Should Your Finances be on Cruise Control?

Finances on Cruise Control

Do you enjoy road trips? It is one of my favorite ways to go on vacation, and at least once a year my wife and I take such a trip.

To avoid the strain on our own vehicles, we usually rent a car. For a long road trip, one of the must-have features for that car is of course cruise control, which allows me to set the speed at a fixed amount.

On those long portions of the trip, it is nice to put something on “automatic” and out of your mind.

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The Danger of Finances on Cruise Control

In some instances, putting some elements of your finances on cruise control or “automatic” can be a good thing.

For example, if you are working on developing your savings habits, it might be a good idea to setup an auto-draft from your checking account to your savings account each month.

Or, if you want to make sure you are consistently saving for retirement or college expenses, an automatic transaction to your investment account would be a good option.

However, putting things on “cruise control” with your finances could also present a problem. That recently happened to me with our home insurance policy.

We had been with the same home insurance company for almost 20 years even through our move from Round Rock to Frisco. In all that time, I really did not have a reason to complain about coverage or service.

I also got into the habit of receiving the annual policy renewal letter on-line as opposed to receiving the paper version.

So far, nothing wrong with any of that. It saved me time, it minimized the amount of paper I had to file, etc.

But here is where I ran into trouble:  Two years ago, I received the notice of renewal but I honestly gave it only a cursory review.

There was a big cost increase in the insurance premium and even though I saw it, I did not really process it.

It really did not hit me until I received a notice from my mortgage company with the corresponding increase in the monthly escrow amount.

I was a bit surprised, and of course, our monthly budget had to be adjusted. So even though we could handle the change, the fact that I had let something like that slip by me, left me with a bad taste.

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Lesson Learned: Automate Your Finances but Don’t Disengage

So what did I learn? Well, I always tell you that you have pay attention to your money in all aspects. I had to apply that lesson to myself. Again.

This past December, when I received the annual renewal policy for our home insurance, I did a more detailed review. This time there was no major increase, no major surprise.

However, I took it one step further. I decided to look for other options with insurance to see if we could do better with coverage and get more value for the cost.

I contacted a trusted insurance agent and he reviewed our needs for both home and auto insurance.

I was pleasantly surprised that I could save about $400 annually combined between our home and auto insurance premiums. All I had to do was to take the time to ask for different options.

I made the switch and I am glad I took that step. Reviewing your insurance needs is just one example of looking at your overall financial plan.

So regularly, take a moment to review what you are spending on different areas of your budget (food, internet service, phone service, etc.). Take the extra step to look for alternative options.

You may end up not changing anything, but then again, you could find savings and more bang for your buck.

Now, where is that cable bill?

Talking About Money with Family and Friends

Talking About Money with Family and FriendsWhat topics do you avoid discussing with family and friends?

Typically if we want to have a peaceful family gathering or a nice evening with friends, we tend to stay away from the topics of politics and religion for sure.

And if we are honest, we also avoid talking about money.

The discussion of finances can get very, very personal and very, very uncomfortable, very, very quickly.

But is there a time when we can discuss the subject of money with friends and family?

And if so, how do we go about it?

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In my opinion, there are 2 scenarios where it is ok to discuss money with friends and family:

  1. When someone asks for our advice.
  2. When someone asks to borrow money from us.

So let’s see how we can talk about money with family and friends in these situations.

1. When someone asks for our advice.

If someone is asking your opinion about money, they probably feel that you can be trusted and you have something to offer.

So start by building on that trust by showing the person grace. We all have made mistakes with money.

We all have made purchases we would like to take back. We all have wasted opportunities with money. This is not the time to offer criticism or judgment.

Second, stay on the topic. No need to spend time covering everything you want to say on the topic of personal finances.

This is not about you. This is about helping your family member or friend in their time of need.

Finally, talk about how you have personally handled that particular financial issue.

Share what has worked well for you and what did not work so well. Be transparent and real.

If you have good trusted resources, share them with your relative or friend.

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2. When someone asks to borrow money from us.

If you are doing well with your financial situation, you will find yourself in this position sooner or later.

As I have written before, I think it is a mistake to loan money to a family member or friend. It changes the relationship into one of slave and master (Prov 22:7).

When this situation comes, you need to carefully evaluate how you define help. Of course, we want to show love and compassion.

But you have to be careful that you do not enable harmful behaviors. You want your relative or family member to get to the point where they can walk on their own strength financially.

So if you have the ability and you think the money will help them and not harm them, give them the money.

Buy the groceries for that week. Pay for the electric bill. Cover the medical prescription.

And since they have asked you for money, they have opened the door for you to give them help in some other way.

You can be part of their recovery by sharing your lessons learned. Talk to them about your own journey.

If there is a book or class that you think will help them, share it with them. If they are receptive, offer to pay for it.

Remember, your ultimate goal is to help your family member or friend never have to be in that position again.

If they are willing to receive your help, take the opportunity to walk alongside with them.

“So then, while we have opportunity, let us do good to all people, and especially to those who are of the household of the faith.”
Galatians 6:10 (NASB)

6 Steps To Debt Freedom

6 Steps to Debt FreedomDid you know that our national debt is now over $18T)?

Since September 30, 2012, the National Debt has continued to increase an average of $2.43B per day.

Or how about this fact: as recently as 2012, The U.S. government had to borrow 46 cents of every dollar that it currently spends, four times the rate in 1980.

I could go on but you get the picture. This is the kind of stuff that should scare you or make you really upset.

We have dug ourselves a pretty deep hole and the situation looks hopeless.

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However, while the solution to the national debt crisis is out of your hands, taking care of your personal debt is not.

But you need to reach a great level of disgust and frustration with yourself. You have to decide that you are done with debt.

That you are done being a slave to the lenders. That you are taking control of your financial destiny.

If you are ready to change, if you are truly done borrowing money, there is a way out.

6 Steps to Debt Freedom

  1. Establish a beginner’s emergency fund of $1,000. You need to have a small cushion so when the car needs a repair you don’t have to use a credit card to pay for it.
  2. Stop borrowing money. Do not add more debt while you are trying to get out of debt.
  3. Stop your retirement contributions temporarily. Yes, even if your employer provides a match. You need all the cash flow you can get. Plus you need to focus on getting out of debt instead of having your attention divided on multiple tasks.
  4. List all your individual debts (except your mortgage) smallest to largest. Make sure you are current on each one of those debts and keep making the minimum payments. Then start paying extra (as much as you can) on the smallest debt.
  5. When you are done paying off that smallest debt, take the amount of that payment and apply it to the next debt on the list.
  6. Repeat steps 4-5 until you are done with all of your consumer debt (credit cards, medical bills, car loans, student loans) is paid off. This process is known as the “Debt Snowball“.

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Do’s and Don’ts

  • Do consider working extra hours or taking a second job so you can have extra income.
  • Do consider selling some assets (have a garage sale for example) to jump-start your debt snowball process.
  • Do close your accounts when you pay them off. You don’t need them anymore.
  • Don’t fall for the trap of debt consolidation. All you are doing is moving the debt around. Interest rates are not your problem.
  • Don’t borrow money from your retirement plan. If you lose your job or you leave your job, the payment is due within 60 days. If you don’t pay it then, it is considered an early withdrawal (if you are younger than 59 1/2 years old) subject to taxes and penalties. By taking the money out you are also losing out on any investment gains on that money.

So there you have it. You have the steps plus some additional guidance on how to get out of debt.

This is the process my wife and I used to get out of consumer debt almost 10 years ago.

It took us 29 months but we paid $50K in debt. We have never looked back.

It can be done but it is up to you. There is no product without the process. There is no victory without sacrifice.

Decide today and act today!

The rich rules over the poor,  And the borrower becomes the lender’s slave.
Proverbs 22:7 (NASB)