and go to work every day, why not make the money you earn go as far as it can?

This financial cheat sheet series can help you with that.  We’ll cover some things you may not have picked up in school or maybe tips you already know but could use a refresher.  The good news is that a lot of personal finance just boils down to understanding the key concepts and using common sense.  Below are the topics we’ll take a look at, stay tuned for the financial coverage:

• Investing Tips
• Health Insurance Tips
• Student Loan Tips
• Spending & Budgeting Tips
• Credit Card Tips

How I Make Tough Money Decisions

As a single mother of two growing children, I have a tight budget, even with child support payments. Just when I think I am getting ahead, somebody needs a new pair of glasses or a dental visit. Forget that my youngest is having growing spurts and needs a new wardrobe two or three times a year. With my oldest going to college soon, and still paying off my own student loans, I have tough money decisions to make.

Just like everyone else, I have to prioritize how I spend any income. First of all, the house payment, car payment, and student loan are automatically deducted from my account, so nothing is paid until that money is subtracted from the budget.

Next, I pay the utilities. Since my first full-time job was working with the electric company for 10 years, and the fact that the family lives in cold country, I know letting those bills slide will only cost me more in the long run.

Then, I am trying to pay off credit card debt, one teaspoon at a time. As you all know, paying the minimum is not an option, if a person ever hopes to get out of debt. So, I try to pay extra. I have a computer program to help me budget the payments. So, I have a set goal for being credit card free.

Finally, I can go to the grocery store. Now, I know many will say to go to the store first, feed the kids, and then worry about the bills. Some have even criticized me for doing the opposite. However, it works for us. Since I have a fluctuating income, some months we have a Mac and cheese budget, a hamburger budget, or a steak budget. My family has never gone hungry. We may not always get to eat our favorite foods, but most of the time my kids can afford to be picky.

I know I said “finally” and some of you may be wondering about the entertainment piece of the pie. Well, going to the movies is a once or twice a year treat. We have a library of movies we can watch on the television. We play games on the computer or get out a deck of cards. Between school, work, and extracurricular activities, we are not really concerned about an entertainment allowance.

So, how do you prioritize or make tough money decisions?

Tina

Budgeting for a Better 2008

Do you make New Year’s resolutions? I used to, until I realized I usually blew it within the first 2-3 weeks. I hate making promises I cannot keep, even if the vows are only to me.

However, I definitely need to do something, if I want to budget for a better 2008. A self-employed divorced mom of two, I am not exactly rolling in dough, and I have a daughter going to college in the next couple of years. Since I went back to college after the divorce, I still haven’t paid off my student loans!

Just this week, I talked to my mom on the phone about her impending retirement. Commiserating with each other, we discuss how to budget for a better 2008. The answer was simple in thought, but it will definitely require a lifestyle change.

Simple: Needs vs. wants

For example, do you stick to the grocery lists, when you are actually in the store? You forgot this, or you want that. According to the plan, if it falls into the want category, or something you can do without, walk away. Even to the last candy bar, if you don’t need it, you can leave it on the shelf.

Now, that is not to say you can never have any treat. But, how much money do you spend on items you can actually live without, and still be happy? I know I would be shocked, if I could total all of my “want” purchases in the last year.

I did not say the plan is easy, but it is a simple and logical idea. Buy what you need, and walk away from what you want.

Another example is a 2nd for half price sale. You need a new pair of shoes. When you go to the shoe store, they are advertising a half price sale. Great! NO!!! Resist the temptation! Get what you NEED and walk away. Even though the second pair is only half price, the price you pay for the 2nd pair is not a need; it is a want. The money could be saved for bills or a rainy day. Walk away!

Today, it may be hard to say “no”; tomorrow, when some of the bills are paid down, or you have some Christmas money in savings, you can justifiably be very proud of yourself. How do you plan on budgeting for a better 2008?

Tina

Holiday Budgeting Tips from Ebenezer Scrooge

If you have seen/read The Christmas Carol, you already know that Scrooge is the Bad guy. Well, I contend that Scrooge is not all bad, and here is why:

Yes, Scrooge could have put a little extra coal on the fire; he could have allowed Mr. Crachit a little more time off, and been more understanding. But, I think we are too quick to crucify the poor old man.

Remember, at the time Charles Dickens wrote the original manuscript, it was during a depression. Only a select few had two nickels to rub together. But, as an employer, Scrooge is not obligated to give Tiny Tim medical care, supply Christmas dinner, and bring a carriage full of gifts. Despite all of his flaws, Scrooge is not all bad.

Now, I am sure you are wondering what this has to do with you!

Christmas does not have to be a feast, with all sorts of foods you do not normally afford; nor, does Christmas have to be a carload of the best and latest gifts for everyone on your list. However, that does not make you a Scrooge.

Honestly, the people you normal buy gifts for probably already know you are on a tight budget. If they care for you, a simple “thinking of you” gift is great. Small children still expect something under the tree, but it does not have to cost a lot. Some of the best gifts my children have gotten in their stockings came from the dollar store.

If someone expects you to spend more than you can afford, be honest. If your friend or family still does not understand, then you need to get back to the real meaning of Christmas, and know it will have to be their problem, not yours.

Know being careful with your Christmas budget does not make you Scrooge. You do not have the money that Scrooge had stashed away; an affordable gift will not deny friends and family heat or make them work too hard. A true friend or loving family member should not want you to go into debt for what should be a Merry Christmas.

How do you manage your Christmas budget?
Tina

Money Resolutions for a Financially Secure New Year

Have you thought about your New Year’s resolutions yet for next year?  How about knowing where your money is going, knowing where you want it to go, saving more, and reducing debt?  Sound like a tall order?  If you set some specific financial goals for yourself, you’re much more likely to achieve some of them.  Check out the suggestions below, tailor them to meet your needs for next year:

Track your spending
If you haven’t purchased financial accounting software or set up a reliable accounting method of your own, this is the year to do it. Diligent expense tracking is the first critical step to getting personal finances in order.

Write down your goals
Have you ever written down the big things you want in life? Granted, all great dreams don’t cost money, but many of them do. Money buys freedom – to travel, to retire early, to start a business, to change careers.  Putting goals in writing gives them a formality and a starting point for the planning you must do.

Consider advice on taxes and planning
Maybe you’ve always winged it with your taxes and considered your company 401(k) the ticket to your financial future. Chances are your planning is inadequate. Start getting references on good tax professionals and consider sitting down with a financial planning professional to discuss your current retirement savings picture and what you can do to improve it.

Cut your credit card debt
If you can’t ever seem to get yourself completely out of credit card debt, make this the year to do it. Take inventory of your balances, figure out if you can consolidate them under your lowest rate card, and resolve to pay off an amount that exceeds the minimum — on time, every month.  Oh, and pay cash from now on.

Save more
If you haven’t signed up for your employer’s 401(k) plan or begun a savings plan tailored for the self-employed, this is the year. And resolve to save at least five to 10 percent of your take-home pay as you’re able to afford, and place the maximum in whatever retirement savings plans you qualify for.

Get ahead on your mortgage
This advice isn’t for everybody, but if you’ve paid off your credit cards by paying more than the minimum, apply the same principle to your mortgage payment. Every dollar you prepay will potentially save thousands in interest over the life of the loan if you plan to stay in your home long-term. In fact, if you make one extra payment a year, either at once or in equal monthly shares over the course of a year, you can cut a 30-year loan down to 21 years.  Just don’t short your investment plans to do it.

Invest in yourself
If going back to college or taking specific coursework will help you advance in your career, plan to do it. If investing in a health club membership that you actually will use makes sense for your health, do it.

Redefine the way you shop
If you’re an impulse shopper, break the habit in ’08. As a suggestion, get a legal pad and make that your centralized shopping list – use a single page for groceries, stock-up goods (it’s wise to start buying essentials in bulk if you can measure the savings), essential clothing or big expenditures you’ll need to make at specific times. Taking that pad with you wherever you spend money is a good way to keep a grip on your wallet – as long as you don’t stray from what’s written down.

Cook more
Even if you can’t boil water, eating out is one of the biggest drains on the American household budget. The National Restaurant Association reported that in 2004, the average household spent $2,434 in restaurants, equal to $974 per person. Start small – resolve to cook at least one or two meals a week you like that will be cheaper at home. If it’s drudgery, you won’t keep it up.

Attack the miscellaneous column
Do you really need deluxe cable? How much are you paying for your Internet service? Can you wear a sweater around the house and lower the thermostat? In every budget, there are items that can be cut – or at least trimmed. Take a hard look at all your “essentials” to see how essential they really are. Aim for a target of at least 10 percent and start setting that money aside on a regular basis.

This post is produced in association with the Financial Planning Association (FPA), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.

Christmas - Play Now, Pay Later

Christmas is a wonderful time of year! You look forward to the lights, the Christmas carols, the food, and the chance to be with family as you celebrate the reason for the season. However, along with all the festivities, the bills usually stack up during the holidays. For many, gift giving results in dread and frustration, as the list of recipients grows longer every year.

Sadly, many people spend so much money over the holidays, paying the bills takes until next Christmas to get caught up. Then, it is time to start spending all over again! Do not fall into the money trap of Christmas. Learn how to enjoy the season without suffering from the play now, pay later syndrome.

Of course, I created a catchy syndrome to get your attention, but there is nothing funny about buying your way into debt every December. So, here are some ways you can enjoy the holidays without selling your firstborn to pay the bills:

• Reevaluate your priorities- is Christmas about family, or getting the best presents. If it is usually the latter, have a family discussion, and set new priorities. The true joy of the holidays should not come in a big, expensive box.

• Be creative- and make decorations for the tree. A great family activity, making homemade decorations like stringing popcorn is lots of fun, unbreakable, and does not take up storage space after the first of the year.

• Homemade Christmas gifts- are a wonderful way to say, “I love you.” For example, if you crochet, make snowflake ornaments for all of the relatives. Children, draw pictures. Parents will treasure your artistry more than anything you could have bought at the store.

• Give IOU’s- No. It is not bad etiquette to give an IOU. Last year a family of seven decided Christmas was simply getting to costly, so they exchanged notes. For example, a child’s note may read: “I owe Mommy any chore of her choice without complaint.” Dad’s note to Mom could say: “I owe you a date, without kids, to go shopping, eat out, go to the movies, or take a walk on the beach.” With a little help, even the smallest toddler in the family can give IOU’s to parents and siblings.

• DO NOT overcharge this Christmas- have a budget and stick to it, even during the holidays. If you must pull out the plastic, make sure you do not charge more than you can pay off within the next month. You will enjoy the holidays a lot more, if you do not have to dread January.

As a self-employed single parent, I tend to dread the holidays, which makes me sad. I do not have the money to get them the gifts they want. Also, I still have to worry about buying for extended family. I have had to consider my own values this Christmas.

With the rising cost of heating fuel, gasoline, housing, and everything else-including groceries, I know many of you are also feeling the budget crunch of the holidays.

If you have any suggestions on how to have a Merry, and affordable Christmas, please share your ideas.

Tina

Juggling Funds So Our Mortgage Check Won’t Bounce

Ever since my wife left her full-time job to stay at home with our son our bank account has looked a lot more bare towards the end of the month.  Losing a salary has required us to pay better attention to our nickels and dimes so we can ensure all expenses are covered.

Bye-Bye Buffer
My paycheck is split between our high interest savings account at ING and our regular checking account with our bank.  It used to be we always had a nice cushion in the checking account so there was always a buffer when the bills came in at the end of the month.  Now we’re having to watch that balance much more closely to make sure the funds are available when the checks are cashed.

New Income Source
One thing that has helped cover some of our expenses is a new job my wife started a few months ago that lets her set her own schedule and spend the majority of the week with our son.  Due to some administrative issues direct deposit hasn’t been setup yet so she’s still receiving a paper check each month.

Bounced Mortgage Payment
As of this morning her most recent check has not yet been deposited in our bank account and our mortgage payment goes out tomorrow. Needless to say I’m a little worried our mortgage check could bounce for the first time but she assured me she’s got it covered.

Financial Organization Needed
As I mentioned early, part of my check goes into an ING account so we have the money there to cover the mortgage, the only problem is it takes 2–3 business days to transfer money between the accounts. Basically, it boils down to the fact I need to be more organized in tracking our cash flow. I used to have an expenses calendar that mapped out what part of the month each bill was due and approximately how much it would be.  I need to dig that calendar out and be more attentive to it so we don’t end up in this uncomfortable situation again.

Start Your Christmas Gift Fund in October to Avoid Holiday Debt

Although we haven’t even seen Halloween yet, let alone Thanksgiving, it’s not too early to start budgeting for Christmas.

Make It Easier To Save
Are you paid twice a month?  Then you have 6 paydays between now and Christmas.  If your paycheck only comes once a month there are just three money days before the end of the year!

If you can save a portion of each paycheck between now and the end of December you’ll have built up a Christmas gift fund to pay for the load of presents you’ll shower on friends and family over the holidays.  It’s easier if you start saving small amounts early, rather than wait until the end of November and panicking about how much money you’re going to need; or worse just putting it all on your credit card and trying to pay it off in January.

How Much Should You Save?
The amount you spend on gifts is of course a personal choice.  One way to look at it could be to decide you’ll spend money on Christmas presents as a ratio of your disposable income. For example, if you have $500 left after expenses each pay period you could decide to set aside 30% of that for gifts.  The grand total that you’d save by the end of December would be your gift budget. 

The nice thing about this approach is that you have no reason to put it off.  Since you don’t have to figure out what you’re going to get each person and build a budget you’re less likely to procrastinate and delay your savings.  The other benefit is that it ties your spending to the amount you earn.

Another approach is to make a gift list of everything you’d like to buy, tally up the total, and set that as your Christmas budget.  Although saving as a percentage of your earnings is a simpler approach, itemizing your present wish list may be a little more realistic.  I imagine you’d tend to spend more overall with this approach but if you can identify the expenses in advance and save for them then that could be the better approach for you.

Avoid Holiday Debt
I can tell you right now some of the radio commercials you’ll hear come next January.  “Have a Holiday debt Hangover? Come down to XYZ Credit and consolidate your loans.”  They’ve got the ads lined up and ready to run.  Do you really want to have to go down to XYZ Credit and consolidate your loans next January? 

It will be the start to a new year, a time you can begin again fresh.  Why ruin it with a load of holiday debt?  Start planning now for your Christmas gift spending and you’ll be much happier in the new year, or at least less broke : )

Next Page »