Monday, April 30, 2007

May's Book: God Wants You to be Rich

I usually read one book a month on money since that is what I teach. I figure I had better stay up-to-date on the latest trends and ideas in the personal finance genre. May's book will be Paul Pilzer's, "God Wants You to be Rich." Thanks to Bonnie in North Carolina for recommending it to me. I just ordered it tonight so I'll let you know my impressions as I get each chapter done. If you have already read this book or you are one of the Frugal Friends who are reading along with me, let's hear your opinion!

Saturday, April 28, 2007

Thinking Big: From Middle-Class American to Millionaire!

Kristina Cowen, a freelance writer interviewed me in January and worked up a cool article on middle class business people and their rise to financial stability. Take a read and find out about Rob Bennet (The Financial Freedom Blog) and his passion for saving money along with comments from yours truly!

Tuesday, April 17, 2007

Clearing the Cobwebs of Clutter

Taxes have finally been put into the mail. My home office is now back to some semblance of normality and now I'm ready for the next big project, decluttering my home. It is an area of neglect for most folks that really does change one's financial situation. Yes, having an over stuffed house full of things does cause financial problems. Don't believe me? I don't blame you, but I know this is true.

There are certain habits and perspectives in life that cause use stress and sap our energy. One of the most prevelent is the "more is better" philosophy that I see perpetuated in many peoples' homes. The more you have, believe it or not, the more stress you have and that is definitely NOT wealth as I like to define it. So, now that my taxes are done, I'm headed to the far corners of my house to start the process of decluttering and spring cleaning. This is a semi-annual event for me because I know it keeps me sane, my family sane and my money in my savings account.

How you may ask? Easy. I know where everything is. By decluttering my home twice a year and getting rid of everything that doesn't serve me I am in the wonderful position of knowing where all my stuff is. Because of this, I have the added benefit of cabinets that actually have space between shelves and storage areas in the garage that are unused. All this despite the fact that I have four children and a husband with all their collections and stuff. How do you go about decluttering your home in order to assist your finances? Simple.

I recommend that you read, Don Aslett. He has written multiple books on the subject of clutter and how to get rid of it. The first book of his I ever read was, "Clutter's Last Stand." After that I read, "Not just for Packrats and Clutter Free, Finally & Forever." Then recently he came out with a real gem. "Weekend Makeover: Take Your Home from Messy to Magnificent in only 48 Hours!" Well, it took me longer using his methods then 48 hours, but the process was great and I found that I benefited emotionally, physically and financially from the change in perspective that occurred by my having space in my life.

This week is THE week where I tear into every drawer, closet, cabinet, cupboard and shelf in an effort to unload any possessions that are not serving my needs. This is spring cleaning at it's best!

Saturday, April 7, 2007

Reducing Debt While Increasing Savings using the 60/40 Principle

Most folks think that it is nigh impossible to pay off their credit card debt while saving money. They try to put all their extra cash to debt only to get themselves deeper in debt because they have no money in savings to pay out when an emergency occurs. This is a vicious cycle that most of us are familiar with and don't see a way out.

Take heart. There is a simple system that will allow you to pay off debt while at the same time increase your savings account balance. It is called the 60/40 Principle. It is the system that I used to get my family out of debt and eventually we moved from being middle class to millionaires over a 7 year period. Here are the basics:

This concept is the main rule that governs the flow of money in our lives. If you implement the 60 / 40 principle on any money you receive, you will immediately see your savings account start growing while your debt load decreases. If your debts are great, start only with money that is not part of your income, such as birthday money, rebates, unexpected cash from part-time employment, your change jar, your bonus from work, a tax refund check, whatever; you get the idea. You allocate money in this way by the 60 / 40 principle:

  1. 60% you live on. This goes into your main checking account.
  2. 10% goes into a long-term savings vehicle (IRA, 401k, Keogh account, solo 401k) for retirement. If you don't currently have a retirement account of any kind open two savings accounts at your bank. (One for long term and one for short term savings)
  3. 10% goes into a short-term savings account (local bank or a money market account) for use in those occasional large-scale expenses (new tires) and emergencies (the water heater explodes).
  4. 10% is tithed to a church or secular charity that is in line with your purpose. This is your ''rent'' for occupying space on the planet.
  5. 10% is pure philanthropy. That's right, you just give it away for the benefit of the community at large. This primes the pump so that the Universe starts sending wealth your way.

Once you have retired your debts, you apply the 60 / 40 principle to all your money, including your income, to keep money flowing in your life. Should you have any questions or comments please post them. I'll do my best to answer you quickly.

Friday, April 6, 2007

The Top 10 Causes of Debt

As I was cruising around the internet looking for ways to help you be frugal and save money, I ran across a list that I had never seen before. It was a Top 10 list for the Causes of Debt. Not only did I see this list once, but it popped up on three different financial sites that I routinely track. Wow! I quickly scanned the list and frowned.

I could agree with some of the points of the list, but overall, I have seen variations in my data that don’t support the reasons why my clients are in debt relative to the list created by . Before I launch into my rebuttal of this list let’s take a look at what Marketwatch came up with for the top ten causes of debt.

1-Reduced income/same expenses


3-Poor money management



6-Medical Expenses

7-Saving too little or not at all

8-No money communication skills

9-Banking on a windfall

10-Financial illiteracy

What I find amazing with this list is that the reason most of my clients have debt is due to one thing and one thing only. They spend more money then they earn. I know this may sound stupidly simplistic, but it is true. I have found in counseling over 362 families on their personal finances that the main cause of debt was due to their banking on money they didn’t have. Financial decisions were being made without a clear understanding of how much money they actually had coming in the door!

That’s right! Of the people I have coached, 98% of them could not give me a clear dollar figure of their earnings. I was blown away! Now, when I say how much money you earn, I mean the amount of money you have left after Uncle Sam takes his slice of your paycheck. It was amazing how many folks had to call me back or had to refigure their income. Upon figuring their income after taxes they were dumbfounded at the amount they had left. Just because you have a job that pays you $56,000 a year doesn’t mean that is the amount of money you have to “play” with. However, most of my clients have the $56,000 number in their head and they spend money like that amount is in their checking account!

I recommend that if you don’t know your exact income after taxes and other deductions that you have removed from your check, go figure it out now. Determine how much you get from every paycheck to SPEND. Then figure out what that adds up to for a year. This number will shock you into a new realization that you are not as “flush” as you thought you were. This simple exercise was enough to make many of my clients back pedal on major purchases they were planning. It put them in a whole new mind set regarding their income.

The biggest thing to remember with the causes of debt is not what other people think about and say is your financial situation, but what you think about your personal situation. The best way to pull yourself out of debt is to first get a clear understanding of your income then go from there. Most folks don’t take the time to really know their money in detail. This is why debt creeps up on them and before they know it they have spent themselves into a $9,000 credit card bill. (Read the rest of the story)