Michelle The Money Coach

Firstly, what do I mean by a financial goal? For most of us, that would generally be a goal to either increase income or reduce consumer debt. Of course there may be times in our lives where we want to increase consumer debt to acquire goods and services sooner or to reduce our income as a trade off to have more time but in this article, let’s set those situations aside. In particular, let’s look at the scenario of reducing consumer debt by 50% in six months.

My standard formula for goal setting is to select a coach, have the required resources in place and to have a plan-A and a plan-B in place so let’s see how a financial goal fits in with this.

Selecting a financial coach these days is difficult indeed. Most financial advisors will only try to sell you products, thereby limiting their own risk in a highly litigious environment. If your goal is to reduce your personal debt by 50% in 6 months the financial advisor might be dismissive if there is no chance of selling a product into your situation.

Similarly, a debt financer will try and sell you a product that appears to reduce your debt but in fact does very little. Finally there are educators, who provide information but are prohibited by law to give financial advice. While they can give illustrations or tell you what they did, they cannot specifically advise you what to do and therefore cannot really be your coach.

I am aware, however, of some wealth creation companies that provide ‘integrated’ solutions providing all of the required professionals in a single meeting. By nature, however, the cost of this service is out of reach of many. One solution might be to use self-help websites and software to help resolve this situation, in conjunction with education and perhaps a visit to a financial advisor if necessary.

What resources do you need to reduce personal debt? Well first of all, you must be able to measure and control what you are spending. Yes, I am talking about the dreaded budget. With internet banking and plastic cards, it is relatively easy to download transactions from all of your banks and put them into a spreadsheet. I believe that the most important tool, however, is the banking system itself. With high interest-earning no-fee accounts available it is possible to use the banking system and the utilities to do a lot of the budget accounting for you.

The Plan-A is what you will do if you are on track to achieve your goal. Is there some kind of reward for achieving your goal? Clearly to reduce personal debt, you must have a system to control what you spend, so at a minimum a separate card account and bills account but more likely around 9 high interest no fee accounts and one card account per partner, preferably a debit card (or secured credit card).

The Plan-B is to identify the biggest risk and what to do if it happens. If, for example, you think that your car might need $1,000 of repairs but you can’t set aside that much money over the next 6 months, what will you do? Will you change the deadline, or cut costs in other areas? Can you do without a car?

Finally, tracking a financial goal and measuring the level of success is straight-forward when you have the right tools in place, such as internet banking.

Description

Probably the most significant goals a person can set generally fall into two areas: Either financial goals or relationships. This article sets out the challenges faced when setting a financial goal.

About the Author

Glen Smith aka Glen The Goals Guy has been running both goal-setting and budgeting workshops.
Visit http://QuickStartGoals.com or http://BillBanisher.com

Have you ever had an argument with your partner about money? Has he or she spent more than they should? Have you over-spent and tried to cover it up to avoid a fight? I have developed a system to stop the arguments over money. I have been married for nearly 14 years and we never ever fight about money.

I will provide some simple steps for you to take to stop the arguments over money permanently but before I get to that I will make a disclaimer. If you are deep in financial trouble, go and seek professional help immediately. And for everyone, I don’t know your personal situation so seek advice from your bank or financial advisor before doing anything. This article is education and should not be considered advice.

What causes fights over money anyway? Is it the lack of money? Perhaps if you just make more money, then the arguments will go away? I believe that this is never the case. In business, clubs, churches, community groups and even government there are always arguments over the allocation of money. Bringing in more money might fix things in the short-term but once your lifestyle adapts to the new income level, the same issues will arise.

There must be a way to allocate money so that money is set aside for those things that are important but not so that you have to walk around with a check-list on how much you have spent. Of course I am talking about a budget but don’t switch off just yet! there are two fundamental kinds of budgeting:
(1) Accounting for what you spent
(2) Providing for what you need in future.

The most common form of budgeting is accounting for what you have spent. To me, this is like driving your car along the road only using your rear view mirror. Every time you see that the car has hit the dirt, you start adjusting the steering wheel to get back on track. Analogies aside, 1-2% of analytical people and accountants love this style of budgeting and no one else can stand it!

The other form of budgeting is implemented by larger organizations where they make provisions for future expenses. I am not talking about accounting tricks to save money on tax either. I mean that cash is deliberately set aside in a bank account to be used at a later date, for a specific purpose.

So how do I implement a forward-looking budget that provides for future needs and will stop arguments about money at home?

Firstly, I accepted the fact that both my partner and I must have a certain amount of “mad money” that is not accountable at all. We both have our own separate card account that is our own responsibility respectively. This might be ten dollars a week or it might be a hundred - that will depend on one’s circumstances but the amount is regular and agreed to by both of us. No one should have to account down to what one did with a few dollars of change in your pocket.

Secondly, there might be regular things like purchase of food and is common sense that this would be the responsibility of one partner or the other and this would go into their card account as well. In our case, my wife is responsible for groceries, so that goes to her account. I pay for the children’s sport from my card account.

Thirdly, there are regular expenses such as electricity, telephones and utility expenses. It may include rent or loan payments. Consider the bank fees and charges before taking the next step and shop around if possible but pay for all of these regular expenses out of a clearing account. I use a no fee, high interest bank account for this purpose. I call this a clearing account and that is where my pay goes (not my card account).

Finally, I use about 10 no fee, high interest bank accounts for other savings goals (or provision accounts). I transfer regular amounts from my clearing account into these Let me tell you about some of them. As an example I will also show how much I put aside each 2-weeks into these accounts and the annual goal.
Holiday Account - $40 x 26 = $1040
Car Registration and repair - $57 x 26 = $1500
“New Car Account” - $40 x 26 = $1040
Electrical, computers etc $20 x 26 = $520

The list goes on. I also have accounts saving towards a new home, gym fees and so on. I have a separate account for our investment property, with sufficient funds to provide for minor repairs and unexpected property expenses. The total above is $4100 and with a quick bit of math, the average balance would be $2050. At 7%, that is $143 of interest to me as a reward for setting aside the money that I am going to spend anyway.

Why does this work for me? It still takes negotiation to decide how much to put aside for holidays and so on but once I set up the payments I found that I have always had the money set aside for the regular bills. After Christmas, I had no credit card debt at all because our family didn’t over-spend on what was set aside in a separate account. Right now, it is a little tough for us with unexpected medical bills coming in. I am negotiating with my partner where this money will come from.

When I go to the automatic teller (or use internet banking) I can see how much is in my card account and I know that I can spend it guilt free and consequence free. I know not to go over the amount in my card account. So if I want to take the family on a treat, then I know how much is available and so I can choose accordingly.

In a sense, I guess, I have turned the banking system around to do my budgeting for me. After all, isn’t that what technology is meant to do for me?

Author Glen Smith

GlenTheGoalsGuy.com

What do you mean by a ‘secured credit card’?

Secured credit cards are another very popular breed of credit cards. Secured credit cards, as their name suggests, are secured. Well, they are secured for the credit card supplier, really. Secured credit cards require you to open an account with the credit card supplier and maintain some cash balance in that account. This cash balance acts as a security for the supplier of secured credit card. Your credit limit is dependent on the amount you hold in the account that you have started with the supplier of secured credit card. This is generally between 50 to 100% of your account balance. So in that sense, secured credit cards are not really credit cards (since they don’t offer you any credit really). For this reason, the secured credit cards are sometimes also referred as debit cards.

Why is the concept of secured credit cards so important?

As we know, credit card debt is a raging problem which is caused by improper usage of credit cards. Such people end up spoiling their credit rating to an extent where they cannot get another unsecured credit card (that is what we call the commonly used credit cards). Even after they have paid off their dues and cleared their debt, their credit rating still haunts them. For such people, secured credit cards are a boon. Secured credit cards present them with an opportunity to not only get a credit card in the first place but also to improve their credit rating by using the secured credit card in a disciplined way (paying their dues in time, controlled spending, utilizing a maximum of 70% credit limit etc etc). As they continue with these good habits, their credit rating gradually improves over a period of time. Hence secured credit cards provide them with the means of rectifying their mistakes (credit rating).

It’s not just the people with bad credit rating who go for secured credit cards. Some people go for secured credit cards because they don’t want to bother themselves with the bills etc for credit cards. They don’t like to even fill-up application forms for unsecured credit cards.

Then there are some who just don’t like to borrow money (even if it means borrowing from a credit card supplier by using their credit card). However, such people are very rare to find.

Some people just go for secured credit cards because they have heard a lot of horrifying stories on credit card debt – maybe someone from their family or one of their friends was devastated by credit card debt and they don’t want to repeat the mistake. So they decide to go for a secured credit card.

Whatever be the reason for going for it, the secured credit cards are surely popular too.
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How to eliminate credit card debt? – A questions that is asked by a number of individuals around the globe. These are the individuals who somehow (mostly due to uncontrolled spending) landed into the mouth of this monster called ‘Credit card debt’. So what are the ways to eliminate credit card debt?

If you are looking to eliminate credit card debt, you have already reached 50% of your goal because your decision to eliminate credit card debt is the first and the most important step towards you being able to eliminate credit debt. Having said that, it is important to mention that you also need to be firm on this decision and stick to it with complete sincerity and seriousness, till you finally eliminate credit card debt (and even after that).

To eliminate credit card debt, you need planning. This starts with analysis of current situation in terms of your debt and your finances (current and as expected in near future). So to eliminate credit card debt, you need to first check the amount you owe on various credit cards. Just use a notebook to note down the amount you owe on each credit card and the corresponding APR associated with them. Once you have this information handy, you can total up the various amounts to get the total amount of your credit card debt. After all, you can’t eliminate credit card debt if you don’t know how much it is actually. The next thing is to see if you have enough cash handy e.g. in your various bank accounts, which you can put to use to eliminate credit card debt (of course, you will need to take a view on how much cash you will need to fulfil your day to day and specific future needs). If you find that you have enough to eliminate credit card debt completely, just go ahead and eliminate credit card debt and earn your peace of mind. However, if you can’t eliminate credit card debt completely, check the amount that you can use to eliminate credit card debt partially. Next step, as you must have guessed, is to check how best you can use this amount to eliminate credit card debt (even if partially) i.e. which portion of credit card debt should you eliminate first. So, first eliminate credit card debt on the credit card which has the highest APR and which is hitting you the most. Then eliminate credit card debt on the credit card which has the next highest APR and so on and so forth. If you are incurring additional late fees etc on some of your credit cards, you might decide to reserve some amount to make minimum payments on those credit cards (before you finally eliminate credit card debt on them).

What we have seen is just some basic analysis and first steps on how to eliminate credit card debt. You might need to take some other steps to eliminate credit card debt e.g. consolidation of credit card debt is one good option. However, it’s imperative to understand that any and all methods to eliminate credit card debt will fail if you don’t inculcate controlled spending habits.

‘Credit card debt’ is a much discussed topic in the commercial and social circles. A big section of the population has been bit by this bug called ‘credit card debt’. Can’t blame them much; as such, it’s pretty easy to fall prey to this bug.

The main reason behind so many credit card casualties (rather credit card debt related casualties) is that many people don’t understand the concept of credit cards properly. They treat credit card as free money that is never to be returned. Thus all the discipline, which would otherwise have been exercised with spending hard-earned money, goes for a toss.  That means people overspend and get into credit card debt. They keep spending till they reach the credit limit on their credit card. Some people go to the extent of treating that like a game and consider it a defeat (or consider their credit card under utilised) if they don’t hit the credit limit quick enough. These unnecessary spends result in a situation where they are not able to payback their credit card bills and end up paying interest on the amount they owe. This keeps building up their credit card debt and they soon find that the interest component has become a regular feature in their monthly expenses and it is there even if they spend nothing on their credit card. That is credit card debt on the prowl. Soon they find that their current credit card can no longer handle their needs and start looking to get another credit card. With the new power of credit, they let themselves loose again and follow a ‘shop till you drop’ routine. Soon the credit limit of the new credit card is reached too and they again default on payments. This is how credit card debt builds. Soon they learn about credit card debt consolidation and other credit card debt elimination techniques. They are quick to grab such credit card debt reduction techniques, but that’s not because they are serious about reducing their credit card debt but because of the attractive low APR offers. As if it were booty, they again get back to building up their credit card debt. All the while they are spoiling their credit card rating and they soon realise that no one is ready to lend them money because of their credit history. They can only get a secured credit card now (where you first deposit money into your credit account and then only you get the privilege of spending it (50-100% of it) using their credit card. Credit card debt collection agencies, auction of their goods and bankruptcy is the next thing that hits them and their dream run is blown away in a moment.

The moral of the story – “Understand the concept of credit cards and treat credit card debt with all seriousness”.

A lot of people just look at low interest credit cards when they are looking to get a credit card for themselves. The credit card suppliers too advertise low interest credit cards more that any other kind of credit cards. However, should low interest credit cards be the only ones on your list when you are hunting for a credit card? Probably not. For some people, interest rate or the APR is probably the most important thing to look for when selecting a credit card. However, that doesn’t hold good for everyone. Low interest credit cards are good and should surely be on your list, but APR is not the only thing to look for.

Let’s start with understanding what an APR (annual percentage rate) is and where its importance lies. APR is simply the interest rate that is used to calculate interest on the balance in your credit account with the credit card supplier. There is no interest charge if you make the full payment of your credit card bill (by the due date). However, in case of a partial payment, you will need to pay an interest on whatever you owe the credit card supplier. The APR is backward calculated to get a monthly rate and the same is applied on your balance to calculate the interest for the applicable period.

That means, people who are not sure about being able to pay the full amount, every time, should surely look for low interest credit cards. A low interest credit card helps in reducing your total outgo by curtailing the interest you pay on your balance. So, low interest credit cards help in slowing down the rate at which your credit card debt builds up. Thus low interest credit cards are surely important for a particular group of people, as stated above.

Besides this group, there are others who don’t really need low interest credit cards. These people are capable of (and intend to) pay off their credit card bill in full every month. Their purpose in using a credit card is convenience and other benefits associated with the credit cards. So, be it low interest credit cards or high interest ones; it really doesn’t matter for them.

So the need for low interest credit cards is more felt by a particular group of people. However, even if you go for a low interest credit card, you need to pit the various low interest credit cards against each other (vis-à-vis the other benefits they offer)  and then select the low interest credit card that is best suited to your needs.

So, first you need to evaluate whether you need to go only for low interest credit cards and then select the low interest credit card that fulfils your needs. After all, you don’t go hunting for a credit card everyday.

You’ve recognized that you have a debt problem, and you’ve come up with a plan to get rid of it.  You’ve made a budget, you’ve cut back where you can, and you’ve allocated funds to put toward each of your bills each month.  You’ve come a long way, but the most important thing is to stick to it for the long haul.

Sticking with a debt relief plan is the hardest thing for many people to do.  Part of the problem is that many debtors just aren’t good at managing their finances, and that is part of the reason they got in too much debt in the first place.  Others had their debt under control until they lost a source of income, and they have trouble adjusting.

There are things we can do to help us stick to our debt relief plans.  Here are some ideas:

* Eliminate the source of temptation.  If you have trouble saying no to purchases when you have a credit card in your pocket, put all of the plastic away in a safe place.  If just knowing where the credit cards are tempts you to use them, have your spouse or someone else you trust hide them.

* Write down all of your expenses.  Many planners have budget pages you can use for this, but a notebook will work just fine as well.  Writing down the exact amounts that we spend and what they were spent on holds us accountable, making us less likely to slip up.

* Close accounts when they are paid off.  An account with a zero balance can be too much temptation for some people to withstand.  If you think it will be too much for you, simply close the account and be done with it.  Keeping only the account with the lowest interest or most favorable terms will allow you to obtain credit easily enough if you need it after you’re all caught up.

* Shred credit card and loan offers as soon as you get them in the mail.  When you’re already in too much debt, the worst thing to do is to acquire the means to take on more.

* Don’t beat yourself up if you slip up.  Just pick up where you left off and keep paying down that debt.  Too often, debtors make mistakes and decide that it’s just too hard to pay their debts off, so they go back to their old habits.  But one mistake is not the end of the world, and if you keep trying you will eventually eliminate your debt.

Coming up with an effective plan to pay off your debt is quite an accomplishment.  Sticking with it can be difficult, but it is imperative if you want to get rid of your debt.  By getting rid of temptation and holding ourselves accountable for our spending, we can greatly increase our chances of success.

Have you ever written a check for something that you knew you didn’t have the money for?  People do that more than you think.  They play the game of “robbing Peter to pay Paul”.  This is a common practice that can lead to debt and bad money management.

When you take a job, you are given a salary.  The salary only changes if you get a promotion.  For those that work an hourly wage, the amount of your check changes if you work more or less hours each week.  Despite our paychecks being fairly consistent, people continue to spend more money than they earn.

One cause of this is the “buy now and pay later” trap.  Knowing that the first payment is two years away gives consumers a false sense of security.  They may have walked into the store to purchase a bed, and end up walking out with the entire bedroom set because they don’t have to make payments until 2009!  If you didn’t have the money to purchase more than a bed in the first place, what is the logic of purchasing furniture worth three times that much?  In two years you may still not have that much.

Credit cards can also be a trap if not used with discretion.  Statements come at the end of the month.  Erroneously you might think that although you don’t have the money now, you will have it when the bill comes due.  The problem with this thinking is that you haven’t figured in the budget the money you just charged to the card.  Once you pay the other bills, there won’t be enough to pay the card balance so you pay the minimum.  An unpaid balance on the credit card results in a larger balance next month even if you don’t charge anything else.

We have to learn to be financially responsible or the debt situation will worsen.  More people will file for bankruptcy or pay credit counselors to fix the debt problem.  While these options are available to help those who have gotten deep into debt find their way out, far too few people take advantage of the help that is offered.

Carrying a certain amount of debt has become a status symbol.  Everyone else has debt so why shouldn’t I?  People are not pressed to get rid of their debt.  As long as they can pay minimum balances it doesn’t seem to matter that it will take five years and several hundred more dollars to pay off a credit card.

As long as there is a credit company or store willing to extend more credit, the problem of overspending will continue.  How we handle money affects the next generation of consumers.  They learn from watching us.  What are we teaching them?

Few people go into debt with the intention of getting in over their heads.  Most of us borrow to get the things we need and want, with every intention of paying back every penny.  But sometimes things do not work that way.

In some cases, debt problems can be attributed to poor financial management.  But sometimes even the best money managers end up in too much debt.  Here are some reasons that debt management may not work:

1.  People lose their jobs.  Job security is not what it once was, and an increasing number of people are becoming victims of downsizing or outsourcing.  An unexpected job loss can be a source of financial hardship, making it difficult to pay bills for necessities, and leaving little or nothing to pay debts.

2.  Health problems cause money troubles.  Accidents can render people unable to work, as can a variety of illnesses.  Between the lack of income and the medical bills, people whose health has taken a turn for the worse often find themselves unable to repay their debts on schedule.

3.  Unexpected expenses arise.  Sometimes people have expenses creep up on them that they haven’t budgeted for, causing them to be unable to pay their usual bills.  Expensive car repairs are a common expense that we may not be aware of until it becomes a necessity.  Weather could cause property damage that is not covered by our insurance, or appliances that are not under warranty could suddenly quit working.  All of these things can put a damper on our financial plans.

4.  We don’t keep adequate savings.  Many financial problems can be avoided, or at least made less burdensome, if we have some savings to fall back on.  This is one area of the budget that many people either don’t think about or do not take seriously.  Making room in the budget to put some money into savings each month is an asset to any debt management plan.

The same problems that often cause us to get into too much debt in the first place can also derail us when we’re already in too much debt and trying to get out.  When these things occur, it may become necessary to seek outside help.  Consolidating our debts may make things easier, but sometimes even that is not enough.  When all other options are exhausted, some debtors end up filing for bankruptcy.

The best way to manage debt is to keep it under control in the first place.  Putting money into savings can help for when unexpected things occur.  And if all else fails, we may need help in reorganizing our finances.  Getting our finances back under control may be difficult, but the peace of mind we gain from doing so makes it all worthwhile.�

Bankruptcy is not a process anyone wants to resort to.  It can be seen as a way to get out from under a mountain of debt, but it also becomes a part of your credit report history.  Put this option on the back burner and instead consider some options to avoid bankruptcy in the first place.

Create a budget.  A budget is a tedious job, but it can save a lot of headache over debt later.  Make a list of all the bills that are owed each month.  Leave out incidentals like entertainment, eating out, and credit card payments.  Subtract this amount from the monthly income.  What is left is what will be used to pay credit card bills, put away in savings, and spend for leisure time activities.

Keep track of your bills for three or four months.  This will give you an average amount for the bills that you can plug into your budget.  If you can enroll in equal payment plans for utility bills, the payments will be the same every month.  Creating a budget will help avoid debt, due to your discipline in following the guidelines that you have set.  You can still enjoy a night out now and then as a reward for saving money.

Avoid using credit cards more than necessary.  Credit cards carry high interest rates.  We’ve all seen the commercials where things run smoother in the store when everyone pays with plastic.  That may be, but using that plastic too much can leave you with a debt worthy of bankruptcy.  Keep one credit card and get rid of the rest.  Companies extend you credit with the hopes that you get overextended and then they can charge higher interest rates and all sorts of fees.  Save yourself the headache and avoid using them.

When you get behind on a payment, call the credit card company.  Everyone hits a road bump.  A layoff or an illness can send things spiraling out of control with your finances.  Let credit card companies know that you are in a bind at the moment.  They may suggest ways to lower the payments or suspend them for a month or two until you are in better financial shape. 

It takes several missed payments before a creditor reports the delinquent account to an outside agency.  Instead of waiting for the hammer to fall, take the initiative to solve the problem before it gets worse.  The company may suspend late fees and other charges when they become aware of your situation.

Go for debt consolidation advice.  You hear a lot about debt consolidation.  Agencies want your business.  Check them out.  These credit counselors are certified professionals that know the debt game and the creditors.  For a small fee, they can negotiate with your creditors to find solutions to the financial problem.  If you are considering bankruptcy, debt consolidation may work as an alternative. 

Liquidate assets.  You may have two cars, but can you make due with one for now?  Selling property can free up the cash you need to pay off major debts.  With a smaller debt, you may be able to talk to creditors and make payment arrangements.  Move into a smaller house if the kids have moved out.  Anything is a better alternative than bankruptcy. 

Bankruptcy is not a process that people look forward to.  Bankruptcy ruins your credit and may not entirely get you out from under.  Learn to avoid this unfortunate choice before it’s too late.