Sep 22, 2018 | Dave Ramsey Baby Steps, Personal Finance, Uncategorized
The debt anchor
If you were trying to swim across a lake with an anchor, and you weren’t sure you’d make it, what’s the first thing you would do? Drop the anchor, right?
Yet in personal finance, we often carry around a huge anchor for not just years, but decades. Sometimes we don’t even realize we’re carrying it because everyone else in our lives has always carried anchors, too. What’s that anchor?
Debt.
Yes. For many people, debt is an anchor that will absolutely prevent them from getting to where they want to go financially. Why? Because we spend a ton of money making payments. Think of every payment you have now or have had in your life. How much money would you have to work with every month if you didn’t have those payments to make?
“OK, Jill,” you say. “Sounds great. But if I knew how to do it, I probably would have already done it.” Yes, it’s easy to say, but not easy to do. But then again, teaching isn’t easy either, is it? And you’re KILLIN’ that! So I know you can do things that are tough. I know you’re not a quitter. And I know this is worth the effort.
Again, these are not my ideas, they were formulated by Dave Ramsey. But this is my personal take on the system he used.
Kill debt with emotion, not logic
In getting rid of debt, like most things in life, your emotion matters more than logic. So we’re going to put your debts in an order that will give you some quick wins and really allow you to see some fast progress. Make a list of your debts – credit cards, car loans, student loans, medical bills, loans from family and friends, payday loans, EVERYTHING except the house. Include the name of the debt, the total amount, and the minimum payment you have to make each month. Then put them in order from the smallest amount owed to the largest amount owed.
Dumping the Debt – smallest to largest
Once you have your $1000 emergency fund (for more on saving $1000, click here) and your list of debts, you continue paying minimum payments on all of your debts. But stop EVERYTHING else. Stop the money that goes into your retirement. Stop buying new clothes. And stop eating out. Get rid of everything that is not absolutely essential.
At the end of the pay period or month, you scrape up all that extra money you have and put it toward the first (smallest) debt on the list. With any luck, you’ll knock this one out right away. When you’ve paid off your first debt, you take that monthly payment and you put it toward the second debt on your list, along with ANY extra money you can find. (Check the couch cushions one more time. Raid the cup holder in your car!) Now you are making a bigger payment on that second debt each month, and it should disappear pretty quickly. You repeat this process until you have worked your way through every debt.
That “until” could be a big one. Like 2-3 years big. Two to three years that might feel like 2-3 decades. But what would it mean to you to have NO payments? NO car payment. NO credit card bills. NO student loan. What would your life look like if you paid your mortgage, utilities bills and were DONE? I’ll bet for most of us, it would be a lot different. A lot more joyful. A lot less stressful.
Would it be worth it to sacrifice – REALLY sacrifice for a while to give yourself options? To give yourself freedom?
Again, for those in the back – It’s emotion, not logic!
If you are a math geek, you are saying to yourself, “Lowest payoff to highest? NO WAY! If you put it in the order of lowest interest to highest,you’re going to save all that money you’re paying on high interest loans and you’ll pay it off so much faster.” Well, that’s a great theory, but it’s kind of like all those theories your education professors taught you that just flat don’t work in actual life.
Remember, paying off debt is not about the numbers. It is not about the logic. If it were, no one would ever get into debt. It’s totally against all logic to spend money you don’t have to buy things you almost never actually need! This is about emotion. And whatever extra interest you pay will be more than offset by your intensity as you start paying off debt and really feeling like this thing could actually happen.
In this case, the interest isn’t your problem. The principle is. Bad spending habits and spending more than you earn are. The interest is just a symptom.
So I’m going to ask you one more time, would it be worth it to sacrifice – REALLY sacrifice for a while to give yourself the option to continue teaching or do something else, like stay home with the kids or start a business. To give yourself the peace of mind that comes with knowing you have money in the bank to pay all of your bills? To sleep soundly without worrying that one small emergency will bring your entire financial house of cards tumbling down around you? If so, get that $1000 saved, and get your list made, and get on your way.
You got this!
Aug 18, 2018 | Uncategorized
For years, I’ve been a personal finance geek. Seriously, one of my first memories is sitting on the floor of my bedroom when I was probably about 6 years old, counting the money I had saved, then writing the amount on the outside of the small, cardboard jewelry box where I stored my vast sums of wealth ($46.78, if I remember correctly!) So I’ve read and listened to a ton of personal finance gurus who espouse everything from giving up the daily latte to getting rich in a year by using OPM (Other People’s Money.) But by far, the best comprehensive plan for people who want to win with their money is Dave Ramsey’s Baby Steps.
How Dave Got it Figured Out
He knows both sides of the money world. Although he is now reportedly worth over $50 million, he actually declared bankruptcy in his 20’s. He swore off debt, and fought his way back, founding the Lampo Publishing group and The Dave Ramsey Show to teach others how to manage money. I won’t say I agree with him 100%, or follow his plan point for point. However, if you are looking for a place to start, especially if you really don’t like dealing with money, his plan is pretty much the best there is. It will take you from overwhelming debt to incredible prosperity, and there’s a plan for every step along the way. Disclaimer: It will work, but it won’t be EASY.
So here it is. To start with, we’re just going to name the baby steps with a short description. Then we’ll delve into each one a little deeper in a series of upcoming posts.
Baby Step 1 – Create a mini-emergency fund.
Dave Ramsey says this emergency fund should be $1000 dollars, and that’s a pretty darn good guideline. If you have a very low income – like, say under $20,000/year, I’d go with a smaller fund of $500. My own recommendation (not Dave’s) is that if you make $100K or more as a household, you might want to keep an emergency fund of $2000. Even when we were paying off my husband’s student loan, I would have passed out if we had only $1000 in savings. I’ve gotta have some security.
Baby Step 2 – Pay off all debt except your house.
Next, make a list of EVERY debt except your mortgage. Credit cards, loans from family members, payday loans, student loans, car loans, medical bills, EVERYTHING. Then put them in order from the smallest to the largest amount to pay off. Take every extra dollar you can scrape together and throw it at that smallest debt. When it’s paid off, move to the next one, and so on. Depending on how much debt you have, this step could take 3-4 years, but imagine how amazing it would be to have absolutely NO payments other than your house. That’s what you will have accomplished when you check this one off your list.
Baby Step 3 – Save an emergency fund of 3-6 months’ expenses.
OK, so at this step you have a little emergency fund, and NO debts except the house. It’s time to get yourself a little more security by ramping up that emergency fund. This is money that you have in an easily accessible account (like a money market) so that you can cover just about any surprise that comes up. Somebody loses a job? No sweat. You have time to regroup without panic. Figure what you would spend in a typical month, without extras like cable or vacations, and multiply that by the number of months you feel comfortable with. That’s the amount you are working toward having in savings.
Baby Steps 4 – 6 – Put 15% of pre-tax income into retirement savings
Save for kids’ college
Pay off house
Dave always puts these three together, because they are usually done at the same time. You are now debt-free, except for the house, so you should have a little extra money to play with. The first thing to do with that is chunk an amount equal to 15% of your pre-tax income into a retirement account. If you still have money left over, put it toward kids’ college savings if that applies to you, or toward paying off your house early. Dave says that once people reach this point, their house is usually paid off in about 7 years, even though they are putting money toward the others goals at the same time.
Baby Step 7 – Build wealth and be outrageously generous
This is where the fun comes in. You’ve always wanted to invest in real estate? Cool! Do it now. Want to buy a house and GIVE it away. Cool! This is the time.
OK – There is a TON more detail I could go into here, but this is just to give you an overview. If you are dying to binge-read the babysteps in minute detail, check out Dave Ramsey’s book The Total Money Makeover, which you can buy here, or check out his podcast, which is available here.
If you are willing to take a few weeks to work through the whole thing with me, I’ll cover each one with a lot more detail in a weekly post.
Remember, you got this!
Aug 4, 2018 | Uncategorized
My Personal Finance Journey
A lot of you might know my personal finance story by now, but if not, here’s the Cliff Notes version. I’ve taught in public schools for 18 years. During my first few years of teaching, my best friend and then-co-worker had her first child. That first year of motherhood was tough on her. She went back to the classroom when he was about 6 months old. However, because of some minor health problems, she was getting calls every week (sometimes a couple of times) that she had to be at the daycare within an hour to pick him up. (Because of her husband’s job, he was often out of town.) She was a super-conscientious teacher and she was about to loose it.
I decided watching her that year, that I was going to do everything I could to give myself options. I wanted to make sure that I could take some time off of teaching if every my family needed me. My first step was to pay off debt and make a habit of saving something every single month. Step 2 was to take charge of my income, which a lot of people think you can’t do as a teacher. However, through the years I did an MLM, sold real estate, and managed my own rentals. I knew that WANTING to make my family my first priority was a pipe dream unless I had the money to choose whether or not to work full time.
The Payoff
Well, it was worth it all. And not just one in my life, but twice so far. When my daughter was born and we had just relocated, I was able to stay home with her for an entire year. Then, just three years ago, it all got to be so much I thought I was going to blow a gasket. Three kids, two jobs, a side business, and lots of out-of-town travel for my husband. So my husband and I talked it over, and I resigned from full time teaching. I got to spend two whole years building a side business and enjoying the time before my two youngest started school. What a gift!
None of that would have been possible if our money was a mess. THAT is why I started this blog. I wanted other teachers to have the same options that I did to take care of themselves, their mental health, and their family.
Your Personal Finance Journey
Now, let’s get to the nitty-gritty. If improving your financial situation is important to you (and I hope it is), and you desperately want to have options in your life, it is incredibly simple (not necessarily easy) to do so. All you have to do is increase the gap between what you spend and what you make. And there are really only two ways to do that – if you are moving in the right direction.The first way is to increase what comes in and the other is to decrease what goes out.
Offense – Your income vs. Defense – Your expenses
Most personal finance blogs will focus on one of the other of those. Trent Hamm from “The Simple Dollar“, Dave Ramsey, and the frugality-focused blogs tend to hit that side of the equation hard. Some others, like Ramit Sethi’s “I will Teach you to be Rich” or Michelle Schoeder-Gardner’s “Making Sense of Cents” lean toward the other side of the equation and help you increase your income.
The truth is, neither one will get you where you want to be if you totally ignore the other. If you only make $12K a year, you’re not going to make progress no matter how frugal you are. On the other hand, we’ve all heard of celebrities who make an obscene amount of money and still – somehow – manage to go bankrupt. Of course, these are the extremes. But let’s not forget that even less obvious issues can really keep you from making progress.
With that said, I hope to cover both sides of the equation. We’ll talk a lot about some side-hustles and small businesses that can increase your income. (For some side hustles that bring in over $20/hour, check out my post on High-Dollar Side Hustles.) We’ll also talk about ways to decrease your spending. Some of you will relate more to reducing what you spend. Others will want to increase your income. But please, PLEASE don’t allow yourself to ignore either one long term. You might want to START with a single focus to help you make some quick progress. (For most people that would probably be cutting spending.) Once you’ve made some progress on that, though take a look at the other side, too.
My wish for you
My goal for every one of you would be to have a financial life the affords you options. To go to sleep at night knowing you can easily pay your bills, even if an emergency arises. To be able to shed some of the emotional baggage that surrounds personal finance. To feel confident and knowledgeable about your money.
During the next few weeks, I’ll be posting a Personal Finance 101 series. Based on Dave Ramsey’s 7 Baby Steps and my own personal finance journey it will cover the first steps to getting finances in order. For some of you, this might be too basic, but if money totally isn’t your thing, this is ALL about you. Leave whatever shame or embarrassment you have about past decisions at the door. (Well, there’s not really a door to a blog, but you get the idea, right?) Lao Tsu said, “The journey of a thousand miles begins with a single step.” Take that first step, and let’s go.
Jul 7, 2018 | Uncategorized
Mediocre white man vs. Superstar woman – who has more confidence?
I’ve teased my husband that I’m going to buy a tee shirt that says “Carry yourself with the confidence of a mediocre white man.” Now, I’m totally NOT into stereotypes, so let me start by saying that I’ve got nothing against all white men. However, I’ve dated several guys (and had conversations with a ton more) who absolutely drove me crazy because they were sure that they were smarter, hotter, and more athletic than they actually were. In other words, they had a supersized opinion of their own abilities.
This is purely anecdotal, but I find the opposite to be true of most of the women I meet. (Again, both of these are generalizations, and there are lots of exceptions to the rule.) We often downplay our successes, second-guess our ideas, and allow criticism of our thoughts without defending them as vehemently as we could. The same goes for our products. I’ve talked to a lot of women who say, “But I can’t charge that.” “Who would pay me that?” or the ever-popular, “I’m doing what I love, so I don’t need to charge that much.” Hold on right there, sister. If you are providing a quality product or service, you deserve to make money. It’s not selfish; it’s capitalism.
Take my money – PLEASE
So let me give you an example. Our family went through a really dark time a few years ago when one of our kids started having some serious behavioral problems. It was bad. I actually remember thinking, “Oh, my God. We have got to get help. I don’t want to be on the evening news in a few years because my child has gotten a gun and shot me, but that’s the direction we’re headed.” I was more scared and panicked than I had ever even imagined being.
Enter our therapist. She specialized in the issue our child was having. Suddenly, I was thinking, “This woman MUST spy on us. She knows what’s going on as if she watched our family every night.” She gave us hope and taught us how to deal with the issue. She didn’t solve every problem and we still have challenging days, but it’s nothing, NOTHING like it was before.
We have a normal family life again, and I owe it all to her. Do you think I care about her fee? Hell, no. She gave me my family back. I would have sold everything I owned and still considered it a bargain. As a matter of fact, we have even paid for an initial session for several of our friends who were facing serious family struggles, all of whom have continued to work with her. Why? Because she is worth it! She delivers on what we needed and so much more.
Now if you called her an expert, she would probably laugh in your face. She doesn’t see herself as an expert, but she is. She is providing a service that is well worth her fee, and if you provide an excellent service, you should, too.
People are paying you to solve a problem
“But I’m not saving someone’s family. I’m just ___________ (fill in the blank). That’s different,” you say. Yes and no. Are you filling a real need? Are you going to solve a problem, a real, burning problem? Then let people pay you to solve a problem.
I teach enrichment language classes in preschools. I’m not saving someone’s family, but I do solve a problem for parents who know that learning a language is easiest and most effective during the preschool years. I also use a method that is tremendously more effective than most preschool language classes. And I provide lessons at the child’s preschool, so parents don’t have to schlep their child somewhere in the few precious evening hours they have together. I provide a real service, and I charge for it. If I don’t make at least $50 per 30-minute class (I often have multiple students in each class), then I don’t do it.
When I focus on solving problems for my clients, it gets easier for me to charge what I’m worth. Now, please realize, that I always make sure I’m providing value for clients that exceeds my price (more on that in another post), but I don’t get the guilties when I see it from their point of view. They have a problem. They need a solution. They will be happy – thrilled, even – if I solve that problem for them, and if I’m really making their lives better, then I deserve to make money for my skills, for my investment, for my abilities. If they could do it for themselves, maybe they would. But they don’t have the expertise/product that I do. And I’m going to save them time, or money, or frustration. I’m helping them. And for that, they pay me.
Your Turn
It’s pretty rare that I assign exercises, but this time I’m going to. If you provide a service or product, spend 5-10 minutes thinking about what problem you solve for your customers. Why would someone want what you have? There’s got to be a pain there, a fear, a worry. What is that? Now, how do you solve that problem for them? Write it down, and then ask yourself this question: what would you pay for someone to solve that problem FOR you in the way that YOU solve it?
Do you sell make-up? What problem is the make-up solving? Well, it depends on the customer. You’re solving very different problems for a 22-year-old and 65-year-old. For a 22-year-old, you might be helping her look professional, so she feels more at ease in her job. You might be helping her feel beautiful at a party. For a 65-year-old, you might be helping her feel like she used to feel. You might be helping her see those rosy cheeks that she used to have. Now, what would you be willing to pay to feel beautiful? What would you pay to see yourself as you looked 10 years ago? That’s a very different price than what you’d pay for make-up.
Please, if you have trouble charging what you’re worth, complete this exercise. Write it down. Don’t just do it in your head. Thoughts become more powerful, more real when we write them down. Good luck!
