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

How To Pay Off Debt

At A Glance – Debt is NOT your friend. It robs your future, and more stuff won’t make you happier. Pay off your Debt as quickly as possible. It won’t be easy, but it will be worth it! Then you can start to design the future you’ve always dreamed of.

Accumulating debt has become an American past-time. Everything we want comes with “easy payments”, so why not buy it? Often-times we don’t realize how deep we’re in until we realize we can’t get out. 

How many of us find ourselves thinking things like: 

  • I don’t want to buy some else’s car problems, so I need to buy a new car.
  • My new baby needs the best and safest equipment, so I’ll just put her cute new stuff on my credit card.
  • My boss was really unreasonable today, so I’ll go to that new bar for a happy hour with my friends.
  • I need all this stuff to keep up. I wouldn’t want my friends to think I’m not doing well.

It feels normal because it’s what everyone else is doing. We have become professionals at retail therapy.

We’ve created a lifestyle that’s impossible to maintain. And we fund it all with debt. Take my word for it – this will NOT bring us joy. It only brings us bondage. Debt is a mental, emotional and financial drain that robs your future.

Debt Is A Product

Did you know debt is a product? Just like your favorite candy bar or the shampoo you use, debt is a product we buy. And just like the other products, it is heavily marketed to us.

Debt is sold to us in the form of credit cards, car loans and mortgages.

You Can’t Borrow Your Way Out

The only way to get out of debt is to quit borrowing. Taking out one loan to pay off another is just moving the debt around. 

If you are serious about wanting to get out of debt, you have to stop taking on new debt. You can’t get out of the hole by digging it deeper.

What Does The Bible Say About Debt

The Bible has a lot to say about money. That is one of the things I explore here at Started At 50. If you study God’s word, it doesn’t take long to see that debt is not part of His plan for us. He knows it’s not good for us. Here’s a couple of examples.

Proverbs 22:7 – The rich rule over the poor, and the borrower is slave to the lender.

Romans 13:8(a) – Let no debt remain outstanding, except the continuing debt to love one another.

What Is Debt?

What is considered debt? The definition of debt is simple…Debt is anything you owe to anyone. Having debt means you are funding today’s life with tomorrow’s dollars. When does it end?!!!

It can end here and now. You CAN get out from under the stress and the bondage of debt. It won’t be easy, but it is possible. You can do it with a few simple tools and a plan.

Let’s talk a bit about the different kinds of debt and the effect debt can have on your life and then we’ll dive into the nuts and bolts of Debt Payoff.

Kinds Of Debt

  • Credit Cards
  • Student Loans
  • Car Loans
  • Mortgage
  • Personal Loans
  • Medical Debt
  • Payday Loans
  • HELOC
  • 401k loans
  • Loans from Your Parents
  • “90 Days Same As Cash” Purchases
  • Financing Your Kids Braces

Did you see anything on this list you had not previously considered debt? Many of these types of debt are common in our culture. It’s normal to have a Car Loan or Student Loans. Other types of debt such as Payday Loans are truly insidious, but they are all damaging to our financial well-being.

How Can Debt Affect You Emotionally?

Frustration – It can be frustrating to have an unexpected expense that has to go on the credit card. Just when you thought you were making headway! Frustration can lead to giving up.

Denial – Do you shove unopened bills in the drawer? You just don’t want to know how bad it is! Denial could lead to unhealthy coping habits like drinking in an effort to forget.

Stress – Do you have more month than money? How can you juggle all these bills. Even with making minimum payments, you don’t have enough to go around! Stress could lead to weight gain or relationship problems.

Fear and Panic – Do you let all your calls go to voicemail because you’re afraid it’s a collector. Are you fearful your credit card will be denied while you are at a restaurant with your date? Fear and Panic could lead to feeling anxious all the time and not enjoying life.

Shame – Do you hide your spending or the amount of debt you have from friends, family or co-workers. You don’t want anyone to know how deep in debt you are. I mean, what would they think! Shame can lead to living an inauthentic life.

Anger – Are you having money fights with your spouse? Are you yelling at your kids or your co-workers because you can’t quit thinking about your money problems? Anger can lead to relationship issues.

Depression – You have just shut down. You can’t see a way out and your spouse doesn’t understand the pressure you’re under! You can’t deal with it anymore. Depression can lead to a whole list of mental, emotional or spiritual issues. Deardebt.com is a one of many resources for someone who is struggling with depression and mental health problems due to financial strain.

I experienced a lot of these emotions when Stephen and I were having our money issues. We had dug such a deep hole, I didn’t think we would EVER climb out. We couldn’t talk about money without getting into an argument. I was frightened and he had shut down. We were going nowhere.

The stress was unbearable and I became hopeless. This is no way to live.

You’ve Got This!

I want you to know that no matter where you are starting, YOU CAN DO IT! Your self-worth is not your net worth. Your past mistakes do not define your future. Forgive yourself and let go of the past! If you are starting your Debt reduction journey, let us know in my FB group, Started At 50. We are all there to support and encourage each other. We will not judge!

Getting back to Zero is a great feeling. You will be starting your Financial Freedom clock. This is where I was at 50 years old!

First Things First – Your Emergency Fund

Before you start to pay down your debt, you need to build a baby Emergency Fund. If you already have one, great! If not, you need an EF of $1000 in the bank. Why would I ask you to save $1000 when I’ve just spent pages telling you to pay off your debt? Because you need a safety net. Some cushion between you and life. As soon as you commit to paying off your debt, your car will break down or your refrigerator will go out. You don’t need to go deeper in debt while you are trying to pay it off.

This was one of the big problems I experienced in our dark days. We had no safety net and when life threw us a curveball, it sent us over the cliff financially.

Try to save your $1000 quickly. Have a garage sale, sell stuff on Marketplace, work some overtime or declare a “No Spend Month”. Find any way you can to get this first $1000. Then when you have a flat tire, it’s not a disaster!

How To Pay Off Your Debt

There are 3 commonly accepted methods for paying off debt. The Snowball Method, the Avalanche Method and the Hybrid Method. Let’s look at how they work and the pros and cons of each.

Snowball Method

This method is fairly simple. You list your debts starting with the smallest balance down to the largest balance. Ignore the interest rate, just rank them by balance amount. You make minimum payments on all but the smallest debt 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 debt is paid off, take all the money you were paying on it plus the minimum payment you were making on the second debt and put it on the second debt. You keep doing this for each debt on the list until all are paid. Each time adding the money from the payments on the previous debt. This is the snowball and it gets bigger as it rolls to each debt.

Snowball Pros and Cons

The advantage (or pro) of the Snowball Method is it gives you a quick psychological boost. Paying off all your debt is not going to be a piece of cake. You didn’t get into debt overnight and you won’t get out overnight. It takes time, discipline and it will probably take some sacrifice. The Snowball Method gives you a quick win and helps you feel like you are making headway. This can give you motivation to stick to it.

The disadvantage is the Snowball Method does not take math into consideration. You may pay your first debt off quickly, but that might be a loan with a small interest rate. Meanwhile, the loan with the large interest rate, say your credit card, is treading water and accumulating interest while it waits for you to get to it.

Avalanche Method

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

Avalanche Pros and Cons

The pro for the Avalanche is you are considering interest rates. You save money as you pay down the loan with the largest interest rate first. As the loan balance decreases, the amount of interest being charged decreases also.

The con for the Avalanche is emotional. The loan on the top of your list may have a large balance and take months or even years to pay off. This can be discouraging to see all your other debt treading water while you work on the one.

Hybrid Method

The Hybrid Method combines the pros of the Snowball and the Avalanche. Using this method you can pay off one or two small debts first for that quick win to get you motivated. Then as you feel you have the discipline to “Stick To It”, start working on the debt with the largest interest rate. This method is a hybrid of the other two.

One note about credit cards. Your credit card debt may have the largest interest rate of anything on your list. Check into transferring your CC balance to a zero-percent card. If your credit score is high enough, you can open a card with a zero percent interest rate for a period of time (6 or 12 months). This may save you some money as you pay down your debts. WARNING: Don’t do this if you have not changed your spending habits. It will only make your problem bigger!

Choose What Is Right For You

Is there a right or wrong way to pay your debts? Probably not. As with other financial tools like Budgeting or Expense Tracking apps, pick the one that works for you. If sticking to your payoff plan may be hard for you, choose the Snowball. Pick the Avalanche if you think you can stay with it and don’t need the “pat on the back”. Not sure, try the Hybrid.

You can accelerate your journey to being debt free. You can Earn More or Spend Less. Better yet, do both.

One note about interest rates – If you have anything with a greater than 10% interest rate, this is “Hair On Fire”. Address this loan as soon as possible. If you have anything worse, like a payday loan at anywhere from 200 to 2400%, this is “Nuclear Armageddon”! Do Not pass GO, Do Not Collect $200…borrow the money from your brother if you have to. Pay this thing off TODAY!

Conclusion

No matter which method you choose, the much BIGGER point here is to Get Out Of Debt! As I said earlier, these methods are simple. The execution of the plan will take grit. It won’t be easy to turn down that invitation to go out for dinner or forego a vacation. Life may feel very restricted…for a while. Remember, this is a season. It won’t last forever and it will be SO worth it.

Exercise Your Frugal Muscle

One unexpected benefit to the hard work of paying off your debt is you are building your frugal muscle. You will need to really think about every purchase while you pay off your debts. Then when the debts are gone, you will have created your frugal muscle. You will know how to pay attention to your spending. You will be in the perfect position to start saving! And saving money is what sets you up for a great future of financial freedom.

Key Takeaway – Debt is NOT your friend. It robs your future, and more stuff won’t make you happier. Pay off your Debt as quickly as possible. It won’t be easy, but it will be worth it! Then you can start to design the future you’ve always dreamed of.

Assignment 1 – Accumulate your $1000 baby Emergency Fund if you don’t already have one. Do it NOW!

Assignment 2 – Pull out all your debts. I mean ALL of them. Make a list of loan balances, minimum payments and interest rates. Decide which pay off method is right for you. List the debts in the order needed for the pay off method you have chosen. Smallest to largest balance for the Snowball. Largest to smallest interest rate for the Avalanche or your choosing for the Hybrid.

Assignment 3 – DO IT!!! You have a plan, so NOW is the time to get started. If you have trouble starting or you just need help from a real person, email me at becky@startedat50.com. Also, don’t forget the FB group Started At 50. We can crowd-source any question you have.

Coming Soon – Managing those Credit Cards

Tracking Your Spending and Why You Should

When Stephen and I first started trying to manage our finances, we used three basic tools. One was to create a Budget. We had never used one before. In fact, I had never seen one. It took a few months of tweaking to get one that worked for us, but we got there. Click here for my article on how to put a budget together. Included in the Budget article is a Budgeting Spreadsheet.

The second was to use Envelopes. That’s right – I actually had white envelopes with cash in them in my purse. I would use envelopes for some of the categories in our budget, like groceries. It was an easy way to see how much I’d spent and what was left.

The third tool was to Track Our Spending. That process was scary! I was afraid to see where our money was going, and it seemed so tedious! But tracking our spending turned out to be a great tool for us. In fact, I still track every penny I spend. Why? We have transitioned from the accumulation phase to the drawdown phase where we are living off our investments. Tracking our spending kept everything in focus while we were saving and now it helps us not overspend. I’m hoping to graduate from tracking every penny, but it gives me a level of comfort I like. Maybe after we have a year or two of history with our retirement spending I will feel comfortable to not track it all.

If numbers and spreadsheets make your head spin, you’re probably cringing at the thought of tracking your spending. But instead of focusing on the how, let’s talk about the why. If you’re willing to recognize the benefits of tracking your spending, you’re more likely to do it. Here are six benefits of tracking your spending to get you motivated to start.

6 Benefits of Tracking Your Spending

(1) Helps You Make a Better Budget

In order to create a meaningful budget, you need to understand where your money goes. You probably know how much your rent or mortgage is. It’s a budget category that shouldn’t fluctuate too much. But how about your grocery bill? How about car repairs?

Many areas of your budget will fluctuate weekly, monthly or seasonally. If you only look at your last grocery receipt, you might overlook the fact you purchased extra food because of house guests or that you bought less because you were on a business trip. Depending on where you live, your utility bills may fluctuate wildly from season to season.

It’s important to track your spending over time in order to build a better budget. And when you build a better budget, you’re more likely to stick to it.

(2) Combats Mindless Spending

From what I have observed and experienced, impulse spending is the enemy of wealth. You’ve probably heard the story where someone making six figures a year is broke. How does that even happen? It’s because they spent, spent, spent and never had a plan for where the money was really needed.

That’s why having a budget is so important, but it’s not enough. If you’re spending way off plan, you’ll find yourself in the hole every month. On the other hand, if you track your spending, you might uncover a few shocking numbers.

Did you think you were spending $100 a week on groceries only to realize the figure was more like $300? Did you assume you spent $500 a year on clothes, only to see that you spent that amount each month? Or maybe you mindlessly spend money at the vending machines at work. That might not seem like a problem until you tally up the expense and realize what else you could have done with the money.

As you compare your spending to your budget, you might realize some areas need to be trimmed. You might also decide the excess money you’re spending is better off going toward debt or savings.

Tracking your spending puts your expenses in black and white. There’s no denying your problem areas anymore. Knowing is half the battle.

(3) Helps Get Your Spouse On Board

Finances are one of the biggest causes of stress and tension in long-term relationships. That’s more likely to be the case when neither party has any idea what the other party is doing with their money.

The very act of tracking spending together as a couple makes it more likely that you’ll coordinate with your spouse ahead of purchases. You can check to make sure all your expenditures align with the priorities you have as a team.

I can’t stress enough how important it is to be on the same page with your spouse financially. When you’re not, it’s like being in the same boat, but rowing in opposite directions. You’re together, but you spend a lot of energy and go nowhere. Click here for my article on Being on the Same Page With Your Spouse.

(4) Catches Expenses You Forgot About

When you’re tracking your spending, go through your bank accounts and make sure you capture everything. Many people will find there are a few charges they forgot about (umm, iTunes anyone?) These charges are often subscriptions you signed up for a long time ago, and you might not have used the service in years.

People are especially prone to signing up for a “free” service that’s actually only free for a few months. Then it begins to charge you. You probably told yourself you would cancel the subscription before the charges kicked in but then forgot.

As you run through these charges, promptly cancel all subscriptions you no longer need or want. For the remainder of the charges, make sure they find a place in your budget.

(5) Confirms If Your Spending Aligns With Your Values

Are you in debt payoff mode? Are you saving for a house down payment or retirement? We all have some long-term financial goals. The ultimate goal of your budget is to make those long-term goals happen. However, your spending puts the pedal to the metal. Your budget means nothing unless you abide by it.

Let’s say you’re in debt payoff mode and you’ve budgeted $300 a month for it. However, each month you find you’re short of making that happen because you spent too much on entertainment or eating out. Tracking your spending allows you to start questioning yourself. Are these expenses really in line with your priorities?

One special note here: you are allowed to change your priorities. Debt payoff might be your priority today, but tomorrow it could be different. Make sure you know what your top priorities are by reviewing them monthly. Don’t allow your spending to control them. (This is what we did for years!)

(6) Simplifies Your Life

Let’s say you decide to track your spending. You pull together all your receipts and arm yourself with a glass of wine to tackle the mountain of receipts before you.

The first month, there are 75 receipts to examine, plus additional charges in your bank statement you had forgotten about (oops). You stopped at the grocery store several times, had three different Amazon orders and paid daycare each week. You got gas several times – not because you had to, but because you didn’t really plan your trips well.

As you move forward, you might find ways to simplify your life. Like planning better for grocery shopping so you don’t have to run back to the store. You might force yourself to wait a few days on Amazon purchases. Check with daycare to see if you can pay once a month, instead of weekly (and maybe get a discount).

A natural outcome of simplification is experiencing a small amount of savings. Fewer trips to the grocery store means less opportunity for impulse buying. Delaying Amazon purchases might be enough to make you decide against that purchase all together. Some places offer price breaks if you pay in advance (insurance is one notable area that gives breaks like this)(get in the habit of always asking about discounts for paying up front). Combining trips means savings on gas, plus less wear and tear of your vehicle.

The first few weeks of tracking your spending will be the hardest, but have no fear! It will get easier, and the benefits of tracking your spending will outweigh any negatives. The sooner you get started, the sooner you’ll experience these benefits.

Methods For Keeping Track of Expenses

Tracking spending can be done manually by writing down every purchase you make. Or you can use apps such as Mint or YNAB that link to your credit cards and bank accounts to make the process easier. Whatever approach you choose, it may seem like a hassle – but it’s well worth it in the end. The best approach is one that you feel comfortable enough to stick with every day.

(1) Record Expenses With Pen and Paper

If you prefer a tech-free solution for tracking your expenses, write down every penny that you spend and where you spent it in a notebook. Consider reserving a page for each spending category in your budget, or use one page and simply note the category next to each expenditure. This no-frills approach can tell you at a glance where your money is going. Although it may be more difficult to identify spending trends on paper, this method at least makes you more aware of your spending.

(2) Make It Easier With an App or Software

A more modern and convenient way to track your expenses is in a spreadsheet or an app. Online apps may even offer colorful graphs and charts to illustrate your spending habits, but both options allow you to quickly and easily enter your purchases in a spending category on the same day that you incur them.

I have created a very basic spreadsheet for expense tracking. You can get a copy for yourself by clicking the link below. (As with all my spreadsheets, be sure you save a copy for yourself before making any changes.) The first tab is the instructions, the second is a sample month and the fillable template for each month is in the following tabs.

To get your own copy of this Spreadsheet click here.

Work Together as a Couple

If you are married, you will both need to track your expenses. With an app, you can sync your spending with your spouse’s so that you don’t blow your budget. If you use a spreadsheet, make sure each of you logs their expenses for the day.

Keep Going Even When You Overspend

If you discover that you overspent in a few categories, don’t just stop and wait for next month. It’s important to continue to track your expenses throughout the month so that you can identify what you need to change and by how much.

Conclusion

This activity shouldn’t take more than a few minutes each day if you adopt an expense tracking approach that works for you. If you consistently track your expenses, you will be able to save more, spend less, and make necessary changes to your finances that will allow you to build wealth.

Key Takeaway – Tracking your spending will help you/spouse get a handle on where your money is going so you can be in control of your future and not let it “just happen to you.”

Assignment 1 – Select a method for tracking your expenses. Pencil/Paper, Spreadsheet or App. If you don’t like your choice after a month or 2, pick a different method.

Assignment 2 – Start at the beginning of the next month and start tracking you expenses. I know this may feel time consuming or useless, but DON’T GIVE UP!

Coming Soon – In my next post we will tackle DEBT. How does it affect you and your financial stability and strategies for paying it off.

Spreading the Message of Hope in Our FI Community

Becky’s story published on other platforms

Over the last few months I have been interviewed for other podcasts and websites. They have all gone “live” recently. I want to share these with you. Not to pat myself on the back, but because my story contains a message of hope. Hope that you or your loved ones can improve your finances, can improve today, and improve your future. Hope that It’s Not Too Late!

If you aren’t familiar with my story, you can read it here. In a nutshell, my husband Stephen and I made terrible financial decisions – for years! We found ourselves with no income, no emergency fund and paralyzed with fear. We turned things around at age 50 and retired at 63. In those 13 years we paid off our debt, funded 3 weddings, 4 college degrees and saved enough to retire comfortably.

During those bad years, we thought there was not hope. No chance we would ever retire or be free of the fear we lived with because of finances. But, there is hope.

Meet other friends in the FI community

My story has been published recently on two podcasts and one website. The podcasters and website writer come from different backgrounds with different perspectives. The reason they podcast and write are similar to mine: to reach people where they are and give them tools to improve their finances.

I would like for you to meet them and check out their sites. You might find new resources for your toolbelt.

One Life, Live It! Podcast and Go Bucket Yourself Website


Click here for my story on Episode 011.

One Life. Live It! Episode 11
Sound Bite #1
One Life. Live It!
Sound Bite #2

This is a podcast developed by Chris and Debbie Emick. Here is a little about Chris and Debbie and their website/podcast.

Chris and Debbie created Go Bucket Yourself after reaching financial independence by 40 through investing in rental real estate and while raising their two daughters. They were inspired to pay it forward by empowering others to create the life of freedom they desire.

At Go Bucket Yourself, Chris and Debbie believe it’s absolutely possible to build the life your soul is calling you to. All of their content is designed to guide you through overcoming fear, growing your mindset, eliminating obstacles and living an authentic, adventurous life.

On the podcast One Life. Live It!, you’ll hear stories designed to do just that, as well as show you that you’re not alone. There’s a community of folks out there navigating the messy middle of life together who are supporting and learning from each other along the way.

Micro Empires


Click here for my story on Micro Empires dated April 23, 2020.

The Micro Empires podcast is about real people achieving financial independence, one step at a time.  The host, Jennifer Grimson, has some experience with this. After losing everything (twice!), she rebuilt her financial well being using her W2 and some grit. In 4 years, she created $1.4m in income producing investments.  Jennifer pulls no punches, is refreshingly honest, and her guests are too! The guests are people with real experience and provide tactical steps that anyone can take to build toward their own financial independence.

Fiology


Click here for my story on Fiology.com dated May 29, 2020.

Meet David Baughier, the developer of Fiology.com. David believes pursuing Financial Independence results in a happier life.

His passion for educating and helping others led to the curation of the online resource Fiology, where knowledge and confidence in the concepts of Financial Independence build as you experience the 52 free lessons.  

Fiology uses content from the best and brightest of the FI community and creates lessons covering the critical concepts of FI. It is designed to help educate and motivate without scouring the internet reading, watching, and listening – wondering if you’ve educated yourself enough on any particular topic before moving onto the next. The intended audience ranges from those just beginning their FI journey to those who have achieved FI.

You can download a free fillable pdf version of The Fiology Workbook: Your Guide To Financial Independence here.

Final Thought

Check out One Life, Live It!, Micro Empires, and Fiology for other great content. See you next time!

God is not unjust; he will not forget your work and the love you have shown him as you have helped his people and continue to help them. We want each of you to show this same diligence to the very end, so that what you hope for may be fully realized. We do not want you to become lazy, but to imitate those who through faith and patience inherit what has been promised.

Hebrews 6:10-12

Benefits Of Using a Budget

In a previous post titled How To Do A Budget, I showed you the How of doing a budget. How to identify what categories need to be included, the basic math used and a spreadsheet to start creating your own budget. You can use this spreadsheet, a pencil and paper, or one of several apps for budgeting. Some of the more popular are YNAB, Mint, and Every Dollar.

This post talks about the Why of Budgeting. A budget is just a list of categories with math behind it, but the emotions and decisions that are wrapped up in putting together your first budget can be overwhelming. This post will help you work through your own Why as you wrestle with these concepts.

Budgeting can be a scary word. Many people approach budgets with fear, especially if they don’t have much experience with them. But budgeting does not mean you will have to start scrimping and living like a miser. It just means you understand your finances and have control over them.

It’s stressful not knowing what money is coming in, what’s going out and what our obligations are. No matter how big our checking account is, we can feel stressed.

Budgeting is creating a plan to help you get your finances where you want them to be. A budget is the ideal way to get an understanding of the way you spend, the way you save and then identify ways to improve. A budget also helps define your values. Look at where you spend your money. Does that align with your goals and values? If not, changes can be made.

9 Benefits of Budgeting

(1) Gives You a Framework for Money Conversations:

There was a time in my marriage when money conversations almost always fell off the cliff into the abyss of arguing, pain, and indecision. We couldn’t agree and the conversations led us nowhere. I talk about this in the post Being on the Same Page With Your Spouse.

If you’re married, don’t start the conversation by talking about money. Start by talking about your WHY. Talk about your wants, dreams, and goals. Why are you saving , why would you care about how much you’re spending? Will it relieve stress in you life and your relationship? Will it allow you to go on that vacations you’ve been dreaming of? What’s your WHY?

After you’ve had a few of these conversations, THEN you can talk about money. Working on your budget together can become the basis for many interesting and productive money conversations. Make the decisions together. Compromise together. No matter where you are starting…have patience with each other.

(2) Provides Control Over Your Money:

You have total control over where you spend your money. If you choose to spend money on A, then you may not have as much for B. If you want a latte three times a week, put it in the budget. If getting a babysitter once a month is important, put it in the budget. If there’s not room for those discretionary items, cut back somewhere else.

What if there’s not room for any of those things? If your finances are a dumpster fire, cut everything you can! Just remember, it won’t be like this forever. There was a time when I told my kids, “If you can’t eat it, we’re not buying it.” These times were not pleasant, but they were temporary. We dug ourselves out and you can, too!

(3) Let’s You Track Your Financial Goals – Saving, Long-Term Spending, and The Emergency Fund:

A budget will not only help you plan for this week and this month, but it will also help you with long-term goals. Do you want to take a big vacation in five years? Will you need a roof or major car repair next year? Do you need to beef up your Emergency Fund? A budget can help you find and accumulate cash for these kinds of issues.

(4) Budgeting Will Open Your Eyes. It Helps Shed Light on Bad Spending Habits:

Do you get to the end of the month and think, “Where did all my paycheck go?!” Does it feels like it disappeared? Once you really start looking at your spending, you will be able to identify where it’s going.

You may have large medical bills that you just have to gut through till they’re paid. Or you may find that you’ve got some bad spending habits that need to be reigned in, like going to the drive-thru too often or all those Amazon boxes! How about bank fees? If you are paying the bank for overdraft fees, this needs to stop now!

(5) Helps Create a Cushion for Unexpected Expenses – Emergency Fund:

Do you have an emergency fund? If not, you need to start working on that today. We all have emergencies! No one is exempt. For some people, a flat tire or car repair is a real emergency. An illness or a broken heater can be financially devastating.

The lack of an emergency fund is what caused most of mine and Stephen’s financial hardships earlier in life. “Stuff” happened and we had no safety net.

Could you cover a $500 emergency without going into debt? $1000? $5000? How about a job layoff? You need 3-6 months of living expenses in an emergency fund. This needs to be kept in an easily accessible place. But not too easy. A savings account or money market fund will do nicely for now. Remember, this is not a new couch fund!

(6) Helps Identify Money for Paying Down Debt:

If you are paying down debt like credit card or student loan debt, a budget will help you identify cash you can send toward that debt. Any extra cash you can use to pay down debt will get rid of it sooner and save you money in interest payments. If you’re having trouble making your minimum payments…see dumpster fire above!

(7) Helps Identify Money for Investing:

If your Emergency Fund is in place and you are paying on your debt, you may be able to identify some extra cash to start investing. If you can identify money to invest, I would start with your employer’s 401k and get the match. I will talk more about investing in a future blog post, but for now, do everything you can to get your employer’s match if you have one. Don’t turn down free money!

(8) Helps Ensure You Don’t Spend Money You Don’t Have:

You may be in a place where you are spending more money than you make. Stephen and I did that for a while when he had no income. It felt terrible! We were living on credit cards and digging a bigger hole with our debt every day. Again, this is a dumpster fire. You may not realize you are doing this. One reason would be because this is “normal” in our culture. A budget can help you identify the problem when more money is going out than coming in.

(9) Helps Keep Your Eyes on the Prize (Motivation):

After Stephen and I put out our dumpster fire and got on track with a budget, it helped to keep us motivated. If you’re paying down debt or just starting to invest, the numbers don’t seem to change very quickly. It takes some time to get traction. The budget helped us to “Keep Our Eyes on the Prize!”

Assignment 1 – Evaluate your budget WHY. Where do you find yourself with your money right now? Are you in a dumpster fire or are you ready to start investing?

Assignment 2 – If you haven’t done a budget yet, start working on you first draft. There is a spreadsheet template in Personal Finance Basics Part 3: Let’s Do A Budget.

Key Takeaway – A budget is the ideal way to get an understanding of the way you spend, the way you save, and then identify ways to improve. A budget also helps define your values. Look at where you spend your money. Does that align with your goals and values?