The Three Bucket Strategy

At A Glance – Planning your savings for short, medium and long-term goals helps you build stability for your financial future.

In my article, How To Save Money, I talk about saving for short, medium and long-term needs. This strategy for your savings goals helps you build stability in your financial plan for future needs. It gives you tools in your toolbelt to meet the ups and downs of life.

Here is an article written by a friend of mine, Randall Neighbour of Kingdom Wealth Management. He addresses this topic in his Three Bucket Strategy for savings.

The Three Bucket Strategy

The Three Bucket Strategy is a great tool for preparing for your future and thinking about money. It’s a common practice in the financial planning world because it has the potential to foster healthy investment attitudes.  

First Bucket – Operating & Emergency Fund


In this first bucket, you should keep enough cash for 3-6 months of living expenses. This money should not be invested but kept in a money market or a checking/savings account. While this bucket’s contents won’t earn much these days, if we experience inflation—and we will experience it sooner or later—then it should start earning more.

Tip: If you need to dip into this first bucket for a genuine emergency (a washing machine repair or an auto repair), imagine you’ve borrowed that money from a loan shark and he will break your kneecaps if you don’t pay it back as soon as possible. Cut back on eating out and expensive coffees or clothing or however you like to spend discretionary money and “top up” your first bucket as soon as possible. Draining it makes this strategy a worthless exercise.

Second Bucket – Near Term Spending Fund For The Next 2-9 Years


In this second bucket, you’ll want to invest money for upcoming needs such as a new roof or replacing a vehicle. Because the timeframe for the investment is relatively short, the money in this bucket should be invested conservatively.

Tip: Fixed instruments such as bonds and CDs could be considered for the second bucket. These investments probably won’t double your money in five years, but that’s OK. If you invest it conservatively, you won’t put yourself in an emotional quandary when a withdrawal is necessary. A conservative investment approach works here because the balance on the account is more predictable and the time horizon is not long enough to recover from a big drop in your investments.

Third Bucket – Long Term Savings For Retirement


In this last bucket, you want to invest for use in ten to thirty years. This is not money you touch unless you are forced to drain the first two buckets due to a financial catastrophe. Because of the duration of the investments in this bucket, you can afford to take more investment risk. After all, there’s time for it to recover if the investments drop in value for a season.

There are bull markets when most investments appreciate and bear markets when many depreciate. Historically, the bulls run longer than the bears and that’s what you’re hoping to achieve with long-term investing. The target use for this bucket’s contents is retirement withdrawals, healthcare costs, long-term care, charitable giving and inheritance.

Tip: Higher future tax rates are a big consideration. For this reason, using a Roth IRA may be an excellent choice for this bucket if you don’t make too much money to max out an annual contribution. However, if you only have Traditional IRA money or 401k money for this bucket today, that’s ok! It’s better to have a big third bucket of taxable money than no third bucket at all.

Which Bucket Should I Fill First?


You need an emergency fund. Build up a month’s worth of your expenses and fund the first bucket with it. If you have consumer debt, then attack your debt with every dollar you can find and get out of debt. When everything but your mortgage is paid off, go back to bucket one and finish filling it with your 3-6 months of living expenses.

Which Bucket Should I Fill Second?


The third bucket needs attention next, but you may not be able to completely fill it before you add to your second bucket. You just need to make sure that when you have to take withdrawals from the third bucket, you won’t run out of money. A good rule of thumb is to make sure you are contributing at least 15% of your take-home pay into your third bucket. If you haven’t been saving for retirement and you’re in your fifties, then you’ll need to save a higher percentage.

“Let’s Go Back To That Second Bucket. Now I Have Questions.”


Everyone has questions here. This second bucket is where you must first consider your NEEDS in the next three to five years and first save for those needs (new roof, replace a car) and then save for your WANTS on top of that amount (European Cruise, taking grandkids to Disney, update the kitchen). And always keep in mind that saving for things you WANT must never reduce the amount you should be putting in your third bucket. Remember this: I have never heard someone say, “I saved and invested too much money when I was in my 50s and 60s.”

“But What About My Mortgage?”


This is a tough question to answer and it’s different for everyone, but there’s a good rule of thumb to follow here: Pay off your mortgage and any other debt before you stop working. Millions of Americans are forced into retirement earlier than expected due to their health or the health of their spouse. For this reason, living lean in your 50s and 60s to pay off all debt is a wise long-term move even if you remain healthy and want to keep working.

In Summary…


I’ve been using the bucket approach with clients for a decade. This approach will help you mentally segment your savings and invest it appropriately.  It also helps put both spouses on the same page when it comes to money, spending, and investing.


Now get busy!


Sit down with a paper, pen and calculator. Or, bring up a spreadsheet on your computer. Total what you need in each bucket and why it belongs there. If you need help or have questions, visit with an advisor. Don’t let anything stop you from charting a financial course for your future.

Randall Neighbour is the founder of Kingdom Wealth Management in Houston, Texas. He holds the designations of Retirement Income Certified Professional® and Accredited Portfolio Management Advisor®. To read the original version of this article, follow this web link: https://kingdomwealthmgt.com/the-three-bucket-strategy

Key Takeaway – Planning your savings for short, medium and long-term goals helps you build stability for your financial future.

How To Save Money

At A Glance – Developing the habit of saving money is the key to your financial stability. It is your SuperPower. Even if you’re not a natural saver, it is a skill you can learn.

What Does It Mean To Save Money?

Saving money is living on less than you earn. It’s setting aside some money from every paycheck. It’s building an Emergency Fund. It is being intentional now to secure your future.

Why Do You Want to Save Money?

Saving Money Is The Most Important Step In Building Wealth

Let me say that again…It is THE MOST IMPORTANT step in building wealth. Your future financial stability and your retirement depend on it. Every dollar you save now could keep you from being the greeter at Walmart when you’re 75!

Becoming a saver will be the key to your financial stability and financial independence. Some of us are natural savers, and some are not. I am NOT a natural saver, but I have learned how to be a saver. It is like a muscle you need to work out. You keep exercising and over time, it gets easier

Save For Short, Medium And Long-Term Needs

The money you save can be earmarked for short-term, medium-term and long-term needs. Short-term would be any money you need in the next 1-3 years. This could be your Emergency Fund, money for next year’s property taxes/insurance or a vacation.

Medium-term savings is for 3-6 years. This could be saving to pay cash for your next car, the down payment for a house or the AC/Heater that will need to be replaced.

Long-Term savings, 6+ years, would be for things like your child’s college expenses, a new roof and retirement.

Having Money Saved Smooths Out Your Cash Outflow

Having money saved allows you to pay for large expenses without using credit. If you know you will need a replacement car in 5 years, you can create a sinking fund to pay for the car. Save 1/60th (5 years = 60 months) of the car’s expected price per month into your sinking fund. In 5 years you can purchase the car with cash and avoid all loan charges and interest.

Do the same with other large purchases like insurance, taxes or car repairs. If you save a little every month for those items, you can smooth out the cash outlay. That way you don’t have to come up with thousands of dollars all at once for a major purchase or repair.

I use this strategy to pay for our car and homeowners insurance. I save 1/12th of the insurance cost every month and then pay cash for the new policy. I don’t have to pay any extra fees for them to bill me monthly. It took a while to collect the money when I started using this method. At first, I paid that month’s bill and set aside a little extra. Over time I was able to collect enough to pay the entire policy at once.

How to Save Money?

Spend Less Than You Make!

It’s so easy to say and so hard to do sometimes! This is an area where I failed when things got bad for us. Sometimes we weren’t spending more than we made, but we were surely spending it ALL. You have to spend less than you make. The difference is ‘The Gap’. The bigger the gap, the more you can save.

Track Your Spending

Tracking your spending is one way to discover if you have any gap. If you track your spending, you can see where your money is going. Tracking helps you see where you might be overspending and where you can cut.

I recently read a story of a person who discovered they were overspending their income by $3,oo0 a month! You might be thinking, “How can that happen!” The answer is easier than you think. Remember my mantra…Pay Attention! This simply happens because we don’t pay attention.

Use A Budget

Using a budget puts guardrails on your spending. Once you get a picture of your spending by tracking it, you can create a plan for your money with a budget.

A budget helps you to grow the gap. Include your savings in the budget as a line item and then increase it every chance you get. Set a goal to save at least 15% of your income and increase it as you can.

Pay Off Your Debt

If you are carrying any debt other than mortgage debt, it needs to be eliminated. You cannot make headway with saving if you are weighed down with debt. You don’t have any control of your life when all your money is spoken for before you even earn it.

Check out my debt payoff article, How To Pay Off Credit Card Debt In 6 Steps.

Use Your Employers Free Money

One of the best ways to boost your savings rate is to use someone else’s money! If you have access to a retirement plan at work, such as a 401k, see if your employer matches. Most employers will match your contributions up to a certain amount. If you have a 401k with a match, be sure you contribute at least up to the match. That’s free money!

Tip: A lot of people think if they get the match, they have maxed out their 401k contribution. You can likely contribute far beyond the match. The max contribution to a 401k for 2021 is $19,500. If you are 50 years old or older, you can add a catch-up contribution of $6,500 for a total of $26,000. And these limits do not include the employer match. Check with your plan administrator and tax professional for details about your plan and your tax obligations.

Where To Put Your Saved Money?

Short-Term Savings and Emergency Fund

Any money you will need within the next 3 years is short-term savings. This includes your Emergency Fund. You do not want this money to be at risk. Therefore, a savings account or money market account is a good choice. These can be found at your local bank, an online bank or an investment firm such as Vanguard, Fidelity or Schwab.

Interest rates for savings accounts are next to nothing these days, but you don’t expect to earn a lot on short-term savings. You just want to make sure your money will be there when you need it.

Medium-Term Savings

Money needed in the 3 – 5 or 6 year time frame is medium-term savings. This money can stand a small amount of risk in order to realize some gains.

For this fund, we personally keep our money in a conservative bond fund. This fund does fluctuate up and down, but only in small amounts.

Long-Term Savings

Any money that is not needed for 6 or more years is long-term savings. This money can stand the most risk in order to enjoy the most gains. It can be invested in a variety of ways. A balanced fund, equities such as low-cost index funds or rental real estate are some of the choices for your long-term savings.

Tip: Look for a future post on investing. In the meantime, check out J. L Collin’s book, “The Simple Path to Wealth.” If you’re new to investing, this is a great place to start. It helped me understand the stock market, how it works and how to not be afraid of it.

When investing, remember that at any one time your investments might have gained or lost money, but over time, they usually gain. It’s time in the market that counts. I am retired and 65 years old, but I still have the possibility of a 30-year investment horizon.

The most important tactic for your long-term savings is this…DON’T TOUCH IT!

When To Save Money?

Early And Often

Save as much as you can as often as you can. Every dollar you can squeeze out of your budget will make your future more comfortable and less stressful. Especially if you are starting late like I did.

I’m not saying you need to live on beans and rice until you retire. Strike a balance between a life you enjoy now and a life that will be what you dream of in retirement. To read how one dollar today can turn into many in the future, check out my article on the power of compounding

Pay Yourself First

When I first started getting my finances in order I heard people say, ‘Pay yourself first.’ I didn’t even know what that meant.

Paying yourself first means to set aside your savings BEFORE you pay your bills. You are paying your future self.

If you were to look at my pre-retirement budget, the first line item was Tithing/Giving and the next was Savings. Pull out your savings first, then live on the rest. You Can Do It!

Automate Your Savings

Brad Barrett on the Choose FI podcast says to get your ‘Lizard Brain’ out of it. What does that mean? Automate everything you can. Especially your savings. That way you don’t have to think about it. You won’t forget to send your extra dollars to savings, and you won’t be tempted to spend it on that new couch.

You can do this by setting up an automatic transfer from your checking into the account where you keep your savings. This can be from checking to a savings account or checking to an investment firm like Vanguard.

If your paycheck is an auto-deposit, you may be able to set up an automatic transfer to savings from your paycheck.

So automate your savings already!

What Do Our Readers Say?

I asked my Started At 50 Facebook group to share their money-saving tips. Here are a few of their responses.

  • Always shop with a list – Ashley
  • Cut the cable – Jack
  • Use envelopes, track cash flow and net worth – Diana
  • Auto transfer savings to an account at a different bank so you don’t see it – Kristy

What Does The Bible Say

God calls us to be good stewards of everything we have. A steward is one who manages the property, finances or affairs of another. Everything we have comes from God, and He expects us to manage it well. Saving some of today’s earnings for the future is a way to manage well.

Precious treasure and oil are in a wise man’s dwelling, but a foolish man devours it.

Proverbs 21:20

Go to the ant, O sluggard; consider her ways, and be wise. Without having any chief, officer, or ruler, she prepares her bread in summer and gathers her food in harvest.

Proverbs 6:6-8

Key Takeaway – Developing the habit of saving money is the key to your financial stability. It is your SuperPower. Even if you’re not a natural saver, it is a skill you can learn.

Assignment 1 – If you have non-mortgage debt, devise a plan now to pay it off.

Assignment 2 – Check with your employer for the matching rules on your 401k and get your match.

Assignment 3 – Make a list of the short, medium and long-term items you need to save for. Then look at your spending/budget and determine how much money you can send to savings.

Coming Soon – A primer to investing

Retirement Adventures – Spring 2021

At A Glance – Having an adventurous retirement is totally possible for you.  No matter how constrained your time and flexibility have been, your future can be whatever you make of it.

If retirement is in your future, you’re probably looking forward to a whole new life. You may have it all mapped out, or you may be wondering what it will look like.

I’d like to share a small slice of my retirement experiences from time to time. Maybe it will give you an idea of what is possible. Yours won’t look like mine, but we can all share ideas and learn from each other.

First, I want to get you thinking about what kinds of adventures are possible. Then, I’ll share a bit about my first adventurous retirement trip.

Why You Want Adventures In Retirement

1. It’s What You’ve Worked and Saved For

Retirement or even semi-retirement is what you’ve worked and saved for. Possibly even for decades. Previous generations typically worked until they couldn’t and then “took it easy” in the rocking chair on the porch. I don’t know about you, but that’s not what I picture for myself! I have more adventure in mind.

Roger Whitney from the podcast, “The Retirement Answer Man Show”, talks of retirement consisting of the Go-Go years, the Slow-Go years and the No-Go years. Right now I’m in my Go-Go years, and I want to make the most of them.

2. It Keeps Your Mind Sharp And Your Body Moving

One important aspect of retirement is to keep your mind sharp and your body moving. The fitness of our mind and body is important throughout our life, but especially as we age. It becomes our new “job.”

The process of planning a trip or adventure stretches your brain. This may sound a bit cheesy, but the task of planning your route, timing, lodging and excursions can take some brainpower! As you experience new sights, sounds, history or cultures, use your brain. Learn as much as you can. Take it all in.

Move your body with your experiences. Walk, cycle, hike, zip-line, 4-wheel, horseback ride, kayak or ski. Try something you’ve never done. Then shock your kids with your new skill!

3. A Chance To Do Things You Didn’t Have Time For Before

You may not have had time during your working career to have adventures. Even if your job includes travel, it’s hard to enjoy it when you have a schedule to meet.

The last 5 years of Stephen’s career required traveling to a city on the east coast every 2 weeks. Did he enjoy the rich history of the city or the beauty of the countryside? Not really.

Now that we are retired, we have time to visit new places. Last fall, we took a tour through the southern Colorado towns of Durango, Silverton and Ouray. There were trails to hike and waterfalls to see.

We also enjoyed one of our favorite incognito activities. We were at an outdoor restaurant admiring the view and observed a family of 4 nearby. Parents and 2 tweens. We noticed the family engaging in conversation. No cell phones and no arguments. How refreshing. We were so impressed, we anonymously paid their check.

What Kinds of Retirement Adventures Can You Have?

1. Enjoy Things You Already Love

Do you already have a hobby you love? Maybe you ski and have your own gear, or camp and have an RV. Maybe you enjoy meeting others with the same hobby or interest.

Do you have a skill? You can use it in a volunteer role. You could help build houses for Habitat or read to kids at your local elementary school. Deliver for Meals on Wheels or teach Sunday School.

Retirement gives you the opportunity to spend time on things you already love and do them bigger and better.

2. Try Something New

Having more time can give you the chance to do something entirely new. Learn a language or learn to horseback ride. You could try surfing or learn to knit. Heck, you can even learn to drive a race car! (Someone I know does that!)

Add some spice to life by trying new things. If you try it and you don’t like it – try something else!

3. Learn a New Skill

When most people think about what they want to do in retirement, travel is at the top of the list. There are so many places and experiences waiting for you out there!

Travel is big on my list, also – sights to see and cultures to experience.

But having adventures doesn’t always mean going to an exotic destination. You may want to work on skills. Either hone skills you already possess or try something new. You could try your hand at woodworking or learn to sew. Work on your handyman skills with the DIY projects around the house. Learn to be a gourmet cook or help maintain hiking trails in your area.

You can do anything that interests you and that fits your budget. A lot of adventurous choices don’t cost anything but your time and determination.

4. Include Your Spouse

Include your spouse in your thought process. Talk to them about what you are dreaming of and ask them the same thing. Your adventures can be double the fun when done together.

But keep in mind you don’t have to do everything together.

It’s healthy to have your own activities and interests. Stephen and I do most hobbies together. We snow ski, sail and drive our racecars together, but I also enjoy quilting and Ladies Bible Study. He likes to do a little woodworking and work in the garage on the cars.

Our First Retirement Trip

I have always wanted to take at a vacation that had extra time built in. The kind where you could stop at a random site and explore without being in a rush. You know, that sign that says Biggest Ball of String.

My life has rarely afforded those kinds of opportunities. But now I’m finally here. My first chance for a relaxed and adventurous vacation. It’s my BBOS Tour of 2021. (Big Ball of String)

  • 20 days
  • 4,500 miles
  • 1 State Park
  • 3 National Parks
  • 2 National Monuments
  • 1 National Recreation Area
  • 45 Texas friends/family/neighbors visited
  • 1 wedding

Stephen and I started with a 10 day swing through Texas where we used to live. We spent all 10 days visiting family and friends. Then we headed to Utah for a wedding. After the wedding, we were free to do what we wanted when we wanted.

We visited Snow Canyon State Park and three National Parks – Zion, Bryce Canyon, and Capitol Reef National Parks. We also drove through Grand Staircase-Escalante and Vermilion Cliffs National Monuments and Glen Canyon Dam Recreation Area.

Each was beautiful and so different. I’ll give you just a taste of each major park.

Snow Canyon State Park

This park is located 10 miles NW of St. George in southwestern Utah. It is a small park with several hikes and a few picnic areas. There are ribbons of volcanic rock running through the area. The volcanic rock created a “tube” as it flowed and cooled. Most of the tube has collapsed, but there are a couple of areas where you can climb down into the tube.

Zion National Park

Zion is 47 miles NE of St. George, Utah. Layers of limestone, mudstone, sand and shale create colorful layers in sheer cliff faces above the Virgin River. In Zion, you drive through the canyon floor and your view is up.

North of Zion, rain from the 11,000 ft. high Colorado Plateau slices Zion’s soft layers and pushes debris off the southern edge of the plateau. This edge steps down in a series of cliffs creating the Grand Staircase. Above Zion, topping the staircase is Bryce Canyon. Below Zion is Grand Canyon, the lowest rung of the staircase where 90% of the Colorado Plateau waters run.

We hiked Angel’s Landing which is the most popular hike in the park. Angel’s Landing is a 5 mile round trip with about 1,500 ft of elevation gain, including a section with 21 switchbacks. It is a strenuous hike, but totally worth it. I am in good physical shape, but I did have to stop many times to “admire the view.”

Angel’s Landing is known for the narrow section at the very top. The final half-mile is traversed with the aid of chains bolted into the rock. It’s not for the faint of heart or those with a fear of heights. I’m told it’s worth it – I did NOT see it firsthand! I stopped at Scouts Lookout right before the last narrow section. It provides great views, plenty of flat areas to stop and have a snack and restrooms.

The small town of Springdale is located at the park’s southern entrance. There are many towns in the general area large enough to have regular grocery stores and restaurants. The lodging was a mix of hotels, motels and small inns. We stayed in a hotel in Hurricane, Utah with free breakfast, a pool and on-site laundry.

Bryce Canyon National Park

Next, we went to Bryce Canyon, and the drive out the north side of Zion on the way to Bryce is beautiful. Bryce is only about 150 miles NE of Zion but looks totally different. Unlike Zion, here you are on top of the canyon looking down. The main road through Bryce follows the length of the canyon. There are several lookouts where you can stop and view the canyon and the unusual formations called Hoodoos. These are tall thin spires of soft rock topped with harder rock. There are hoodoos on every continent, but Bryce has the largest concentration found anywhere on Earth. The hoodoos often create windows, doorways and arches.

There are trails that take you down into the canyon and give you a different view than the one from above. If you visit here, I would recommend at least one of these hikes.

There is not much of a town around Bryce Canyon. We stayed in Tropic, Utah. Instead of hotels and motels, most of the lodging is small cabins. Ours was simple but clean. There are a few restaurants in the area and a small grocery store. Our accommodations did not include breakfast, so we bought cereal, milk, plastic cups and spoons for our breakfast. We spent about $10 and fed 4 people for 2 mornings.

Capitol Reef National Park

Capitol Reef was a bonus on our trip. We had a free day, looked at the map and decided a drive to Capitol Reef was the plan. I had never heard of this park and didn’t know anything about it. The drive from Bryce to Capitol Reef went through some widely varied scenery from painted desert to mountain forests of evergreens and Aspens. We stopped every time something looked interesting. Capitol Reef is located in south-central Utah.

Upon arriving at Capitol Reed, we stopped at the Visitor’s Center, picked up the map and some tips about where to go and drove the length of the park. We got out at a few interesting lookouts and then headed back to our cabin. It was a great was to spend a day.

Tips We Learned

Here are a few tips we learned. First, plan everything you can, but be flexible. We enjoyed our spur-of-the-moment stops as much as the “big things”. Like the day we drove by a German Bakery and decided that baked goods would be a good lunch!

In the planning ahead department, our research saved us from making a big mistake at Zion. We learned the only way into most of the park is by shuttle and you must purchase your ticket online ahead of time. These were very hard to get. We tried to buy tickets for several days before getting them. Luckily, our advance planning made us aware of this stipulation.

We also learned to check the map for other local options. Our day in the state park was not planned. We had a free day because of not getting the shuttle tickets for Zion. We looked for another option for hiking and found the state park.

Here’s a tip for your wallet. We used our Interagency Lifetime Senior Pass (National Parks Pass) for park entrance. Currently, it cost $80, and is good for all National Parks and a variety of museums and other attractions. Always ask before you enter a park. We have been given free or reduced admittance to parks that were not listed anywhere, so we’ve learned to always ask. This pass is good for the pass holder’s lifetime and admits the carload of people. The entrance fees for the 3 national parks we visited would have been $90. Any US citizen 62 or over can purchase the pass and purchase can be made at any park entrance gate.

General Cost Breakdown

Gas$593
Lodging *$704
Meals $640
State Park Entrance$10
Grand Total$1,947
Per Day Cost$97.35
Average steps/day in the parks15,030
* 12 nights w/friends & family, 1 night points, 6 nights paid

Key Takeaway – Having an adventurous retirement is totally possible for you. No matter how constrained your time and flexibility have been, your future can be whatever you make of it.

Assignment – Think about what you want your retirement to look like. Do you want to travel, learn a new skill, fine-tune your current hobby or just spend time with the grandkids? Give yourself permission to dream and write down your thoughts. If you’re married, do this with your spouse.

Coming Soon – Saving Money!

I would love for you to leave a comment about what kinds of adventures you’d like to have in retirement.

Why You Need An Emergency Fund And How To Get One

At A Glance – An emergency fund is a financial safety net for future mishaps and/or unexpected expenses.

What Is An Emergency Fund?

An Emergency Fund (EF) could also be called a “Rainy Day Fund”. It is a stash of money, usually cash, that is set aside for an unexpected event, such as a medical emergency, a large car repair or a job loss.

Why Do I Need An Emergency Fund?

Life Happens. Things break, accidents happen, or there is, say, a global pandemic! An EF can keep you from taking on debt while you work through your emergency.

And don’t emergencies seem to happen at the worst times! The water heater breaks right after you had to get a new transmission. With an EF you won’t have to take on more debt to keep life going.

Without having some cash set aside, you might have to put your emergency on a credit card or take out a personal loan. Both of these options come with high interest rates that set you back even more than the emergency did.

One of the main reasons Stephen and I had such financial woes in our earlier life was because we did not have an EF. We had just drifted through life with no safety net, and when the BIG unexpected event happened we fell off the financial cliff! It affected our marriage and our family. Life was very unpleasant. Now we have enough cash to handle almost any emergency.

How Much Do I Need?

If you don’t have any cash on hand right now for emergencies, you need to start with a Baby Emergency Fund of $1,000.

Your Baby Emergency Fund is your first line of defense against a dumpster fire event in your life. It keeps you from getting off track and taking on more debt when you have a small to medium-sized emergency. If you have a flat tire or the washing machine quits, you can handle it.

The typical advice about how much to keep in your fully-funded Emergency Fund is 3-6 months expenses. This will handle larger events like a large medical bill or job lay-off. Your fully-funded emergency fund keeps you going without adding additional debt and stress. Having 3-6 months of expenses saved can give you the peace and confidence to face almost anything life can throw at you.

Here’s another advantage of having a fully-funded EF. If you have a large emergency or a job lay-off, you can temporarily cut back on your spending. Three to six months of savings can be stretched to last even longer as you cut back on discretionary spending. Eating out and vacations can wait.

How Do I Build It?

You can build your Emergency Fund by saving, selling something or a part-time job. If you need to build your Baby EF, the fastest way to accumulate that first $1,000 is to sell something. Have a garage sale or sell some stuff on market place. You probably have enough stuff around your house you could sell to stash away that first $1,000.

The rest of your 3-6 months of EF can come from saving money from your monthly paycheck or by taking on a part-time job or side hustle. It will take some time to accumulate 3-6 months of living expenses, so be patient, but be diligent. The more you are willing to sacrifice, the faster this will go.

If you don’t know how to save any extra money from your paycheck, take a look at your budget and see where you can temporarily cut something. If you aren’t using a budget, this is a good time to start. Here is my article, How To Do A Budget. It explains how to set up and use a budget, and includes a spreadsheet you can download. Or you can use an app like YNAB and Mint.

Where Do I Keep My Emergency Fund?

You want your emergency fund to be accessible, but not TOO accessible. In other words, you don’t want to be tempted to use your EF for that new big screen you’ve been wanting.

Since your EF will probably be cash, you could keep it in a savings account or a money market account. These can be held at your bank or a brokerage firm. You might even want to open a separate account at a different bank. This does two things. You know exactly how much you have, and you can’t do an online transfer into your checking account. This will keep you from being tempted to use it for something else.

As you are deciding where to put your cash, you will probably think, “This is boring. It’s just sitting there. I could do better than this piddly amount of interest it’s earning.” And you’ll be right. It is boring. It’s not making anything. But the point is not for it be a great investment, it’s meant to be a safety net. It’s what lets you sleep at night without worrying about Murphy knocking on your door!

When Should I Use My Emergency Fund?

This is an Emergency Fund…use it for emergencies!

What’s an emergency? Let’s start with what is NOT an emergency. A new couch is not an emergency. A vacation is not an emergency. A nicer car is also not an emergency.

Your EF should be used for things that are truly emergencies. As mentioned above, a large unexpected medical bill or job lay-off are true emergencies. Another example is paying an insurance deductible for something like a hail storm or a car wreck.

Also, keep in mind that not every large expense is an emergency. A new roof or a vehicle will be a large expense, but they are not a surprise. Large purchases or repairs can be planned for. You know they are coming eventually. These large purchases can be handled with a sinking fund. A sinking fund is where you set aside money each month in preparation for a large purchase.

For example, if you need to replace your car in 5 years and you think it will cost about $15,000, set aside $250/month. In 5 years you will have the cash to pay for the car. It won’t be an emergency.

When you need to use your emergency fund, you will need to replace what you spent. Start saving again until your emergency fund is fully funded.

What Does The Bible Say

There is a great example of an EF in the Bible in the book of Genesis. Pharaoh has a dream which Joseph interprets. The dream tells him there will be 7 years of abundance and then 7 years of famine. Pharaoh puts Joseph in charge of building Egypt’s “Emergency Fund” so his people will not starve during the famine. Read about it here.

Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt during the seven years of abundance. They should collect all the food of these good years that are coming and store up the grain under the authority of Pharaoh, to be kept in the cities for food. This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt, so that the country may not be ruined by the famine.

Genesis 41:34-36

Conclusion

Having an emergency fund keeps life’s mishaps from turning into stress and drama. After you have lived with one for a while, you will discover that you don’t have as many emergencies. If something unexpected happens, you handle it, replace what you spent out of the fund and move on.

Key Takeaway – An emergency fund is a financial safety net for future mishaps and/or unexpected expenses. Having one will keep you from going into debt to handle an emergency.

Assignment 1 – Build your Baby Emergency Fund of $1,000. Sell something or take on a part-time job.

Assignment 2 – Look at your current budget and make adjustments to temporarily save as much as you can to build your fully-funded Emergency Fund.

Assignment 3 – Decide where to put your Emergency Fund.

Coming Soon – My first real retirement trip!

Have there been times in the past when you could have used an EF? Do you have an example of when having an EF kept you out of the ditch? Share your story in the comments below. I love hearing how our members are navigating our “strange new world”!

How Credit Card Debt Can Get Out Of Control

At A Glance – Out of control credit card debt is the enemy of your money and your future. Discovering your purchasing patterns will help break the cycle of debt.

Have you ever looked at your credit card statement and thought, “How the #@%$ did I get here?!” Or watched it inch up every month thinking it’s not THAT bad, only to realize it’s gotten bigger than the neighbor’s dog!

If you can identify, you’re not alone. Credit card debt is massively out of control. But what to do?

Here are a few thoughts on how credit card debt can balloon out of control and what to do about it.

How Did We Get Here In The First Place?

1. The Buy It Now Mindset

Credit card debt can get out of control because we have a “buy it now” mindset. Our culture has become one of instant gratification. If you want it, need it, or even think you need it, you should get it! Right? Your friends will tell you, “You deserve it!” If you don’t have the money today…No Problem…put it on the card. The only problem is all that “deserving” has to be paid for. Unfortunately, you are using tomorrow’s dollars to fund today’s lifestyle. This mindset will get you in trouble before you even realize what’s happened.

Keeping up with friends or family causes problems also. It’s hard to say no when everyone is going out for drinks after work. What about that new grandbaby across the country you want to go see? Or how about the latest iPhone? We want to appear we have it all together, and that doing what everyone else is doing is no problem.

What to do: Plan ahead for large purchases, save up and pay cash. Establish a 72-hour rule. Wait 72 hours before making any major purchases. You may discover you really don’t want it that bad.

2. Pay Attention!

Our credit card debt can also get out of control because we just don’t pay attention. We’re in a hurry, so we put it on the card. We mindlessly buy things and realize later that we really didn’t get any joy from that purchase.

Stephen and I dug a huge hole in our early years because we didn’t pay attention. There are still times when we have to unwind mistakes.

What to do: Pay attention! Don’t make purchases because you are in a hurry, or because you haven’t planned ahead.

3. Making Only Minimum Payments On Your Credit Cards

Credit card debt gets out of control when we only make minimum payments. Credit card companies make it easy to buy what you want and only make that small minimum payment. Lots of folks think the minimum payment is all that’s required. The problem is the balance will increase faster with spending than it will decrease with minimum payments. You’ll never get ahead like that.

Credit cards carry some of the highest interest rates in the lending industry. They are probably the highest rates of any loan you have. I received an email from my credit card company last month (February 2021) that informed me the rate on my card has changed and could go as high as 29.99%! What! This is a premium card and I have good credit.

Here are some examples of what minimum payments can do.

The first chart shows how long it would take to pay off $500, $2,000 and $5,000 balances with minimum payments and 18% interest. This assumes adding no new purchases to the balance.

Card BalanceInt. RateMin PymtHow Long to Pay OffTotal Paid (Int.+Card Balance)
$50018%$252 yrs$599
$2,00018%$752 yrs, 11 mo.$2,573
$5,00018%$1255 yrs, 2 mo. $7,692

This next chart shows how long to pay off the same $500, $2,000 and $5,000 balances with minimum payments and 29% interest. Again, this assumes adding no new purchases to the balance.

Card BalanceInt. RateMin PymtHow Long to Pay OffTotal Paid (Int.+Card Balance)
$50029%$152 yrs, 4 mo.$691
$2,00029%$753 yrs, 8 mo.$3,247
$5,00029%$12511 yrs, 11 mo. $17,804

Do you see the last one? If you bought a nice leather couch and put it on a credit card at 29% interest, you would pay over $17k for it in the end!!!

The reason these balances go up so quickly is that credit cards accrue compound interest and not simple interest. This is where compounding can work against you. If you don’t know how compounding works, read my article What Is Compounding And How To Harness Its Power. This explains what compounding is and when it works for you and against you.

What to do: Pay as much as you can each month to eventually pay off the balance. Once your balance is $0.00, pay the balance in full and on time every month.

4. Skipping Payments Or Paying Your Credit Card Bill Late

Credit card debt gets out of control if we miss the payment or pay it late. On most cards, the interest rate automatically increases if you are late with a payment or miss it altogether. If several payments are late the rate will go up to that 29.99% I talked about earlier. No thank you!

Also, don’t forget about the late payment fee. On top of the ridiculous interest rate, you will be charged a late fee. Right now my card is charging $40. This adds to your balance AND will also start to accrue interest.

This habit of making minimum payments and paying late sets up a downward spiral that can be devastating to your finances and your emotions. Many people wake up one day and find they are so deep in a hole, there’s no way out. I have been there, done that! It’s a hopeless and helpless feeling.

I’m not going to sugarcoat this. If this is you, then you need to take action. NOW! It won’t be fun, but YOU CAN DO IT! I’m here to help you through this. I’ve got your back!

What to do: Plan ahead so you have the money to make the payment and set an alarm on your calendar, or set up automatic payments.

What Does The Bible Say?

God calls us to be good stewards of everything we have. All we have comes from Him and belongs to Him. “…for every animal of the forest is mine, and the cattle on a thousand hills.” Psalm 50:10

Having large amounts of debt brings disorder and chaos to our lives. “For God is not a God of disorder but of peace.” I Corinth. 14:33

We are not prepared to join in on God’s plans or opportunities if all our money is spoken for before we even earn it!

What do you do now?

If you have discovered that you have too much credit card debt, there’s only one thing to do. Stop using them and pay them off. It won’t be easy, but it will be the best thing for your future self.

The entire process of how to pay off your credit cards is explained in How To Pay Off Credit Card Debt In 6 Steps. When you work through the process of paying off your credit cards, you will have freedom and control. Freedom from fear and anxiety and control of your future.

You may also have other debt in your life that needs to be addressed. After paying off credit cards, you will have the skills and the mindset necessary to attack the rest of your debt. You are now in a position to create the amazing life you want.

Key Takeaway – Out of control credit card debt is the enemy of your money and your future. Discovering your purchasing patterns will help break the cycle of debt.

Assignment – Look at each transaction on your last one or two credit card statements. Do you see a pattern? Do you see unnecessary purchases? Commit to using cash and paying off your credit cards.

Coming Soon – The Emergency Fund

If you need any help or encouragement along your journey, use the contact form to contact me, leave a comment below or go to the Started At 50 Facebook group.

Have you been able to pay off some of your credit card debt? Great! Leave a comment so we can all celebrate with you.

What Is Compounding And How To Harness Its Power

At A Glance – Harnessing the power of compound interest or compounding is probably THE most important factor in becoming Financially Independent.

What Is Compound Interest or Compounding

Compound Interest is the eighth wonder of the world. He who understands it, earns it…he who doesn’t… pays it.

Compound interest is the most powerful force in the universe.

Compound interest is the greatest mathematical discovery of all time.

Albert Einstein

Those are powerful quotes from a powerful mathematician! Why would Albert Einstein say that about compound interest? Because it can mean the difference between barely having enough money to get by in your retirement or being quite comfortable.

Let’s look at what compounding is and what it can do for you.

Definition of Compounding

Here’s a textbook definition of compounding. Compounding is the process in which an asset’s earnings, from either capital gains or interest, are reinvested to generate additional earnings over time. This growth occurs because the investment will generate earnings from both its initial principal and the accumulated earnings from preceding periods. Compounding, therefore, differs from linear growth (simple interest), where only the principal earns interest each period.

In plain English, compounding is interest on interest which magnifies returns over time.

Here’s an example. Let’s say you deposited $1,000 in a savings account and the bank will pay you 10% interest per year. (I know you can’t get 10% right now, but I’m just using round numbers).

In year One, you would earn $100 in interest (1,000*10%). Your account would then total $1100.

In year Two, your $1100 earns 10% interest or $110. Add that to your principle and you would have $1,210.

In year Three, you would earn 10% on $1210 or $121. This would total $1,331.

Each period that the interest is added to your account, it is calculated on the total amount in the account. Not just the original deposit of $1,000.

$1,000 Invested at 10% Comp. Interest per Year GainTotal
Year 1 (1,000*0.10)$100$1,100
Year 2 (1,100*0.10)$110$1,210
Year 3 (1,210*0.10)$121$1,331

Compound Vs Simple Interest

Simple interest can be defined as interest paid only on the original principal, not on the accrued interest. In other words, the interest will be calculated each period on the original deposit.

In our example above, simple interest would only be calculated on the original deposit of $1,000. So, each year the interest paid would be $100. With simple interest, at the end of 3 years, you would have $1,300.

$1,000 Invested at 10% Simple Interest per Year Gain Total
Year 1 (1,000*0.10)$100$1,100
Year 2 (1,000*0.10)$100$1,200
Year 3 (1,000*0.10)$100$1,300

Let’s look at the totals for these two examples side by side for 1, 5, 10, 20 and 40 years.

$1,000 Invested at 10% Simple Interest Compound Interest
Year 1 $1,100$1,100
Year 5$1,500$1,610
Year 10$2,000$2,594
Year 20$3,000$6,727
Year 40$5,000$45,259

You can see why compounding is described as a Mathematical Explosion! The difference is small in the beginning, but as the interest compounds over many years, the difference in your total investment is massive.

The Magic Penny

Here is a fun riddle. Would you rather have a penny that doubles every day or a million dollars? Interesting question. Let’s see…

Start of Day 1$0.01
End of Day 10.02
End of Day 20.04
End of Day 30.08
End of Day 40.16
End of Day 50.32
End of Day 60.64
End of Day 71.28
End of Day 82.56
End of Day 95.12
End of Day 1010.24
End of Day 1120.48
End of Day 1240.96
End of Day 1381.92
End of Day 14163.84
End of Day 15327.68

Which did you choose? Want to change your choice? That penny’s not looking very appealing, but let’s continue.

End of Day 16655.36
End of Day 171,310.72
End of Day 182,621.44
End of Day 195,242.88
End of Day 2010,485.76
End of Day 2120,971.52
End of Day 2241,943.04
End of Day 2383,886.08
End of Day 24167,772.16
End of Day 25335544.32
End of Day 26671,088.64
End of Day 271,342,177.28
End of Day 282,684,354.56
End of Day 295,368,702.12
End of Day 3010, 737418.24

As you can see, the effect of compounding is slow as molasses at first, but then later, takes off like a rocket! Your investments can make more money than you do. The effect of compounding on investments has been described as a perpetual money machine!

What does this mean for you? Invest early and invest often. And leave it alone. Don’t sacrifice your future for something you think you can’t live without today.

A Real-World Example

So far I’ve given you hypothetical examples in order to show you how this works. Let’s look now at a real-world example.

I’m going to use 2 people, Earl the Early Bird and Paul the Procrastinator. Earl starts saving and investing 20% of his $36,000 salary at 22 when he starts his career after college/trade school. This means he has $600/month to invest. He can invest 20% because he has not let his lifestyle creep until it takes all his income. Earl invests his money in low-cost, broad-based index funds that have returned an average of about 8%/year for the last 60 years.

Paul has graduated college with a great starting salary of $90,000/year. He has set up his life to reflect his hard work and good fortune. In other words, he has allowed his lifestyle to creep up to meet his income. He really can’t save much at first because he needs to buy a house and he has a hefty car payment. Ten years later at 32, he decides he should probably start saving for retirement. He saves and invests 10% of his salary which he feels good about. This means he is investing $750/month. Paul is putting his money into the same low-cost index funds as Earl.

Let’s see how they do at age 32, 42, 52 and 62.

EarlPaul
Age 32$111,837$0.00
Age 42358,764139,796
Age 52906,902448,455
Age 622,123,6751,133,627

Earl is only ahead of Paul by a little over $100,000 when Paul starts to invest, but ends up beating him by $1M! Even though Paul is investing more per month and has a much higher salary, the value of time was in favor of Earl.

What Does This Mean For You And What If You’re Starting Late?

The answer to this is simple, but not always easy. It means save everything you can as often as you can. You can see in the examples above that time and interest rate make a big difference in the end result. Compounding works FOR you as you grow your savings. The longer your money is invested, the more effect compounding has. Starting as early as possible will give you more time to save. Also, the rate affects the outcome of compounding. The higher the rate, the more your money will earn. As interest is added on top of interest, your money will grow faster over time.

What if you can’t save 10% or 15% of your salary? You might have money that is not working as hard for you as it should, you just need to find it. If you don’t know where to start, check out my other articles on Calculating Your Net Worth, Tracking Your Spending and Budgeting. These should give you a place to start looking for extra money to save.

What if you’re not 22?!!! I feel your pain. Remember the name of my website…Started At 50. That’s because I was 50 years old when I started saving. Literally, my Net Worth was Zero at age 50. If you are late to the game, first you need to know it’s not TOO late. You have time, just not as much time. Start saving everything you can get your hands on NOW. Don’t wait another day. Everything you can do today will make your future more comfortable and less stressful.

Can Compounding Work Against Me

Compounding can also work AGAINST you. The same power that allows your investments to grow will also cause your debt to march relentlessly upward. Some types of debt like credit card debt are calculated with compounding interest and not simple interest. As your credit card balance grows with purchases, the interest on interest calculation causes the balance to grow even faster.

If you do not pay your credit card bills in full every month, you are paying the bank a huge premium for the privilege of carrying their card. At the time of this writing, interest rates on savings accounts are below 1% per year, whereas credit card rates are anywhere from 16-30%. The first step in boosting your savings rate is to pay off your credit cards!

Credit cards are not the only type of loan that is calculated with compound interest. If you have other types of loans, check to see what kind of interest they carry.

Where Can I Find Compounding?

Compounding happens in several places. The most obvious would be at your bank with a savings account or CD. Usually, the bank guarantees a rate of interest for a period of time. Unfortunately, interest rates are very low right now (March 2021) and have been for a while.

Compounding also happens in the stock market. Investment vehicles such as mutual funds, stocks, bonds, and T-bills are some examples. The compounding happens when interest and dividends are paid and with increases in the share price. (You must remember the stock market will go up and down on any given day, month or year. The point is over time, stocks go up)

The way to ensure you enjoy the effects of compounding is to leave your interest and dividends in the account to compound into the future.

Conclusion

Compounding is a force you want working for you and not against you. This means saving early and often. It also means pay off your credit cards.

Here’s another quote for you. This time from Warren Buffet.

My wealth has come from a combination of living in America, some lucky genes, and compound interest.

Key Takeaway – Harnessing the power of compounding is probably THE most important factor in becoming Financially Independent. Save early and save often.

Assignment 1 – Look at how much you are saving today. Can it be increased?

Assignment 2 – Are you carrying a balance on your credit cards? Look at their current interest rate. Try to reduce the rate or pay it off. (Here is an article about paying your credit cards off)

Coming Soon – How credit card debt can get out of control.

Being Grateful In The Midst Of The Storm And Don’t Miss Special Moments

At A Glance – Today’s post is a guest post from a dear friend. She reminds us gratitude is an attitude we should practice often. Our circumstances don’t determine our joy.

I Don’t Always Score High On The Gratitude Scale

We all know that an attitude of gratitude is something we should practice. It has far-reaching effects. Effects on our mental state for sure, but even on our physical well-being.

When I read my own words in the turquoise box above, I feel some imposter syndrome. Gratitude is not always my go-to state. I can, however, be motivated to have a better attitude with a little help from my friends.

Lessons From My Texas Friends

Most of my life was spent in Texas, so I still have many friends there who dealt with the Big Freeze of 2021. As temperatures dropped and water and heat became scarce, my prayers and concern increased.

I called and checked on many who were dealing with all sorts of issues. Thankfully, most were doing well. We laughed at how this was a “hurricane in reverse”.

Joy Comes From Our Choices, Not Our Circumstances

A special friend of mine, Brenda K., writes her own blog filled with practical instructions and encouragements from scripture. Her blog is called Smoother Sailing. How to’s from the Big Book. You can find her at smoothersailing.wordpress.com.

Her latest post reminded me about being grateful in the midst of the storm. And also, about not letting special moments go unnoticed. She writes about her experiences with neighbors and family. I was struck by her positive and cheerful words of how her family dealt with the hardships. Notice her description of having no power and heat!

It had me thinking…”Would I have viewed this scenario with such grace?” Probably not. But I was grateful for the reminder that our attitude is our choice. Our joy is not determined by our circumstances.

Guest Post From Smoother Sailing

I have reposted Brenda’s post from February 24, 2021. Enjoy.

The Thaw, Or Emergency Preparedness

Last week, a good friend urged me to write about the Great Texas Freeze. Now, though, as I look out at our sunny skies, I realize my topic of choice is actually The Thaw.

We had inches and inches of beautiful snow. It’s gone now. Did I gaze often enough, enjoy deeply enough, a sight I might never see again?

We had 36 electricity-free hours. In our house, the temperature dropped and the population rose as neighbors and loved ones without fireplaces gathered around ours. My living room is warm now, and empty. I hope I focused enough, valued deeply enough the chance to be close to those who graced our home.

Our neighborhood nearly ran out of propane, but didn’t because of a radical effort to conserve. We have plenty now, and I’ll never look at turning on our heat the same way again. Was I at peace enough through the uncertainty? ‘Not so sure,

My grocery order was cancelled as shelves emptied at the local HEB, yet we never ran out of fresh food. When I watched my refrigerator become emptier by the day, I toggled between the delight of seeing how we always had what we needed, and wondering if we’d be eating dry cereal and canned beans for a while. But as soon as stores re-opened, neighbors resupplied me when I didn’t even ask.

Then, of course, there was the week-long threat of frozen pipes. Some did. Ours didn’t. We own property in another city now, and there wasn’t any way at all to check on it until the roads cleared. It was fine. Most of the time, so was I.

When the thaw was complete and our lives back to normal, I had plenty of praising to do. I also found myself wondering how much goodness I missed while forgetting lessons I teach.

How much did I practice the verbs of these verses:

  • Cast your cares on Him.
  • Let not your heart be troubled.
  • Rejoice always.
  • Trust in the Lord.

When I did those things, the freeze and the resulting thaw brought joy to my heart. When I let the maybe’s and might’s and what if’s assail me, forgetting to bat them away with the Word of God, then my smile faded and my energy waned.

We are in The Thaw! I am thankful. A freeze like the one barely over may not ever come again. But something else will—to you and to me.  Get ready!

  • Sure, store a bit of extra food and water and medicine and paper goods.
  • Keep your gas tank at least half full.
  • But, most importantly, keep practicing these verbs of the Bible: Cast. Let not. Rejoice. Trust.

Then you’ll be ready for anything.

Brenda Koinis

www.smoothersailing.com

If you enjoyed Brenda’s words, check out her other posts at Smoother Sailing. If you have your own example of special moments you have savored, share them in the comment sections below.

Key Takeaway – Practice gratitude often and don’t miss the little moments.

Coming Soon – What is Compound Interest and How Does It Work

How To Pay Off Credit Card Debt In 6 Steps

At A Glance – Long term credit card debt is the enemy of your financial well-being. It is like a black hole – sucking everything in and leaving you empty-handed. Paying off your credit card debt will break the chains of that bondage.

6 Steps To Pay Off Your Credit Card Debt

1. Have An Emergency Fund

Why am I starting with an Emergency Fund (EF) and not paying your cards? Because the minute you decide to pay off your debt, you will have an emergency! Your car will break down or your water heater will blow up. If you don’t have an EF, you will have to put this crisis on your credit card and the problem will get worse.

If you already have an EF, great! Skip to Step 2. If not, stop what you’re doing right now and work on this. It’s critical! Not only for debt reduction but just for life. An EF puts a cushion between you and life. When you have a flat tire, it’s not a crisis. You buy a new tire, restock your EF and move on.

How much do you need? A fully funded EF is 3-6 months of expenses in cash. If you don’t have any cash saved, then start with $1,000. This is your Baby Emergency Fund. I don’t want you to wait until you save 3-6 months saved before you start working on your debt. After your debt is gone, go back and finish the EF.

How do you get $1,000 quickly? Sell something on Marketplace, have a garage sale, or take a part-time job. Look at where you can cut spending. Do it quickly and do it now. You should be able to come up with $1,000 quickly. Dig all the loose change out of your car seat.

2. Stop Taking On New Debt

To get rid of this debt, you need to commit to no new spending! You can’t make headway with your cards if you keep putting purchases on them. This will be the hardest step for most people. Spending is what got you here. (How’s that working for you, by the way?) New habits and a new mindset will get you out.

If you can’t pay cash for something, you can’t afford it. Reduce your spending (for a season) to necessities only. And no, getting your nails done or a new car magazine is not a necessity! I know this will be painful, but it won’t last forever.

Start using a budget and track your expenses. Budgeting and tracking will show you where you are overspending and getting off track. If you haven’t used one before, here is a link to an article about Budgeting and an article about Tracking Your Spending. They include simple spreadsheets you can use. They are free for you to download, or you can find many others on the web. There are also apps you can load to your phone that make tracking simple. Give yourself some grace with these tools if you’ve never done this before. It usually takes about 3 months to get the hang of budgeting.

After you have put your expenses down on paper (or an app), do you see areas where you can cut? For now, cut your spending to the bone. The more you can cut, the faster you will get out of this pit of debt.

3. Use Cash

As I said above, if you don’t have the cash for a purchase, you can’t afford it. I know using cash these days is archaic, but it works. When I was in the pit of debt and fear, I switched to cash. Using cash for a purchase keeps you from overspending by letting you feel the emotional pain of spending. When you have to hand over a couple of Ben Franklins to buy the groceries, it makes you think about everything you put in your basket!

I literally had cash in envelopes in my purse. I can hear your question now…No, I wasn’t afraid to carry that much cash with me. I didn’t have ALL my envelopes in my purse. Just the ones I needed for the errands that day. And I get it, going to the bank to get cash and doling it out to the envelopes is a pain. That’s the point. You want to get that debt paid off and get out of this mode of operating AS SOON AS POSSIBLE.

I understand we are in the 21st century and…”There’s an app for that”. There are lots of apps you can use to help with your spending. Some of the more widely used budgeting apps are Mint, YNAB and Every Dollar.

4. Reduce the Interest Rate Or Transfer The Balance To A 0% Card

Call your current credit card companies and ask for a reduction in your interest rate. This may be a long shot, but the worst thing that can happen is they say no. This will depend on your payment history and your credit score.

Another way to reduce your interest rate would be to transfer your balance to a card with a 0% offer. (You may not be able to do this if your credit is trashed). Some cards offer a 0% interest rate for a period of time. Say 12-18 months. You can transfer your balance and pay the card down while the interest meter has been turned off. This will give you a bit of breathing room. If you are able to do this, push through the pain and pay everything you can find on the balance before the interest starts running again.

Special Note: There is normally a fee to transfer your balance onto a new card. Do the math and be sure you’re not paying more in fees than you will save in interest.

This tactic is a form of debt consolidation, and I’m not usually a proponent of debt consolidation. Let me say that again. I DON’T like Debt Consolidation. Why? Because it won’t work without a behavior change. You must change your behavior with spending and saving. Otherwise, you will consolidate your debt, clear your credit cards and start filling them up again. Not a good plan.

If you can transfer your balance to a 0% card, you should CLOSE the cards you’ve emptied to eliminate the temptation to spend on them.

5. Start Paying Off Your Credit Card Debt

Here’s the real meat of the article! Let’s get those cards paid off!

There are 3 main ways to pay off your credit card debt. They are the Snowball Method, the Avalanche Method and the Hybrid Method.

I will explain them here. Also, here is a link to an article about paying down any kind of debt and includes further descriptions of these methods. How To Pay Off Debt.

Snowball Method

This method is fairly simple. List your balances starting with the smallest balance down to the largest. Ignore the interest rate, just rank them by balance amount. Make minimum payments on all but the smallest card and throw everything you possibly can at the small one until it is paid off. This means any extra money you can get your hands on goes to this debt. This could be money from a side job, overtime, or by selling something.

After the first card is paid off, take all the money you were paying on it plus the minimum payment you were making on the second card and put it on the second card. You keep doing this for each credit card until all are paid. Each time adding the money from the payments on the previous card. This is the snowball and it gets bigger as it rolls to each card.

The snowball method gives you an emotional boost with a quick win. This Atta-Boy can help you stay focused and keep going. The downside is because it does not take interest rates into account you could pay more in the long run.

Avalanche Method

The Avalanche Method is similar to the Snowball, but it considers the interest rate instead of the card’s balance. In this method, list your balances starting with the highest interest rate down to the lowest. Pay minimum payments on all but the first card on the list. Throw all the money you can at the first card until it is paid. Then, like in the Snowball, you add what you were paying on the first card to the minimum payment of the second and keep going till all credit cards are paid.

The avalanche method can save you some money in the end. If you focus on your highest interest card, you can save some money by eliminating that debt first. The downside of this method is it may take months to slog through the first card’s balance.

Hybrid method

The Hybrid Method combines the pros of the Snowball and the Avalanche. Using this method, pay off one or two small cards first for that quick win to get you motivated. Then, as you feel you have the discipline, start working on the card with the largest interest rate.

Last thought about payment method

Which method should you use? My normal advice about debt repayment is, it’s really up to you. Choose what will work better for your situation and temperament. In the case of paying off credit card debt, I would suggest the Avalanche method if you can bear it. Why? Credit card debt carries such high interest that, if it were me, I’d attack the highest interest card first.

6. Track Your Progress

Make yourself a visual. A chart or graph. Put it on your phone and your computer. Put it on your refrigerator. Make sure you squeeze every bit of feel-good from your progress. Give yourself a pat on the back for every little win.

This whole credit card payoff process won’t be easy. And it won’t be quick. As Dave Ramsey says, “You might have wandered into debt, but you can’t wander out”!

It may help to have an accountability partner along this journey. Find someone who will walk this road with you and say hard things because they love you.

Go to my Started At 50 Facebook group and let us know how you’re doing. We would all love to celebrate your progress!

I’ve Paid Off My Credit Cards, Now What?

First, WOOHOO!! Congrats on making this major milestone in your finances and your life. Doesn’t it feel good?

Now it’s time to put your big-girl pants on. FROM NOW ON AND FOREVERMORE, if you put purchases on a credit card…PAY THEM ON TIME AND IN FULL every single month. This is the only way to use these beasts. Now, you can be in control of your credit rather than being at the mercy of the bank!

I would suggest that you also continue to budget and track your spending. You may not need to do this forever, but it is a good way to put guard rails around your finances.

What Does The Bible Say?

Conclusion

“Why go through all this pain”, you may ask? Carrying continuous, strangling debt is no way to live. It sucks the joy out of life, creates stress and will eventually affect everything.

When you work through the process of paying off your credit card debt, you will have freedom and control. Freedom from fear and anxiety and control of your future. You may have other debt in your life that needs to be addressed. If you do, you have the skills and the mindset necessary to attack the rest of your debt. You are now in a position to create the amazing life you want.

Key Takeaway – Long term credit card debt is the enemy of your financial well-being. Paying it off will break the chains of that bondage.

Assignment 1 – Commit to STOP using your credit cards TODAY!

Assignment 2 – Look at all your credit card statements. Make a list of all the balances and interest rates. Decide which payoff method you will use.

Assignment 3 – Pay them off as aggressively as possible

Coming Soon – The Power of Compound Interest

If you need any help or encouragement in your debt pay-off journey, use the contact form to contact me or go to the Started At 50 Facebook group.

Have you been able to pay off some of your credit card debt? Great! Leave a comment so we can all celebrate with you.

Looking Back And Looking Forward – 2020

2020…One of the weirdest years ever. Has it been a black swan or a golden eagle? Some of us have been inconvenienced, some have been devastated. It’s been different thing to different people, but one thing we can all count on. It’s been Unpredictable!

I’d like to take a look back at some things I’ve experienced and look forward to what our life could look like next year. Come take a short journey with me through 2020.

Looking Back

My Big Event for 2020 – My Mom’s Death

On October 24, 2020, my Mom went home to be with her Jesus. This last year has been especially hard for her and me. She was 99 when she passed. Her health had been good till about mid-2018. Over the last 12 months dementia had taken hold, and then the quarantine amplified the dementia. She lived in an Assisted Living facility in another state and I was her sole caregiver and decision-maker outside of the facility staff. Most days I would talk to her 3-4 times a day. Some days she could carry on a normal conversation, and some days she didn’t know where she was. One bright spot was she continued to know who I was. She just couldn’t make sense of what was going on around her.

I will miss my Mom terrible, but Praise God the strain on her and me is over. She is now with her Savior and her heavenly family enjoying God’s perfect love for eternity.

Not Seeing Family

Not seeing family has been hard, but thank God for Zoom! Today’s technology has made the quarantining a little more palatable. I think we all felt a little relief this summer as things opened up slightly. Depending on your area of the country, your restrictions may have loosened a lot.

One thing I found interesting was how many people still went camping/fishing this past summer. I live near a highway that folks travel to go to the mountains. This past summer the road was full of RVs and campers. I hope you had a chance to get out and enjoy nature, also.

Stephen and I have even considered joining the ranks of RV’ers, but I have heard in parts of the country RVs were hard to come by. Because this was a way to get out and take your “clean home” with you, folks were snapping them up like hotcakes! Maybe there will be a good used market in a year or two!

Flexibility And Introspection

Did you find you had time for things you didn’t before? This is one area where I’m thankful for the changes to our lives. How many times have you thought, “If only I could slow down!” Did you find you had extra time to think, plan, do projects, make a phone call or read?

Or did the “new norm” strip you of all these opportunities as you tried to work and homeschool all at once? Those caught in this situation have probably learned a whole new level of planning and flexibility.

What Was The Deal With Toilet Paper!?!

What WAS the deal with toilet paper? I know, I’ve heard all the philosophical answers for this one, but I just want to go on record and say I DON’T GET IT!!

What I really won’t get is if it happens again!

How Did Your Money Do?

2020 was a roller coaster year for the stock market and our investments. (Just to review, Stephen and I only have paper investments, i.e. Stocks and Bonds. We don’t do real estate or side hustles.) March made us think a disaster was on the horizon and the next recession was imminent. Then the markets rebounded in record time.

Personally, our accounts had rebounded by the end of July. As of the first week in December, our net worth is higher than it’s ever been.

This cannot be said often enough…it’s not timing the market, but TIME IN the market that matters. After reading “The Simple Path to Wealth” in 2017, we moved our investments into VTSAX and VBTLX . We started our drawdown for retirement in about April 2019. Our portfolio was worth more at the end of 2019 than at the beginning. Even though we are drawing down. 2020 will be the same. Will this always happen? NO. Can we ride it out when it doesn’t? Absolutely.

2020 was hard on our emotions concerning our money, but it also gave us some incredible short-term opportunities. The important thing is that we learn from it. Please evaluate your financial situation today. What did you do well? What could you have done better? We can’t be perfect, but we can learn.

Looking Forward

Locking Down Again

I think we’re all weary of the quarantines and the ever-changing landscape of our lives. I know I am. We’ve probably been expecting our world to lock down again in the Fall, but I’ve been surprised at myself. I am more unhappy about it than I want to be. I guess a little freedom felt so good I didn’t want to have it wrangled back again.

This is an area I’m having to work on my own gratefulness. I know an attitude of gratitude is the best antidote for unhappiness and frustration. How has this been for you. Are you finding it hard to be content? I think I’m struggling with this happening during the holidays when I expected to be able to see family. Again, thank God for Zoom!

More Time

OK, enough with the pity party. The bright side of being locked down again is more time. I am also about to experience having more time because my caregiving job has ended. This will give me a freedom I’ve not ever experienced. Caring for my mom started before my kids left home, so it’s always been part of who I am.

I have to admit, I’m a little afraid of the same issues new retirees face. Like finding myself. Deciding what lights me up. I have no lack of passion projects, but now I will be making my own decisions about my time rather than reacting to each day’s emergencies. How will I decide where to spend my most precious resource – my time? It’s going to be a journey and I will try to keep you up to date on my progress.

One huge hope of mine is to spend more time on Stated At 50! I’ve not been able to post consistently to the blog or really care for my Facebook group. I’m excited and scared at the same time. Excited to be more consistent and more attentive. Scared because I’m still SO new to blogging and the technology. I feel like I’ve barely scratched the surface, but I think I’m up for the challenge. I always want to have the attitude of being a life-long learner.

This means you will be coming along this ride with me. I just ask for your patience and your support. If you see something that could be improved, tell me. If you want to hear about a particular topic, let me know. This blog is for YOU. You are my focus.

Spend The Mental Energy To Lock In Goals

The beginning of a new year always seems to be a good time for self-evaluation and goal setting. Did you notice I did not use the word resolutions? I think New Year’s Resolutions get a bad rap, but you can call them whatever your like. The point is to evaluate, ponder, and find those areas where you can get 1% better. Brad and Jonathan on ChooseFI talk frequently about talent stacking and becoming 1% better. If you improve by just 1% each week or month, think about the improvement over one year.

This idea relates to any area of your life. Your finances for sure, but what about your health? Or relationships or skills? Any area you would like to improve is possible. Just take the time to pay attention (My Mantra!) and honestly evaluate what you’d like to improve or what new goal you’d like to work on. As I said earlier, I’ll be working on learning more about blogging and improving my website.

Pray About Being More Generous Next Year

Personally, one area I would like to refine is my generosity. This is very important to Stephen and me. There are places where the opportunity is easy – sponsor a family for Christmas, give to the food bank or pregnancy center, or help a missionary. But lately, I’ve been feeling restless, like there is more I should be doing. Maybe not even with my money, but with my time and energy. I’m going to be praying about this one for sure. How about you? Does your generosity muscle need a little strengthening? One of my favorite sayings is “Our life moves at the speed of our generosity.” 2020 has been weird, but our generosity can’t be quarantined!

Refine Your Budget

Have you seen areas that may need to be tweaked or even changed all together? My own budget is changing because of Medicare. Stephen started in May and I will join the ranks of 65 and over in February. This has been an interesting challenge to figure out what to do with Medicare. (I will write an article in the future to let you know what we learned.) In our case, our monthly budget has decreased because of the lower health care premiums!

Even beyond budgeting, there may be items in your financial plan that need attention. Do you need to make a contribution to an IRA? Have you maxed out your HSA if you have one? Can you do any ROTH laddering? If you don’t know what I’m talking about, have no fear. I didn’t either a few short years ago. I’m not going to explain each one at this time – I’ll talk about them in another post, but there are lots of resources available. Again, ChooseFI’s podcast and website along with others have great resource material.

Be aware that each of these items, along with many others, have tax implications. BE SURE you understand the tax implications of what you do and when you do it. Some moves need to be made by Dec. 31st and some April 15th. Also, the tax rules for 2020 are different because of COVID. Some deadlines have changed and some items, like RMD’s are not due at all this year. Also, 2020 is giving us an “above the line” $300 charitable giving deduction. This means you can deduct $300 of charitable giving without having to itemize. Please consult a tax specialist for your situation with any of the items mentioned above.

Your Overall Financial Plan

Since the end of the year is a great time for evaluation, look at your financial plan. If you don’t have one, this is a good time to start building one. The time to put together your plan is not when the world is falling apart and the market is tanking. You need to write out a plan for your future finances when you are level-headed and not in a panic.

We’ve seen huge changes this year in a short period. The markets have dropped like a rock and then rebounded. The pandemic may have changed your mind about your risk tolerance. It may have given you an opportunity for a new income stream. No matter where you are today, look back and learn from where you’ve been.

No one could have seen 2020 coming. Now that it has, use it to make sure you are ready for the next “unexpected event”

Wrapping It Up

I hope to journey down this twisting road of life with you – talking about God, money and stuff! Let me know what you think. How are you coping? What are your goals for 2021? What is your family doing for Christmas?

It’s beginning to look a lot like…a Zoom Christmas!

I pray for you always and wish you a Merry Christmas and Blessed New Year.

Key Takeaway – Do your own version of looking back and looking forward. Write down goals and things you learned

Assignment – Answer this question in the comments below. What is one thing you learned about yourself in 2020?

Coming Soon – I’ll still be writing about Credit Cards. Watch your inbox!

…Be strong and courageous! Do not tremble or be dismayed, for the Lord your God is with you wherever you go.

Joshua 1:9