The debt cycle: Don’t even get a foot in

Unmanageable debt, among all financial struggles, is rooted on a single cause—you.

To understand the nature of debt, one has to understand the debt cycle. As explained by BYU’s Marriott School of Management, the debt cycle starts when spending outpaces income.

Image Source: homecoach-usa.com

Debt accumulation begins in basic habits, which include ignorance and carelessness in daily finances. When people charge spending to either loans or credit cards, they often do not understand the concepts of interests and costs. Dismissing these eventually mires them in unfettered spending and perennial indebtedness. This cycle can be very difficult to change and escape, especially if people are surrounded by opportunities to spend.

Image Source: cambridgecredit.wordpress.com

Another common mistake among people with unmanageable debt is giving in to compulsion and pride. Some people do not want to control their spending, so they find ways to get what they want. This hard-won mentality takes no less than therapy and psychological shift to keep in check.

“Money, like emotions, is something you must control to keep your life on the right track,” said bestselling author Natasha Munson in her book, Life Lessons for My Sisters: How to Make Wise Choices and Live a Life You Love!

Image Source: usnews.com

This is the pragmatic voice that anyone trapped in a debt cycle must heed to start digging out of a hole. Live within your means and never borrow money just to maintain a standard of living---and the debt cycle will be as foreign a concept to you as poverty.

Legacy Reliance Group assists clients in debt management and settling financial obligations. For more about the company’s services, visit thiswebsite.

REPOST: Financial planning for do-it-yourselfers

It is possible to get your financial plan under way if you do it on your own.  But make sure you make important decisions to be successful.  Forbes discusses some ways to get you started.  Read the article below.

Financial planning can be an overwhelming topic. Like health insurance or getting a mortgage, people tend to stumble out of the gate.

If you are intent on doing it yourself, rest assured that it’s possible to get your plan under way and successful in about an afternoon — if you first make some basic decisions.

Image source: Forbes.com

1. Decide to save

This is the No. 1 retirement killer. People save too little and begin entirely too late. You should save 10% of your gross income to start and build it up from there, right from your first job.

There will be plenty of priorities fighting for your money. Spending on family, travel, housing and the like. None of it matters more than building a savings account and letting it compound over time into enough to retire.

2. Decide to invest

Investors, especially beginners, can fall into the trap of waiting until they have “enough” to start buying actual investments. So, they put it off. Then the markets seem touchy or there’s a lot of stressful economic news, so they put it off again.

Before long, 10 years has gotten past you and you’ve missed the chance to use that decade to gain a return on your savings. Even if it’s $50, put it into an inexpensive, balanced index fund and keep adding. Never miss a chance to invest early and consistently.

3. Decide to protect

One of the biggest stumbling blocks in your financial plan will be inadequate insurance. It helps to remember that the point of insurance is to transfer risk. If you die tomorrow in a tragic car crash, who suffers financially?  How much? That should help decide whether and how much life insurance to own.

Term life is good enough for most people. Consider long-term care, disability, home and auto coverage and perhaps umbrella coverage if you have teenage drivers at home.

4. Decide to spend wisely

Don’t be penny wise and pound foolish. What does that mean? Well, often we get very caught up on small things, like clipping coupons for restaurant deals. But then we lose sight of the bigger problem, like eating out three times a week! It doesn’t matter that you got a 10% discount if you overspend your budget by 200%.

Likewise, we often put small purchases on credit cards and find ourselves unable to pay it down within the month. If you can’t manage your day-to-day spending, cut up the cards and use cash or a bank debit card. Better yet, save money automatically at work using a 401k plan or other deduction system. Then you can spend what’s left over without worry.

5. Decide to retire

This is a big one. Too many people simply have no long-term goal regarding retirement. They plan to work till they drop.

Pick an age, decide how much you need to retire at that age and then make sure you set aside enough to make it come true. It’s that simple.

Legacy Reliance employs resolution specialists, highly trained and readily available, to help create a solution to getting your financial status back on track.  Read more about the firm’s services from this Facebook page.

 

REPOST: Fear of Finance: 5 Tips to Make Dealing With Money Less Scary

This article from DailyFinance.com shares tips on how people can conquer their fear of handling their finances.

***

You start typing in the log-in information to check your bank account and an eerie chill sweeps through the room. Is it the ghost of spending past? The spirit of overdraft-fees future? Your pulse quickens, the hairs on the back of your neck stand up, and your brain can't seem to decide if it's time for fight or flight.

When it comes to your finances, it's always better to choose fight.

Fear is a common reaction to dealing with money, primarily because so many people are uncertain about their real money situations, and because they haven't yet mastered the fundamentals of personal finance. So as we approach the day American culture dedicates to all things scary, I'm going to help some of you conquer the fear of finances.

1. Understand Your Finances

First things first: I'll assume you know exactly how big your paycheck is. Those big deposit numbers live on the non-scary side of the bank statement. But take the time to sit down and figure out exactly how much you have in your checking and savings accounts now, as well as in any retirement accounts you may have. Determine how much of each paycheck you're tracking into your 401(k), IRA or any other account. Factor in your student loan or consumer debt.

Then, examine all your expenses. Chart out everything, from rent to lattes. Once you understand your cash flow, set up a basic budget to properly allocate your money from each paycheck to bills, living expenses and savings.

2. Make a Plan to Pay Down Debt

Paying down debt has all the charm of going toe-to-toe in a dark ally with Freddy Krueger, but by making a solid plan you can stick to consistently, you can get out of the financial hole and escape from the Nightmare on Bill Street.

The average millennial today graduates college with more than $35,000 instudent loan debt, and some have far more. Plenty of them won't make that much in annual salary in their first few years of work, so it's easy to see why debt that large feels impossible to handle.

It's not -- if you're willing to get serious, which begins with accepting the idea that you'll have to pay more than the monthly minimums on your student loans and credit card debt. How much more depends on your own situation, and there are plenty of tools out there to help you figure out where you stand and take control. For example, ReadyForZero helps users confront their debt with personalized plans to prioritize how to pay off debt and provide reminders about payments.

3. Save for Retirement, and for Fun

Millennials constantly hear how important it is to save for retirement. Pensions are a thing of the past, And Social Security is doomed to face hefty cuts. But compound interest is a young investor's biggest asset. All these points and others add up to an excellent argument for setting up that company 401(k) you've been avoiding.

But it's also important to save some money for fun. Putting that "entertainment" line into your budget plan will keep you from getting too discouraged while you're paying off debt, and also prevent you from overspending after weeks of depriving yourself of a good time.

It's also important get into the habit of saving when you're young, broke and in debt.

Even if you can only afford to set aside $5 out of each paycheck, creating the habit will serve you well later, when you can set aside $100 or $1000 every payday.

4. Learn the Basic Terminology

The boomer brain might freeze up at the sight of acronyms like YOLO, BTW, SMH and LOL, but a millennial's tends to shut down when confronted with shorthand like IRA, 401(k), ROI, APR and APY.

But IMHO, if you can master one set of lingo, you can master the other, and this one is worth learning: Having a grasp of the vocabulary of finance makes it easier to communicate with professionals who can help you with your money. And the more educated you become, the smaller the fear-factor involved with handling your bank account and investments. Here's a short cheat sheet.

·         Compound Interest - Compound interest is proof of the proverb money begets money. With compound interest, your money will earn interest on the interest already accumulated.

·         ROI – Return on Investment; what you make compared to what you put in.

·         APR – Annual Percentage Rate; the interest rate you're paying on debt.

·         APY- Annual Percentage Yield; the true interest rate you get paid (or pay out) factoring in compounding.

·         401(k) – A tax-deferred way to save for the future that takes money directly from your paycheck and invests it. Employers frequently match a percentage of your contribution.

·         IRA – Individual Retirement Account. A private retirement savings account; contributions are tax deductible in the year you make them. (So, lower taxes now.)

·         Roth IRA or Roth 401(K) – Contributions to these accounts aren't tax deductible, but qualified withdrawals after you retire are tax free. (So, lower taxes later.)

·         Net worth - The amount in your name once you've subtracted your liabilities from your assets.

5. Live Within Your Means (or Find a Side Hustle)

There are two ways to increase your savings and decrease your financial woes. Live below your means or make more money. (I recommend both.)

Historically, Americans have had a difficult time living below their means. The "keeping up with the Joneses" mentality can quickly create a vicious cycle of debt. However, some people commit to maxing out 401(k) contributions and paying themselves first by automatically routing a percentage of their paycheck into savings. After years of living frugally, and a commitment to continuing to do so, a rare few even retire decades before their peers.

For those with debt or a desire to earn more than what's coming in from their 9-to-5 job, the other option is to figure out how to make more money. By creating a small business, or a side hustle, you can put extra money towards paying down debt, savings or investing.

6. When All Else Fails, Make Sure You Have an Emergency Fund

If you're reluctant to learn financial jargon, or you're not interested in saving 20 percent of your paycheck, at least take some of the fear out of your financial situation by creating an emergency fund. A fund with three to six months of living expenses can help finance the truly scary moments in life.

***

Legacy Reliance Group helps clients get their financial status back on track. For more about the company, visit its website.