Debt Snowball vs. Debt Snowflaking

If you are serious about getting rid of your debt, you need to have a plan. There are numerous approaches to paying off debt, but two of the most common are the debt snowball and the debt snowflake methods.

Think about the merits of each approach, and determine whether one or the other might work well for you.

Debt Snowball

Many people know about the debt snowball method. This is the method advocated by Dave Ramsey.

The approach is fairly basic:

1. Order each of your debts, from smallest balance to largest balance, listing the minimum payment amount for each.
2. Look at your monthly budget. Figure out how much extra money you can afford to use as a debt reduction payment each month.
3. Take that extra money and apply it to your smallest balance on top of the minimum. Keep paying your other minimums as normal.
4. Once your smallest loan is paid off, take all of the money were using to make a monthly payment and add it to the minimum payment on the next loan on your list.
5. Repeat with subsequent loans until everything is paid off.

As you can see, as you move forward with this process, your debt pay-down amount increases each month, and the rate of your pay-off accelerates later on. It’s like a snowball getting bigger as it’s rolling down a hill! With this method, you set up a budget, and stick with it, paying the same amount each month until your debt is gone.

Debt Snowflaking

The idea behind debt snowflaking is a little different. As with the debt snowball, you order your debts according to how you want to pay them off. You also make the minimum payment on all your accounts. However, instead of having a set amount extra that you pay each month, you take all the small savings you can in the month, and apply them toward your debt.

You can go about this in one of two ways:

1. Each time you save a small amount of money, you immediately log into your account online and make a payment on your debt.
2. You keep track of the small amounts throughout the month, and then make one payment – on top of your minimum – at the end of the billing cycle.

Either way works fine. The idea is to look for ways to save a small amount of money and have it add up to a bigger debt payment amount. So, if you brown bag it for three days one week, instead of eating out, you take the difference and apply it toward your debt. If you cancel a subscription, you take the savings and apply it to your debt.

For many people, it becomes a game. It can be fun to see how much you can save each month for your debt pay-down amount. Every little bit helps.

Combine the Two Methods

One way to be super-effective in your debt pay-down efforts is to combine these two methods. First, make a basic debt snowball plan. If you can only put $100 extra toward debt reduction each month, plan on that. It becomes part of your regular effort to pay down debt. However, don’t stop there.

Once you have your debt snowball underway, boost your efforts by snowflaking. See how much more you can reduce your debt each month by finding little ways to save and then adding that amount on top of your debt snowball payment. You’ll pay down your debt faster by combining these two very effective debt reduction techniques.

How are you paying off your debt? Leave a comment!

This article was originally published October 22nd, 2012.

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How to Consolidate Your Debt: 3 Options

One of the ways that you can make your debt a little more manageable is to consolidate it. Debt consolidation allows you to put all your debts together so that you only have one payment and one interest rate. Over time, you can save money in interest as well as make sure that your debt payments are manageable while slowly paying off your debt! There are three main options when it comes to debt consolidation:

1. Unsecured Debt Consolidation Loans

In some cases, it is possible to get an unsecured debt consolidation loan. This loan might come in the form of a personal loan from a bank, or it might even come as the result of balance transfers to a 0% credit card.

However, in order to qualify for this type of debt consolidation loan, you usually can’t have a great deal of debt. These types of loans come with moderate interest, and since they are unsecured, you don’t have to worry about losing your home or other assets if you default.

A bank is unlikely to provide you with a personal loan of much more than $5,000 especially unsecured. Additionally, you aren’t likely to be able to find a credit card with a high enough credit limit to perform a balance transfer that will help you pay off all your smaller debts. However, a credit card balance transfer can be great if you have a lot of small credit card balances you are paying interest on. Consolidate them with a 0% balance transfer deal and save money in interest.

2. Home Equity Debt Consolidation Loans

Another option for a debt consolidation loan is to secure it with the equity in your home. If you have more debt, you might be able to get a loan to pay it all off – provided you can secure it with your home. With this type of loan, you take the ownership you have in your home and borrow against it. You use this larger loan to pay off of your other debts.

One of the advantages of the home equity debt consolidation loan is that the interest you pay can be tax-deductible. Additionally, the interest rate on a home equity loan is usually much, much lower than what you are paying on your other debts. As a result, it is possible to consolidate more high interest debt, and possibly see a tax benefit to boot.

However, you have to be careful with a home equity debt consolidation loan. Realize that you are securing your debt with your home. If something happens, and you are unable to make payments, you could lose your house. Not fun!

3. Non-Loan Debt Consolidation

In addition to the possibility of taking out one big loan to pay off the smaller loans, you can also consolidate your debt with without borrowing. There are debt consolidation companies that will help you negotiate lower interest rates with your creditors, and create a manageable payment plan. You make one monthly payment to the debt consolidation company, and the company makes payments to your creditors.

This type of debt consolidation helps you so that you don’t have to borrow to consolidate, and it helps you avoid securing your formerly unsecured debt with your home. However, all of these companies charge fees, so you will need to shop around to make sure that you aren’t being gouged. You also need to be on the look out for scams. Properly vet any debt consolidation company you choose, since there are plenty of unscrupulous companies out there.

Bottom Line

If you are having trouble keeping track of your debt payments, debt consolidation can help. However, you do need to be very careful. Consolidating your debt doesn’t meant it’s gone; it merely means that you have it lumped together. One temptation with debt consolidation – especially if you have a debt consolidation loan – is to feel as though you have “more money” available. For example, a home equity loan can pay off your credit cards, so it feels like you have a lot of room. Once you start charging up the credit cards, without paying off your loan, you are in even bigger trouble than before!

In order for any debt consolidation effort to work, you have to be committed to changing your financial habits, and you need to stop acquiring more debt.

Have you consolidated your debt? What did you do, and how did it work out? Leave a comment!

This article was originally published on October 1st, 2012.

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4 Tips for Working More Effectively with a Financial Professional

We all need help sometimes, and this includes with our finances. If you are unsure of how to proceed with your finances, it might make sense to meet with a financial professional or planner who can help you out.

Before you begin working with a professional, though, you need to prepare. You will be paying a professional to help you with your finances, and you need to make sure that you are getting your money’s worth. Here are some tips that can help you work more effectively with a financial professional.

1. Figure out what you need help with.

Your first step is to figure out what you need help with. Identify the purpose of your meeting with a financial professional. Do you want to find someone to help you manage your assets? Or do you just need help putting together a financial plan? Do you want help getting out of debt? Do you need advice on retirement?

Put together a short list or statement about what you want to accomplish with the help of the financial professional. Once you have an idea of what you need to happen, and what you are looking for, you will be able to better help your financial professional help you.

2. Bring in the documentation you have.

In many cases, your financial professional will need to see documentation and understand your current situation. Ask the professional what they need in order to make the appropriate plans for you. This means that you might need to share things that you aren’t particularly proud of. However, if your financial professional requires the information, you should bring it in. They know what is needed to help put together a good plan for you.

3. Be honest.

You have to be open and honest about your financial situation if you want effective help. It might be embarrassing to share certain aspects of your finances with another person, but it’s important. Your financial planning professional can put you on the right path, and show you want you need to do in order to reach your goals.

So, make sure you are open about how much you have really saved for retirement, and be clear about how much debt you have. Don’t try to make things seem better than they are. If you want real help, your financial adviser needs to know the way things truly stand.

4. Be willing to implement.

Too many people go to financial professionals for help and then never implement the action items suggested. If you are going to pay someone else to help you, you should be willing to accept their advice. This means that you need to be in a place that allows you to make changes. Are you ready to do something different? Until you are truly ready to change course, there is no point in consulting with someone.

Look for a way to hold yourself accountable to what you are told. Whether it means getting your life partner on board, or whether it means reporting regularly to your financial adviser, you need to figure out a way to ensure that you will implement the suggestions you are given.

What do you think makes for a more productive relationship with a financial professional? Leave a comment!

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How to Buy a House Without Making Gigantic Money Mistakes

Buying a house involves making lots of decisions, many of which are daunting because of the high cost of real estate. I spent 20 minutes on the phone with a friend of mine a while back talking through various options and considerations for selling his home and buying a house in our area. I could hear the stress and uncertainty in his voice and sympathized with how he felt.

The Fear of Mistakes

Remembering back to our experiences of buying a house I can recall that in the back of our mind the whole time we were worrying that we would make a gigantic mistake. If you only buy one or a few houses in your lifetime you don’t go through the process very often and a rookie mistake could end up costing you thousands of dollars.

It’s not just the potential cost of a mistake that sets you on edge, it’s also the fact that you’re making one of the biggest commitments of your life and making decisions that may live with you for the next 20 or 30 years – or even longer.

It was no surprise to me that when I asked readers a while back what kept them up at night one of the big things was finding a house they could like yet afford.

Finding Money to Buy a House

Unless you’ve saved up enough money to pay for your house with cash, you’ll have to borrow funds to buy a house. You’ll have to figure out how much you’re eligible to borrow and how much you’ll expect to pay based on your financial situation.

If you’ve struggled with finances in the past and have bad credit or a history of bankruptcy or foreclosure that makes it more difficult and we touch on that in one of the articles. Also remember that how much you’re able to borrow usually isn’t the same as how much you should borrow. You may be approved for a loan amount that’s actually higher than what you can afford. But we’ll get to that in the next section.

• How to Improve Your Credit and Buy a House
• 12 Steps to Improve Your Credit Score
• Mortage Pre-Approval When Buying a House
• Down Payments and Private Mortgage Insurance

Buying a House You Can Afford

As I mentioned earlier, buying a house is probably one of the biggest financial commitments you’ll ever make. You want to find something that meets your needs but also a home that won’t put you in the poor house for decades to come. So here’s a look at figuring out how much you can afford and some ways to help stretch your dollars to get more house for less.

• 3 Ways to Buy More House for Less Money
• How to Buy a House in an Expensive Market
• How Much House Can You Afford?

Financing Your Home

Decisions about financing your house can potentially save you or cost you tens of thousands of dollars over the life of a home loan. If that’s not enough to stress you out, picking the wrong type of loan could even mean the difference between being able to make your payments or facing foreclosure. Here’s a look at the implications of the different loan options and ways to keep your borrowing costs down.

• 30-Year Mortgage vs. 15-Year Mortgage
• FHA Loans vs Conventional Loans
• How to Use a Mortgage Calculator to Compare Home Loans
• 6 Key Factors for Home Mortgage Rates
• Finding the Best Mortgage Rates
• Home Loan Closing Costs

Paying for Your House

Once you finally find the right house and the right loan and get moved in your house payment is due every month for the length of your loan. If it turns out that bill is more than you can handle or is just higher than you’d like, here are a few things you can do to help ease the pain of a monthly mortgage.

• What to Do if You Can’t Pay Your Mortgage
• How to Sell Your House Without a Realtor
• 5 Ways to Pay Off Your House Early

I hope these articles help take some of the uncertainty and stress out of the process of buying a home.

Have you made any money mistakes when it comes to buying a house? What can you teach others? Leave a comment!

This article was originally published May 12, 2011.

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Working at Home: Dream or Nightmare?

A work-at-home arrangement can seem like an employment dream – especially for the person who has never done it before and sees it as the perfect set up. But I’m here to tell you that it can also be a certified nightmare! Having been a work-at-home dad for many years, I’ve experienced both the dream and the nightmare side of it. In truth however, I wouldn’t trade it for life in an office cubicle ever again.

In your case it could be either a dream or a nightmare – how can you tell which ahead of time? Here are some pros and cons to working at home.

Work-at-Home: The Dream

When work-at-home works, it’s a perfect arrangement. But whether or not it works at all will depend upon your own personality and personal circumstances at home.

You’re More Productive at Home

It really is true, but some people are most productive when they are most comfortable. Working in pajamas, or at least in very casual clothing, and in familiar personal surroundings, they can achieve more than they ever can sitting in a corporate office. If this is you, then work-at-home can be a dream situation – the ability to become a top performer – but to do it from the comfort of your own home.

You Have a Quiet Place – and Quiet Housemates

Much of the success or failure of any work-at-home situation is your actual physical arrangement at home. If the home is a quiet place, at least during the daytime working hours, and you have a private office to work in, you can prosper in the arrangement. A dedicated office is especially important; you need to have a place that is separate from the rest of your home, and is specifically set up for work and no other purpose. When you are in the office – and the door is closed – it is a sign to yourself and to everyone in your household that you are now at work.

You Can Create a Better Work/Life Blend

Work-at-home means the end of the daily commute to and from work. That should give you more time each day, as will the absence of coworkers and the distractions they bring. You may also find you have more time and ability to tend to whatever personal circumstances that you need to deal with. If you are able to manage this blend efficiently, work-at-home can really be a dream situation.

You’re a Rugged Individualist, Who Prefers to be Alone

If you’re a “self-starter,” the kind of worker who knows what you have to do and can get it done quickly and efficiently – without supervision or support – then you can actually thrive with a work-at-home job. And there’s no doubt about it, quiet time is easier to come by when you work at home.

Work-at-Home: The Nightmare

Surprisingly, work-at-home doesn’t work for everyone. There could be factors in both your personality and home life that will sabotage a work-at-home arrangement.

You Have Trouble Getting and Staying Focused

Some people find that they need the structure of an office and close supervision in order to stay focused and to be productive. Not all of us are self-starters, and if you’re not then work-at-home can be a complete disaster. An employer will only allow you a work-at-home arrangement if your production is strong – and they may even prefer that it will exceed what you can do when you’re working in the office. If not, they may pull the plug on the arrangement.

Home is a Zoo

More 50% of your success in a work-at-home arrangement is the tranquility – or the lack of it – in your home. If you have small children at home that you are trying to supervise, they may interfere with your work. If your spouse also works at home, this could prove to be a major distraction as well.

Work-at-home works best when home is a peaceful and undisturbed place. The popular notion of blending work-at-home with child rearing is highly over-rated.

Your Work-at-Home Job is Taking Over Your Life

This is a completely unexpected outcome for most people, and the exact opposite what they hope to accomplish. But it is possible that your work-at-home arrangement can end up taking over your personal life.

When you work in an office, there’s a beginning point and an end point to your day. When you work at home, those parameters can become blurred. You may find yourself beginning work at 7 AM, and even working until midnight.

If you are really driven in your work, you can fall into this pattern quite easily. The prospect of a successful blending of work and home life will become a complete casualty.

You Crave Camaraderie

Some of us just need to be around people when we are working. We often forget that our coworkers are part of our general support structure in life. We may need them to motivate and support us in our work. And we may even need their friendship. If you’re the kind of person who is very social, and likes to be around others, work-at-home may not be the right arrangement for you.

If you’re considering a work-at-home arrangement, give some serious thought to the points above. Sure, “on paper” work at home looks like a dream situation. But if you don’t have the right personality – or the right setup on the home front – work-at-home can prove to be a complete nightmare.

Are you thinking about entering into a work-at-home arrangement? Have you considered any of these potential issues? Leave a comment!

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Is Identity Theft Insurance Worth It?

Given that identity theft is becoming a more common problem, it was just a matter of time before someone would come up with an insurance policy designed to protect against it. It’s called identity theft insurance, and it’s a fairly new type of coverage.

What is it, and is it worth having? Here are some answers.

What is Identity Theft Insurance and How Does it Work?

This is a type of insurance that is offered typically by banks and credit card companies. Essentially they monitor your credit on regular basis (something you can easily do for yourself), and report any negative findings to you. This will be the signal to you that your identity has been compromised and you need to take action.

There are various monetary benefits that are available for the policies, however this can vary widely and is hardly uniform. There will usually be some form of limited benefit for lost wages due to the theft, as well as a fixed legal cost benefit.

What identity theft insurance typically does not do is reimburse you for any financial losses that you incur as a result of the theft. Since this is typically the largest expense (by far) related to identity theft, the fact that it is not provided largely invalidates the coverage for most consumers.

What Identity Theft Insurance Doesn’t Do

Though identity theft insurance will often pay you to hire an attorney to help with the problem, an attorney’s ability to operate in such a case is limited. Creditors typically will not talk to anyone other than you regarding matters concerning your credit, which leaves very little for an attorney to do.

For the most part, you’ll have to do a lot of work with the individual creditors yourself, and other than a small amount of money that the insurance company will reimburse you for lost wages, this will mostly be on your own time and at your own expense. In all probability, the cost of paying your insurance premiums will outweigh any benefit you’ll receive from the policy.

Identity theft insurance policies also typically come with a big limitation – the coverage will not be effective if the identity theft is an “inside job.” Very often, identity theft is perpetrated by someone who you know or is even in your own family. If that is the case, the coverage will be invalidated and of no use to you no matter how much you paid for it.

A Better Approach to Dealing with Identity Theft

Rather than taking an identity theft insurance policy – and living with a false sense of security – you are far better off taking a few commonsense steps that will reduce the likelihood of identity theft in the first place.

1. Keep identifying information out of sight.

Most of us are pretty casual about keeping sensitive information at home. Don’t be. As noted above, identity theft is often an inside job. A person close to you can gain a wealth of information about you by picking up a copy of your tax return, a bank statement, or a credit card statement that wasn’t properly filed. Any sensitive paper documents should be stored in a locked file cabinet.

2. Invest in a good shredder.

Now that we know that identity theft is a real and constant threat, you should have a good shredder in your home. Shred any documents that are beyond a certain age, or are not entirely necessary to be retained. Too many documents laying around the house – and even under lock and key – are a constant temptation to a would-be identity thief.

3. Pay your bills online, rather than through the mail.

Paper bills leave paper trails, and that makes a strong case for paying as many bills online as you can. Those paper trails – in the form of paper bills – are liabilities. While it is important to properly store them, and to destroy as many the possible, it is perhaps even more important to keep them to a minimum. Paying bills online will accomplish this.

4. Pay with cash wherever you can.

Sometimes we get too casual paying for everything with credit and debit cards. But each creates a paper trail, including one that extends to the merchant where you made the purchase. Very often, identity theft takes place in the places where we do business. An employee within the organization gets your information and runs with it.

But if you pay with cash, there is no paper trail – no identifying information. You can make your purchase, and then get on with your life, secure in the knowledge that the store – and its employees – will not have access to any of your information.

5. Buy only through trusted websites.

Some websites are set up for the sole purpose of identity theft. They get you to make a bogus purchase, collect all of your credit information, then sell your identity on the open market. Make sure you deal only with trusted online sites! You can also protect yourself with online transactions by buying with PayPal, so that no personal information is provided.

6. Monitor your credit.

Monitoring your credit report will not prevent identity theft, but it will alert you if there’s a problem before it gets bigger. This is especially important since identity theft often starts with a single credit entry. The thief isn’t as interested in getting money out of one of your accounts as they are in assuming your identity. Once they do, they’ll use your identity to begin obtaining credit, employment, and anything else your credit profile may be needed for.

As soon as you identify a single unknown credit issue, this is your tip to know that you need to get busy to take care of the problem before it gets even bigger.

These are all steps you can take for yourself, and you’ll be far more effective in helping yourself to deal with identity theft than any identity theft insurance policy might be.

Have you taken an identity theft insurance policy? Or are you considering doing so in the future? Leave a comment!

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How to Handle a Spendthrift Spouse

We all hope to improve our financial situations over the long run. But what do you do if you have a spendthrift spouse who isn’t on board with your plans for financial improvement?

It’s sad but true, that while people seek out all kinds of common ground in a marriage partner, the one area that is often completely neglected is the finances. We often assume that if we’re compatible in other areas that we will also be compatible when it comes to money. Unfortunately, that’s not always true. In fact, a married couple can be poles apart when it comes to money.

If that’s your situation, how can you overcome it? Here are some places to start.

Creating the Money Meeting of the Minds

In many marriages, there is a business-as-usual approach when it comes to money. Each spouse handles money in their own way, and often ignores the direction that the other spouse is taking, particularly if it’s a very different one. But that kind of arrangement ultimately ends in disaster. Even if one spouse manages money responsibly – saving money, investing, and avoiding debt – the less responsible spouse’s habits can end up pulling the couple down.

As with any issue that could divide a couple, you need to have a meeting of minds where money is concerned. That doesn’t mean that the two of you need to adopt identical money habits, but you should begin moving in the direction of general agreement – at least in regard to major financial decisions.

Some areas of particular interest include:

• Agreeing on paying off any debt that you have, and how you will go about it.
• Maintaining an adequate emergency savings account.
• Making provisions for retirement, even if you’re not in full agreement as to specifically how much.
• The type and cost of the home you live in.
• Major spending decisions – you might want to create a dollar threshold here in order to specifically define what constitutes “major.”

Again, you don’t need to necessarily develop identical financial habits, but you should begin moving toward common ground.

Merging Your Finances

If one spouse is strong with money, and the other isn’t, it can often help to merge your finances to a greater degree. This can include eliminating separate checking accounts in favor of a joint account. Or making sure that your emergency fund is also a joint account, and you both contribute.

Though separate finances can work well between certain couples, it can also provide cover for a poor money manager to overspend and under-save. By creating joint accounts, you put the “we” in your marriage, at least where finances are concerned.

Building a Winning Financial Future

When two spouses have such different views of finances, it is often rooted in wide variations in each spouse’s view of their financial future.

The spouse who is a good money manager, may have a dream of a future that is based on financial independence. The other may have no dream at all, and is mostly focused on living in the moment.

If you are the stronger spouse financially, you may be able to bring your spouse closer to your way of thinking by laying out a well-detailed vision of your future together. In doing this, you’re creating a destination – a better future where you will both be happier. This could be a way of creating a defining goal that your spouse has not had up to this point. And that could change everything.

Establishing Accountability

We’ve all heard the saying, while the cat’s away, the mice will play – but that’s also how people can develop poor money habits. If you are free to spend your money any way you want, with no accountability to anyone else, it’s easy to get sloppy.

You’ll be able to solve this problem by making each other accountable to one another. You can do this by establishing a rule that monthly credit card statements and bank statements will be available to one another on a regular basis. People often behave better with money when they know that someone else will see what it is that they’re doing.

Setting Up Forced Savings Plans

One of the best ways to get a spendthrift spouse to work better with money is through forced savings plans. These are common with retirement plans, like 401(k) plans, but they can also be used to channel money into savings accounts and various investment funds.

By allocating at least small amounts of money to be transferred into savings and investment accounts on a regular basis, you don’t even miss the money. It’s a way of overcoming a lack of ability to save in a more direct fashion.

But forced savings plans have another tangible value. As the savings and investment accounts grow, you begin to see progress. If your spouse has never saved money before – and begins to see their accounts growing in value – that may create an incentive to save and invest the never existed before.

Building Flexibility into Your Finances

A spouse is sometimes a spendthrift because they prefer to resist any regimen that is rigid in nature. For this reason, if you have a spendthrift spouse, you have to find ways to build flexibility into any financial plans that the two of you agree on.

For example, you may have to be content at making progress in building up savings and paying off debt, and letting some other things go. You can do this by setting up a budget that will provide for savings and debt reduction, but also allow money for free spending.

The provision for free spending could be the glue that holds your entire marital financial plan together. In general, you will be moving in a positive direction in that your savings and investments will grow, and your debts will gradually be paid off. But by providing plenty of room at the margins you may keep the spendthrift spouse from feeling like they are in a financial straitjacket.

Think of it as the proverbial tree that bends but doesn’t break. That’s how it has to be in a marriage, especially when it comes to money.

If you’ve worked through difficult financial situations with your spouse, leave a comment and tell us about your progress!

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5 Winning Money Habits for Recent College Graduates

It’s unfortunate but true, that out of all the things that college teaches you, winning money habits are not among them. If you are a recent college graduate, it’s almost certain that you’ll have to learn money management for the first time in your life.

Sure, you learned a few things about money during your school years – mostly living without it. But it’s a big difference when you have a paycheck that needs to be allocated, and all kinds of expenses pulling at you from all different directions. It can be confusing, and if handled incorrectly, it can set you up for poor money habits later in life.

If you are a recent college graduate, what can you do to adopt winning money habits now? Here are some excellent ideas.

1. Embrace a low-cost lifestyle.

You undoubtedly learned the art of living on less while you were in school, but now is no time to abandon that strategy.

Many college students – thoroughly tired of living on a shoestring – begin spending money with reckless abandon upon landing their first full-time job. This is a mistake, not only because it can cause you to spend money you don’t have, but also because it can cause you to increase your expectations in life. High expectations cost a lot of money!

The most basic strategy for financial success in life is to spend less than you earn, and invest the difference. Over time, that strategy is almost guaranteed to make you rich. But in order to get there, you have to keep your expenses low.

Live in the least expensive housing you can, drive the cheapest car possible, learn to cook and eat your meals at home, and do whatever it takes to avoid spending sprees.

2. Don’t borrow.

If you are a recent college graduate, it’s very likely to you are already carrying a significant amount of debt in the form of student loans and even credit cards. It should go without saying that you should have a workable plan and the tools you need to pay those off as soon as possible.

But beyond paying off school-related debt, it is essential that you avoid replacing it with new debt. The less debt you have, the lower your cost of living will be, and the more money that you will have to save and invest.

3. Build an emergency fund.

No matter what challenges you are facing in life – financial or otherwise – they will always be easier to handle when you have a few thousand dollars sitting in the bank. This is one of the primary purposes of living a low-cost lifestyle and not borrowing money. You want to make sure that there’s room in your budget to build your savings on a steady basis.

An emergency fund will not only protect you from unexpected expenses, but it will also be a ready cash reserve in the event you lose your job. Never underestimate this possibility, no matter how secure you may feel in your job at the moment. An unemployment check, supplemented by extra money drawn from an emergency fund, can carry you through a period of unemployment. But you have to have the money saved up in order for that to happen.

4. Start saving for retirement – even if it’s just a little bit.

On the surface, it can seem almost absurd start saving for retirement when you’re in your 20s. But as any retirement projection will show, the sooner in life you begin saving money, the more money that you will accumulate – and the sooner you will be able to retire.

There’s another important reason why you want to begin saving for retirement now. You need to establish the retirement savings habit now, so that it will be a regular part of your routine going forward. The more money that you save early in life, the more options that you will have later on.

Don’t fret if you don’t have a lot of money to save – after all, you have other obligations right now, such as paying off school debts and building up emergency savings. But even saving $100 or $200 per month for retirement will start making a difference in just a few years, especially if you have an employer match in your company savings plan.

No amount of money is too small to save on a regular basis. As time goes by, you can begin to increase your contributions as your financial situation improves. But that will only happen if you make saving for retirement a habit, and the time to do that is now.

5. Buy second-hand whenever possible.

There’s no doubt about it, college graduates have a lot of needs upon entering the adult world. There is a car to buy, and apartment to furnish, clothing, and even business equipment that you’ll need. All that will cost money – but you can make sure that doesn’t cost so much. Buying secondhand will be your best friend.

Start by buying a used car. Ideally, your car should cost no more than what you can pay without taking a loan. And if you have student loan debts to pay, the last thing you need to be doing is adding a car payment to the mix. Buy the best car that you can with the cash you have available, then plan on trading up every couple of years as your income and savings grow.

The same is true of home furnishings. Sure, we all like to have new stuff, but when you’re on a budget you have to make sacrifices. You can generally buy secondhand furniture for pennies on the dollar. And you should – after all, furniture is quite possibly the worst “investment” you can make.

Buy secondhand wherever you can – clothing, entertainment equipment, and maybe even a used computer if you can find a good one. You can save thousands of dollars this way, and that will also help you to avoid the temptation to use your credit card.

It’s important to remember – especially when you graduate school – that this is a time to build habits, good habits! That’s critically important when it comes to finances. The habits and patterns you develop now will be with you for the rest of your life. See them for the long-term choices that they truly are.

What are some other winning money habits you think you should put in place? Leave a comment!

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Career and Business: You are Your Brand!

One of the things that was driven home while I attended the Financial Blogger Conference recently was the importance of developing your own brand. This doesn’t even have to apply only to those who have their own businesses. Even as you work to climb the career ladder you still need to manage yourself as a brand.

Your Smiling Face

Among the first lessons taught at FinCon was in the opening keynote by Pat Flynn. He talked about first impressions. The way you impress others with your personal branding can make a big difference later. Whether you are looking for business clients, or whether you are trying to climb the corporate ladder, you need to consider how you want to present yourself. Because you will become a brand that others recognize.

Pat also talked about the importance of connecting your smiling face with your brand. He talked specifically about including your image on a blog to provide that connection with others, but the idea is transferable. When people see your face, what do you want them to think? Are you competent? Are you capable? What do you stand for? Can you be trusted?

These are all things that you need to think about as you reach out to others in all aspects of your career.

The Importance of You as a Brand

In the past, many workers held between one and three jobs. Workers didn’t change careers very often. You could expect to work at a single company for most of your life. You might move up the ladder, but, really, your personal brand didn’t matter as much. In the past, you just had to get the job and you were pretty much set for life.

Now, though, it’s common for people to hold down more than seven jobs throughout their careers. And with the job market somewhat uncertain, many workers are branching out and starting their own businesses. In the past, the company you worked for was part of your identity. Now, with so much career switching, that sort of identification doesn’t exactly work. You’d have to change your identity every few years!

Instead, work on branding yourself. Being able to identify yourself with a certain skill set can be helpful as you look for new jobs, advance your career, and even as you strike out on your own. Rather than just borrowing the values and attributes of your employer, you need to develop your own branding.

Thanks to social media, this is possible. You can create a brand around your own personal abilities. This makes it possible for you to separate yourself from your current employer and define yourself as someone who might be attractive to many different employers – or even clients (if you decide to start your own business).

Think about who you want to be, and how you want to present yourself. You want to be genuine, but you also want to make sure that you are careful about your image. In today’s world, you truly are your own brand. You need to make sure you like your brand image.

How do you feel you’re managing your own personal brand? Leave a comment!

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How to Put an End to Car Loans Forever

For most people, a car loan is the single biggest debt payment they make each month – right after the mortgage payment. But what if you could put an end to car loans forever? How much would that improve your household budget, and your financial situation overall?

With the high cost cars today, is that even possible? Yes! And here’s how you can do it.

1. Start by buying no more car than you can afford with cash.

Most people handle the car buying decision completely backward. They start with a certain model and price range in mind, and go from there. Those parameters are usually dominated by emotional factors and preferences – not finances. As a result, you buy more car than you can actually afford and you end up with a loan.

That puts you on the new car loan treadmill – you take a loan to buy a car, and as soon as the loan is paid off you buy another new car. The result?

Perpetual car loans!

The best way to prevent that outcome is to not get on the treadmill in the first place. Buy a car that you can purchase for no more than the amount of cash you have available to pay for it. If that means a $2,000 “beater,” then that’s what it means. But it also means that you will have no car loan.

Sure, it may cost you anywhere from $1,000-$2,000 in annual repair bills to keep an old car running, but compare that to the $5,000-$6,000 that you’ll have pay to make monthly payments on a newer car.

Buy an inexpensive car for cash, save your money, and as your savings grow, you can trade up on the car you have – without ever having a loan on it. And my guess is that paying those repair bills won’t feel nearly as bad when your bank account is full.

2. Consider appropriate steps for your current car loan.

Obviously if you already have a car with a loan attached to it, it won’t be practical to sell it to buy a less expensive car – unless of course your back is up against the wall, financially speaking. If it is, then you’ll have to do whatever it is you need to do.

But if you do have a loan on your car right now, the best thing to do is to simply pay it off. One of the biggest advantages of car loans is that they have a limited term, generally anywhere from two years to six years in length. That means that if you do nothing else but make the payments on time every month, eventually the loan will go away. But if you want pay it off early, you can always make additional principal payments just as you would with any other type of loan.

The idea is to pay the car off once and for all, and to vow never to borrow for a car again.

3. Keep your car until you run it into the ground.

Once your car is finally paid for – or even if the last car that you bought was a beater – drive it until it can’t run anymore.

No matter what we think about older cars, the truth of the matter is they will usually continue to run for long as you’re willing to fix them. That means you can keep an older car going quite a long time after most would get rid of it.

That will set you up nicely for the ultimate strategy that will enable you to buy a car – any car that you like – and to buy it without using a loan.

4. Pretend you have a monthly payment, but put the money in the bank.

So what’s the purpose of driving a car for years without having a payment?

Simple. While you are driving the car without a loan, pretend that you actually have a payment to make – but make it to yourself.

Let’s say that you’re paying $400 per month on your car, but you just made the last payment and paid off the loan. Since you’re in the habit of paying $400 per month, direct the money into a dedicated savings account. That account should be specifically earmarked for the purchase of your next car.

Rather than making the payment toward a car that you bought in the past, you’ll instead pay yourself for the next car that you will buy. You’ll turn the whole car buying arrangement around completely.

If you follow this policy religiously, you’ll eventually be able to buy any car that you want – and own it free and clear. You won’t have a car payment tearing into your budget every month, and more important – you’ll be keeping yourself ahead of the game by saving up money for the next car you buy.

Follow that strategy, and you’ll be putting an end to car loans forever.

Do you have a car loan? When are you planning on getting rid of it? What could you do with all that extra money? Leave a comment!

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