Fabulous Financials

The second step to maintain Fabulous Financials is to reduce expenses.

If you focus on the heavy hitters, reducing expenses can provide the same results as increasing income.  Think about it.  With one less bill to pay, you will immediately increase your disposable income by the monthly payment of the eliminated bill.  Doesn’t that make you want to focus on eliminating (and avoiding) consumer debt?  Truth be told, aunt Visa and uncle Mastercard would prefer that you didn’t.  They’d rather you carry the debt so they can earn money on interest and fees.  But why go to work 40+ hours/week just to turn over half of your paycheck to them?  That is…unless you don’t mind working twice as hard for half the pay. Otherwise, try these:

Get the Monkey Off Your Back

When you incur consumer debt to buy ’stuff’, think of it as putting a monkey on your back.  When you first brought it home, it was probably a cute little thing.  You showed it off to your friends and admired it everyday.  But after a while, you realized that little mofo was getting heavy.  Shortly thereafter, it aint as cute as it used to be, aint as shiny as it used to be, aint as new as it used to be, or even worse - someone else has one that’s even better than yours.  Dang!  The only way to get rid of this monkey is by paying it to go away.  Now you’re stuck with something that’s weighing you down, taking your hard earned money, and stealing your joy.  You must admit, the simple thought of going to work to pay for things you no longer value is depressing. Get the monkey off your back.

Get Rid of Non-Necessities

Another way to reduce expenses is to get rid of things you consider non-necessities or you can stand to live without - even if it’s only temporary.  As for me?  I don’t have cable or a landline.  I don’t have text message and other data features on my cell phone.  I don’t TiVo or own an iPhone.  I don’t pay for magazine subscriptions or club memberships.  Yet, I live a full life, stay connected with my friends, and remain up to date on current events and news.  Go figure.  If it isn’t a necessity to YOU, get rid of it.

Are debt and non-necessities preventing you from having fabulous financials?

Please share tips on how YOU reduce expenses?

photo credit: danesparza

This is a guest post by Miranda Marquit, a blogger from All Business Personal Finance Corner.

$1 trillion. That’s how much American’s have amassed in revolving credit, according to the Federal Reserve. That’s a lot of debt. And if you feel as though you are drowning in debt, it can seem overwhelming to try and dig your way out of it. But having a plan for paying down debt can help.

Paying down debt as wealth building

One of the reasons paying down debt doesn’t always get top billing as an important priority is due to the fact that it just feels like you are spending more money. In order to change this, you need a new mind set. Realize that paying down debt is a wealth building tool. Debt - especially credit card debt - isn’t money that you have. It’s a loan against your future income. You’ll actually have more to spend in the long run if you get rid of your debt and live within your means. The New York Times offers this compelling illustration of the cost of debt:

For example, the typical American carries a $9,000 credit card balance from month to month. Say this card charges an annual 18 percent interest rate and allows paying as little as 2 percent of the balance each month. Even if no more charges are made on the card and the minimum payments is made on time every month, it would take 47 years to pay it off, according to the National Foundation of Credit Counselors. By then, total payments would be $32,994, including $23,994 in interest.

In the above scenario, you are paying $23,994 in interest - money that gets you anything in return and you have nothing to show for it. All interest charges represent is a payment for the privilege of putting money on your credit cards. Imagine what you could get with ~$24,000: a new car, contributions to your retirement account, a year of college (including living expenses), three or four family vacations. When you look at how much debt costs, getting rid of it becomes more important.

Prioritize your spending

In order to pay down debt, you need to free up some room in your budget. This means you need to take a good look at what you have been spending and decide what is most important. Bills, food, transportation to work and school and shelter are the essentials. You can also look at ways to reduce expenses in these necessary areas. Cook meals at home rather than order out. Use public transportation to get to work. Downgrade your cable package (or get rid of it altogether). Think about what you need, distinguishing those items from what you merely want. Make a list of your expenses, from most important to least important. You should also consider setting some money aside (even if it is a small amount) for savings.

You can also prioritize your wants. But make sure paying down your debt ranks ahead of your wants on your list of priorities. Figure out your budget based on your priority list. If you run out of money before you complete your list of priorities, it will be the least important things that are “sacrificed.”

Which debt to pay down first?

Next, you have to figure out which debts to pay off first. Most financial planning experts agree that you should pay off the highest interest, revolving debts first. Revolving debts are those that, like credit cards, allow you to continue borrowing money as you make payments - as long as you don’t exceed the limit the creditor sets for you. These debts are likely to cost you the most in the long run and should be paid off before you tackle the installment accounts (debt with usually fixed rates, like car loans, that you make regular payments on without adding to the balance).

Make a plan to pay off each debt, one at a time (while paying the minimum on the others) until it is paid off. List the lowest balance first or the highest interest rate first. The key is to create a plan and set priorities to pay off debt.

Miranda Marquit writes about personal finances for the All Business Personal Finance Corner and edits information on debt consolidation for DestroyDebt.com.

Another fabulous announcement this week. She did it!! From a post on her blog today…

I PAID OFF MY CREDIT CARD DEBT!!!!!!

I started this blog about three years ago in a panic. I was nearly $16G in credit card debt AND I had a nearly new car payment, new job and new expenses. Two jobs, two moves and the same car later, and I did it.

I messed up A LOT on the way.

I didn’t always do the brilliant financial thing.

Sometimes I despaired that I’d never get this done.

Sometimes I didn’t care if I did or not.

Sometimes I was so determined, nothing on earth was going to stop me.

Sometimes other things in my life got me so down that financial freedom was the last thing on my mind.

But I did it.

Yes. She. Did.

$16,000 and 3 years later. My girl is [credit card] DEBT FREE!! WOOOOOO HOOOO!!

Click here to show her some love!!

A big hearty CONGRATS to one of my long time readers - Chris - for paying off nearly $25,000 worth of debt in one year! WOOO HOOOO!! A few weeks ago, I received the following email with DEBT FREE in the subject line:

I did it!!! When the last $1000 clears tonight I am debt free!!!

WOO HOO!!!!!! I FEEL GREAT!!!!!!!!!!!!!!!!!!!!!!

Now, all the money is MINE!!!!!! HA HA HA

God it feels good!

Thank you for being my support! It really helped!

He was also the #1 winner of my debt payoff incentive. As the prize, he chose me to be his personal coach for 3 months. I don’t know what he was thinking, but somehow, he still did it!! LOL I love receiving Chris’ email updates and I look forward to reading about his plans for the future.

Oh yea, and my girl - Debt Hater - is also rounding the bend. She plans to be debt free on 7 May 2008. You know I’m rooting for you girl!! Celebratory dinner and drinks are on me!!

If you have debt, let’s think of new strategies to reduce your debt!

If you need motivation, reward yourself after every $1,000 milestone.

If you get discouraged, take baby steps but don’t quit.

If you need a little inspiration, hollatchagirl!

Congrats again, Chris!!! Enjoy your vacation!! You deserve it!

[the scene]

Single Ma and BabyGirl are riding in the car.

The two are returning home from a fun-filled weekend.

The entire trip is several hours long and they have approximately 1.5 more to go.

Single Ma uses the ‘togetherness’ as an opportunity to talk about…what else? Money!

[the audio picks up on the conversation]

Single Ma: Now that you have your first paycheck, you know you owe me $25 right?

BabyGirl: *with a look of fear*

For what!?!

SM: *laughing at her for being all indignant*

Because I bought you a Smart Trip card and the shoes you needed for work.

BG: But I thought you were doing that to be nice?

SM: *makes mental note to clarify any future advances as “loans”*

Oh no, no honey. You said you needed them, so I bought them for you because I knew you didn’t have any money yet. And since when have you ever known me to be nice?

BG: *laughing because she thinks SM is joking around*

But maaaaaaaa, you said you wouldn’t take me to work unless the weather is bad or it’s dark, so I have to take the bus. And none of the black shoes I had fit the dress code at work.

SM: Yes, I know that dear. I’m not saying you didn’t need those things, but they are work related. You wanted this job, so you must pay for your own work related expenses - *pause for effect* - which just so happen to include transportation and appropriate work attire.

BG: *crosses arms to pout*

Well you shouldn’t have bought them then!

SM: *gives BG the side eye in the passenger seat*

Why not? Would you have walked to work?

BG: No, but I don’t like being in debt!

SM: *thinking*

HA HA that response was worth more than $25. It was friggin’ priceless! She feels uncomfortable knowing that she owes me (or anyone) money before receiving her paycheck. In addition, she also realizes that paying it back will reduce the amount of money she thought she would have at her discretion to spend. And now she’s mad. LOL Good!

Fabulous Financial Message: It’s a horrible feeling to be in debt, and justifiably so. To have someone else calling dibs on your hard earned money before you even receive it. Whatever benefit you received as a result of using someone else’s money is probably trivial to you now. But you can’t deny that you DID, in fact, receive a benefit. So by the time you distribute what you owe to everyone who has their hands out (e.g. Visa, MasterCard, auto finance company, retail finance company, Sallie Mae, or in BabyGirl’s case - Mom), you are left with only a few measly bucks after two weeks of hard work. No fair! I’m sure many of you can relate and none of you like it, but unfortunately, that’s the rule of the debt game.

And guess what?

She’s mad, but I don’t care. I’m going to make her pay me anyway.

Yesiree, I am!

Oooh, and it might even delay her ability to do what she really had her heart set on.

*shrug* C’est La Vie

But I won’t tell her that it’s going straight into her savings account. LOL

*checks the box on lesson #1*