Is There Still Hope For My Finances?

Is there Still Hope For My Finances?A 2014 study by Fidelity indicates that 54% of Americans made New Year financial resolutions.

Of those who made resolutions, 39% indicated that these type of resolutions are easier to keep compared to other resolutions like exercising more or quit smoking.

Well, it’s almost the end of January.

If you made any New Year resolutions for your money, how are you coming along? If you are on track, congratulations!!!

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But if you are struggling with your resolutions, you might be asking yourself: is there still hope for my finances?

The short answer is yes. Regardless of where you are today, there is still hope for you.

So, what can you do to improve your financial situation?

Think Big

In order to achieve a great goal, you need to have a great reason for doing the hard work of getting there. If you are in financial trouble, what’s your motivation to get out of the hole?

Here are some examples of big picture thinking:

  • Retire w/Dignity: Do you want to be able to leave work/retire on your terms or are you resigned to having to work forever? Would you like to move into your golden years without a mortgage on your home?
  • Build Wealth: Would you like to invest more? You can’t do it if all of your money is going to debt payments.
  • Give Generously: We all want to be able to help those in need, but the weak can’t help the weak. When we are deeply in debt and we don’t have any savings, we are living to survive. But, when we have money, we can invest in others. Money: it’s not everything in this world, but it can do a lot of good.
  • Leave a Legacy: What if you learned to manage your money so you were able to save for your kids’ college expenses? What if they never go into debt because you taught them that the borrower is slave to the lender?

What’s your motivation?

Take Small Steps

When we get into any kind of trouble, it never happens overnight. It’s a series of decisions taken one day at a time.

Well, getting out of financial mess will take some time and sacrifice. But you can take small steps towards your financial victory.

Here are some free resources that can help you take a small step today.

  • Simple Budget Template. I have used this form for over 8 years now to manage my household budget every month. Just in time for your February budget.
  • Debt Snowball Template. This is the method we used to pay almost $50K in consumer debt. It took us 29.5 months, but we got it done. One debt at a time.
  • 7 Principles for Financial Success (e-book). My lessons learned in the journey to financial success. It’s free for the Kindle on January 30-31.

What small step could you take today?

Call the Coach

It might be time for you to get some assistance for your financial situation. In this day and age we are very used to the idea of a fitness or nutrition coach. Well, a financial coach might be just what you need.

I have recently updated my coaching model to provide you with more flexibility and value. I want you and your family to win with money.

I can help you to get on a budget, build an emergency fund, or break out of the slavery of consumer debt. I can share with you how to start saving for college expenses and retirement.

I can help you put a plan together to win and prosper with your money so you can be a generous giver.

I want you to have hope about your financial situation. I want you and your family to start dreaming again.

Contact me today. There is always help and hope for your finances!!!

Question: What’s keeping you from taking action to improve your finances?

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Budget Priorities: If I Had To, What Would I Cut?

Budget Priorities: What Would I Cut?I have started to work on our household budget for February and this question came to mind: if I had to cut back on our spending, what would I cut?

The scenario that usually runs through my mind is this: what if I lost my job tomorrow? I am the primary income earner in our household so we would officially be in the middle of an emergency.

Well first of all, I would have to remember to protect the four walls: food, shelter/utilities, transportation, and basic clothing.

In our situation, we should be able to cover those 4 walls with our emergency fund.

So what would be cut or eliminated? In other words, what in our world would not be an essential expense?

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My Budget Cuts

This is my list. You have to evaluate your own financial situation and the priorities of your household. The key is making sure you know how to decide on needs vs. wants.

  • New Clothing: Meaning, we would not need to buy new clothing. We could easily make do with what we already have. Laundry/dry cleaning expenses would most likely be cut or reduced as well.
  • Restaurants: Well, with little or no income, we would have no business eating out so we would definitely cut this area almost completely.
  • Landscaping: We use a service to take care of our yard. We could eliminate this expense. It just means I would be spending a little more time outside :-).
  • Cable: We have a very nice TV package. We would look to eliminate or reduce the expense to just have the very basic channels. Just have to remember that there is not that much on TV that’s very good.
  • Internet Service: My wife and I both rely heavily on access to the Internet. The key here would be to identify the least expensive, most basic level of service.
  • Cell Phone Service: Initially I got a cell phone for emergencies. Now, it is really an useful tool and it also offers a degree of entertainment. Similar to the internet and cable service, I would need to look for the most basic service.
  • Entertainment: This covers items like going to the movies, sporting events, etc. Again in the middle of an emergency, this would be an area that we could really reduce in our our expenses.

There is one area which I did not address on my list but it would merit some consideration. That’s the area of giving. I have written before on how our generosity is not to be limited by the size of our bank account.

However, giving is very personal. You would have to evaluate very carefully and prayerfully what do in terms of giving if you are facing loss of income for an extended period of time.

In our case, I believe we would find a way to continue giving as part of monthly financial plan. I have faith that God would provide for our needs as He has to this point.

Question: If you had to do it, how would you adjust your budget?

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The Great Financial Numbers Fight: Net Worth vs. FICO Score

The Great Financial Numbers Fight: Net Worth vs. FICO ScoreAre you a boxing fan? I am, although in the last few years I have lost interest in the sport due to the many judging controversies and the lack of really, really great fights.

I recently watched a documentary of the great 1980 fight between Sugar Ray Leonard and Roberto “Hands of Stone” Durán. It was the infamous “No Mas” fight.

It reminded me that while I was growing up, there would always be a great fight on the horizon.

How is boxing related to finances? Well, I think it’s time to have a great fight between two financial numbers. I believe most of the advice offered today by the conventional wisdom is focused on the short term as opposed to the long term impact on your financial wellness.

And focus is key for your finances. You need to pay attention and take control of your money. But remember, in money and in life whatever gets your focus and attention will be what generally improves.

So where should you and I focus? I want to start a great fight (i.e., conversation) about these two financial numbers: Net Worth vs. FICO Score.

Let’s agree that for these two numbers, the greater the number the better the situation. And let’s see which one is more beneficial to your long term financial wellness.

So let’s get ready to rumble!!!!

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Tale of the Tape: FICO Score

What is it? The FICO score simply measures your level of interaction with debt. How much you money you owe, the type of debt, the length of your debt history, record of payments, etc.

Here are the components of your FICO Score (via the FICO website):

FICO Score Components

In other words, the algorithm for computing your FICO score does not take into account your salary, length of time in your current position, or your level of savings and investments.

Why do you need it? Well, if you want to borrow money for anything, a FICO score is one of the key components used by lenders to assess your credit worthiness.

The only reason to really worry about having a good FICO score is because you want to borrow more money. A bigger FICO score means lower interest and higher borrowing limits.

The biggest reason the conventional wisdom says you need a good to great FICO score is to borrow money for a home. But let me tell you this: my wife and I refinanced our home 3 years ago and the FICO score was just one component of the process.

The bank still wanted to know that I had a steady job, that I had enough money saved for a good down payment, and that we had very little or no debt.

Furthermore, the new borrowing guidelines that went into effect this year are taking us back to more traditional lending practices. So, the FICO score is not the main component in whether or not you get a mortgage.

How can you improve it? Well, there is only way to maintain a good FICO score. You have to borrow money all the time and pay it back in time. You don’t want to be late and you don’t want to have “bad debt” on your record.

In other words, you have to be in the endless cycle of having open credit lines, borrowing money, and paying it back. It seems to me that it is like a dog chasing its’ tail: borrow money to improve my FICO score so I can borrow more money.

You could inherit $1M and your FICO score would not be affected. You could work very hard at your job and get that promotion making more money and it would not change your FICO score. You could finish that bachelor’s or master’s degree to get a better job with better pay and your FICO score would not be affected.

You could have $25K in an emergency fund and $300K in your 401K and $100K in mutual funds and your FICO score would not change. And you could own your home and 2 rental properties free and clear and your FICO score would not change.

So the FICO score is all about going into debt and staying into debt. Having a high FICO score means that you are very good at jumping through the hoops of going into debt.

And yes, I know that some insurance companies, landlords, and employers are starting to use the FICO score to determine the worthiness of applicants.

I personally think that’s the wrong element to measure. A low or inexistent FICO score could indicate a person that is not responsible with money.

But it could also represent someone who has no debt, has savings, investments, and has no need to borrow money.

If a company is not smart enough to realize that and look deeper into my financial situation, then maybe I don’t want to be in business with them.

Note: Here is some interesting insight on the use of the FICO score for renting from my fellow PF blogger Devin Czech.

Tale of the Tape: Net Worth

What is it? Your net worth is the difference between your assets (what you own) and your liabilities (what you owe).

Net Worth = Value of Assets – Total Liabilities

Why do you need it? Well, it is very simple. As you go through life your financial position is better when you have more assets that you own free clear and very little in liabilities.

Think about this. When you are 65, would you prefer to own your home free and clear or be facing retirement years still carrying a mortgage?

Would you like to have the freedom to choose when to stop working or having to work because you still need the money to service your debt?

The greater your net worth, the more options you have to do what you really want to do in life.

How can you improve it? You have to work to increase your assets and reduce or eliminate your liabilities. In his must read book, “Rich Dad, Poor Dad”, Robert Kiyosaki explains it this way:

“In financial reporting, reading numbers is looking for the plot, the story. The story of where the cash is flowing. In 80 percent of most families, the financial story is a story of working hard in an effort to get ahead. 

Not because they don’t make money. But because they spend their lives buying liabilities instead of assets.”

 So how do we do this? How do we put our focus on increasing our net worth?

  • Increasing your assets: Get on a budget (spend less than you make), save money for emergencies, invest for retirement and for college. Invest for wealth building in mutual funds and real estate.
  • Reducing your liabilities: Pay off your credit cards, car loans, student loans. Stop borrowing money. Pay off the mortgage early.

 

The Decision

Well, for me the decision is very clear. I am going to focus on improving my net worth and not worry about my FICO score. I will keep an eye on my credit report and check it at least once a year for accuracy.

The FICO score has a limited scope and it’s focused on the short term. And I don’t want to live my financial life using the crutch of debt.

I want to focus on the long term. And I can impact my net worth by taking charge of my finances. I can focus, take control of my money, and really influence my overall financial wellness.

In my mind, net worth is the clear winner in this fight. It is the true measure of winning with money.

Question: What do you think? What number will be your focus?

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Winning Money Habits: Track Your Money

Winning Money Habits: Track Your MoneyHappy New Year!!! Did you make any resolutions to improve your finances in 2014? If you did, I want to offer you a little help.

In my experience one of the most important skills to develop with your finances is the ability to keep track of your money.

In order to gain control of your money you need to understand what’s happening with it. How much comes in? How much goes out and for what?

How much money have you saved? How much money do you owe and to whom?

If you can’t answer these questions you don’t have the level of understanding required to win with your finances. Learning to track your money is a winning money habit you should develop.

So how do you get there? Here are 4 essential tasks you need to do in order to track your money consistently:

1. Record your Expenses

You need to keep a register of where your money is going. You can use the old fashioned approach of your paper checkbook register, computer software (e.g., Quicken), or in many cases, you might be able to do it by using the on-line features of your bank or credit union.

Even if it is a few bucks for a venti latte or you just took $20 out of the ATM, record it and ensure it is categorized properly (e.g., utilities, gas, dining, groceries, etc.).

Having a historical record of your expenses will help you with your monthly budget, especially as you get started.

2. Keep your Checkbook Balanced

Every month, your bank or credit union will provide you with a statement of your checking and savings accounts. Spend a few minutes balancing your checkbook. It does not take long and it will help you know where you stand with your money.

You can also avoid overdraft fees, find expenses you might have forgotten to record, and also discover erroneous charges due to bank errors or worse, erroneous charges due to identity theft.

The instructions for balancing your checkbook are usually included on the back of your bank statement. Do it every month!

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3. Maintain a Net Worth Report

You need to know what is the value of your assets (what you own outright such as savings, retirement accounts, property), and your liabilities (your debts such as credit cards, car loans, student loans, and mortgages).

Your net worth is the difference between your assets and your liabilities. Most financial management tools provide you with an easy way to track your individual assets and liabilities so you can keep track of your net worth.

As you make progress with your finances, your net worth is the true measure of winning with your money.

4. Live on a Written Budget

As you begin to habitually do the actions above, you will begin to gain great insight into where your money is going. This will help you greatly as you tackle the task of living on a written budget.

A working budget will be the most powerful tool in your arsenal. This is a simple blue print for managing your money: how much money comes in (i.e., your income) and how much money goes out.

The key is that you have to do it every month before the month begins. You have to plan it and live it!

Question: What else do you do to keep track of your money?

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