Don’t Make These Mistakes

The vast majority of people I speak with who are struggling financially struggle with two things. The good news is they’re correctable, and you can begin working on them right away.

No time to waste, let’s get into it:

Debt Mismanagement

Between student loans, credit cards, auto payments, mortgages, and personal loans, for many people it feels like they’re working for lenders rather than their employer. It’s stressful to consider that a loss of work could not only cause immediate pain from figuring out bills, but lenders could come calling if they aren’t paid!

Debt = risk

It’s a simple concept. While some will argue about “good debt” vs “bad debt”, my philosophy is that all debt equals risk.

Risk is not inherently bad, but it’s something to be respected.

There are some debts that should be avoided at all cost, like high interest rate debt (credit cards) and loans that aren’t backed by assets. Would I be willing to risk losing my house for a new couch? Absolutely not. Yet that’s how many people unknowingly spend!

When credit cards are heavily used and not paid off each month, it can cause the monthly debt load to increase to the point that should something unexpected occur, we have to decide between who to pay and who not to pay.

That’s a terrible feeling and one we should all avoid.

If you find yourself in debt, make it your highest priority to rid yourself of the high interest debt.

This leads me to the following:

Emergency Fund

Most people don’t save. It isn’t fun. I would much rather buy that new grill this summer than put another $500 into an account I don’t get to access.

I remember when I was bulking my own Emergency Fund. It wasn’t fun until one day, it was done.

At that moment I noticed my stress levels reduce. My budget expanded so I could focus on other goals. And during times of uncertainty around income, it’s been easier to manage because I know I have a safety net.

If my car breaks down, or if the hot water heater explodes, I know I have that cash available to take care of it without it impacting my month.

My Emergency Fund also sits in a high interest savings account, so it’s nice to see the number increase each month and sort of keep up with inflation.

Takeaways:

• When you’re first starting, save 1 month of expenses as fast as possible.

• Set aside your Emergency Fund in a separate savings account. Don’t touch.

• Then hit your high interest debt as hard as you can. Get aggressive, and get it paid off! The interest significantly limits your ability to save and build financial security.

The cool part about paying off debt is that the Emergency Fund goes further when you have fewer monthly bills!

Quote of the week: 

The habit of saving is itself an education; it fosters every virtue, teaches self-denial, cultivates the sense of order, trains to forethought, and so broadens the mind.

- T.T. Munger