24. December 2008 by admin.

MERRY CHRISTMAS EVE!

Welcome back! I hope everyone’s getting a lot of good tips as we go through this series on the steps to financial freedom. I am gleaning this information from Dave Ramsey’s book: “Total Money Makeover.”

Here’s a review of steps 1-3:

1. Save $1,000 in an emergency fund
2. Pay off All debt except mortgage using the debt snowball
3. Save three to six months in living expenses.

And now Step 4: Invest 15% percent of household income in ROTH IRAs and pre-tax retirement.

“I can’t do that the econonomy is bad!!”

Yes you can! (Like my pun?)

It’s easy to allow outside circumstances like sales, commercials, the media, a bad economy, to affect our spending and savings habits. However, if you have a system in place and you’re operating on “financial autopilot” so to speak, then you have no need to worry about the economy or any other global catastrophe.

By the time you reach step 4 of the plan, you will have a lot of disposable income to save for your retirement. And no, you do not have to invest your retirement money in the stock market. I know that’s what many people are worried about now with our schizophrenic markets. You can get a tax advantaged IRA and direct your money to be invested in a cash type investment. Thus you hwon’t have to have a lot of heartburn as you watch the stock market swing up and down. I won’t tell you should place your money but I highly recommend you do your own research.

So get saving!

Update: I now have a bi-monthly newsletter that provides important updates and contests designed exclusively for my newsletter subscribers. To subscribe, send a blank email to info@preslaysa.com and write “Newsletter Signup” in the subject line.

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19. December 2008 by admin.

Welcome back to the series “Steps to Financial Freedom,” before I get started with step 3, I wanted to answer a question I received from one reader who asked:

“After paying monthly expenses I barely have enough to cover interest on my credit cards. Any suggestions?”

With the economy the way it is now, handling finances can be tricky. For many of you who may be in this situation, I suggest calling your creditor(s) to explain your current financial situation. Then negotiate a low (very low) minimum payment. (Like $5 to $10 a month)

The one thing you DON’T want to do is cease paying your credit card bills at all. This will harm your credit rating. When you get more cash flow, start paying down the principal balances on your debt using the plan described in Step 2.

Just to recap here are the first two Steps to Financial Freedom:

Step 1: Save $1,000 in emergency cash.
Step 2: Pay off all debts except for your mortgage.

And now, step 3: Save three to six months expenses in savings.

“Three to six months in living expenses?!?!?? I can’t do that!!!”

“Yes you can.”

Having an emergency fund with three to six months living expenses is great for times of unemployment, when your starting a new business and won’t be getting a steady paycheck, or an inability to work due to illness. When the unexpected happens, you want to make sure you have a back up stash to carry you through the muddy waters.

What’s the appropriate amount to have? That’s up to you. I suggest calculating the amount you will need to live on each month and mutiply that by 3-6 months. By the time you reach Step 3 you will have no debt (except for that pesky mortgage). It will be a welcome relief to start stashing away money for yourself instead of paying those debts. Take the money you used to pay off your debt and use that toward your 3-6 month Emergency Fund.

This fund is only used for emergencies like unemployment, sudden illness, etc. Don’t use your emergency fund for major purchases like cars or a downpayment on a house. (I’ll talk about that in a later post.)

I hope after reading these posts many of you are seriously making a commitment to lifelong financial freedom. Financial security doesn’t come when you make a certain amount of money, or hit the lottery, or get a huge pay raise - it comes when you take responsible steps today. I like what it says in Proverbs 6:6-10 (NASB):

“Go to the ant, O sluggard, Observe her ways and be wise, which, having no chief, officer or ruler, prepares her food in the summer and gathers her provision in the harvest. How long will you lie down, O sluggard? When will you arise from your sleep? A little sleep, a little slumber, a little folding of the hands to rest - your poverty will come in like a vagabond, and your need like an armed man.”

Six thousand words of wisdom in a few, succinct phrases. I love it.

So start gathering!

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13. December 2008 by admin.

Thanks for joining me again as I discuss the steps to financial freedom. I’ve gleaned this information from Dave Ramsey’s great book on personal finance “The Total Money Makeover.” As I wrote in an earlier post, the seven steps to financial freedom may take at least seven years.

“That’s a long time,” you say.

But just think about where you will be in seven years if you don’t take steps today - that should be motivation enough.

Step 2: Pay Off All Debts Except Your Mortgage.

“Whoa!! What do you mean pay off all debts except my mortgage?”

I mean pay off all debts except your mortgage.

You glance at your piles of bills and think: That will never happen.

Take baby steps. A journey of a thousand miles begins with one step.

First, gather all your bills in one place. Then make a list (preferably on a spreadsheet) of everything you owe. List the total debts from smallest to largest along with the minimum payment for each debt.

Here’s the fun part. Every month, make the minimum payment on each bill except for the debt with the lowest total balance. With that particular bill, add whatever amount you can afford to the minimum payment every month. This additional amount will help pay down the principal for that debt. (Principal is the balance you owe on a debt, minus the interest charges you pay to borrow.)

When you pay off the smallest bill, take the amount you were paying towards that and add it to the principal payment of the debt with the second lowest balance.

Huh???

Here’s an example:

Jane got tired of all the creditors calling her. After saving her $1,000 in cash (she was sooo proud of herself), she decided it was time to get the debt monkey off her back. She gathered up all her bills. They were scattered all over the house: under her mattress, stuffed in the potted plants…torn up into shreds and used as cat litter.

Jane discovered she owed the following:

Creditor 1: $500 Minimum Payment: $15
Creditor 2: $900 Minimum Payment: $25
Creditor 3: $4,000 Minimum Payment: $100
Creditor 4: $18,000 Minimum Payment: $250
Creditor 5: $46,000 Minimum Payment: $450

After paying all her monthly utilities, rent, food, and gas, she had about $20 left each month that she could add to Creditor 1’s principal payment. So every month, she pays Creditor 1 $35.00 in addition to making minimum payments for Creditors 2-5.

Her monthly payments look like this:

Creditor 1 Minimum Payment: $35
Creditor 2 Minimum Payment: $25
Creditor 3 Minimum Payment: $100
Creditor 4 Minimum Payment: $250
Creditor 5 Minimum Payment: $450

Total Monthly Payments: $860

After months of discipline and consistency, she pays off her bill to Creditor 1. Yay!! She then adds the amount she paid to Creditor 1 ($35 per month) to her Creditor 2 payments. It now looks like this:

Creditor 2 Minimum Payment: $60
Creditor 3 Minimum Payment: $100
Creditor 4 Minimum Payment: $250
Creditor 5 Minimum Payment: $450

Total Monthly Payments: $860

When she pays off Creditor 2, she rolls that pay over to Creditor 3. Her monthly payments now look like this:

Creditor 3 Minimum Payment: $160
Creditor 4 Monthly Payment: $250
Creditor 5 Monthly Payment: $450

Total Monthly Payments: $860

And so on.

Notice that the Total Monthly Payments never increase, they are just rolled over to the next creditor. And it all started with adding just $20 to your regular monthly payments..easy peasy.

You must be consistent and focus only on paying off all debts (except your mortgage) until you wipe them out. Don’t try to straddle your money between investing and paying off debt. Make this a focused debt payoff effort, like a laser beam.

Another key is: DON’T ADD ON NEW DEBT!!!! Cut up your credit cards, stick them in the freezer, close your accounts, tie your hands behind your back at the mall ( or better yet, avoid all retail temptations). But do not add on new debt.

I welcome questions specific to your situation. So ask away..

Stay tuned for Step 3.

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