Author: inspirationalmoneycoaching

Cars

Which Is More Expensive: Car Repairs Or Buying A New Car?

inspirationalmoneycoaching

The most popular post on the blog by far is: Buying A New Car Is A Crazy Bad Idea. The comments continue to pour in almost every day with some wholeheartedly agreeing and others… not so much.

The ‘not so much’ crowd tends to point to things like reliability and the cost of repairs on older vehicles as the big reason to buy a new car vs keeping an older one.

So I did some research. A whole bunch of research. And I have the answer.

First of all, full transparency, I personally bought a new 2012 Ford Escape 7 years ago. We needed a vehicle that could hold our big golden retriever and my wife was secretly plotting to start a family so she wanted a vehicle with some room for car seats.

I love our Escape. It’s been a great vehicle. I don’t want to jinx anything here but it’s never had a major issue. I have changed the oil regularly and done a few other minor maintenance items myself. That’s it. I haven’t even had to do the brakes yet.

If I had to ballpark it I would guess we have spent $200 or less per year in maintenance on it since we have owned it. I realize some bigger expenses are just out on the horizon but still, 7 years and under $1500 spent on maintenance. That is awesome!

But I still view buying that car new as a financial mistake.

Seems crazy right? Its reliable, has fit our needs as a family, still going strong after 7 years…

But like the article I referenced before mentions I could have bought the same vehicle 5 years later for half the cost.

With that in mind it got me thinking, at what point is it less expensive to just buy a new car vs maintaining an old one?

To be clear I’m not talking about buying a reliable used car vs keeping an old one, though this will paint a picture for that as well. This is specifically to look at the typical person who buys a newish vehicle every 5-7 years and to see if they are making a good decision to avoid the costly repairs that their 5-7 year old vehicle is about to need.

To find out, first I looked at the average cost of repairs by mileage.

I was shocked at how high they were. But here it is per yourmechanic.com:

Mileage       Cost
0-25k             $1,400
25-50k          $2,200
50-75k          $3,000
75-100k       $3,900
100-125k    $4,100
125-150k    $4,400
150-175k    $4,800
175-200k    $5,000

A couple of quick things to note: The average person drives about 13,000 miles per year. To make it easy let’s use 12,500 as the average. This means each of the categories above would represent 2 years of driving.

For example in the 2 years from 75-100k miles the average car owner spends $3,900 or $1950 per year.

Another item that jumps out is that the cost goes drastically higher as you close in on 100k miles, but then it starts to slow down and stabilize.

The last thing I want to mention here is that car repairs are ridiculously expensive if done by a mechanic. If at all possible, do the basics on your own and you will save thousands of dollars. (That is a post for another day)

Alright, just below this I put a nice chart together to show the cost of 3 typical car buying habits.

The first I call the “Always New” buyer. They buy a new car with a loan every 6 years.

To add up the cost I used the average new car payment per year in 2018 as listed by NerdWallet.

I did not account for inflation over the 16 years we are looking at meaning the buyer gets the exact same price and deal the next time they buy a car. Also I am using average payments as the cost so I am not including the trade in value of the car at the next purchase because that would be factored into the average new car payment already.

I realize it’s not perfectly realistic, but it’s also not too far off.

Second I have a buyer that I call “Mr. Drive It Into The Ground.” They buy a new car with a loan but then proceed to drive it until the wheels fall off which in this case is 16 years and 200k miles later.

I know people who like this strategy and have followed through on it successfully.

Last I have the “Responsible Used Car Buyer.” They buy a 5 year old vehicle with 62.5k miles on it for $10,000 cash. I know this is realistic because I did it less than 2 years ago to get a commuter car. And the car I got had fewer miles.

This buyer also drives their car until the wheels fall off which is 200k miles. But because they bought the car used it won’t last the full 16 years. They will have to buy another $10,000 used car after at the end of year 11. Remember we aren’t accounting for inflation in the second purchase price.

Here is the result:
New Car Chart
The “Always New” buyer spends a little more than $118,000 over the 16 years on payments and maintenance. They do spend the least on maintenance at just $16,800.

The “Drive It Into The Ground” buyer spends $65,000 over the same time frame with $28,800 on repairs/maintenance. Not bad.

The “Responsible Used Car Buyer” spends the least at $53,000 over 16 years. Its still the least even considering that they bought a second used car in that time frame and spent the most on maintenance at $33,000.

I was surprised to see the drive it into the ground strategy do almost as well as the used car buyer strategy. It was still $12,000 more expensive, but by getting something new they at least had the peace of mind knowing exactly how well the car was maintained over its lifespan. (I don’t feel as bad about buying that new car that I plan to drive until the wheels fall off)

Also important, if instead they had bought the new car with cash it would have saved some additional money on interest making the results even closer.

What did not surprise me was that getting a new vehicle every 6 or so years is REALLY EXPENSIVE. A good chunk of that money is going to interest on the loan and the benefit of a new car every 6 years. Those things alone far outweigh the cost of maintenance in the other two scenarios.

I realize that there are other factors that could be included in this exercise. Things like insurance, taxes, licensing fees, and the fact the some types of cars are more affordable/reliable than others. But I wanted to keep it simple and use averages.

And including the other factors is not going to make enough difference to sway the results.

Plus if you wanted to get really technical the drive it into the ground and used car buyers could invest the difference that they saved to create even more of a win long term.

(Another reason to use that Acorns account!)

Here is the bottom line though: Everyone’s situation is different.

If you are out there crushing your financial goals, out of debt, and paying cash for a new car just because it’s fun to own one. Awesome!

In that position you already know the cost of vehicle ownership and you can afford to pay for the privilege of that new car smell.

But the reality is that close to 8 out of 10 Americans are living paycheck to paycheck and they don’t have money in savings. For that large group spending TENS OF THOUSANDS of extra dollars on a new car every 6 or so years is derailing their ability to reach their financial goals.

Instead, getting a reliable used vehicle at an affordable price, preferably with cash if at all possible, will free up those tens of thousands of dollars to help pay off debt and to save for emergencies.

Winning with money is about making choices that help you to win. If you weren’t sure what choice was best before, this example lays out exactly how you can possibly gain an extra $50,000-$60,000 over the next 16 years.

To put that into context, for most people that is a whole year of working.

How far could that money go in helping you to reach your financial goals?

It could pay off your student loans faster. It could pay for the travel that you have been dreaming about. It could put your kids through college. It could help you pay off your mortgage or save up for the lake house you want when you retire.

Think of the possibilities. Every day we make choices that impact our financial future. Make the choices that help you to win with money and to chase down the things that matter most in your life.

Don’t miss out on another new post! Enter your email below.

← Back

Thank you for your response. ✨

You will receive a welcome email in the next couple days. Make sure to open it so that future posts won’t go to your junk mail.

Inspirational Money Coaching may have financial relationships with the merchants and companies mentioned or seen on this site. We are not responsible for any actions taken by users. For more information see our Privacy Policy & Disclaimer.

Personal Finance

Is Your Money Helping You Accomplish Your Dreams?

inspirationalmoneycoaching

Where is your money going? Is it propelling you toward the things that matter most to you? This is a very important question to self-diagnose.

Based on statistics my guess for a lot of us the answer is no. Or at least not fully. Why not?

Huge portions of the typical American’s income are going to: Car payments, student loans, rent/mortgage, and credit card interest.

We have to start by asking ourselves a few important questions:

What is most important to you?

Time with family or friends? Meaningful work? Supporting loved ones or charities? Life experiences? Travel? Volunteerism? Your church? A social cause?

Everyone probably has a few of those at the top of the list.

Now here is the next question:

Which of those things are you not accomplishing because of finances?

Be real with yourself here. Are you spending QUALITY time with the people you love to the level that you would like to? If not is it because your job is too demanding? Or you have to work overtime to make ends meet?

When is the last time you took a real vacation? Not a rushed stressed out, put it on the credit card vacation, but a real get lost in the moment vacation?

How about when a friend is struggling? Are you able to help them out financially when you want to?

I know that in a lot of cases the answer to these questions is no. And it isn’t because the desire isn’t there. It’s because financially you can’t make it happen.

You might even feel like you can’t change careers because the pay won’t meet the lifestyle your family has grown accustomed too. You can’t afford a car without a loan because reliable safe cars are so expensive. You can’t find time to support a cause you care about because you are so exhausted from work.

But those things aren’t actually true. It’s a choice. You can make it happen.

When I am helping someone build a plan with their money the first step is building a budget. When we start the process they say “I’m not sure where we are going to cut back, there just isn’t any room in the budget at all.”

Once we get it all out on paper…

Almost every single person I have ever worked with is AMAZED at a few things:

  • How much they spend on eating out.
  • How much they are spending on all the “payments” that they have.
  • The crazy cost of cable bills, cell phones, clothing shopping sprees, etc.

Every time we write it all out we find that there is a lot, and I truly mean a lot, of money going to things that aren’t helping to chase down what truly matters. This will give you an idea of the typical person’s spending per year:

$3150 on food out

$9050 on transportation

$1803 on clothing

$2913 on entertainment

And here is the thing: None of those things are bad!

If your goal is to maximize time with family and something fun that you do with your son is going to concerts: Your entertainment costs might be a little high. And that is okay! The money is going where you want it to.

If you love road trips, not only to enjoy them with loved ones, but to travel and gain fun life experiences together: Your transportation budget might be a little high. And that is okay! The money is going where you want it to.

The list above is not to provoke guilt for doing something you love with your money.

But what I have found in working with people is that the list above does not usually represent their dreams.

The $3000+ spent on eating out comes from a lot of fast food after work because they were too exhausted to make dinner. The almost $3000 on entertainment comes from some really high cable bills. And the $9000 on transportation came from interest and depreciation on overpriced cars that they don’t even like anymore.

Those aren’t blessings. They are an anchor weighing down your dreams.

No one started reading this thinking, “the thing that matters most to me is fast food, paying interest to a bank, and watching hundreds of hours of cable television.

But that is where our money is going!

We are spending it on things we don’t even like. The problem is we have mixed up how to prioritize our resources and funnel them to what matters most.

What if instead that money was going toward: Awesome vacations with your family, a friend who could use your help, or a hobby that grows you personally?

What if instead you could take a pay cut and go do work that you truly care about. Don’t ignore this one, this is possible.

If you had to take a $10,000 pay cut but it meant doing meaningful work that fulfilled you and left room for you to be your best self for your family would it be worth it? Most of us would say yes.

But we don’t make a change. Why? Because we feel stuck. Stuck with payments and expenses that we are choosing to create.

The dream is right there but we are stuck because of our own choices on how we allocate our money.

It’s time for a change. It might not be changing jobs. It might be simply spending less on cable and getting outside more with your kids.

But the important part is to start allocating money toward what matters most.

Take time to write down what matters most to you. Then review where your money was spent last month. Do they line up? Did your dollars go toward your dreams or something else?

What can you do right now to start getting those things to align? Do you need to get your payments under control and start eliminating debt? Is the freedom to chase your dreams getting tied down into a new car payment every few years?

Start choosing to shift your behavior so that your dollars are chasing your dreams.

Every month before the paychecks come in make a plan. Be purposeful with every dollar. Maximize each one to help pursue your dreams.

It might take some time to get there but it’s worth it.

If it takes 3 years to get out of debt but when you get there it frees you up to find meaningful work, or to spend more on vacations and awesome life experiences with your family isn’t it worth it?

Absolutely!

If you need help reach out. Or read through the blog. There are all sort of posts about paying off debt, getting rid of car payments, saving, investing, building a budget and more.

We have limited time and limited dollars in life. Allocate each to what matters most. Use your resources to chase down your dreams.

[mc4wp_form id=”304″]

Inspirational Money Coaching may have financial relationships with the merchants and companies mentioned or seen on this site. We are not responsible for any actions taken by users. For more information see our Privacy Policy & Disclaimer.

Insurance

Confessions Of An Ex Stock Broker (Part 2)

inspirationalmoneycoaching

Alright so this isn’t so much about stocks as it is about insurance. Life insurance specifically.

Before you tune out; I know life insurance isn’t exciting and dying isn’t something any of us really like to think about. But life insurance is a critical part of any strong financial plan.

As a broker I was licensed to sell all types of securities (stock, bonds, mutual funds & more). In addition to that I was licensed to sell insurance products as well.

But I never sold a single life insurance policy. I never even tried.

Not because I don’t believe in life insurance as a valuable part of your financial strategy, but because the vast majority of the life insurance products that any salesman will try to sell to you are overpriced and generally terrible investments.

There is one type of life insurance worth the cost and the rest are not even close. But here is the problem: For a broker, selling the best product/the most cost effective product means making very little commission.

The best product out there is TERM life insurance. Basically how it works is you choose a “term” or time frame that the policy will cover you. So let’s say 20 years. Then you pick a coverage amount like $250,000. After that you buy the policy and make payments to keep the coverage. If you were to die in that 20 year term your beneficiaries would be paid the $250,000.

If you don’t die (which is good) the policy ends and nothing is paid out. This type of coverage is pretty inexpensive.

Both Lauren and I have 20 year term polices around $500,000 and we pay roughly $15 a month each.

So it’s very affordable in most cases.

If I sold this type of policy as a broker I would have made almost nothing in commissions. This is why most brokers don’t even offer it. Instead they go straight to offering you something like: Whole Life, Permanent Life, Universal Life, or Variable Life.

In almost every scenario those policies do not make sense for a customer.

A broker with your best interest in mind could get a significantly better outcome for you financially by not selling you one of those policies.

But you know what they do…? They try to sell them like crazy. Why? Because the commissions are fantastic.

The products are ridiculously expensive and the broker gets a big kickback for selling them.

If you are thinking right now, “shoot, I already bought one of those.” No worries hang in there and I will give you some ideas for what you could do going forward.

And I know there are a few of you out there who are skeptical because you either have sold the insurance policies I mentioned or you bought one from someone you trust. I’m not here to tell you that you or the person who sold you life insurance is a bad person, but… the product is not great and here is why:

Take my example above. Lauren and I are paying roughly $15 a month for $500,000 coverage over 20 years. This means that over the course of 20 years each of us will have paid $3600.

Hopefully neither of us will die and the money will have gone for nothing except peace of mind.

Now instead let’s say we bought Whole Life insurance which is one of the most popular to be pushed by sales people.

Before the math comes in, whole life insurance is more expensive because it not only provides your heirs with a lump sum payout if you die, but if you don’t die they have “invested” your premiums so that at a certain point you can withdraw a cash savings.

Sounds like a pretty good deal so far, right? You are investing which is great and you have life insurance which is good.

I did a quote on myself to see how it compared. First of all I can’t even imagine paying for $500,000 in coverage like I have with the term policy because the monthly payment is close to $400. Yikes. So instead let’s give this a fighting chance and go with a $250,000 whole life policy for a male in his 30s in good health:

The cost is $212 per month. So $197 more per month than my term policy. The website I got my quote from said that buying a whole life policy is like buying an asset. Their example was: it’s like buying a house when you purchase whole life coverage vs. renting when you buy term coverage.

In the quote it says that when I get to 65 years old the cash value that has accumulated from the money that they invested for me will be worth $225,000.

So I will have $250,000 in coverage for my heirs in case I die but if I don’t die (fingers crossed) I didn’t “waste” my money because I have almost a quarter of a million dollars in cash value that I can access. Seems totally reasonable.

Until you do this:

Take my term policy for $15 per month and buy it instead of the whole life policy. Now take the $197 that I am not paying for whole life, because now I have an extra $197 per month that I was about to spend on a whole life policy.

With this money instead of letting the insurance company invest it within the life insurance product let’s say I invest it on my own in the stock market.

In my case I’m investing the $197 on my own into the stock market every month for 35 years. I am assuming that the market continues its average return of 10% roughly per year. (This is the average S&P 500 return for almost every 30+ year period over the last 100 years, so I’m not cheating)

The insurance company says they will give me $225,000 after 35 years.

But when I invest that money on my own by the age of 65 I have over $700,000!!!

Hold on a second. If I give my hard earned money to my broker for whole life insurance he will turn it into $225,000 over the 35 years that he has it. But instead I could take the same money and turn it into $700,000!?

And I didn’t invest it into anything crazy, just the 500 largest companies in the US stock market.

Where did all of that money go that my broker was investing for me? How did it do so poorly?

It went to fees and commissions. Purchasing whole life insurance in my example would cost me over FOUR HUNDRED THOUSAND DOLLARS because of fees and commissions. This is why your broker loves selling whole life, permanent life, universal life, and variable life policies.

There is more. In most cases if you were to die your family would get the $250,000 policy pay out, but what about the cash value you saved up: THE INSURANCE COMPANY KEEPS IT!

No joke, you could save up for years paying into this policy and then when your loved ones need it most, the insurance company keeps the “cash value” of the investment that you paid into. Your family gets the policy payout only. The cash value is why you bought whole life to begin with when they gave you the pitch about buying vs. renting!

It’s so wrong.

Let’s break this down again. I can buy term life for $15 a month and invest $197 into the stock market on my own and end up with $700,000 at age 65. If I die before that my heirs get $500,000 plus they will have the investments I made with the $197 on the side.

-OR-

I can buy whole life and get $225,000 when I turn 65 or if I die before that my family gets $250,000 and my investments disappear into a brokerage’s bottom line.

This is a no brainer. There is not a single rational, moral, financial expert out there who believes that purchasing whole life insurance over term life insurance is a good idea. I have spent countless hours researching this topic over the last decade and have yet to find one.

And that is because it is so obvious. It’s such a bad deal when you sit down and do a comparison.

The only people who pretend it’s a good investment are the people who have to sell it for a living.

I feel bad for them. I really do, because I remember the pressure that I was under to sell those policies. But I refused to pitch it even one time. And that is why the life insurance sales industry has such high turnover, people aren’t willing to sell a product that they don’t believe in.

Not only do the salespeople quit but the people who bought the products quit too. Several studies I have read show that up to 50% of these types of insurance policies are cancelled within the first 10 years after they are purchased. Most of those are cancelled in the first three years. Yikes!

Before I get too far ahead of myself I do want to mention that whole life is not exactly the same as variable or universal life policies. But they have poor investment returns, high fees, and are generally bad products just like whole life.

If your excuse for buying whole life is that you don’t have the discipline to save on your own, let me help you. You have heard me talk about them several times before. I set up my Acorns account in 10 minutes. It will automatically invest whatever amount you want each month and they have pre-set portfolios that they will recommend for you. It’s $1 per month, $12 per year, that’s way cheaper than any broker selling whole life insurance.

So you have no excuse, go check them out:

Now, what should you do if you already have a whole life policy?

I can’t speak to each scenario because I don’t know your exact financial situation. But if I had a whole life policy, as long as I bought the policy within the last 5 years or so, I would get out of it. I would buy term insurance first then cancel my whole life policy. (It is critical to get the term insurance before cancelling the old policy, don’t get stuck with no coverage.)

Also be careful to read the fine print before you do, some of those contracts are crazy. Because so many people try to cancel the insurance companies know they need some crazy contractual stipulations to keep you paying premiums as long as possible.

If you have been in a whole life policy for a very long time and you have built up some significant “cash value” then you might just want to let it play out. At that point the bulk of the fees are paid and you are likely to take a penalty or tax hit to get out of it.

At that point the decision is in the past and you shouldn’t feel bad about it. You could have done better, but it’s also not some crippling financial decision. In fact you at least have some money to show for it.

Some other day I will write a detailed post all about who should have life insurance and how much they should have. But for now in case you are curious the short answer is:

If you have people depending on your income to live, you should have life insurance. How much? Generally 10x your income or so. That isn’t exact for everyone and every situation but somewhere in that ballpark will be close.

A company that only offers term coverage and aims to keep the process simple is Haven Life. It takes about 20-30 minutes to sign up and get a quote. Check it out if you need coverage:

No matter who you get your policy through, get TERM coverage and then invest every month for your future. You will be so much better off paying your future self vs. paying some broker a bunch of commissions.

Join us on the journey, enter your email below and like the Facebook page so that you won’t miss another post.

← Back

Thank you for your response. ✨

Inspirational Money Coaching may have financial relationships with the merchants and companies mentioned or seen on this site. We are not responsible for any actions taken by users. For more information see our Privacy Policy & Disclaimer.

Personal Finance

What Is Your Financial Mindset? How To Make A Positive Change:

inspirationalmoneycoaching

Our overall satisfaction in life comes down to mindset. Have you ever noticed that some days you seem to just be happy and almost no matter what the day throws at you it’s a good day?

And on other days it’s the opposite and no matter what everything is going wrong?

Obviously sometimes things go wrong or right and it impacts our mood, but in general it seems like we almost choose how our day is going to go before it starts.

Sometimes the good mood starts when we hear a great song on the radio, or we wake up anticipating something fun for the day.

But why is it that some people seem to have way more “happy” days than other people? What if we could all make most of our days “happy days” like that?

What does this have to do with money?

EVERYTHING

Mindset is critical to our everyday life and to our money. If you want to win with money you have to get your mindset right and I am going to share how.

First a story about me. I write about myself because it is what I know best and what I feel most people can relate to, because it’s real.

In addition to helping people crush their money goals on this site I work a typical 9-5 job. Well it’s more like 8-4:30, but you know. It’s the whole corporate deal and being honest the company has been great to me. I have had good opportunities, I work with some great people who are friends, and it has allowed a good lifestyle for my family.

In fact from the outside looking in I would assume people see success in general when they see my career. But for me there were many times that it didn’t feel like success.

It felt like stress and anxiety, at level that was difficult to deal with. It felt like I was stuck and couldn’t get out. It affected my day-to-day life and attitude.

I’m guessing some of you understand where I am coming from. At least I hope so… or this post is going to be awkward because some of my coworkers are probably reading this.

But here is the thing, I blamed the stress and anxiety on things like: What I felt were unreasonable goals or demands at work, perceived unfair balance of rewards/recognition, corporate decisions/policies that impacted my day-to-day or my paycheck, coworkers that can have a ‘step on others to get to the top’ mindset…

You know the list if you have worked almost any job ever. But in reality those things weren’t really the problem. They matter of course, but ultimately the problem came down to my mindset.

During the times that I was feeling negative about my situation I was choosing through my mindset to be negative. It really didn’t matter what happened either, I was going to find a reason to be upset.

But other times the same circumstances would come up but I wasn’t upset or stressed; because I chose to be content.

I started wondering why sometimes I chose contentment over stress and anxiety. After some soul-searching it came down to one big thing: Gratitude

I found that if my thoughts in general centered on what I was grateful for suddenly my attitude improved and my stress melted.

So I worked hard to start promoting gratitude in my life. I committed to finding things that I was grateful for. I used reminders/triggers to help me and I tried to share these with my family everyday too. Practicing this changed my outlook on everything.

Now for the part where money comes in. There was an interesting side effect. My stress around finances basically went away. Why?

Because I became grateful for what I had. Instead of wishing I lived somewhere sunnier and less expensive, I started truly appreciating my beautiful state, neighborhood, and amazing house.

My cars went from meh to really nice and awesomely reliable. My budget that felt tight before suddenly seemed really big. The savings for vacations and home improvements went from a mindset of “how we will make this happen” to “what a blessing that we get to go on awesome vacations and improve our home.”

My job became a blessing with a nice salary attached. Then this happened too:

I started spending differently because I was grateful for the things I had. I no longer had a significant need to constantly upgrade everything. In fact I started wanting to give things away because I realized I have way more than I need. (This may have given my wife a little anxiety… “uh that seems like a lot of shirts to donate honey…”) Haha. I donated the shirts.

A mindset of gratitude changed everything; spending habits, saving habits, money stress, generosity, and more. And it wasn’t even about money to begin with. It was about finding the right mindset at work so that I could be a great coworker, employee, friend, husband, and father.

My guess is I am not alone in this. I am assuming lots of you also feel stressed about work, anxious about finances, or discontent with where you are at in life. I don’t have it all figured out yet either but if you want to drastically improve those areas try these few steps:

1) Wake up grateful. Before you get out of bed think about what went right yesterday and what you are grateful for today.

2) Set Reminders to practice gratitude. For me it is getting in the car, starting my computer at work, and family prayers at dinner.

3) Share what you are grateful for with someone else. This does not have to be weird. All you have to say is say something like; “This weather has been awesome right?” or “Did you see that report at work this morning? We really crushed it!”

This will not only change your attitude but it will change other people too.

4) Go to bed grateful. Think through the day and pick out a few things you are grateful for. I always find that what I go to sleep thinking about affects the next day. It’s almost like my mind spent time thinking about it all night. Why not set up the next day to be positive?

5) Read a great book. Nothing helps to inspire a new habit like reading. A book I found called Choosing Gratitude might be a perfect fit. It lines up with exactly what we are talking about here. It is a spiritually centered book so if that is not your thing no worries there are dozens of other awesome books to choose from as well.

If you decide to pick it up (or anything else on Amazon for that matter) click on this link to get it and it will support this site.

Again, I don’t have all of this figured out and I bet some of you have awesome ideas you could share that would help others develop amazing gratitude habits. But I do know that changing my mindset and choosing to be grateful has improved every area of my life, including my financial life.

No matter what spot you are in when it comes to finances I am certain you can find something to be grateful for every day. Do it. It’s worth it, it doesn’t cost anything, and  there is no price you can put on a positive, content mindset.

Join us on the journey, enter your email below so that you won’t miss another post.

← Back

Thank you for your response. ✨

Inspirational Money Coaching may have financial relationships with the merchants and companies mentioned or seen on this site. We are not responsible for any actions taken by users. For more information see our Privacy Policy & Disclaimer.

Eliminating Debt

Is Debt Consolidation A Good Option?

inspirationalmoneycoaching

Many of the people who I have worked with have several debts that they are trying to tackle all at once. Sometimes dozens.

It’s usually a list like this: Multiple credit cards, retail store cards, car loans, student loans, medical debt, etc. The list can be daunting and generally there is some emotion involved in just listing them out.

It’s tough to be in that spot. It is emotional. It feels like there is no hope and no way out.

This makes it very tempting to reach out for help. The first place I usually turn when I need an answer is… the internet. I assume most of you do the same. Any quick online search about debt will bring up dozens of ads for debt consolidation or debt settlement companies.

All of them are promising to get you out of debt by taking your many payments and simplify them into one “lower” payment. It seems almost too good to be true when you read the promises on these ads and websites.

And that’s because it is.

There are some situations where consolidation could make sense, but in most cases it doesn’t. And even if it’s a consideration so many of the consolidation companies are bad news.

Because of that you should always BEWARE of debt consolidation and settlement offers. Why? Here are the biggest reasons:

Reason #1: It Doesn’t Change Behavior.  

Before we get into the reasons these companies are usually terrible to deal with we need to look at the true root of the situation.

Winning with money has more to do with behavior than anything else. If you are over spending and running up credit cards or other debts each month, rolling all of your debt into 1 big debt won’t help you.

As soon as you do that you are going to start racking up debt on new/other open cards. The mess will just continue to grow.

In most cases this is what happens unfortunately. Someone who needs help turns to a debt consolidation company that creates one big pile of debt and meanwhile the problem is still growing on new open credit accounts.

Instead you need a plan. A plan that stops the cycle of new debt. That plan starts with a budget each month. Before the paycheck gets cashed there needs to be a plan outlining where every single dollar is going to go. Then you stick to it.

Sticking to it is hard at first especially if you are used to living above your means. So do this: Use cash for purchases. Ditch the cards. Those cards are what is creating all this mess in the first place.

If you planned to spend $100 on groceries this week, take out $100 from your next check and go get groceries. There is no possibility you can go over your budget because you walked into the store with no cards and $100 cash from your planned out budget.

There is a great post that covers this in way more detail here.

Reason #2: You Pay More Money In Many Cases

This doesn’t make sense right? The debt consolidation companies say they are going to save you money and negotiate a better rate.

But technically many times that is flat-out wrong. Here is an example, it involves math, hang in there and I will try to make it painless.

Here are 3 debts with balances, interest rates, and years before payoff below:

Credit Card: $5000 – 18% – 3 years

Car Loan: $3000 – 15% – 2 years

Medical Debt: $1500 – 22% – 2 years

With these 3 debts your monthly payment is $404. And over the life of the loans you will pay $2365 in interest.

Now let’s say you get a consolidation loan and roll all three cards into one debt with a lower monthly payment just like they promise in the ads.

Here is your new balance, interest rate and years before payoff:

Big pile of consolidated debt: $9500 – 10% – 5 years.

Your new monthly payment is only $202! That is HALF of the last payments all combined. But in order to get the better interest rate and the lower payment you had to extend out the loan.

After 5 years you will pay $2608 in interest. More than if you had left the debt as it was and paid it off.

You end up with the debt for longer and for more interest.

Here is where some of you are thinking, “what if I consolidate and then pay it all off in just 3 years instead of 5?”

In that case you would pay less interest with the consolidation loan. BUT personal finance is mostly about behavior and not about math. Which leads us to…

Reason #3: You Can’t Get Any Momentum

Have you ever tried to take on a gigantic project only to procrastinate because of how difficult the task seems? I have definitely done this. To be honest I wanted to start this blog a long time ago, but it felt like a huge project and I wasn’t sure where to start.

Eventually I reached a point where I knew this was a passion that I had to chase down. So I decided to start tackling one little piece of it at a time. First I set up a website, then a Facebook page, then worked on the design and so on… I spent about an hour each day.

With each step the huge project in front of me seemed easier to accomplish. Every item I completed felt like a win and a step toward what I had been dreaming about.

This is the same with money. Once you start to move forward each additional bit of ground gained is easier. But the first few steps are the hardest.

If you pile all of your debt into one huge mountain it seems impossible to pay it all off. Winning with money is about behavior, behavior is about motivation, and an insurmountable mountain of debt does not inspire motivation. It inspires us to pretend it’s not there so that we don’t have to think about it.

Instead, if your debt is in smaller “chunks” you can focus and pay one of them off pretty quickly. That is a win, it feels good, and you get to check something off of your list. Now you are motivated to check another one-off the list as well.

Then you get another win and the dream starts to look possible. Debt freedom is right there instead of behind a huge mountain.

I have yet to work with anyone where consolidating lots of little debt into one big debt was the key to them becoming debt free. On the flip side I have personally watched many individuals and families take the one debt at a time approach and pay off all of their debt way ahead of schedule.

Motivation beats math almost every time.

Momentum is so important. Motivation is so important. The ability to see progress and get quick wins is critical to paying off debt and winning with money.

Reason #4: Many Debt Consolidation/Settlement Companies Are A Scam

Don’t get me wrong most of them aren’t going to “steal” your money. Though some of them have been known to basically do just that. But they are not in business to get you out of debt.

They are selling people on the promise of something that they won’t deliver. Some will guarantee to eliminate all of your debt, this is a lie. Some claim that they will prevent creditors from calling you or filing suit against you, this is a lie.

Some of them will ask you to pay them upfront and to stop making payments on your debt while they “handle it” for you. This is a huge red flag.

They are in it to make money and some of them do that in some very shady ways.

Most of them just want to take your loans and pile them into one big loan for you with a lower payment. They believe that it will help you. And that is okay, it’s not immoral or shady, but it probably is not what is best for you financially.

The point here is that when you are dealing with these businesses you have to be really careful and in my opinion it’s not worth taking the chance.

If after reading all of this you are still absolutely set on consolidating your debt stick with a reputable major financial institution and be extremely cautious with the terms.

If you have already consolidated your debt, that is okay too. You can still go after your debt like crazy and get out from under that mountain.

But if you haven’t consolidated before and you are considering it here is my suggestion for almost every case…

Instead of consolidating go after your debt with everything you have got. Take on your smallest debt first and work your way up to the largest. It’s called the debt snowball. Here is a great post on how to do it step by step.

Eliminate your debt instead of moving it from one pile to another pile. You can’t get out of debt by moving it around. But if you focus, spark some momentum, and get dialed in on crushing your debt; you can conquer just about any mountain in front of you.

Join us on the journey, Like the Facebook page, and enter your email below so that you won’t miss another post. 

← Back

Thank you for your response. ✨

Inspirational Money Coaching may have financial relationships with the merchants and companies mentioned or seen on this site. We are not responsible for any actions taken by users. For more information see our Privacy Policy & Disclaimer.

Personal Finance

Be Weird = Win With Money

inspirationalmoneycoaching

A lot of what leads to financial success seems like common sense.

Things like: Debt is bad for you, new cars are expensive, credit card companies are not truly here to reward you, making a plan with your money is important, and on and on.

But here is the thing, when it comes to money if you do the common sense stuff you become weird.

It’s true. I’ll prove it, one of these scenarios has applied to you at some point.

If you go out to eat with your friends and get water for a drink… you are weird.

If you drive an older car and only buy used cars… you are weird.

If you don’t have a credit card… you are weird.

If you are saving up to buy a big ticket item, you can’t buy a house yet because you need a down payment, you brought snacks from home to the baseball game/movies, you make your coffee at home… weird, weird, weird, WEIRD.

This is the truth, I have done and do most of these things on a regular basis and I feel awkward when they come up.

WHY!?

Because they are not normal behaviors. But if I asked any regular person, “Hey would it be cool to not have a car payment?” They would of course say “YES!”

Same response if I asked, “would it feel great to buy that new furniture with cash instead of payments?”

But somehow the actions that get us to what we ultimately want financially have become, weird.

You know what though, that is okay. Why? Several reasons, the first is that lots of very wealthy people are weird. Most of them became wealthy by doing weird stuff too.

Bill Gates was super weird until he made billions of dollars, same with Warren Buffet. One of them was tinkering with personal computers before they were a thing and the other was buying textile companies or something.

I realize the odds of any of us approaching their level of financial success borders on zero. But here is a bigger reason that it’s okay to be weird: It works. People who are successful financially do common sense things that are “weird”.

The stats show all the “normal” people are broke. It’s debated who the first to say this was, but as Americans we like to: “Spend money we haven’t earned to buy things we don’t need to impress people we don’t like.” Haha

Most people live paycheck to paycheck, most don’t have enough money saved to cover a $1000 emergency, and the number #1 cause of divorce, after infidelity, is money fights.

If that is normal I want to be weird.

Be weird with me:

Save up for big purchases so that you can pay cash.

Don’t buy new cars, pay cash for reliable used ones that will last.

Build up an emergency fund for a rainy day.

Make a plan aka budget each month before the money comes in and stick to that plan.

Save for retirement.

Use cash for incidental expenses like clothes, groceries, and eating out.

Take snacks from home to the baseball game.

Here is a good one. Take the slow path to winning with your money. What I mean is;

Don’t chase the big investment payoff, stick to what works long term.

Don’t buy something before you can pay for it. Save up. It’ll take some time, but it’s worth it and you won’t have the stress of payments and interest.

Plan ahead for expenses. You are going to need new tires at some point, start saving now so it’s not a “surprise”.

Set a little bit aside each month for your future. It doesn’t have to be huge but it’s better than zero. If you need help on this check out Acorns, they will do it for you with your spare change from all your purchases.

You know the rest of the list and if you need inspiration keep following the blog. These are the things that you know deep down are right for your money.

We get so caught up in what everyone else is doing and what every ad we see says we need. It can be crazy hard to wait sometimes in an instant gratification world.

But it works. And the people who are doing it are winning with their money.

One step at a time one day at a time they are building a foundation. Slow and steady. It isn’t cool or flashy, but they know the goal and they are going to get it.

They are “weird”. But are they really? Shouldn’t we all want to be weird?

Imagine where you will get to if you take one step forward everyday vs racing around zig zaging, then backtracking and then trying to catch up.

Slow it down and win every day with your money. Make the right decisions every day.

Be Weird = Win With Money

Join us on the journey, enter your email below so that you won’t miss another post. 

← Back

Thank you for your response. ✨

Inspirational Money Coaching may have financial relationships with the merchants and companies mentioned or seen on this site. We are not responsible for any actions taken by users. For more information see our Privacy Policy & Disclaimer.

Taxes

3 Things To Consider Before You Get Your Tax Return

inspirationalmoneycoaching

February is here and so are all those fantastic tax documents in the mail/email box. I might be a nerd but I get excited for those forms and I file as soon as possible.

Whenever this time of year rolls around I start to hear lots of conversations around how people file their taxes, manage their returns, and spend the money they get back. And there are a lot of weird habits out there.

I have a couple of friends in particular who defend their strange habits as if they were the gold standard. (They are not, haha)

But I want to set the record straight and make sure that you have checked these 3 things off before you get your tax return.

#1 Plan out what you are going to do with your return BEFORE YOU GET IT.

Humans have a tendency to treat money that comes in as a “windfall” differently than money we earn steadily. Guess what that tendency is?

To spend it! And not just spend it but to actually spend more than we got in the windfall.

Windfalls make us excited, they are exhilarating. First we think about the things we should do with the money… Then we start dreaming about what we could buy, which is really fun, and then we end up spending more than we planned.

And very little if any of the money ends up going toward something that will have a lasting positive impact on us and our finances. Think back to what you spent the money on last year. Can’t remember? If you answered yes than it didn’t have a lasting impact.

What is the best way to plan this out so that you don’t regret how your tax return is spent?

Write down exactly what you plan to use the money on, down to the last dollar.

If you want some of it to go to something fun, perfect, write that thing down and the limit you will spend. If you want some of it to pay down debt, perfect, same thing.

Writing it down will help you to commit to it. If you have a spouse or significant other make sure they agree with the plan too. This is critical to your success and it’s a good conversation to have in advance of money hitting your account.

Nothing is worse than getting some extra money and both spouses start spending it without a pre discussed plan. That strategy has money fights written all over it.

The last thing I will say on this, but it’s incredibly important. Do not get a refund advance. They are essentially payday loans in a lot of cases. They usually come with high fees and sometimes ridiculously high interest rates.

This is your hard-earned money. You want to maximize it. Refund advances are a bad deal in almost every case. More on this in a minute.

 #2 File On Your Own. (In most cases)

I am not a tax attorney and I am not going to pretend to know every personal situation out there. But in general filing on your own will pay off over hiring help.

Filing on your own will cost likely $20-$30. Hiring a pro will cost hundreds.

This is especially true now that the tax laws changed. For most people their deductions are no longer going to impact their taxes because the standard deduction was increased significantly.

What does that mean? To make it really simple: For me in the past I had mortgage interest, charitable giving, local taxes, vehicle taxes, and more to claim on my taxes which made them a little complicated. (Though I still filed on my own) But for this year my close to $20k in deductions are overshadowed by the new standard deduction.

Many reputable sources are reporting that roughly 90% of Americans will use the standard deduction vs claiming all those deductions I just mentioned. So 9 out of 10 of you likely won’t need to deal with claiming any of those deductions you likely claimed in the past.  

This makes doing taxes on your own a lot easier. I was able to do my taxes in roughly 20 minutes this year vs it taking a couple of hours in years past. And there wasn’t a huge pile of paper work.

Plus there is great software out there to help you. I personally have used HR Block’s tax software that last 5+ years. It’s user friendly and you can take pictures/upload all of your documents and they auto input which is very convenient.

If that is the route you choose to go below is a link to their software. Also when you finish filing through H&R Block they offer a 5% bonus if you choose to get your return through Amazon. Check it out:

#3 Adjust Your Withholdings

Don’t stop reading… remember the friends I mentioned earlier, this part is where they will jump to the defense of their tax returns. But they are wrong. Haha

A tax return is from taxes that you paid over the course of the year that YOU DID NOT OWE.

The average tax return is roughly $3000 according to multiple sources! This means on average we are paying $3000 WE DO NOT OWE each year and then getting it back.

If someone you didn’t like very much asked if they could take $3000 from you (that’s $250 per month) then at the end of the year they would give it back without interest would you let them?

Of course not, because firstly you don’t like them very much and secondly you don’t just give your money away so that other people can use it until they “give it back” without interest.

But that is what most of us do every year. And people defend this like crazy. I have had so many debates about this… This blog is about inspiration so I want to stay positive here, but this kind of thinking is just laziness.

The facts are clear: You are way better off adjusting your withholdings and getting that money each month. And it’s not hard.

First off there are numerous calculators out there to help you with it including one that the IRS has. But an easy way to do it is to simply see how much you got back. If you know your income and situation will be similar next year here are the easy steps:

Step 1: Divide your tax return by however many paychecks you get.

In my case that is 26. So if I was the average American I got $3000 back this year, I then divide that $3000 by 26 to get $115. That means I would have paid $115 per paycheck in taxes I don’t owe.

Step 2: I then increase my withholdings on my W4 until I am no longer paying that $115. Watch the federal withholding amount on your pay stub and use it as your reference point.

Here is a personal example to help. If I currently chose 2 as my withholding on my W4. And the box on my pay stub for Federal Withholding says they took out $300… (Remember I want that number to go down by $115 so $185 is my goal in this case.

I will now change my withholding on my W4 to 3. Super easy so far right?

Step 3: Now I watch my pay stubs and in a month or so see how much the Federal Withholding tax portion goes down. Once it gets close to my target number, in this case $185 I am all set.

I prefer not to owe taxes, so I might just adjust it by $100 per check so that I have a little cushion.

This might take a couple tries to dial it in, but once you got it as long as nothing major changes in your life you are set. (I had to do this every time we had a baby. With Baby #3 on the way I am ready to adjust again.)

These steps are simple and I am sure you can do it on your own. But again I don’t know all of your situations and I am not a tax attorney. (See the disclaimer below if you don’t believe me) This is just an example of how I did it and how it was super easy for me. If you aren’t comfortable with it, get a pro to help. H&R Block can help you get it all dialed in too.

Now here is what some of you are thinking because I have heard it… “My refund is my savings. It forces me to save and I wouldn’t save it if I got the money in my check every couple of weeks.”

I understand and I want you to save. Good news! Your bank will automatically save that money for you so that you basically never see it in your checking account. You can even open an online savings account to transfer the money to so that you can’t use a debit card to spend it.

If we used my example above I would set up my account to withdraw $100 every two weeks and put it into my online savings account. And you are done, that easy.

Now your money is earning interest and if you want the “tax return” experience… You can wait to log in to that account once a year in February and get pumped about how much is in there.

The other benefit: You have the money if you need it. What if you have an emergency? People get tax refund advances because they have an emergency.

This is crazy right… they paid money they didn’t owe to the government, now they need it for an emergency, so they have to pay fees and interest to get money that they should have had in the first place! INSANE!

Everyone knows this to be true but trying to change the behavior is like trying to stop a waterfall. I’m going to try anyway because it’s important to winning with money.

This isn’t about being perfect with your taxes, it’s about a mindset. Your mindset should always be to maximize your hard-earned money.

Your money should be helping you win by paying down debt, saving for your future, and giving to others. Not sitting in an IRS coffer somewhere.

Take the extra steps. Winning with money is about being intentional. A huge tax return is not intentional money management, it’s a lack of focus.

You can do this! Even if you just adopt one of the 3 steps above this year that’s a win. And if you have to choose #1 is the most critical.

Plan out how the money will be spent in advance of receiving it so that you don’t overspend or regret how you spend it. File on your own if at all possible to save on costs. And adjust your withholdings to ensure you are maximizing your paycheck.

Take the time, be intentional, and watch yourself start to win with your money.

Join us on the journey, enter your email below and like the facebook page so that you won’t miss another post.

← Back

Thank you for your response. ✨

Inspirational Money Coaching may have financial relationships with the merchants and companies mentioned or seen on this site. We are not responsible for any actions taken by users. For more information see our Privacy Policy & Disclaimer.