There are six basic elements of good money management:
1. Education
2. Self-Control
3. Systemized Budget
4. Set a Goal
5. Follow through with the strategies you accept
6. Support (Emotional and Practical)
These six fundamentals are essential to keeping you on track to managing your money correctly. Lets start with Education.
The first major component to managing your money correctly is Education. In school, we learned about History, Economics, Science, Physical Fitness, Mathematics and even Literature, but what happened to Income or Paycheck managment? Most of our financial education comes from our parents or from neighbours who are willing to share their opinion based on what they have seen on TV or "heard through the grapevine". When you consider all of the information that we learn in High School and even College, the only real subject that translates into practical use is Mathetmatics. It's everywhere and in everything. When your shopping at a department store trying to figure out what 20% off of $175 is or if your trying to figure out how much mileage your really getting to that gallon. Functional math skills are essential no matter how many of us try to avoid it. Isn't it interesting that math and money are the two things that permeate every part of our lives but yet most people don't have a good grasp of either subject. This is where Paycheck Distribution Coaching steps in.
Once you have acquired basic math skills, it's time to move on to realistic and practical knowledge of money and how it really works for you. We really don't need to go into how to earn an income, that was covered by your parents when you were a child, remember the "get a good education and get a good job" speech? We have all heard it at one time or another. Some of us followed it and others went the way of the wealthy, "get a practical, real life education and work for yourself making your money work harder for you". In either case, there is a paycheck coming in, so how do you manage it correctly?
Managing your money correctly requires practical use of a systemized budget. But lets start with the basics. Someone once said "what you focus on expands" so let's get focused on your money and how to make it work harder for you than you have for it.
Here is a little excercise I want you to try:
1. Calculate your NET income (the amount of actual dollars you have coming in every month after taxes etc) (if your in a couple and pay the bills together then combine your numbers for this excercise)
2. 6 categories of money use (use last months numbers and get an actual $ amount for each category)
a. Everyday needs (rent/mortgage, electricity, food, gas, minimum payments on your debts, insurance
car payments,etc)
b. Entertainment (play time, movies, eating out, concerts, dvd rentals, etc etc, this includes what you
consider to be not an everday need or expense)
c. Education (college tuition, self help seminars, books, etc etc whatever you would consider an
educational expense)
d. Savings ( how much have you put away for a rainy day (monthly))
e. Big purchases (are you putting things on credit cards that you can't afford today?)
f. Debt reduction (how much extra have you put towards your debt reduction strategy?)
Once you have this done, it will be a real eye opener for most of you. If you don't really know what your spending your money on, then how can you manage your money efficiently???
CONGRATULATIONS, you have just been hired for a new part-time job, you are now your own PERSONAL MONEY MANAGER. And if you take this job seriously enough, it will pay you more than your full-time job does. Now if you find there are $0 being put into some of these categories, that's ok, I knew there was a reason you were reading this, we will fix that later.
I welcome your comments and please follow me at www.facebook.com/paycheckdistributioncoach for great daily money management tips.
Thursday, April 29, 2010
Wednesday, April 21, 2010
Paying off Debt, the RIGHT way!!!
Paying off debt can be a hefty task. Do you pay the higher interest rate first? The lowest? Do you send a little extra to all the bills? These are questions that are on everyone's mind when it's time to pay the bills... so why is it that most people don't ask someone how to do it correctly?
There are many ways to pay off your high interest rate debt (most don't work so great). So many of us get caught up in the "I want it now" mentality and end up stuck with some pretty big bills that most of us end up only paying the minimum payments on. The real question is... how do I pay off my debt correctly?
There are many schools of thought on this subject, but there is really only one that I have seen work and have used myself succesfully.
Debt Snowballing. This the most popular method and actually has 2 different ways to accomplish the same task.
List all of your debts, in descending order by interest rate, regardless of the balance (accounts with highest interest rates first).
Determine the most money you can make available from your budget to apply to the debt snowball. The more you can apply, the more money you'll save and the faster you'll pay off your debt.
Each month, apply the minimum payment PLUS the extra money you've made available from your budget to the first debt (the one with the highest interest rate). On all your other debts, pay only the minimum payment. Continue to do this until the first debt on the list is paid off.
Take the minimum payment AND the extra payment you were making on the first debt and add them to the minimum payment you've been paying on the second debt. Pay that amount on the second debt each month until it's paid off, then move on to the third debt. Continue to pay only the minimum payment on all debts except the one you're "snowballing."
Repeat this process until all of the debts are paid off.
This method is actually the most effective, fastest and cheapest way to pay off your debt.
Some others recommend listing your debts with the smallest balances first so you can get the emotional satisfaction of quickly crossing off a debt or two, in the hopes that this emotional satisfaction will keep you motivated, but this one costs you more in the long run.
Now, here are some questions that people ask all the time:
1. Does this really work? Yes it does, and it's proven with sound calculations of how interest is charged to each account
2. What if i fall into extra money, what should I pay first? If your following the methods above, you would use any extra money you want to pay towards your debt on the account your paying the "extra" money on every month, the faster you get rid of the higher interest rate debt the more you save!!
3. what if I don't have the extra money one month? send in at least the minimum payment to each debt and then start again the next month
4. I can't help myself, I feel the need to pay a little more to all of my debt? DON'T!!! Save yourself years and a lot of extra interest charges and STICK TO THE PLAN!!!
5. Do I treat credit card debt and car debt the same way? This is tricky, because these two different types of debts are not calculated the same way. But unless you have the greatest credit card interest rate on the planet, or you have a REALLY bad rate on your car loan, odds are, it's best to pay off the credit cards first.
6. What if I have a mortgage and a home equity line of credit? This is actually a great question, it's best to put extra money down on your mortgage principal. The reason say this is, your mortgage is usually over a 30 year period, so any principal on the mortgage gets charged interest for a much longer period of time, any time you can decrease that amount, the less interest you pay over the long run. Some models have show (and have been proven) that if you pay just $5000 to your mortgage principal it can save you $20,000-$40,000 in interest over the years (of course this is all dependant on your loan, interest rates etc, but you can see the power of paying down the principal on your mortgage payment)
Well this was just some information on how to pay down your debt faster and save you $$$ in interest. I hope this helps...
There are many ways to pay off your high interest rate debt (most don't work so great). So many of us get caught up in the "I want it now" mentality and end up stuck with some pretty big bills that most of us end up only paying the minimum payments on. The real question is... how do I pay off my debt correctly?
There are many schools of thought on this subject, but there is really only one that I have seen work and have used myself succesfully.
Debt Snowballing. This the most popular method and actually has 2 different ways to accomplish the same task.
List all of your debts, in descending order by interest rate, regardless of the balance (accounts with highest interest rates first).
Determine the most money you can make available from your budget to apply to the debt snowball. The more you can apply, the more money you'll save and the faster you'll pay off your debt.
Each month, apply the minimum payment PLUS the extra money you've made available from your budget to the first debt (the one with the highest interest rate). On all your other debts, pay only the minimum payment. Continue to do this until the first debt on the list is paid off.
Take the minimum payment AND the extra payment you were making on the first debt and add them to the minimum payment you've been paying on the second debt. Pay that amount on the second debt each month until it's paid off, then move on to the third debt. Continue to pay only the minimum payment on all debts except the one you're "snowballing."
Repeat this process until all of the debts are paid off.
This method is actually the most effective, fastest and cheapest way to pay off your debt.
Some others recommend listing your debts with the smallest balances first so you can get the emotional satisfaction of quickly crossing off a debt or two, in the hopes that this emotional satisfaction will keep you motivated, but this one costs you more in the long run.
Now, here are some questions that people ask all the time:
1. Does this really work? Yes it does, and it's proven with sound calculations of how interest is charged to each account
2. What if i fall into extra money, what should I pay first? If your following the methods above, you would use any extra money you want to pay towards your debt on the account your paying the "extra" money on every month, the faster you get rid of the higher interest rate debt the more you save!!
3. what if I don't have the extra money one month? send in at least the minimum payment to each debt and then start again the next month
4. I can't help myself, I feel the need to pay a little more to all of my debt? DON'T!!! Save yourself years and a lot of extra interest charges and STICK TO THE PLAN!!!
5. Do I treat credit card debt and car debt the same way? This is tricky, because these two different types of debts are not calculated the same way. But unless you have the greatest credit card interest rate on the planet, or you have a REALLY bad rate on your car loan, odds are, it's best to pay off the credit cards first.
6. What if I have a mortgage and a home equity line of credit? This is actually a great question, it's best to put extra money down on your mortgage principal. The reason say this is, your mortgage is usually over a 30 year period, so any principal on the mortgage gets charged interest for a much longer period of time, any time you can decrease that amount, the less interest you pay over the long run. Some models have show (and have been proven) that if you pay just $5000 to your mortgage principal it can save you $20,000-$40,000 in interest over the years (of course this is all dependant on your loan, interest rates etc, but you can see the power of paying down the principal on your mortgage payment)
Well this was just some information on how to pay down your debt faster and save you $$$ in interest. I hope this helps...
8 Typical Financial Mistakes to AVOID!!!
1. Raiding your 401k!!! BAD IDEA. Your 401k was created with Tax benefits in mind and for RETIREMENT. Many people go to their 401k like a piggy bank and end up with major tax implications and not having enough money saved for retirement.
2. Running out on your mortgage!! In this day and age, especailly with the housing bubble, I have personally seen and heard some horror stories. Running out on your mortgage because your upside down is a really bad mistake. Not only does it destroy your credit, but when the bank forecloses on the home, they can come back and sue you for the difference between what you owed and what they sold it for.
3. Ignoring your credit card balance: This comes up alot in my discussions, "I want it now" attitude gets most of us in trouble. Credit cards can be a GREAT asset when they are used properly. But the major pitfall that most people fall into is trying to spend much more than they can afford. Then, what's worse, is that most people don't know how to pay the balances off correctly. Watch those balances, they will come back to bite you later!!!
4. BEWARE debt clearance companies/debt negotiation companies: most of them are scams (so if you NEED to do this, make sure you do your research), when they DO actually do their job and reduce your debt, check the mail during tax season, because your gonna get 1099'd for the amount that was forgiven on your debt!!!
5. Co-signing a loan: Ok we have all had that cousin, friend, sister or brother that just can't get that loan without someone to put their Name and CREDIT on the line for them, and some of us even went out on a limb for someone and had that limb break and your name and credit goes down with a BANG!!! Co-Signing a loan is a VERY big deal. If that person has messed up their credit or can't qualify with the income they make, then they don't deserve or can't afford the new loan they are trying to get. Keep your sanity and your CREDIT SCORE, and just don't do it!!!
6. Pay Day Loans: If you think your credit card is bad, try one of these. the interest rate can be as much as 521% on a 2 week loan. Enough Said.
7. Reverse Mortgages: Now this if for the senior crowd: be careful. The fees on these loans can be very high, and even though they market the product with the idea that you never have to make a payment on the money you recieve, it's just not true. Your children end up footing the bill because when you pass away, the bank needs to be paid back or they take the home. This option ONLY makes sense for those who have NO family to leave their property to and/or your in a such a bad financial position that all other options have been exhausted.
8. Stiffing UNCLE SAM: Uncle sam is the only entity that can garnish your wages, put a 1st position lien on your home (over and above the mortgage company) and charge you with fraud and put you in prison (remember Al Capone? he was imprisoned for Tax Evasion) Be sure that your honest about your taxes and pay the tax bill as soon as possible. This is one headache there is NO cure for!!!
2. Running out on your mortgage!! In this day and age, especailly with the housing bubble, I have personally seen and heard some horror stories. Running out on your mortgage because your upside down is a really bad mistake. Not only does it destroy your credit, but when the bank forecloses on the home, they can come back and sue you for the difference between what you owed and what they sold it for.
3. Ignoring your credit card balance: This comes up alot in my discussions, "I want it now" attitude gets most of us in trouble. Credit cards can be a GREAT asset when they are used properly. But the major pitfall that most people fall into is trying to spend much more than they can afford. Then, what's worse, is that most people don't know how to pay the balances off correctly. Watch those balances, they will come back to bite you later!!!
4. BEWARE debt clearance companies/debt negotiation companies: most of them are scams (so if you NEED to do this, make sure you do your research), when they DO actually do their job and reduce your debt, check the mail during tax season, because your gonna get 1099'd for the amount that was forgiven on your debt!!!
5. Co-signing a loan: Ok we have all had that cousin, friend, sister or brother that just can't get that loan without someone to put their Name and CREDIT on the line for them, and some of us even went out on a limb for someone and had that limb break and your name and credit goes down with a BANG!!! Co-Signing a loan is a VERY big deal. If that person has messed up their credit or can't qualify with the income they make, then they don't deserve or can't afford the new loan they are trying to get. Keep your sanity and your CREDIT SCORE, and just don't do it!!!
6. Pay Day Loans: If you think your credit card is bad, try one of these. the interest rate can be as much as 521% on a 2 week loan. Enough Said.
7. Reverse Mortgages: Now this if for the senior crowd: be careful. The fees on these loans can be very high, and even though they market the product with the idea that you never have to make a payment on the money you recieve, it's just not true. Your children end up footing the bill because when you pass away, the bank needs to be paid back or they take the home. This option ONLY makes sense for those who have NO family to leave their property to and/or your in a such a bad financial position that all other options have been exhausted.
8. Stiffing UNCLE SAM: Uncle sam is the only entity that can garnish your wages, put a 1st position lien on your home (over and above the mortgage company) and charge you with fraud and put you in prison (remember Al Capone? he was imprisoned for Tax Evasion) Be sure that your honest about your taxes and pay the tax bill as soon as possible. This is one headache there is NO cure for!!!
Health Insurance... What you need to know!!!
Health insurance has been on everyone's minds these days. You see it in the news and you hear about it on the radio, and you probably have heard people talking about it at work or in a restaurant. But the real quesiton is, how much do people really know about their health coverage?
Words like "deductible", "co-insurance", "pre-existing conditions" "major medical vs limited indemnity plans". Where do you start? Today's post will be dedicated to what I call the "health insurance well of knowledge" or lack thereof.
What is a deductible? In insurance policy terms, a deductible is the amount of money which the insured party must pay before the insurance company's own coverage plan begins. In other words, you must pay 'x" before your insurance will pay for anything. This amount can vary per policy, usually the less you pay on your monthly premium, the higher your deductible is. Also, keep in mind your deductible is reset every year!!!
What is co-insurance? Co-Insurance is the amount of the bill that you are also responsible for after your deductible is met. So let's say your bill is $10,000 (to make it easy) and your deductible is $5000. You pay your deductible FIRST, which brings your total amount due to $5,000 of which your co-insurance is 20% (sometimes can be as high as 30%). 20% of $5,000 is $1,000. So after paying your deductible and your co-insurance (in this example), your out of pocket for this $10,000 medical bill is $6,000. The insurance company pays the rest.
What is a pre-existing condition? this is a medical condition that was present BEFORE you purchased your insurance. It can be a serious condition, such as Asthma or Diabetes, or even a simple issue like Eczema. Either way, the insurance company can do a couple of things.
1. Deny you coverage- basically saying your too much of a risk to insure.
2. Rate your application- when they rate your application, it basically means your more of a risk to insure so you have to pay a higher monthly premium.
3. Put a waiting period (usually 12 months)- which means if you need to use your health coverage for that condition (that was there before you got the coverage) then your insurance coverage would not cover those expenses until the waiting period is over.
4. Rider out your pre-existing condition- the insurance company can say "we'll approve your coverage" but you can NEVER use it for that illness or health problem.
What is Major Medical/Catastrophic Insurance? Major Medical Insurance is health insurance that most people are used to. You can get it through your employer or on your own through a licensed health insurance agent. It usually has Co-Pays for Dr visits, prescription drugs and Emergency Room visits. It will always have a deductible and most of the time will also have a co-insurance too. It covers regular visits to the Dr or Specialist, labs, x-rays and hospitalization. You can either be on an HMO or PPO network (depends on the plan you choose). And most people don't realize this, but it also comes with a lifetime cap of about 3-5 Million Dollars. This is the most common type of coverage that people know about and can be very expensive.
What is a limited Indemnity Plan/Limited Benefit Health Insurance? Limited Health Insurance can also be called "guaranteed issue". This is also True Health Insurance. This coverage is great for those with pre-existing conditions that can't get coverage elsewhere. These types of plans are very affordable compared to the Major Medical plans, and most have NO DEDUCTIBLE. The idea behind these plans are to make your out of pocket expense as little as possible. Some offer NO waiting period for pre-existing conditions, many offer very good coverage for your dollar. There is usually 3 or 4 tiers or types of plans for each company, the higher you pay the more coverage you get, so you can usually find a plan that fits your budget and your needs at the same time. This if for the everyday, I need to see a Dr or get an x-ray type of coverage. Most have decent hospitalization coverage in case of an accident and most offer stackable benefits, which makes these plans very attractive. See an example of this type of plan here http://www.myhomelandhealth.com/ .
This was just a basic overview of health insurance and what to look for. The best way to find the plan that best suits your needs and your budget at the same time is to speak directly to an INDEPENDENT LICENSED INSURANCE AGENT. This person, is not tied or captive to one company. They can literally shop around for you. And remember, insurance rates are fixed on the federal level, so one agent can't offer you a discount on the same plan compared to another agent, they MUST offer it at the same price. Just find an agent that you trust and remember to ask questions.
Follow me at www.facebook.com/irenemcruz
www.twitter.com/irenemcruz
Words like "deductible", "co-insurance", "pre-existing conditions" "major medical vs limited indemnity plans". Where do you start? Today's post will be dedicated to what I call the "health insurance well of knowledge" or lack thereof.
What is a deductible? In insurance policy terms, a deductible is the amount of money which the insured party must pay before the insurance company's own coverage plan begins. In other words, you must pay 'x" before your insurance will pay for anything. This amount can vary per policy, usually the less you pay on your monthly premium, the higher your deductible is. Also, keep in mind your deductible is reset every year!!!
What is co-insurance? Co-Insurance is the amount of the bill that you are also responsible for after your deductible is met. So let's say your bill is $10,000 (to make it easy) and your deductible is $5000. You pay your deductible FIRST, which brings your total amount due to $5,000 of which your co-insurance is 20% (sometimes can be as high as 30%). 20% of $5,000 is $1,000. So after paying your deductible and your co-insurance (in this example), your out of pocket for this $10,000 medical bill is $6,000. The insurance company pays the rest.
What is a pre-existing condition? this is a medical condition that was present BEFORE you purchased your insurance. It can be a serious condition, such as Asthma or Diabetes, or even a simple issue like Eczema. Either way, the insurance company can do a couple of things.
1. Deny you coverage- basically saying your too much of a risk to insure.
2. Rate your application- when they rate your application, it basically means your more of a risk to insure so you have to pay a higher monthly premium.
3. Put a waiting period (usually 12 months)- which means if you need to use your health coverage for that condition (that was there before you got the coverage) then your insurance coverage would not cover those expenses until the waiting period is over.
4. Rider out your pre-existing condition- the insurance company can say "we'll approve your coverage" but you can NEVER use it for that illness or health problem.
What is Major Medical/Catastrophic Insurance? Major Medical Insurance is health insurance that most people are used to. You can get it through your employer or on your own through a licensed health insurance agent. It usually has Co-Pays for Dr visits, prescription drugs and Emergency Room visits. It will always have a deductible and most of the time will also have a co-insurance too. It covers regular visits to the Dr or Specialist, labs, x-rays and hospitalization. You can either be on an HMO or PPO network (depends on the plan you choose). And most people don't realize this, but it also comes with a lifetime cap of about 3-5 Million Dollars. This is the most common type of coverage that people know about and can be very expensive.
What is a limited Indemnity Plan/Limited Benefit Health Insurance? Limited Health Insurance can also be called "guaranteed issue". This is also True Health Insurance. This coverage is great for those with pre-existing conditions that can't get coverage elsewhere. These types of plans are very affordable compared to the Major Medical plans, and most have NO DEDUCTIBLE. The idea behind these plans are to make your out of pocket expense as little as possible. Some offer NO waiting period for pre-existing conditions, many offer very good coverage for your dollar. There is usually 3 or 4 tiers or types of plans for each company, the higher you pay the more coverage you get, so you can usually find a plan that fits your budget and your needs at the same time. This if for the everyday, I need to see a Dr or get an x-ray type of coverage. Most have decent hospitalization coverage in case of an accident and most offer stackable benefits, which makes these plans very attractive. See an example of this type of plan here http://www.myhomelandhealth.com/ .
This was just a basic overview of health insurance and what to look for. The best way to find the plan that best suits your needs and your budget at the same time is to speak directly to an INDEPENDENT LICENSED INSURANCE AGENT. This person, is not tied or captive to one company. They can literally shop around for you. And remember, insurance rates are fixed on the federal level, so one agent can't offer you a discount on the same plan compared to another agent, they MUST offer it at the same price. Just find an agent that you trust and remember to ask questions.
Follow me at www.facebook.com/irenemcruz
www.twitter.com/irenemcruz
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