by WayPoints Admin-JBM | Jan 22, 2015 | Your Cash Flow Journey
I am often asked why I hold to the concept of eliminating debt before I promote investing. Many clients believe that minimally servicing their debt in concurrence with investing their surplus cash will give them greater financial security long term. My argument is just the opposite. I believe that by doing this, it will minimize your long term investment returns. Let’s look at an example. If you charged $2,000 to your 19.99% credit card, your minimum payment would be 2% of the total owed which would equal $40 per month. Now, let’s assume you have an extra surplus of $100 a month. My system would be to use that $100 surplus in addition to the $40 minimum payment and pay down that $2,000 debt. Many clients want to invest that $100 while servicing only the minimum payment. Let’s take a deeper look at the results of both processes over the period it would take to eliminate the debt. If you paid just the minimum it would take you exactly 9 years to pay off this debt and cost you $2,332 in interest.
Meanwhile, if you invested the $100 a month surplus at 8% concurrently, you would have grown your money to $15,848. But, remember you need to subtract the interest you paid on the credit card to get the true value of your return. In this case it is $13,516. Now if you used my system and paid the $140 toward your debt, it would be paid off in 1 year and 4 months and cost you $303 in interest. Now, if you invested that $140 for the remainder of the 9 years at 8%, or another 7 years and 8 months, you will have grown your money to $17,817. Once again, you need to subtract the interest you paid on your card to get the net effect. In this case, the total value of your money would be $17,514. The difference between the two processes is $3,998. My process is far better and nets a greater return. Now let’s compare what those two figures would grow to over a 30 year period if nothing else was added and we assumed an 8% annual return. The $13, 516 would grow to $147,807, but the $17,514 would grow to $194, 832. That is a $47,000 difference in return over a 39 year period. This is why it is so important to first eliminate your debt as soon as possible then invest after the debt is fully eradicated.
by WayPoints Admin-JBM | Jan 19, 2015 | Your Cash Flow Journey
Most people cringe when they hear the word “Budget” and many people deny that they even need one. Budgeting lies at the foundation of every financial plan. It doesn’t matter if you’re living paycheck to paycheck or earning six-figures a year, you need to know where your money is going if you want to have a firm handle on your finances.
Unlike what you might believe, budgeting isn’t all about restricting what you spend money on and cutting out all the fun in your life.
It’s really about understanding how much money you have, where it goes, and then planning how to best allocate those funds.
If you’ve resisted the idea of establishing a personal budget in the past, perhaps you’re clinging to one or more of these favorite reasons not to budget:
- You prefer playing Russian Roulette with your bank account. The idea of possibly receiving a nasty call from your bank or having your debit card refused at the time of purchase is an adrenaline rush, like financial bungee jumping. So knowing how and where your money is being spent would make life rather bland.
Me? I have found more productive ways to add excitement to my life, like an annual Disney or beach vacation – which our budget allows us.
- You’re rather fond of old myths like; “Budgets are too much work” or the ever popular, “I don’t have time.” Taking an hour a month to manage the money you worked 160+ hours to earn seems just plain foolish.
The phrase “easy come, easy go” bothers me. I may be the exception, but spending 2,000+ hours a year to make a living hardly qualifies as easy in my book. It definitely seems worthwhile to spend an additional 1% of that time managing the special resources that have been entrusted to me.
- You think that because you don’t have a problem paying your bills, you must already be the best possible steward of your finances. No room for improvement, and no possible way you could lower your expenses.
It’s estimated that people who create a budget as an integral part of managing their personal finances can find as much as 5% more money they could be giving or saving. That’s because most people simply don’t know where the majority of their money goes.
I find it instructive that even the tennis great Serena Williams has a coach. What’s that go to do with budgeting? If the best tennis player in the world realizes that she still needs help and can benefit from some accountability, surely our finances can too.
- Your crystal ball offers you a perfect view of the future, showing you in advance when unexpected financial crisis are headed your way.
That must really come in handy – the rest of us have to actually plan for life’s unexpected and irregular expenses.
You know, like the hot water heater needing to be replaced, or the dishwasher giving out three days before the company arrives for Christmas dinner.
A budget simply tells your money what to do instead of wondering where it went every month.
You may think that you don’t really need to create a personal budget. After all, you manage to meet your bills on time each month and you’ve even managed to save a little. That’s more than many people can say, but a budget could produce some additional benefits.
- Control: Money makes a good slave but a poor master. When it comes to money, you want to be in control. If you let your finances rule your life, you will always fall short of reaching your financial goals.
- Knowledge: You know how much money you have and where it is going, right down to the last penny.
- Opportunity: Having your financial life in order enables you to see opportunities that you might have otherwise missed.
- Organization: Even the simplest of budgets systematizes and organizes your finances.
- Stress Reduction: Money issues are the most common cause of marital discord and family tensions. By communicating openly about money, as budgeting forces one to do, there is less chance of money issues complicating human relationships.
- Time: All your financial transactions are automatically organized well in advance of tax season, or in the event of a tax audit, saving you precious time hunting down the receipts and statements at the last minute.
by WayPoints Admin-JBM | Jan 17, 2015 | Your Cash Flow Journey
There are many people who don’t believe in the concept of budgeting. They believe they know where their money is going even if they had no money left before their next pay check. Most people believe that they aren’t earning enough to meet their expenses when the actual problem is that they are not budgeting their spending. These people need to budget their expenses if they want to free up cash. Here are three common reasons why people don’t budget their expenses:
- Many people don’t prepare budgets because they are frightened that they will find out that they are overspending. These people enjoy spending money on extravagance and if they discover how much they are spending on these expenses, they may not be able to continue to spend on these things if they want to survive financially. Don’t be afraid and learn to prioritize what is important in life. You don’t want to spend on pleasure now only to regret your decision later. If you plan your expenses, you will be able to spend moderately on fun now and also save for your future goals.
- It is not difficult to find people who do not believe or care about budgeting. These people usually have extra cash and don’t depend on pay checks to meet their monthly needs. These people believe that budgeting will not have any impact on their finances. These people will not understand the importance of budgeting until they try it. If these people try budgeting, they will have greater surplus to spend and be able to save more for their future.
- There are some people who start to budget only when faced with a difficult financial situation. These people will start caring only when they run out of cash. These people realize the importance of budgeting only when they face difficult situations in life.
The bottom line is to introduce the habit of budgeting early so you don’t have regret in the future.
