Financial Friday

Today and tomorrow are going to be a two part series tied to one event. I recently heard of a gentleman whose wife had run up over twenty thousand dollars in credit card debt and hid it from him. She was using money that was supposed to being paying extra towards their mortgage and paying the minimum balances on these credit cards.

Today we will take a look at how to handle this financial crisis when it hits you. Tomorrow we will at money in the marriage relationship.

Disaster
How do you dig out from a hole like this? This gentleman was/is by no means wealthy, and now he realizes even less so. One day you are feeling like you are starting to make some financial headway, and the next you have fallen into a whole. Here are some practical steps to move forward:

1. Calm Down- Take a deep breath. One way or another, you will get through this. Do not panic. It is only money. You mental well being is more valuable than this, so stay calm. You will think more clearly if you are calm.

2. Be A Detective- This is all about finding out if you have in fact discovered the bottom, or if there is another shoe about to drop. As we are told in the Bible, a wise man counts the cost before building a tower, and you need to know how much this is going to cost you before you can plan on addressing it. So dig deep and find out the truth, no matter how painful it is.

3. Stop The Bleeding- In circumstances like this, where a spouse is involved, I recommend getting the help of a good marriage counselor to walk you through this. But no matter what, the bleeding needs to stop. Whatever caused this surprise crisis whether it be gambling, drugs, shopping or whatever, it needs to stop. No sense throwing a shovel full of dirt in a hole while someone is shoveling out two.

4. Create A Plan- To do this, you need to line up the debt biggest to smallest. Physically, take each credit card bill and line it up on your kitchen table to compare. You will pay these off now from smallest to biggest. History has proven that this is psychologically more effective than worrying about interest rates. If you have any sort of savings, wipe out all but $1,000 of it and pay the rest towards the smallest balances. As you pay off a small loan, take the payment you were paying on it, and add that as extra payment on the next loan up the ladder. All the rest pay the minimum on until you get to them. Do not worry, you will get to them.

I do allow for one possible alternative to this. If most of your rates are above 15%, and you have equity available in your home, I think tapping that equity to consolidate into a lower interest loan would be prudent if and only if you have effectively implemented step 3. This allows you to take all those extra interest payments and dig out even faster. Once again, I need to stress, DO NOT DO THIS IF THE SPENDING PROBLEM HAS NOT STOPPED! You will just exasperate the problem if it is not.

5. Make Some Extra Money- Every extra dollar you make will help you dig out even faster. I generally believe that the party responsible for the hole should shoulder the lion share of the extra work to dig out of it. However, I do not think it should be 100%. You are both in this together, so work as a team even if one is pulling harder than the other.

Conclusion- Clearly there will be some trust issues after this incident that will need dealt with. Once again, I recommend doing this in the presence of a trained marriage counselor. Your marriage is more important than money.

Financial Friday

Financial success means many things to many people. For some it is status, for others it means security, and for others it signifies power. For myself, none of these trapping hold sway with me.

For me and many others, financial success equals freedom. Freedom to give abundantly. Freedom to spend limitless time with family. Freedom to pursue dreams. Freedom is the destination, not wealth.

For me I take this mindset deeper. When confronted with ongoing expenses like high speed Internet, cell phones, cable, car payments, etc., I convert them into hours worked.

For instance, no too long ago I was making $15/hour. Once the greedy self serving politicians were through with it, I was left with about $12/hour. This means that cable currently running approximately $36/month would force me to work three hours to pay that off.

After that, I annualized it. So now I know that I need to work an extra 36 hours a year just to pay for cable. Taking it a step further, if I retire after 40 years in the work force, that means I had to work an extra 1440 hours to get to retirement just because I wanted cable. Further put, I tacked on an extra 8 months on my working life just to pay for cable.

Kind of sick isn't it. Wipe out your cable, wipe out your car payments, lower your Internet speed, and how much sooner could you be free of the job that enslaves you. The 8 months actually grows greater if you figure in the interest you could earn on these savings over your lifetime.

So freedom is our goal, the question is, how will we get there? Keep checking in and I will update you on my progress.