Be Fiscally Flexible Like A Yogi

Probably my number one financial rule in life is that I do NOT like to spend my money on managing money. This means I don’t want to pay for my bank services, I don’t want to pay for my credit card services, and I don’t ever, ever, ever want to pay interest on my credit card.

As you know, I am a fanatic about paying off my credit card because compound interest works both ways, baby. I have never carried a balance.

But this year, I have a fellowship that comes with a significant amount of professional development/travel funding. I get to go on awesome trips (New Orleans, St. Pete, Canary Islands!) but I have to front the money and then I have to wait 6-10 weeks to be reimbursed.

I just can’t afford to front the money, pay off my credit cards and still make rent. So, for this year only, I broke my cardinal rule (sort of).

I signed up for a credit card that allows me to pay no interest on a balance for 14 months. I carry a balance on this credit card, and as soon as I am reimbursed for my travels I pay it right off. I don’t include this credit card in my Mint reporting, because it’s money that is outside of my budget and it is money that I would not be spending if not for this fellowship.

I normally would NEVER advocate for this sort of financial planning, but in this situation I needed more cash flow flexibility. I could really get myself in trouble if I forgot that the money that I am getting reimbursed for has already been spent..so I am very strict with myself, and it has saved me a lot of worry and money-transferring.

Moral of the story: it is ok to break your own rules, as long as they make sense. Be flexible. Try financial yoga!

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[James Earl Jones voice] Do You Need Help Paying off Credit Card Debt?

“You want 21% risk free? Pay off your credit cards.”- Andrew Tobias

Did you know, I hate paying for other people to use and manage my money? I hate bank fees, I hate late fees, I hate paying compound interest on my debt.

The all time worst deal on taking out a loan (that is what a credit card is, kids) is the interest rate you pay on credit cards. One of my cards is 17% interest! That means if I have $1000 worth of debt and I only pay off the minimum ($25 a month, on that card) it will take me FIVE YEARS to pay that debt off and it will cost me $1486! I end up paying almost 50% more for everything I bought with my credit card- not savvy at all. You’re paying for designer and you’re wearing TJ Maxx (that you bought five years ago). Don’t do that!

Not only is not paying off your credit cards immediately bad for your closet and your wallet, but you should think about where you want your money to go, as a consumer. You have to buy clothes and food, and you have the option to spend your money on other things. You can buy yourself more shoes, donate to charity, buy organic food, buy video games, save for Lasik, give your money to your sister, pay your college loans off, buy some new wallpaper. That’s awesome- you get to choose where your money goes, and you can invest in yourself, others, or in something you believe in.

If you are spending your money on credit card debt, you are spending your money on supporting credit card companies. Companies that exploit the part of human nature that loves immediate gratification. Yuck. That is not where I would choose to put my money. I’d rather have a new pair of shoes.

Stop a minute. How are you feeling? If you have any credit card debt, you probably feel guilty and annoyed that I am telling you how horrible something that you already hate is. Completely valid feelings. The real way that the economy works is that it takes advantage of  a few flaws in human nature, and it rewards people who can thwart those instincts with their massive brainpower (I’m talking to you, my brilliant reader!)

The reason why credit card debt is so common is because of something called future discounting (sounds fancy, and it sure is! You’re going to learn something new today). Future discounting is human nature. It means that you place less value on $110 that you will get in the future than $100 in your pocket today. You can spend that $100 today, but what is that $110 in the future gonna get you?  You will probably have way more money in the future, and maybe that $110 will not buy as much because of inflation, so you would rather have $100 right now. This is how credit cards work. Foiled by our own future discounting!

How do you overcome this teeny flaw in human nature to become the master of your own destiny?  Here is the strategy:

1. Stop charging more than you can afford. Look at your budget. Is what you are charging in the budget? Will you have enough in your checking account to cover this purchase? No? Then don’t buy it. Check out my tips to slenderize your spending.
2. Pay off more than the minimum amount due and set up automatic bill pay so you don’t tempt yourself to just pay the minimum when you pay your bills. If I made $50 payments instead of $25 payments on my TJ Maxx debt, I would pay off my debt in two years and it would only cost me $1184 total- you can save $302 just by paying a little more off each month! Stopping compound debt in its tracks feels just as good as earning compound interest.
3. Think about interest rates. If you are investing $50 a month and earning 6% and you are paying off debt that is costing you 17%, you should be putting that $50 investment money towards your debt. You will save more money on paying off debt interest than you would make investing. If you have any wiggle room in  your budget and if you are putting money into long term savings, I recommend that you shift that money over to debt reduction (provided the interest rate on your debt is higher than the interest rate on your savings).

If you have more than one credit card, pay off the card with the highest interest rate first. Some schools of thought say that you should pay off the smallest amount first so you have a victory under your belt and you stay motivated- that is fine too, but it will cost you more (but spending money to stay motivated is a legitimate expense so if it works for you, go for it!)
4. If you haven’t maxed out your credit cards and you still have access to some funds in a pinch, it is better to wait before building an emergency fund. If an emergency does happen before you have an emergency fund, you will probably put the expense on your credit card where you will be charged interest- but only if an emergency happens. If you build an emergency fund while paying off your debt, you will definitely pay that interest on your debt. Go with the option where you MIGHT pay interest rather than the option where you WILL pay interest.
5. Call your credit card companies. See if they can lower your interest rates, and while you’re at it, see if they can stop charging you any stinkin’ fees you might be paying. They work for you, and if they won’t help you can always tell them you are thinking about closing their credit card- they hate losing customers.
6. If you are still drowning, think about consolidating your credit card debt. To do this, you can transfer your debt over to a card with zero interest for a certain amount of time. There are a few pitfalls, because opening more credit cards is not necessarily good for your credit. If you choose to do this look for the lowest interest rate. That being said, don’t charge more just because you have an amazing (or no!) interest rate for a certain period of time. It will bite you in the butt and then you will have to start over at step 1.
7. Make a plan and stick to it! If you have promised yourself to pay off your newly consolidated debts, that should be your main financial goal. If you are having a hard time laying off the plastic, switch to a cash-only budget. I just read a study that found that spending is reduced by 20% on average when you use cash instead of credit cards.

You might be finding this completely intimidating. You might feel like it is hopeless and you will be mired in debt forever. YOU WILL BE FINE. Just like saving up for Lasik, eliminating your debt is a slow process. Cut back on your spending, automate your bill payments, and relax about it for now. You have a plan, you are following the plan- and you are right on track. So pay attention to your debt, but stop worrying about it. Check back in in 3-4 months. See how your progress is. Readjust if you need to. When you make a plan for yourself and you follow that plan, you are making the best financial decision that you can make. Instead of worrying about unknown debt you can now say with confidence that you are in control of your finances and there is no need to worry about the unknown. Do you feel better? Me too.

Budgeting when you use ca$h

I am not a big ca$h user. I like to use Mint to track my spending, so I put almost everything on my credit card and then I pay it off in full every month. I watch Mint like a hawk, so I’m never surprised when my bill comes in because I have been watching my spending and not blindly swiping my credit card.
You might not be like me. You might LOVE carrying ca$h around and you might hate using your credit card. You might have tons of ca$h lying around from that time you robbed a bank, so obviously you should spend that instead of using your credit card. That’s totally smart! But you still need to follow a budget, even if you are a cash user.

Here is one method I have heard suggested for budgeting using cash.

You start each month by taking the amount of money in your budget out in cash. Is your budget $800? Take out exactly $800. Then, divide it up based on your budget categories. I have heard this called “the envelope method” because one way to keep it organized is to carry around a pile of envelopes full of cash with each budget category written on them. You can also buy one of those coupon sorters. Or, you can use paperclips and post-its. Whatever. You pick how to keep it sorted! The point is- if you have spent all of the money in your envelope for groceries, that’s it. You can either borrow from another envelope, or you can put some groceries back on the shelf. You’re breaking the rules if you  use your credit card or take out any more cash (and you’re kind of breaking the rules if you move money from one envelope category to another, but whatever. You are your own boss, here).

I have also heard that this is very effective if you find that you go overboard Christmas shopping. Decide before you shop how much money you are going to spend on Christmas, total, and then how much you are going to spend on each person, and then use the envelope method. This is especially useful at Christmas time because gifts for other people (that you have to pay for all at the same time) are a budget abnormality, and even a budgeting rock star can lose track. This way you have planned ahead, and you won’t have any fiscal regrets in the New Year!

This is also very effective because when you pay with ca$h, you are more aware of how much actual money is leaving your account. When you break a $50, that $50 is never coming back to you. If you have a problem with overspending in general, it is often advised that you switch from swiping credit cards to a ca$h only scheme.

Convinced that budgeting is for everyone, yet?

Bills Schmills

I am sorry to tell you the terrible truth of adulthood: Remember all of those times that your parents griped about how you were an unappreciative teenager because they worked hard to put a roof over your head and you thought, “Well, duh, that is your job, you are a parent.”

Your parents were right. It is hard just to keep a roof over your head.

As an adult you get to do all sorts of fun things like drink beer and stay up late whenever you want and watch tv show marathons on Netflix for 8 hours straight and eat ice cream for breakfast. But you also have to pay bills. Which not only is a major bummer of adulthood but also makes mail as an adult way less fun.

Here are some bad things about bills:

-You have already used the water, cable, gas, phone…so it’s lame that you have to pay for it after. It’s not like you’re getting something new and exciting that you are paying for. Bummer.

-You need a stinkin’ stamp to send your check in. And you need enough checks (Not a problem, if you have Charles Schwab!) And you have to remember to bring it to the mailbox. Ugh.

-They don’t all come at the same time each month and some come online and it’s kind of hard to keep all those things organized, don’t they know you have a life?!?

-If you are late or you move a lot (me) and sometimes your mail doesn’t show up in a timely manner, you have to pay late fees and it impacts your credit. So lame.

Here are some good things about bills:

…but even though we hate bills (unanimously, survey says), you still have to pay them. So the goal is to make paying them as painless as possible. Actually, the goal is to forget about them altogether so that you can focus your adult energy on eating ice cream for breakfast. But how can you forget about them altogether without wrecking your credit and/or having your power cut off (which would be horrible because then you couldn’t read my blog)?

AUTOMATIC BILL PAY. It is a miracle. Look online at your bank’s website. It takes 20 minutes to set up, you will never, ever be late on a bill again, and you don’t have to think about your bills. At all.

Here are some tips for making the most of this modern day miracle:

-Set up your bills to be due right when your paycheck comes in. That way, you won’t ever have to worry about overdrafting your checking account, and also you know that whatever ca$h money is left in there is yours for the using (within your budget, of course).

-If, for some reason, you don’t want to pay a whole bill at once (maybe your credit card balance is too high?) you can always set up your bank to automatically make the minimum payment and you will NEVER pay late fees ever! Yeah!

-If you have some bills that are due to, say, a roommate or your mom (thanks for the family plan phone discount, Mom!), you can set up your bank to automatically mail a check to an individual at a designated time, too. Saves stamps, saves checks, saves time, saves nagging, saves feeling guilty about forgetting and then worrying about tallying up past due amounts. Pretty awesome. AND it improves adulthood mail for the recipient, because getting a check in the mail is always nicer than getting a bill in the mail.

Now that you have cleared out that monthly awful nagging guilty feeling in your brain, go make yourself a margarita and toast yourself for being a super capable adult.

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