Category Archives: Finance

Living on a Budget: Reasons and Motivations

Posted on November 12, 2008 | 6 Comments

Wanting to live on a budget doesn’t mean that you must be broke.

In fact, it’s the furthest thing from the truth! There’s a lot of reasons why you might want to live on a budget and for the most part they’re all good reasons.

Think about it. Would you rather be spending more than you earn and going to sleep worried at night wondering how you’re going to make your rent or mortgage payment? Or would you rather live within your means, invest your extra money wisely, and sleep soundly at night knowing that you’re on a solid financial path?

Living on a budget doesn’t mean you’re going to start living in a shack and spend hours a day pouring over spreadsheets of financial information with a red pen. You don’t have to write anything down in spreadsheets if you don’t want to. You don’t have to cut out all the good things in life. You don’t have to bring a plastic bag full of coupons to the supermarket. You don’t have to start eating 50 cent top ramen soup every day.

If you do choose to live on a budget, you’ll be living a better life. You’ll be able to invest a portion of your income into any investment vehicles you may so choose – including real estate investing or your retirement fund. Check out the posts The 10% Debt Reduction Plan, How to Escape Your Mounting Credit Card Debt Financial Situation, and The Debt Destruction Technique: Destroying Debt One at a Time for more information on this. Financial freedom is the goal – controlling your finances consciously is the solution.

Stop trying to keep up with the Joneses by getting caught up in the whirlwind of consumer spending. Live within a budget and invest smartly and you’ll be passing the Joneses by in your Maserati GranTurismo (my personal favorite sports car – insert your favorite car there if the Maserati isn’t your cup of tea).

What’s most fascinating about living on a budget is that once you get into the budgeting lifestyle you really won’t notice the difference in your quality of life. In fact, you may actually improve the quality of your life because you won’t be worrying like mad like you used to about the huge credit card bills piling up on your kitchen table.

What we want to do is make financial lifestyle changes on a day-to-day basis by taking fresh eyes to the way you live your life. We’ll make the shift from the place you are financially to where you want to go.

The challenge with “living on a budget” is the actual phrase, “living on a budget”. Sounds rough, doesn’t it? Maybe the phrase makes you imagine eating rice for breakfast, lunch and dinner, reusing your kitchen paper towels, and washing all your clothes in the local river. It doesn’t have to be like this (unless you really like the river life).

Living on a budget is about discipline – a choice you make to notice what you’re spending and making per month. That’s basically what it’s all about – budgeting is not about living in a van down by the river.

People want to live on a budget for different reasons. Maybe you want to retire early. Maybe you want to save up for a home or a car. Maybe you want to increase your savings by dropping your expenses. Maybe you want the pleasure of wanting the balance in your bank account grow. Maybe you want to purchase a multi-unit property for real estate investing and you need that capital. Maybe you want to get to the point financially that you wake up in the morning knowing you have the freedom to not go to work if you don’t want to because you’re financially free. Whatever the reason, budgeting will get you to your financial goals!

Have you ever checked your savings or checking balance, nervously noticed the balance is close to zero, yet realized you have a mountain of bills to pay? If you’ve never felt this feeling then feel lucky because millions of people have! It affects your mood, your relationships, and your sleep. For some people, this is a situation that plays itself out on a monthly basis. The solution is to create a simple budget plan and disciplining yourself to stick with it. It’s about overcoming the negative financial spending habits that have put you in the situation in the first place.

Most long-term relationships end because of money. It’s sad but true. This holds true across socio-economic levels – from the ultra-rich to the less financially fortunate. In fact, 7 out of 10 couples do not agree with each other on financial issues – mainly on credit card spending! We find a partner that likes going to the same nightclubs yet we forget to see if we’re financially compatible! The basis of the fighting between couples on financial matters can be due to power struggles, emotions, love or otherwise. The way out of this cycle? Yes, you got it, budgeting. You’ll hear that word a lot in this article. :)

Remember when I said that budgeting doesn’t mean you have to become a monk and forgo all modern luxuries? Well, I’ll tell you right now – budgeting also means to treat yourself. If you budget correctly, you’ll actually be improving the luxury aspects of your life in the long run. Budgeting can bring you that huge mansion on the corner lot. Budgeting can bring you a two week long stay at an ultra-exclusive resort.

One of the interesting aspects of budgeting is that you may just realize that the best things in life really are free. You may realize that instead of your old treat of a Starbucks triple ultra-mocha choco-latte crapuccino you actually prefer going for a walk in nature, perhaps with a home-made cup of tea. You may realize that instead of your tri-weekly visits to the local movie theater, you prefer reading a book at your local public library. You may realize that instead of “making it rain” at a South Beach nightclub and spending $500 on a bottle of alcohol (yes, that’s how much it costs in South Beach for a bottle of vodka or whatever type of spirits you prefer), you might instead enjoy spending some time with friends and family at a house party playing music together.

The bottom-line is that budgetting is something we all can do – no matter what our economic level is currently. The first step is budgetting is making the decision to live consciously when it comes to your finances. Then all it takes is some smart habits and financial techniques and you’ll be on your way to financial freedom!

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The Debt Destruction Technique: Destroying Debt One at a Time

Posted on October 30, 2008 | 3 Comments

Like any large undertaking or goal in life you need a plan. A pilot would never take an airplane from Miami, Florida to London, England without a specific plan in place to get there. Neither should you go ahead in life without having goals and plans – especially if you have a goal of financial freedom in mind.

If you’re in debt currently, debt didn’t just happen to you overnight. It was a process that took time and involved specific action steps which eventually resulted in the debt you’re now facing. Just like how you got into debt is the way you’re going to get out of debt – with a specific process.

One of the most important steps for you to take in order to overcome your debt is to organize all of your debts together in a pile. This means grab all of your loan paperwork, mortgages, credit card bills and any other debt which must get paid. Take a look at that pile and realize this is what is keeping you from a future of financial independence – and removing this pile of debts from your life is your key towards achieving that future.

Take all your debts, write a detailed account of them, and find out which debt to pay off first. The way you will do this is by creating a form for yourself with the following information from each of the debts that need to be paid – this will be your Debt Destruction Technique (DDT):

Name of Debt: This is the entity that you owe this money to.
Balance Total: This is exactly what you owe total for that particular debt.
Minimum Monthly Payment: This is the minimum amount that needs to be paid for this debt per month.
Payment to Debt Ratio: You get this number by dividing the Balance Total of the debt by the Minimum Monthly Payment. For example, if the Balance Total is $6,000 and the Minimum Monthly Payment is $500, then the Payment to Debt Ratio for this debt is 8.33.
Debt Importance: You get this number after you complete the above 4 steps for each of your debts. The Payment to Debt Ratio will guide you in selecting the Debt Importance for each of your debts. The higher the Payment to Debt Ratio the lower the Debt Importance and the lower the Payment Debt Ratio the higher the Debt Importance. You number each debt 1, 2, 3… until you have a Debt Importance for each debt you have. The debt with the lowest Payment Debt Ratio among all of your debts is number one in Debt Importance for you.

Start paying off your debts, starting with the debt with the #1 Debt Importance. Remember The 10% Debt Reduction Plan? In that article we talked about saving 10% of our gross monthly income and using that as our financial bodyguard. Now we’re going to put that money into action. Take that financial bodyguard money and add that to the minimum monthly payment of your debt with the highest Debt Importance. Make the minimum monthly payments on all of your other debts – do not create any other debts. Keep this process going – moving down to the next Debt Importance debt as you pay each off – and you will free yourself from your debts. Don’t let yourself be worried too much with the interest rate of each account. The Debt Destruction Technique will eliminate debt so quickly for you that the interest rate won’t matter as much as it does for those people who constantly just make minimum payments each month. The way the Debt Destruction Technique works is by using positive momentum in your favor – you see your debts disappear so fast that you get pumped and want to keep it going.

Once you’ve paid off your debts, take that 10% of your gross monthly income and invest this money. Whether you’re looking to start real estate investing, stocks, or some other investment, this will be key to reaching true financial freedom. Free yourself from your liabilities and gain assets. Don’t work for money; let money work for you!

Do you remember the old pesticide DDT (Dichloro-Diphenyl-Trichloroethane)? It was a chemical used in the second half of World War II to control the mosquito population that was spreading malaria and lice transmitting typhus. The use of DDT, helped dramatically reduce the incidence of both cases. DDT was later found to be too powerful, affecting other wildlife. But our DDT, the Debt Destruction Technique, will be purely focused on obliterating your debt – resulting in absolute freedom.

The truth is that people in what seems like hopeless debt situations are basically giving away money. If you’re paying $3000 a month in debt payments, you’re losing that money. It’s cash that’s going to be gone for eternity – all to pay for stuff that we think we need. I’ve seen people lose thousands of dollars in a matter of minutes at the casino, pay hundreds of dollars in bills for alcoholic drinks at nightclubs in South Beach, and overreach themselves by purchasing homes and cars that they truly cannot afford. But they do these things because they think they need to do these things – whether due to peer pressure, lack of financial education, or poor spending habits.

When doing this plan of using 10% of your gross monthly income and applying it to your highest Debt Importance debt you’re going to feel good when you finish off a debt. Real good. In fact, you may even be tempted to use that cash to treat yourself to something nice, because you know, you paid off a debt and why not? Resist the temptation! Do something else to reward yourself – maybe taking a trip to the beach, going to the museum, take a nice walk, etc. In the Debt Destruction Technique you must use your 10% and apply it towards your debt each and every month until all of your debts are paid off. Then you take this cash and apply it for investing purposes. You need to understand that the only way you can have the freedom and security of financial independence is by paying off all of your debt. This is the only way to escape the vicious downward spiral of the debt cycle.

By paying your debts using the Debt Destruction Technique, you’re taking money that you’ve pledged to your creditors and debtors and eventually you’ll have this money back, available for investments that will take you to financial freedom! Instead of wasting this money on bills and interest, you’ll be able to invest in your future. With the power of real estate investing and compound interest, there’s no doubt you’ll eventually have the opportunity to become net worth millionaires and more – you just need sound strategy and sensible discipline. Think about that – people can go from the brink of bankruptcy or beyond all the way to becoming multi-millionaires. The path is simple – it just takes desire and discipline, but it can be done!

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The 10% Debt Reduction Plan

Posted on October 20, 2008 | Leave a comment

Let’s face it: There’s almost no way to realistically pay off all of your debts by consistently just paying the minimum monthly payments.

However, if we can pay the minimum monthly payment on all of our debts and also add some extra money to help pay them off, we’re going to see results.

Here’s a proven debt reduction plan that’s going to give you results if you consistently place it into action. It does require some discipline but you’ll see that the positive momentum from the way you’ll be reducing debt will give you fantastic results.

First step you’re going to want to do is to take a detailed look at all of your debt and add up the minimum monthly payments together. You need to know where you’re at right now in terms of debt. Yes, it can be scary to find out exactly how much money you’re spending monthly on just your debt. But you need to have this information in order to get a firm grasp of the immensity of your financial challenge. Notice the word I used; challenge. You have to think of this like a competition: you vs your creditors. Are you going to let this debt take over your life? Or are you ready to implement a debt elimination plan that’s going to reduce and eventually eliminate your debt from your life? If you’re ready to take this step, even if it means some sacrifices in the short-term, then get ready to look forward to a life in the future with financial freedom.

My debt elimination system is followed by adding 10% of your monthly gross income to the minimum monthly payments you make to creditors.

For example, let’s say you make a monthly gross income of $5,000 and you make a monthly minimum payment of $2,000. By using this system of adding 10% of your gross monthly income, you will now pay $2,500 total ($2,000 minimum + 10% of $5,000 which is $500).

One of the most important points to take away from this is that you don’t want to just add this 10% to the whole minimum payment you have to make per month. You want to strategize this by using this 10% ($500 in our example) on the debt that you can get rid of the fastest. This has a psychological benefit – you develop positive momentum of reducing your debt, you feel good about one less debt on your back, and you see results fast. Quick results mean you’re going to much more likely to stick with this quick debt-reduction strategy.

This 10% is a magical number. This 10% is your financial bodyguard. Just like how multi-billionaires and celebrities have a bodyguard, you now have a financial bodyguard working hard to fight off your creditors. This 10% will not stop until it gets the job done, which is eliminating your debt. As long as you keep feeding that 10%, you will destroy your debt – utterly and completely.

Yes, when I say gross income I do mean gross income and not net income. You might ask what’s the exact difference between gross income and net income. Gross income is what your total personal income is before taking taxes or deductions into account and net income is your total personal income after deductions, credits and taxes are factored in.

This next option is only for dire financial cases. If you absolutely cannot pay 10% of your gross monthly income to your debt payments, then at the very least devote 10% of the total of your minimum payments to pay off your debts. So, in our example, you would pay the $2,000 minimum monthly payment plus an extra $200 (10% of $2,000). This is only for a short-term period until you get your finances in check. As soon as possible, switch over to the 10% of your gross income debt payment plan we outlined earlier in this article.

Like any battle, you need to have a plan in place to attack the enemy. In this case, we’re taking the offensive on debt. You can’t just keep paying the minimum monthly payments on your debt and expect them to magically vanish or hope that you somehow hit the lottery. You have to take action. I’ve given you a plan to attack your debt directly. It’s up to you to work the plan.

Try my debt reduction plan and let me know how it works for you!

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