Are you one of those people who always seem to be putting off tasks?

It makes sense. Life is hectic. Schedules are full. Sometimes, it seems like you hardly have a second to brush your teeth or have a real conversation. And so important decisions get pushed further and further into the future.

That’s fine in some cases. Do you need to decide how to organize your garage right now, at this very moment? No.

But with your finances, procrastination can cause disaster. Why? Because time is the secret ingredient for building wealth. The sooner you start saving, the greater your money’s growth potential. Likewise, the sooner you get your debt under control, the more manageable it becomes.

And with your money, the stakes couldn’t be higher. After all, it’s your future prosperity and well-being that’s at stake. Procrastination is downright dangerous.

That urgency, however, doesn’t make it easier to start saving. In fact, you may have noticed that finances suffer more from procrastination than anything else.

There’s a very good reason for that. Procrastination is driven, above all else, by perfectionism. Failing feels awful, especially when you know the stakes are high. Your brain sees the discomfort of trying to master your finances and failing, and decides that it would feel safer to not try at all.

It’s a critical miscalculation. Attempting to master your finances at least moves you closer to your goals. Procrastinating doesn’t.

Think of it like this—50% success is infinitely better than 0% success.

The key to beating procrastinating, then, is to conquer the perfectionist mindset and fear of failure. It’s no small feat. Those habits of mind are often deeply ingrained. They won’t vanish overnight. But there are some simple steps you can take, like…

Break big goals down into tiny steps. This relieves the overwhelm that many feel when facing important tasks. As you knock out those small steps, you’ll feel empowered to keep moving forward.

Don’t go it alone. Procrastination thrives in isolation. Seek out a friend, loved one, or co-worker to hold you accountable and share the load—even if it’s just a weekly check-in to see how each other are doing.

Work in short, uninterrupted bursts. Set a timer. Put down the phone. Work. After about 15 minutes, you’ll notice something strange happening. Time starts to either speed up or slow down. Distracting thoughts vanish. The lines between you, your focus, and the task at hand start to evaporate. You feel awesome. This is called a flow state, and it’s the key to productivity. Make it your friend, and you’ll notice that procrastination becomes rarer and rarer.

Now that you know the cause of procrastination, try these tips for yourself. Set a 30 minute timer. Then, break your finances into tiny action steps like checking your bank account, automating saving, and budgeting. Work on each item in a quick burst until you’ve made some progress. Then, talk to a friend about your results!

Just like that, you’ve made serious headway towards beating procrastination and building wealth. Look at you go!

Entrepreneurship demands specific mindsets about money.

Ask a friend this question—“what would you do with $1 million?”

Your friend will pause, look at the ceiling for a moment, repeat the question to themselves, and then say something like…

“Well, first thing I would do is plan a trip to Europe. I’ve always wanted to go, but I’ve never been able to afford it.”

Or…

“Downpayment on a new house. Definitely. We’ve outgrown our place and we’re ready for the forever home.”

Or, if they’re really savvy…

“First, I’d knock out all my debt. Then, I’d use half of what’s left to generate compound interest. Then, I’d see about a condo down in Florida.”

These responses are well and good. But they show that your friend is no entrepreneur.

An entrepreneur would instantly respond…

“I’d use it for the business.”

Translation—they’d use the money to make more money

Maybe they’d use the money to hire an ad agency to run a marketing campaign, driving revenue through the roof.

Maybe they’d use the money to hire more workers, exponentially increasing their ability to serve clients.

Maybe they’d use the money to purchase software or hire a third party to streamline their workflow, boosting their efficiency.

Everyone views money as a tool. It solves problems. Living in a house that’s too small? That’s a big problem. And money can easily solve it.

But entrepreneurs see money as a tool to earn even more money.

To start thinking like an entrepreneur, ask yourself this question—how can I use my money to start making more money? There are only a few answers to that question, and the right one will lead you down the path of starting your own business.

Sick and tired of borrowing money from financial institutions? Well, no longer! You can now borrow money directly from your peers.

That’s right—with the magic of the internet, you can be in debt to faceless strangers instead of faceless institutions.

One moment while I get my tongue out of my cheek…

But seriously, peer-to-peer lending—or P2P—is exploding. It’s grown from a $3.5 billion market in 2013 to a $67.93 billion market in 2019.¹

Why? Because P2P lending seems like a decentralized alternative to traditional banks and credit unions.

Here’s how it works…

P2P lending platforms serve as a meeting point for borrowers and lenders.

Lenders give the platform cash that gets loaned out at interest.

Borrowers apply for loans to cover a variety of expenses.

Lenders earn money as borrowers pay back their debt.

No middlemen. Just straightforward lending and borrowing.

Think of it as crowdfunding, but for debt.

And make no mistake—there’s a P2P lending platform for every loan type under the sun, including…

• Wedding loans • Car loans • Business loans • Consolidation loans

But here’s the catch—debt is debt.

The IRS. A bookie. A banker. Your neighbor. It doesn’t matter who you owe (unless they’re criminals). What matters is how much of your cash flow is being consumed by debt.

Can P2P lending platforms offer competitive interest rates? Sure! But they can also offer ridiculous interest rates, just like everyone else.

Can P2P lending platforms offer lenders opportunities to earn compound interest? Of course! But they also come with risks.

In other words, P2P lending is not a revolution in the financial system. In fact, two leading P2P platforms have actually become banks.²

Rather, they’re simply options for borrowing and lending to consider with your financial professional.

The Financial Industry loves debt. They love it because it’s how they make money.

And best of all (for them), they use your money to make it happen.

Here’s how it works…

You deposit money at a bank. In return, they pay you interest. It’s just above nothing—the average bank account interest rate is currently 0.06%.¹

But your money doesn’t just sit in the vault. The bank takes your money and loans out in the form of mortgages, auto loans, and credit cards.

And make no mistake, they charge far greater interest than they give. The average interest rate for a mortgage is 3.56%.² That’s a 5833% increase from what they give you for banking with them! And that’s nothing compared to what they charge for credit cards and personal loans.

So it should be no surprise that financial institutions are doing everything they can to convince you to borrow more money than you can afford.

First, they make sure you never learn how money works. Why? Because if you know something like the Rule of 72, you realize that banks are taking advantage of you. They use your money to build their fortunes and give you almost nothing in return.

Second, they manipulate your insecurities. They show you images and advertisements of bigger houses, faster cars, better vacations. And they strongly imply that if you don’t have these, you’re falling behind. You’re a failure. And you may hear it so much that you start to believe it.

Third, they lock you in a cycle of debt. Those hefty car loan and mortgage payments dry up your cash flow, making it harder to make ends meet. And that forces you to take out other loans like credit cards. It’s just a matter of time before you’re spending all your money servicing debt rather than saving for the future.

So if you feel stuck or burdened by your debt, show yourself some grace. Chances are you’ve been groomed into this position by an industry that sees you as a source of income, not a human.

And take heart. Countless people have stuck it to the financial industry and achieved debt freedom. It just takes a willingness to learn and the courage to change your habits.

Are you one of those people who assumes that you’ll never be wealthy?

It’s a common mindset, and it keeps many from reaching their financial goals. But the truth is, anyone can create wealth. You don’t have to be born into money or have some special talent. It all comes down to making a commitment to start building your fortune today.

So why do so many people put off creating wealth until later in life? There are many reasons, but chief among them is fear.

What if, instead of building wealth, you save your money in the wrong place and lose everything?

What if you can’t access money when you need it?

What if I confirm this deep seated suspicion that I don’t know what I’m doing?

But here’s the truth— you’re better positioned to start building wealth today than you ever will again. That’s because your money has more time to grow and compound today than it will in the future.

That’s especially true in your 20s and 30s. But it’s also true if you’re 45 or 55. The best time to build wealth is right now, this very moment.

So what can you do? How can you leverage this moment to start building wealth? Here are a few simple financial concepts you can use right away.

Create an emergency fund. I know it seems counterintuitive, especially if your credit is in shambles or you have many other debts to pay off. But the truth is, building an emergency fund is one of the best ways to begin building wealth, because it gives you a margin of safety. If you have money saved for a rainy day, you won’t have to turn to expensive credit cards or high interest loans when life throws you a curveball. Instead, you can take care of things with your own savings and move on.

Automate saving right now. The best way to start building wealth is to put something away every month. Forget about how much you’re putting away or your interest rate. For now, just put something away, even if it’s just $5. You can work with a financial professional to boost those numbers later on. The important thing is to start now.

If you want to learn more about how to start building wealth today, let’s chat. I’d love to help you set some goals and create a plan for getting there. We all deserve financial security, regardless of our age or income level. So let’s find out how we can get started today.

Debt is expensive.

Americans spend about 34% of their income on servicing their mortgages, car loans, and, of course, credit cards.¹

Assuming a household income of $68,703, that translates to roughly $23,359 going down the drain each and every year.²

Obviously, converting that money from debt maintenance to wealth building would be a dream come true for most Americans. But there’s more at stake here than retirement strategies.

The true cost of debt is your peace of mind.

Take the example from above. A third of your income is going towards debt and the rest is split up between everyday living and transportation expenses. You feel you can make ends meet as long as the money keeps coming in.

But what happens if a recession causes massive layoffs? Or if a pandemic shuts down the economy for months?

The sad fact is that the hamster wheel of debt prevents a huge chunk of Americans from saving enough to cover even a brief window of unemployment, let alone a shutdown!

That lack of financial security can have serious repercussions, including bankruptcy. And feeling like you’re always one unexpected emergency away from a financial crisis can result in a myriad of mental health issues. Numerous studies have shown that high levels of debt increase anxiety, depression, anger, and even divorce.³

Conquering debt isn’t about changing numbers on a page. It’s about reclaiming your peace. It’s about securing financial stability for you and your family. Your income is a powerful tool if you can protect it from lenders.

If you’re stressed about debt and seeking some relief, let me know. We can review your situation together and come up with a game plan that will recover the financial security that’s rightfully yours.

We all know credit cards charge interest if you carry a balance. But how are interest charges actually calculated?

It can be enlightening to see how rates are applied. Hopefully, it motivates you to pay off those cards as quickly as possible!

What is APR?

At the core of understanding how finance charges are calculated is the APR, short for Annual Percentage Rate. Most credit cards now use a variable rate, which means the interest rate can adjust with the prime rate, which is the lowest interest rate available (for any entity that is not a bank) to borrow money. Banks use the prime rate for their best customers to provide funds for mortgages, loans, and credit cards.¹ Credit card companies charge a higher rate than prime, but their rate often moves in tandem with the prime rate. As of the second quarter of 2020, the average credit card interest rate on existing accounts was 21.44%.²

While the Annual Percentage Rate is a yearly rate, as its name suggests, the interest on credit card balances is calculated monthly based on an average daily balance. You may also have multiple APRs on the same account, with a separate APR for balance transfers, cash advances, and late balances.

Periodic Interest Rate

The APR is used to calculate the Periodic Interest Rate, which is a daily rate. 15% divided by 365 days in a year = 0.00041095 (the periodic rate), for example.

Average Daily Balance

If you use your credit card regularly, the balance will change with each purchase. So if credit card companies charged interest based on the balance on a given date, it would be easy to minimize the interest charges by timing your payment. This isn’t the case, however—unless you pay in full—because the interest will be based on the average daily balance for the entire billing cycle.

Let’s look at some round numbers and a 30-day billing cycle as an example.

Day 1: Balance $1,000

Day 10: Purchase $500, Balance $1,500

Day 20: Purchase $200, Balance $1,700

Day 28: Payment $700, Balance $1,000

To calculate the average daily balance, you would need to determine how many days you had at each balance.

$1,000 x 9 days

$1,500 x 10 days

$1,700 x 8 days

$1,000 x 3 days

Some of the multiplied numbers below might look alarming, but after we divide by the number of days in the billing cycle (30), we’ll have the average daily balance.

($9,000 + $15,000 + $13,600 + $3,000)/30 = $1,353.33 (the average daily balance)

Here’s an eye-opener: If the $1,000 ending balance isn’t paid in full, interest is charged on the $1353.33, not $1,000.

We’ll also assume an interest rate of 15%, which gives a periodic (daily) rate of 0.00041095.

$1,353.33 x (0.00041095 x 30) = $16.68 finance charge

$16.68 may not sound like a lot of money, but this example is a small fraction of the average household credit card debt, which is $8,645 for households that carry balances as of 2019.³ At 15% interest, average households with balances are paying $1,297 per year in interest. Wow! What could you do with that $1,297 that could have been saved?

That was a lot of math, but it’s important to know why you’re paying what you might be paying in interest charges. Hopefully this knowledge will help you minimize future interest buildup!

Did you know?

When you make a payment, the payment is applied to interest first, with any remainder applied to the balance. This is why it can take so long to pay down a credit card, particularly a high-interest credit card. In effect, you can end up paying for the same purchase several times over due to how little is applied to the balance if you are just making minimum payments.

Mortgage protection insurance seems like a great idea… on paper.

Afterall, you financially protect your home, your car, your health, and your life with insurance. Why not do the same for what’s typically your largest debt obligation?

But a MPI policy might not be the best way to help your family pay off the house.

Here are three questions you should ask before you buy mortgage protection insurance.

Will my payout change?

The fundamental weakness of most MPI policies is that their payout decreases over time. As you work down your mortgage, there’s technically less to protect.

That becomes a problem if your premiums don’t change even as your payout plummets. You’ll be paying the same amount for less protection!

Ask about policies that feature a level death benefit. They’ll provide you with the same amount of death benefit regardless of how much is left on your mortgage.

Will my premiums change?

Premiums for MPI aren’t always fixed. The amount you pay for protection each month might decrease or skyrocket. Your wallet is at the mercy of your insurance provider!

Just remember that fixed premiums might be a double edged sword. It may be useful to have a policy with premiums that lower over time if you don’t have a level death benefit. Ask about fixed premiums for your MPI before you find yourself paying more for less!

Would life insurance be a better option? (hint: the answer may be yes)

Term life insurance may be a better choice than MPI. Payouts are guaranteed by the insurance company and premiums are fixed. You won’t have to worry about paying more for less protection as the years go by.

It’s also flexible. A chunk of the death benefit may knock out the mortgage, while the rest can fund college, health care costs, and living expenses.

There are special circumstances where MPI is superior to term life insurance. It typically doesn’t have medical restrictions, making it a good option for people who normally wouldn’t qualify for term life insurance. Just remember to ask your financial professional these questions if you decide to learn more!

Your life insurance coverage should be worth roughly ten times your annual income.

That’s not as crazy of a number as it might appear. Your income funds your family’s lifestyle and fuels their dreams. It’s how you pay for the house, the car, their education, and all the big and little things that make life run.

So what would happen if your income were to suddenly stop if you became ill or were to pass away?

Could your family afford to stay in the neighborhood? Would a child have to compromise their education? Would your spouse have to get an additional job to cover the daily costs of living?

Life insurance helps answer those questions in the event of your income disappearing.

So why buy a policy ten times your annual income?

First, it can act as a buffer while your family grieves and figures out next steps. A proper life insurance death benefit can allow your family to cover final expenses while they decide how to move forward.

Second, it can help your family pay off remaining debts and start funding future opportunities. This reduces the financial burden your loved ones will face in your absence.

Obviously, there are exceptions to this rule. A stay-at-home parent provides services and care that would be costly to replace and should be covered with that in mind. Families with medical concerns might need to consider a policy worth more than ten times their annual income.

But in general, a life insurance policy for ten times your income will help cover the major expenses your family will face.

Want a more precise estimate on how much life insurance you and your family need? Contact a financial professional. They can offer insights into how much coverage your specific situation calls for!

You walk out of the office like a brand new person.

That’s because you’ve done it—you’re going to be earning a lot more money with that raise. The first thing that pops in your head? All the fancy new things you can afford.

Dates. Your apartment. Vacation. They’re all going to be better now that you’ve got that extra money coming in.

And to be fair, all of those things CAN get substantially fancier after your income increases.

But one thing may not change—you still might end up living paycheck to paycheck.

Why? Because your lifestyle became more extravagant as your income increased. Instead of using the boost in cash flow to build wealth, it all went to new toys.

This phenomenon is called “lifestyle inflation”. It’s why you might know people who earn plenty of money and have nice houses, but still seem to struggle with their finances. The greater the income, the higher the stress. As Biggie put it, “Mo’ Money, Mo’ Problems.”

The takeaway? The next time you get a raise, do nothing. Act like nothing has changed. Go celebrate at your favorite restaurant. Keep saving for your new treat. But you’ll thank yourself if you devote the lion’s share of your new income to either reducing debt or building wealth.

Rest assured, there will be plenty of time to enjoy the fruits of your labor in the future. But for now, keep your eyes on the most important prize—building wealth for you and your family’s future.

Stock images of freelancers and entrepreneurs are essentially identical.

They feature a wide range of people in neat home offices and coffee shops bent over laptops in deep focus. And that reflects how most of us think about them; freelancer and entrepreneur are two different words for people who work outside the traditional employee/employer world.

But there’s more to the picture than stock photos let on. Here’s a look at the difference between freelancers and entrepreneurs.

Freelancers trade time and skill for money

The word freelance comes from the early 19th-century when English authors attempted to describe medieval mercenaries. Most knights in the middle ages pledged their loyalty to a lord. They swore that they would use their skills and resources to support their sovereign in times of war. But there were many knights who worked as mercenaries. They would fight for whoever had the most coin. Sir Walter Scott referred to these soldiers for hire as “free lances” in his novel Ivanhoe, and the name stuck.¹ Soon it was used to describe working without long-term commitments to a single employer.

Freelancers are essentially modern day mercenaries. They have a skillset that’s in demand and they sell it off to the highest bidder, typically for a short period of time or a specific project. They trade their skills and time for money, and then move on. A freelance graphic designer, for instance, might get hired by a small business in need of a new logo. They pay the designer a set fee, the designer delivers the logo, and the two parties part ways. The freelancer doesn’t have any more responsibilities towards the small business beyond completing a specific task, and the small business pays the freelancer a fee.

The main appeal of freelancing is flexibility. You get to decide for whom you work, the hours you work, and from where you work. Yes, you’ll have deadlines, but you get to decide how you’ll get everything done. Freelancing is also a great choice if you’re currently an employee and want to start exploring your options. Striking a balance with your side-gig and your main income stream can help bring in extra money to cover debt, save for retirement, or just have nicer vacations.

But freelancing has drawbacks. You’re still completing tasks for other people, you have to manage projects by yourself, and work can sometimes dry up. If you can’t maintain a healthy time balance with your main job, that work could suffer.

Entrepreneurs trade their team for money

Defining entrepreneurship is tricky. Freelancers and entrepreneurs have many things in common. But they end up working on different levels of risk and solving problems in very different ways. Remember how we said freelancers were like mercenaries, fighting wars for other people in exchange for money? Entrepreneurs are like the lords mercenaries fight for. They make decisions, assume responsibility for outcomes, and build things that last even when they are long gone.

A more modern example would be your favorite local restaurant. The owner of the business doesn’t take your order, pour your drinks, and prepare your food. They have a team that does all of that for them. But they had the vision of owning a restaurant, may have reached out to investors, and then took on the financial uncertainty of starting the restaurant. They make the top-level decisions but rely on a team to ensure that the day-to-day operations work smoothly.

Starting a business is risky. Only 25% make it past their 15th birthday.² But the advantage of successfully starting a business is that it will eventually reach a point where it runs on its own. Apple didn’t need Steve Jobs to operate. Amazon doesn’t need Jeff Bezos. Neither does your favorite local restaurant. They’re all built on a system and have teams that empower them to grow and accomplish more than they could independently. A freelancer’s income, however, is tied directly to the time they invest. If they get sick, they can’t earn. Losing just a single client could be a significant loss of business.

Interested in freelancing or starting up your own venture? Let’s talk! There are perfect opportunities out there for you to start exploring your potential.

Hitting the snooze button.

Brewing coffee first thing in the morning. Working out right after you leave the office. Our lives are full of actions that we’re almost unaware of. Many of them just help us get little things done more efficiently. But some habits can have a huge impact on our lives in either a positive or negative way. Here’s a quick breakdown of how habits work and ways to “trick yourself” into better behavior patterns.

Your brain craves efficiency. It looks for the path of least resistance when it comes to using energy. Making decisions takes a lot of brain power. Too many choices in a day can leave you feeling mentally exhausted, so your brain looks for ways to cut corners. It starts automating little decisions that you make repeatedly. Brushing your teeth, tying your shoes, and checking your social media are choices you’ve made so often that your brain stops consciously weighing in and seems to just spontaneously make you do them.

So that’s why your brain likes forming habits. But the mechanics of how a habit forms is essential if you’re trying to upgrade your unconscious behaviors.

Cues, Routines, and Rewards

A habit can be broken down into three basic components. It starts with a cue. That’s any kind of trigger that makes you want to do something. Actually performing the action suggested by the cue is called a routine. Following the routine usually results in some kind of reward, either physical or psychological.

So let’s say you’ve developed a habit of eating a cookie with your morning coffee. You wake up, put on the pot, and brew a delicious cup of joe. You instantly start craving the cookie when you smell that medium roast goodness. That’s the cue. You reach into the jar, grab the biggest chocolate chip cookie you can get your hands on, and take a bite. That’s the routine. And the tingling joy and comfort you feel when that life-giving treat hits your tongue? That’s the reward that brings you back morning after morning. But the consequence might be that you’ve put on a few unwanted pounds in the last couple of months.

How to use the habit pattern

It’s easy to see how certain habits can lead to some undesirable outcomes. We tend to form habits around anything that rewards our brains, whether it’s junk food, caffeine, or dangerous substances. But our brains also like things such as observing progress and accomplishing goals.

How can we use this to encourage good habits? Here are a few ideas:

• Start really small. Break your desired habit down into pieces and try to regularly perform each one. You might be surprised by how good it feels to accomplish something, which can prompt you to make more and more progress.

• Reward yourself. Some activities are very rewarding in the moment. But not everything that’s good for you leaves you feeling accomplished right away. Try something like only playing video games after 30 minutes of reading!

• Be patient. Habits don’t form overnight. You’ll probably mess up before it sticks. Don’t sweat the little failures and keep trying until that habit becomes second nature!

You can also use this knowledge to break bad habits. Try to identify the cues associated with the habit and avoid or eliminate them. Also, consider ways that you might actually be rewarding yourself for bad behavior. It’s worth asking friends and sometimes professionals for insights into your habits!

The purpose of this article isn’t to speculate whether or not a recession is on the horizon. It’s to make sure you’re ready if it is.

Some downturns can be seen from a mile away. Others, like the Great Recession and the Coronavirus lockdowns, are black swan events—they catch even the experts off guard.

But they don’t have to find YOU unprepared.

Here’s a quick checklist to help you assess your recession readiness.

Your emergency fund is fully stocked.

Without well-stocked emergency savings, losing your job could spell disaster for your finances—you’d be forced to rely on credit to cover even basic expenses. When you re-enter the workforce, a huge chunk of your income would go straight towards paying down debt instead of building wealth.

That’s why it’s critical to save three to six months of income asap. It may be the cushion you need to soften the blow of unemployment, should it come your way.

You’ve diversified your income.

Recessions don’t discriminate. They affect everyone from the poorest to the wealthiest. But one group weathers downturns better than most—those with multiple streams of income.

If you have more than one source of income, you’re less likely to feel the full brunt of a recession. If one stream dries up, ideally you would have others to fall back on.

What does that look like? For many, it means a side hustle. Some create products like books, online guides, etc., or they might do something like acquire rental properties. These types of businesses typically only require a one-time effort to produce or purchase but will yield recurring income.

If you’re ambitious, you could create a business to generate income that far exceeds your personal labor. It’s not for the faint of heart. But with the right strategy and mentorship, it could lend your finances an extra layer of protection.

You’ve diversified your savings.

Just as you diversify your income streams, you should also diversify your savings. That way, if one account loses value, you have others to fall back on.

What could that look like? That depends on your situation. It’s why talking to a licensed and qualified financial professional is a must—they can help tailor your strategy to meet your specific goals.

You’re positioned to make bold moves.

The wealthy have long known that recessions can be opportunities. With the right strategy, you may actually come out ahead financially.

But in order to take advantage of those opportunities, you need to have cash on hand. That way, when others are forced to sell at a discount, you can scoop up assets at a fraction of their true value.

So if you want to be in a position to take advantage of a downturn, make sure you have ample cash on hand. That way, when an opportunity comes knocking, you’ll be ready to answer.

No one can predict the future. But by following these tips, you can prepare your finances for whatever the economy throws your way.

You work too hard for your money to let it go to waste.

So why does it feel like you have so little control? How many people feel financially helpless? Like there is barely enough to make ends meet and never enough to prepare for the future?

78% of Americans were living paycheck to paycheck before the pandemic hit.¹ That means most of us weren’t in control of our finances. We were just riding the coattails of a fabulous economy.

So what does it take to achieve financial control?

Here are some basic ways to grab the reins of your personal finances!

Knowledge.

You should know how much you make. But do you know how much you spend and on what? Discovering that your bank account is empty at the end of each month is one thing. But figuring out where your money is going—that’s something else entirely. This knowledge is what will help equip you to create a strategy and take control of your life.

Start by figuring out how much you spend in total and subtracting that number from how much you make. Then, break down your spending into categories like rent, gas, eating out, entertainment, streaming services, and anything else that takes a chunk out of your normal expenses. It might feel like homework, but hang in there.

Preparation.

Goals are the key to creating an effective financial strategy. You have to know what you’re building towards if you want to develop the best steps and strategies. It’s okay to think simple. Maybe you’re just trying to get out of debt. Perhaps you’re trying to save enough to start a business or buy a home. Or you might be a bit more ambitious and have an eye on a dream retirement that you want to start preparing for now.

Figure out what it is you want and how much it will cost. From there you can use your budget to start cutting back in categories where you spend too much. You might discover that you need to increase your income to accomplish your goals. Map out a few steps that will move you closer to making your dream a reality.

Action.

Once you’ve built a strategy based on your goals and budget-fueled insights, the only thing left is to follow through and take action. This isn’t a grandiose, one-time maneuver. This is about little decisions day in and day out that will help make your dreams a reality. That means making small moves like meal prepping at home instead of eating out, or avoiding clothing boutiques in favor of thrift shop finds. Those little acts of discipline are the building blocks of success. You might fall off the wagon every now and again, but that’s okay! Pick yourself up and keep pushing forward.

It’s important to have each of these three components operating together at once. Knowing your financial situation and not doing anything about it may not do anything but cause anxiety. Cutting your spending without an overall vision can lead to pointless frugality and meaningless deprivation. And a goal without insight or action? That’s called a fantasy. Let’s talk about how we can implement all three of these elements into a financial strategy today!

You’ve probably heard of debt consolidation. It’s a way to help lower your interest rates and monthly payments by packaging all of your debts into one neat little bundle.

And it can be helpful—if properly structured, consolidation can noticeably lower your interest rate.

But if you’re serious about getting out of debt, it shouldn’t be the only tool in your arsenal. Why? Because debt consolidation doesn’t do anything to attack your balance.

Let’s say you have three debts…

■ $3,000 personal loan at 7% interest

■ $15,000 car loan at 5% interest

■ $8,000 credit card balance at 15% interest

That comes out to a total monthly debt payment of $2,160. That’s a lot of money!

But what if you consolidate those debts into a single $26,000 loan with a 7% interest rate? Your new monthly payment would be $1,820. Not bad!

Now consider another scenario—what if instead of consolidating your debts, you could slice your total debt burden in half?

Your monthly payment would plummet from $2,160 to $1,080. And because you’re paying less each month, you’d have more money available to put towards building wealth, ASAP.

That’s important because the sooner you start building wealth, the better. The longer your money can grow via compound interest, the wealthier you can become.

So while debt consolidation can be helpful, it shouldn’t be your only strategy for getting out of debt. It’s just one tool in the arsenal.

If you’re not sure where to start with debt, meet with a debt relief specialist. They can point you towards the strategies and relief programs you need to get out of debt—for good.

Life is full of surprises – many of which cost money.

If you’ve just used up your emergency fund to cover your last catastrophe, then what if a new surprise arrives before you’ve replenished your savings?

Using a credit card can be an expensive option, so you might be leery of adding debt with a high interest rate. However, you can’t let the ship sink either. What can you do?

A personal loan is an alternative in a cash-crunch crisis, but you’ll need to know a bit about how it works before signing on the bottom line.

A personal loan is an unsecured loan. The loan rate and approval are based on your credit history and the amount borrowed. Much like a credit card account, you don’t have to put up a car or house as collateral on the loan. But one area where a personal loan differs from a credit card is that it’s not a revolving line of credit. Your loan is funded in a lump sum and once you pay down the balance you won’t be able to access more credit from that loan. Your loan will be closed once you’ve paid off the balance.

The payment terms for a personal loan can be a short duration. Typically, loan terms range between 2-7 years.¹ If the loan amount is relatively large, this can mean large payments as well, without the flexibility you have with a credit card in regard to choosing your monthly payment amount.

An advantage over using a personal loan instead of a credit card is that interest rates for personal loans can be lower than you might find with credit cards. But many personal loans are plagued by fees, which can range from application fees to closing fees. These can add a significant cost to the loan even if the interest rate looks attractive. It’s important to shop around to compare the full cost of the loan if you choose to use a personal loan to navigate a cash crunch. You also might find that some fees (but not all) can be negotiated. (Hint: This may be true with certain credit cards as well.)

Before you borrow, make sure you understand the interest rate for the loan. Personal loans can be fixed rate or the rate might be variable. In that case, low rates can turn into high rates if interest rates continue to rise.

It’s also important to know the difference between a personal loan and a payday loan. Consider yourself warned – payday loans are a different type of loan, and may be an extremely expensive way to borrow. The Federal Trade Commission recommends you explore alternatives.²

So if you need a personal loan to cover an emergency, your bank or credit union might be a good place to start your search.

Our parents, uncles, aunts, and maybe even our grandparents tried to warn us about credit cards.

In some cases, the warnings might have been heeded but in other cases, we may have learned the cost of credit the hard way.

Using credit isn’t necessarily a bad thing, but it may be a costly thing – and sometimes even a risky thing. The interest from credit card balances can be like a ball and chain that might never seem to go away. And your financial strategy for the future may seem like a distant horizon that’s always out of reach.

It is possible to live without credit cards if you choose to do so, but it can take discipline if you’ve developed the credit habit.

It’s budgeting time.

Here’s some tough love. If you don’t have one already, you should hunker down and create a budget. In the beginning it doesn’t have to be complicated. First just try to determine how much you’re spending on food, utilities, transportation, and other essentials. Next, consider what you’re spending on the non-essentials – be honest with yourself!

In making a budget, you should become acutely aware of your spending habits and you’ll give yourself a chance to think about what your priorities really are. Is it really more important to spend $5-6 per day on coffee at the corner shop, or would you rather put that money towards some new clothes?

Try to set up a budget that has as strict allowances as you can handle for non-essential purchases until you can get your existing balances under control. Always keep in mind that an item you bought with credit “because it was on sale” might not end up being such a great deal if you have to pay interest on it for months (or even years).

Hide the plastic.

Part of the reason we use credit cards is because they are right there in our wallets or automatically stored on our favorite shopping websites, making them easy to use. (That’s the point, right?) Fortunately, this is also easy to help fix. Put your credit cards away in a safe place at home and save them for a real emergency. Don’t save them on websites you use.

Don’t worry about actually canceling them or cutting them up. Unless there’s an annual fee for owning the card, canceling the card might not help you financially or help boost your credit score.¹

Pay down your credit card debt.

When you’re working on your budget, decide how much extra money you can afford to pay toward your credit card balances. If you just pay the minimum payment, even small balances may not get paid off for years. Try to prioritize extra payments to help the balances go down and eventually get paid off.

Save for things you want to purchase.

Make some room in your budget for some of the purchases you used to make with a credit card. If an item you’re eyeing costs $100, ask yourself if you can save $50 per month and purchase it in two months rather than immediately. Also, consider using the 30-day rule. If you see something you want – or even something you think you’ll need – wait 30 days. If the 30 days go by and you still need or want it, make sure it makes sense within your budget.

Save one card for occasional use.

Having a solid credit history is important, so once your credit balances are under control, you may want to use one card in a disciplined way within your budget. In this case, you would just use the card for routine expenses that you are able to pay off in full at the end of the month.

Living without credit cards completely, or at least for the most part, is possible. Sticking to a budget, paying down debt, and having a solid savings strategy for the future will help make your discipline worth it!

If you come into some extra money – a year-end bonus at work, an inheritance from your aunt, or you finally sold your rare coin collection for a tidy sum – you might not be quite sure what to do with the extra cash.

On one hand you may have some debt you’d like to knock out, or you might feel like you should divert the money into your emergency savings or retirement fund.

They’re both solid choices, but which is better? That depends largely on your interest rates.

High Interest Rate.

Take a look at your debt and see what your highest interest rate(s) are. If you’re leaning towards saving the bonus you’ve received, keep in mind that high borrowing costs may rapidly erode any savings benefits, and it might even negate those benefits entirely if you’re forced to dip into your savings in the future to pay off high interest. The higher the interest rate, the more important it is to pay off that debt earlier – otherwise you’re simply throwing money at the creditor.

Low Interest Rate.

On the other hand, sometimes interest rates are low enough to warrant building up an emergency savings fund instead of paying down existing debt. An example is if you have a long-term, fixed-rate loan, such as a mortgage. The idea is that money borrowed for emergencies, rather than non-emergencies, will be expensive, because emergency borrowing may have no collateral and probably very high interest rates (like payday loans or credit cards). So it might be better to divert your new-found funds to a savings account, even if you aren’t reducing your interest burden, because the alternative during an emergency might mean paying 20%+ rather than 0% on your own money (or 3-5% if you consider the interest you pay on the current loan).

Raw Dollar Amounts.

Relatively large loans might have low interest rates, but the actual total interest amount you’ll pay over time might be quite a sum. In that case, it might be better to gradually divert some of your bonus money to an emergency account while simultaneously starting to pay down debt to reduce your interest. A good rule of thumb is that if debt repayments comprise a big percentage of your income, pay down the debt, even if the interest rate is low.

The Best for You.

While it’s always important to reduce debt as fast as possible to help achieve financial independence, it’s also important to have some money set aside for use in emergencies.

If you do receive an unexpected windfall, it will be worth it to take a little time to think about a strategy for how it can best be used for the maximum long term benefit for you and your family.

It’s no secret that life is full of surprises. Surprises that can cost money.

Sometimes, a lot of money. They have the potential to throw a monkey wrench into your savings strategy, especially if you have to resort to using credit to get through an emergency. In many households, a budget covers everyday spending, including clothes, eating out, groceries, utilities, electronics, online games, and a myriad of odds and ends we need.

Sometimes, though, there may be something on the horizon that you want to purchase (like that all-inclusive trip to Cancun for your second honeymoon), or something you may need to purchase (like that 10-years-overdue bathroom remodel).

How do you get there if you have a budget for the everyday things you need, you’re setting aside money in your emergency fund, and you’re saving for retirement?

Make a goal.

The way to get there is to make a plan. Let’s say you’ve got a teenager who’s going to be driving soon. Maybe you’d like to purchase a new (to him) car for his 16th birthday. You’ve done the math and decided you can put $3,000 towards the best vehicle you can find for the price (at least it will get him to his job and around town, right?). You have 1 year to save but the planning starts now.

There are 52 weeks in a year, which makes the math simple. As an estimate, you’ll need to put aside about $60 per week. (The actual number is $57.69 – $3,000 divided by 52). If you get paid weekly, put this amount aside before you buy that $6 latte or spend the $10 for extra lives in that new phone game. The last thing you want to do is create debt with small things piling up, while you’re trying to save for something bigger.

Make your savings goal realistic.

You might surprise yourself by how much you can save when you have a goal in mind. Saving isn’t a magic trick, however, it’s based on discipline and math. There may be goals that seem out of reach – at least in the short-term – so you may have to adjust your goal. Let’s say you decide you want to spend a little more on the car, maybe $4,000, since your son has been working hard and making good grades. You’ve crunched the numbers but all you can really spare is the original $60 per week. You’d need to find only another $17 per week to make the more expensive car happen. If you don’t want to add to your debt, you might need to put that purchase off unless you can find a way to raise more money, like having a garage sale or picking up some overtime hours.

Hide the money from yourself.

It might sound silly but it works. Money “saved” in your regular savings or checking account may be in harm’s way. Unless you’re extremely careful, it’s almost guaranteed to disappear – but not like what happens in a magic show, where the magician can always bring the volunteer back. Instead, find a safe place for your savings – a place where it can’t be spent “accidentally”, whether it’s a cookie jar or a special savings account you open specifically to fund your goal.

Pay yourself first.

When you get paid, fund your savings account set up for your goal purchase first. After you’ve put this money aside, go ahead and pay some bills and buy yourself that latte if you really want to, although you may have to get by with a small rather than an extra large.

Saving up instead of piling on more credit card debt may be a much less costly way (by avoiding credit card interest) to enjoy the things you want, even if it means you’ll have to wait a bit.

The average U.S. household owes over $6,913 in credit card debt.¹

Often, we may not even realize how much that borrowed money is costing us. High interest debt (like credit cards) can slowly suck the life out of your budget.

The average APR for credit cards is over 16.20% in the U.S.² Think about that for a second. If someone offered you a guaranteed investment that paid 16%, you’d probably walk over hot coals to sign the paperwork.

So here’s a mind-bender: Paying down that high interest debt isn’t the same as making a 16% return on an investment – it’s better.

Here’s why: A return on a standard investment is taxable, trimming as much as a third so the government can do whatever it is that governments do with the money. Paying down debt that has a 16% interest rate is like making a 20% return – or even higher – because the interest saved is after-tax money.

Like any investment, paying off high interest debt will take time to produce a meaningful return. Your “earnings” will seem low at first. They’ll seem low because they are low. Hang in there. Over time, as the balances go down and more cash is available every month, the benefit will become more apparent.

High Interest vs. Low Balance
We all want to pay off debt, even if we aren’t always vigilant about it. Debt irks us. We know someone is in our pockets. It’s tempting to pay off the small balances first because it’ll be faster to knock them out.

Granted, paying off small balances feels good – especially when it comes to making the last payment. However, the math favors going after the big fish first, the hungry plastic shark that is eating through your wallet, bank account, retirement savings, vacation plans, and everything else.³ In time, paying off high interest debt first will free up the money to pay off the small balances, too.

Summing It Up
High interest debt, usually credit cards, can cost you hundreds of dollars per year in interest – and that’s assuming you don’t buy anything else while you pay it off. Paying off your high interest debt first has the potential to save all of that money you’d end up paying in interest. And imagine how much better it might feel to pay off other debts or bolster your financial strategy with the money you save!