Posts Tagged ‘credit card debt’

Expect the Unexpected: Get Your Emergency Fund In Place

May 24, 2011

Would you be able to cover a large unexpected expense like a new air conditioning unit for your home or an expensive car repair due to an accident? Turns out if you couldn’t, you’re not alone.

The Wall Street Journal posted an article this week about how almost half of Americans would be in dire straits if they had to come up with $2,000 within 30 days to cover an unexpected expense. I firmly believe that this is why credit card debt is so out of control.

It’s easy to blame our nation’s consumer debt on people who are irresponsible or uneducated about how to use credit cards, but the people I work with who are struggling with their debt got there in spite of being financially aware and responsible. They aren’t spendthrifts who can’t control themselves at the mall. They’re hard-working, disciplined people like you and me who needed to cover something quickly like a trip to visit an ailing relative or their child’s traveling soccer team expenses.

The thing is, even the tightest and most well-thought out budget is going to be tested by expenses that you simply can’t anticipate. For example, I recently had my cat at the vet for a cyst she grew on her toe. More than $750 later, she is on the mend. But you can bet your bottom dollar that I wasn’t planning on shelling out $750 to fix my cat’s toe!

In anticipation of her visit, I even set aside $500 thinking that would be MORE than enough to cover the surgery. And $500 did cover the surgery. But I didn’t factor in the cost of the initial visit, follow-up meds and unexpected additional visits due to her bad reaction to anesthesia. Luckily I have a cushion fund in place and was able to tap that instead of my high interest rate MasterCard.

So how do you avoid getting further into the hole of debt due to the unexpected? Don’t wait to start saving for a rainy day. Don’t wait until you’re out of credit card debt. Don’t wait until you receive your next bonus or tax refund. Start today. Keep paying as much as you can toward your debt, but also put a little bit away, even if it’s just $25 per paycheck.

You’ll be glad it’s there when you need it.

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Are You “Making It?”

January 31, 2011

I finally got a chance to watch the Oprah show last month that had Suze Orman putting the smack down on “Octomom” Nadya Suleman. And let me tell you, Suze let her have it. I’m usually not a fan of calling someone on the carpet and making her feel like crap about her financial situation, but in this case it was absolutely necessary.

Suze, Nadya, Oprah

I could go on and on about how the conversation played out (or you can read it yourself here), but what I found most compelling about Nadya’s little “come to Suze” was Suze’s answer to Nadya saying she was “making it” financially when she decided to have eight more babies (in addition to the six she already had).

When Suze asked Nadya what she was thinking when she decided to have more kids, Nadya commented that she was getting by day-to-day just fine. Suze asked if she was “making it,” and Nadya said that yes, she was making it but things were tough. And then came my favorite part:

Suze stopped Nadya mid-sentence to inform her that she was not “making it.” Making it is NOT getting up in the morning and making it through the day to try the next day. Making it is:

  • Having an eight-month emergency fund
  • Not having credit card debt
  • Not needing food stamps
  • Putting money in your retirement

This made me really think about how many of us spend money on things we can’t afford and don’t really need, thinking that just because we are still able to pay the bills and we have a job that we are making and will figure it out in the future. I did this when I first graduated from college – I spent a summer living on my credit card, figuring that when I started my new job in the fall, I would pay off the debt right away.

Little did I know that it would take me more than five years to finally see a $0 balance on that card. And that didn’t come easily either – I threw every little “windfall” that came my way into getting that debt paid. Tax rebate check? Straight to VISA. Work bonus? In the mail to VISA. Raffle winning at a fund-raiser? Hello, VISA. You get the point.

I sacrificed quite a few opportunities to enjoy exotic travel or indulgent spa treatments or even just an extra visit with family because I knew that until that debt was gone, I shouldn’t be spending a lot of money on non-essentials. I WASN’T making it, even if I had a great-paying job, was putting money in my 401k and was still in my 20’s.

I’m not professing that unless your financial picture is perfect, you shouldn’t take a vacation or buy that new couch you need. “Making it” is a goal to be worked toward for most of us and getting there doesn’t guarantee financial peace. Just don’t fool yourself when you’re whipping out that credit card next time you know you probably shouldn’t.

So, are you making it? Please share your story or opinion in the comments.

Kelley C. Long, CPA is a Chicago-based financial coach who believes you shouldn’t have to have a million bucks to receive personalized financial advice. Check her out at www.kelleyclong.com.

It’s Not Rocket Science – Achieving Goals

December 7, 2010

As we prepare to wrap up another year, many people will once again be setting goals for the year ahead – count me among those people. If financial goals are among your resolutions, then the next logical question is, “How do you get there?” Read on for the answer.

First of all, don’t forget to be realistic when actually setting financial goals. You don’t have to shoot for the moon to make a difference in your finances. And remember that your goal doesn’t have to be about amassing large amounts of money. It can be as simple as putting a little cushion in place for splurge purchases.

Once you’ve set your goal, the first thing you want to do is write it down and post it where you’ll see it frequently. Is your goal to pay off your credit cards? How about a sticky note that says, “Debt-free = stress-free,” stuck to your credit card. The next time you are tempted to stray, you’ll have a solid reminder to make you think twice. If your goal is saving for something great like a tropical vacation, get out that beautiful photo of the beach and tape it to your computer monitor for motivation.

But beyond setting the goal, how do you get there? Once you’ve established a dollar-amount, break it down into time increments. Let’s continue with the credit card debt example.

Say your balance is $2,000 (which is closer to what the everyday American carries than the scary $8,000+ average often cited) and you’d like it gone in a year. Divided by 12, that’s about $167 per month needed to reach your goal. (I know this calculation doesn’t take interest into account, but I’m trying to keep it simple)

So how do you find an extra $170 or so in your monthly budget? There are some great tips in this blog post by my friend Andy, or you could try the standard ideas like packing your lunch, scaling back from a latte to a drip coffee with lots of milk, or cutting back on entertainment spending by ordering the drink special when out with friends instead of your expensive favorite cocktail.

Most important to achieving any financial goal is to make it automatic. Your credit card minimum payment may only be $75, but in your head, it must become $170 until the balance is $0.

If your goal is to save some money, set up an automatic transfer to your savings account each time you get paid. Just like you don’t miss a mortgage payment because it’s automatically withdrawn each month, you’ll find it much easier to save when it happens without your having to click a button each month.

Setting and achieving financial goals is not rocket science, and even the most strapped of us can make them happen. Keep it simple, be gentle with yourself if you get off track and celebrate the little victories.

Now it’s your turn: What are your goals for 2011? Mine include saving some splurge money for our tropical vacation in March and investing in continuing education to keep me sharp on personal finance topics. Please share your goals and any additional tips you have for getting there below in the comments.

Kelley C. Long is a Chicago-based financial coach who believes you shouldn’t have to have a million bucks to receive personalized financial advice. Check her out at www.kelleyclong.com.

Financial Goals for the Real World

October 26, 2010

 

It’s in all the advertisements for financial service providers: “Let us help you achieve your goals!” “Your life. Anything is possible.” “Take charge of your financial future.” “What’s your dream?” “Together we’ll go far.” And the commercials with attractive silver-haired Baby Boomers sailing the ocean blue or chuckling over the Wall Street Journal while sipping coffee… does anyone really aspire to that?

 

beach

But the point is, without a bit of a dream behind them, financial goals can be as wishy-washy as a weight loss goal without a fitness and nutrition plan. You need motivation and some guidelines to stick with it or like a diet, the first chocolate cake you encounter will have you off the wagon and giving up.

But what does it really mean to set financial goals? What are your goals? Wait, you haven’t really thought about it? Many people don’t because they don’t think they are in a place to do so. They say things like, “I don’t have time or money for any new goals in my life.” Or, “Just getting the kids to and from school and putting food on the table while growing my career is enough of a goal for me!” Sound familiar?

So let me re-frame the question: If money wasn’t an issue, what would you do differently? Move to a different neighborhood? Go back to school? Go on a safari? Pay off your credit cards? Or even just hire a housekeeper? These are financial goals.

So go ahead, list them out. Then try to put a price on each goal. For example, a move to a different neighborhood could be as simple as the cost of moving: $2,000 for movers, $1,500 for a security deposit, $500 for those miscellaneous things that you always seem to need when you move like new wastebaskets and perhaps a small furniture piece.

For others it might require accumulating a down payment and getting your current home ready for sale. That’s going to require a bigger budget.

Not sure how much your goal will cost? Start doing some research. Call your community college to inquire about the average cost of a Master’s degree. Google “house cleaning” to find out what cleaning services in your area charge. Just doing the research and finding out a bit more about your “someday” dream will make it a touch more real and set you up to being closer to making it “today.”

And just like that, you’ve set some financial goals! With that out of the way, it makes it much easier to figure out how to achieve them. And trust me, it’s really not that difficult. I’ll be covering those steps in a future post, so stay tuned!

Financial Advice for the Ages

October 12, 2010

There are some personal finance rules of thumb that are set in stone across the board, no matter who you are, how much money you have or what your financial goals are. For example, whether you make $1,000 per month or are worth $10 million, you should have an emergency fund that equals a minimum of three months expenses.

But then there are also rules and suggestions that change as you age and (hopefully) earn more money. Depending on your situation, here are a few age-based tips to maximize your financial well-being.

Mid-twenties
At this age you’re probably still single, no kids, making pretty decent money, traveling a bit, pretty career-focused and not thinking too much about retirement. What essential steps should you be taking?

  1. Get debt-free and stay that way. Pay off your credit cards, student loans and car loan to get your credit score in tip-top shape for when you will inevitably want to qualify for the best mortgage rates.
  2. Take advantage of your employer’s 401k benefit. If you’re offered a match, put at LEAST the amount in there to maximize the match. Aim to defer at least 6% of your salary, 10% if you can afford it.
  3. Get your emergency fund in place ASAP. Start with only $25 per paycheck if you have to, but make it automatic, and once the money is in there it stays. You’ll be glad you have it if you lose your job or have an accident.

Mid-thirties
If you’re a typical American, by this time you own a home, have 2.3 kids and are settled into a career that provides a solid income. You probably spend a lot of time at your kids’ events and have a couple of nice cars in the garage. Make sure you’re staying financial healthy by also doing the following:

  1. Keep socking that money into your 401k. Do NOT sacrifice retirement savings to pay for your kids’ education. They don’t give retirement scholarships or loans.
  2. But you should be saving for college if you can. Decide how much you do want to help (some people want their kids to pay for some to make sure they value the opportunity) then open a 529 account for each child with monthly automatic contributions. Also, make sure you’re matching any expensive extracurricular activity costs with college savings. If you can’t afford to save for college AND pay for select soccer or elite gymnastics, reconsider the high-end program. Chances are your child won’t be making a career out of it and while it might be a tough pill to swallow to drop down to a more affordable league, it will be a lesson in sacrifices and choices that won’t be forgotten.
  3. Make sure your emergency fund balance has been adjusted to cover increases in your expenses over time. Once you’ve reached the goal, keep up with the automatic monthly savings into a Roth IRA or money market savings account.

Mid-fifties
You survived toddlers and are now enjoying the final teen years with your kids, who are hopefully college-bound overachievers. You may be considering a second act career or wondering what the heck you’re going to do with your time once the last of your brood flies the nest. What else should you be thinking about?

  1. It’s probably time to really think about what retirement means to you, then putting that story into numbers. Most people these days aren’t really planning to live out their days on a golf course, but would like the flexibility to hit the links when they like while also staying engaged and active. Think about how the cost of your lifestyle will change and make sure you can weather that.
  2. Take a look at how your 401k (you’re still contributing, right?) is allocated. At this point you should only have about 50% of your funds in stocks, so make any updates to put the other 50% in solid bond funds or other fixed income instruments.
  3. Try to get your house paid off sooner rather than later. Your goal should be to retire completely debt-free.

As with all personal finance tips, these are simply general ideas based on what the “average” American deals with through life. Of course your situation is going to be different and you’ll make adjustments as needed according to what’s important to you. Above all, remember that the purpose of all of this is to simply allow you to enjoy life without having money as a barrier to pursuing your calling.

Myth-busters: No such things as “healthy” debt

June 21, 2010

Clients often ask me to recommend a “healthy” credit card balance that they should carry in order to boost their credit score. Contrary to popular belief (a belief created out of confusion and no doubt encouraged by the credit card industry), the answer is $0. You do not need to carry a credit card balance in order to demonstrate good credit history.

That’s not to say that you shouldn’t have credit cards or that you shouldn’t use them. Having them and using them responsibly are what helps keep your credit score high, and while carrying a low balance doesn’t always hurt your score, it doesn’t help it either. In fact carrying a balance that is too close to your limit can hurt and with high interest rates and fees it is certainly not the best way to maintain financial health. Let me explain.

When a lender, like a mortgage company or auto finance department, looks at your credit report, they are looking for the likelihood that you will pay them back if they give you a loan. Other parties also use them to protect against making a bad deal, like landlords who use them to judge whether you will pay rent or cell phone companies that want to determine whether you will actually pay for the airtime you use.

Even employers will sometimes request your credit history for insight into whether you are a responsible person. For example, if you consistently pay your electric bill late or have a history of running over your credit limit, chances are you may also be chronically late for work or distracted by personal financial issues on the job.

The reason that it is important to have a couple credit cards (two cards issued by major financial institutions like VISA or American Express will suffice) and to use them occasionally is to demonstrate what credit examiners are seeking: that you can be trusted with credit and that you will pay it back on time. Just make sure you pay your balance off each month and you will enjoy life debt-free!

Another way to ensure that you maintain the best credit score possible is to review your credit report at least annually, which you can do for free. Go to www.annualcreditreport.com to print your credit report from all three credit-reporting agencies and review each agency’s report for accuracy. If you find any errors, take the proper steps to correct them. Each agency tells you how to do this on their respective websites.

Things that could bring your score down include credit card accounts that are at or near their credit limit, unpaid bills from your past or too many examinations into your history in the recent future. If you have these items on your report and they are legitimate, you should take action to fix them. Pay down the high-balance cards (and stop using them until they are paid off), pay off any overdue bills and stop applying for credit at every opportunity. It will take time (up to seven years for some items), but eventually your score will improve.