Tag Archives: TV

images (18)You may ask - what is the difference?

"They are the same thing - loaning money I don't have - I'd rather not risk my lifestyle having a debt!"

The best way to define a "bad" debt, is when you borrow/ leverage money to purchase something that generates a loss (also known as a liability). A good example of this is a car, flat screen TV or a doodad, simply because they depreciates in value. The best way to define a "good" debt, is when you borrow/ leverage money to purchase something that generates profit (also known as an asset). A good example of this is an investment property.

Most people generally tend to have more bad debt than good, such as;

- Credit cards
- Car loan
- Personal loan
- Holiday finance
- White goods finance

Sounds familiar doesn't it! Don't get us wrong, it's not an offence or anything, but keep this in mind - by decreasing these debts, you are more likely to steer yourself in the right path of financial success.

On the other hand, some people think having a debt is a taboo/ sin/ whatever they want to call it - so they don't believe in buying a property until they have earned their money to pay their house in cash. That can do - it's just going to take them longer that's all. Yes, debt is a risk, it is leveraging the bank, and you may not be able to repay that if you quit/ lose your job.

That's why without a doubt, you must budget. Manage your finances as early as possible. Good debts are risks worth taking, so you can generate more income. If you don't take the risk, you won't know what you can achieve.

Likewise, bad debts are risks too. Having them might be inevitable but sometimes you can prevent it! A simple formula to avoid bad debt is: if you can't afford it, don't buy it.

If you decrease your "bad" debts the banks are actually more likely to provide you with "good" debts such as home loans, which if you use correctly, will grow your wealth.

TIP: Chat with a mortgage broker about your ability to leverage "good" debt. They should let you know if your level of "bad" debt is acceptable to the banks or not, and how to get rid of these as soon as possible.

images (15)When I designed my coaching website, I needed to create a tag line. A type of a one line description of what the site was all about. I wanted it to summarize how I felt about the process of getting out of debt and why so many people start at it but quickly give up.

Science was my first love as a career. I spent my first ten years of work life in the biotechnology world. So the idea of a math equation flashed into my mind.

There are thousands of websites and probably millions of blog posts and articles about how to get out of debt. "Seven methods to lower your credit card debt". "Five tips to reduce your holiday spending". Tons and tons of information out there.

So why do less than half of Americans pay off our credit card balances every month? Why do 35% of us have accounts in collections?

I reflected on my two journeys through debt. The first ended in credit counseling and bankruptcy. The second ended with everything paid off, including our home mortgage. What was the difference?

I "knew" that we had debt both times. In my head.

The difference was acknowledging my debt in my heart; my gut. The first time I did not do this. My "plan" to get out of debt was that my business would finally begin earning real money. My heart said everything would work out. My heart knowledge never supported my head knowledge. And I failed.

"Know Debt" was accomplished but nothing else.

In the second plan I got mad (as did my wife). We plugged into this anger and other emotions. We got our hearts involved. We "KNEW" our debt. 17 months later we had paid off our credit card, auto loan, department store card and orthodontist. And then 30 months later we paid off our home mortgage.

"KNOW Debt" was added to "Know Debt". They added up to "NO DEBT".

My math equation tag line crystallized. It explained why we want to get out of debt and have the best intentions to get out of debt. But we rarely get there.

We generally acknowledge that we have debt in our heads. We know we have three credit cards with balances on them. We know we have an auto loan that pays off in 2018. We know we have five student loans. And we might know the total debt that we owe. We have the head knowledge.

So we read posts, articles and forum advice that make logical sense on how to pay off our debts. Eliminate every expense that we can. No cable TV, no going out to a movie, etc. Live a spartan lifestyle.

And work three jobs.

Our heads can do this for 2-3 weeks. Maybe a month or two. But if our hearts do not support this lifestyle and behavior, something is going to cause us to quit this plan. Once the fun of the adventure dies off, the idea of living on dog food and replacing electricity with candles becomes so unappealing that we give up.

Once our hearts are out of the equation, our plans to get out of debt are dead in the water. Because there are no easy, pixie dust plans to get out of debt. It takes focus. It takes work. It may take some sacrifice. But your plan needs to be realistic; a plan that you can live with. Logically it may take longer. But emotionally you will stick with it all the way to the end and get to NO DEBT.

Take what you know in your head and get it into your heart. Then you will get out of debt.

images (12)This headline has got to be a typo. How can you spend your way out of a money problem? Am I in charge of a federal government program?

When you find yourself in a hole, the first step to get out of the hole is to stop digging. So how can you spend your way out of debt? I will explain how.

Google "how do I get out of debt" and scroll down past the paid ads. Just about every result from your search will give you some iteration of the following advice items:

  • Get your bills organized so you can see what you are working with
  • Create a spreadsheet of your income and expenses (either on paper or using a computer program/app)
  • Add up your expenses and add up your income. Do you have more expenses than income?
  • Get another job.
  • Eliminate every expense that you can. You can keep electricity, housing and food but not much more.
  • Live this lifestyle until every debt is paid off.

Alright I am getting a little facetious here. But I do not believe that I am exaggerating much. The idea touted is to live as spartan a lifestyle as possible and maximize the amount of money that you pay towards your debts.

The common theme here is that to get out of debt, you must eliminate everything from your lifestyle and use that money to pay towards your debts.

How long do you think you can live like this? Two weeks? One month?

If you are single then this lifestyle may last longer because you have no one else to worry about. But when there is a spouse, the two of you must live like this. The plan just got much more complicated.

Add children to the scenario and the complication just increased exponentially. A five year old does not understand debt. All he knows is the cable TV is no longer there.

My suggestion is to build in some spending on some "unnecessary" expenses. Allow yourself to do something more than work, work and come home. This will be different for everyone. In my case, we went out to dinner once a week. A nice restaurant, not a fast food joint. It was something to look forward to each week.

We also maintained our Dish TV. No movie channels. This made staying at home instead of going out to restaurants and movies easier to do. We came out money ahead.

We began our plan in 2010. Our 25th wedding anniversary was in 2012 and we had talked about taking a cruise for years. So we also budgeted for this and saved a little every month.

In theory this "frivolous" spending makes the debt pay off slower. But if this tiny bit of fun keeps you on your payoff plan, then you will reach your goal. Living spartan for a month and then giving up does not get you to your goal!

Think of it like trying to lose weight. If your plan is to eliminate everything except kale and celery, you will probably lose a bunch of weight at first but give up in a week or two. The thought of a slice of pizza will become so overwhelming that you'll go overboard and eat an entire pizza, then feel guilty and quit the plan. But if you eat in moderation through portion control and watching your calories, you will allow yourself to eat a little bit of pizza and still lose weight. It will be a slower weight loss but you will stick with your weight loss plan because you are not completely depriving yourself of "forbidden" foods.

Naturally your likes and budget will determine what you can do with your spending. Maybe you can only afford to go out for a meal once or twice a month. Will this "reward" keep you on your plan to get out of debt? It did for me!

Should you get out of debt? Absolutely! But in order to achieve success, I believe you must build some fun spending into your budget. This may postpone your end date on paper, but your chance of success will be infinitely better than living on dog food and reading by candles!