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How To Never Hit a Red Light Again

In the house of the wise are stores of choice food and oil, but a foolish man devours all he has. –Proverbs 21:20 

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It never fails, if I’m running late for an appointment, I will hit every……single……red light. Ugh! So frustrating. But, if I leave five minutes early, it’s smooth sailing.

Have you ever stayed up all night to finish a paper for a 9:00 am class only to have the printer break in the middle of printing it out? Or, to modernize this example a bit, have you had the Internet go down while trying to send it to the professor? But isn’t funny how there are no printer or Internet gremlins if you finish the paper a day early?

Not having enough time margin brings stress to our lives. It’s the same with our money. When we don’t have enough margin in our bank account (also known as savings) the transmission goes out, the dryer dies, a kid ends up in the ER, etc. But, it’s the wildest thing, when we have some savings, these emergencies just don’t seem to happen.

So, have margin, no problems. No margin, problems abound. How do we explain this phenomenon? Here’s my theory, let’s see if you agree. In reality, the problems are the same regardless of the amount of margin. It’s just when we have margin, we don’t notice the problems.

If I leave a little early, the red lights don’t bother me, I don’t notice them, I don’t even remember them.

When you’re trying to send in your paper the day before it’s due and the Internet goes down for a few minutes, it’s no big deal. You just come back to it after awhile and hit send.

And when an emergency happens and we have an emergency fund, we just pay for it and move on.  An emergency is always stressful, but not nearly as stressful as having to go into debt to pay for it and then spending months or years paying it off.

So how do we order up some margin? I’d like more money margin, please. And throw in some time margin, too, thanks!

Adding margin to our lives is not easy. More often than not, not having enough margin tends to be a downward spiral. Running late for the first appointment of the day leads to running behind schedule for the rest of the day. Not having enough savings to cover small emergencies leads to more debt payments which makes it harder to cover the next emergency and so on and so forth.

So how do we stop the downward spiral? How do we create margin in our lives? How do we give ourselves breathing room?  We have to be intentional. We have to have a plan.

So what’s the plan? For our money, let’s start with how much of an emergency fund is needed. If you currently have debt of any kind (except a mortgage), Dave Ramsey recommends having a $1000 emergency fund. Once you’re out of debt, he recommends an emergency fund of 3 to 6 months of expenses.

Next, we need to find some extra money to save away in an emergency fund. A great place to find money is in your closets. Clean them out and sell some stuff! Not only will your house be cleaner, it’s a great way to quickly make a little cash.

Another way is to turn your talents into cash. Good at math? Tutor. Play the piano? Give lessons. Great baker? Sell cakes. Be creative!

Finally, you need to do a monthly budget – a written plan for your money. Doing a budget lets you see where you’ve been wasting money and helps make savings a priority. Doing a budget ensures the extra money actually goes to the emergency fund and doesn’t “accidently” get spent on new shoes or a round of golf.

Do you feel like you’re always living on the edge, worrying about when the next life hiccup is going to happen? It’s important for you to know you are not alone. One in four Americans has no emergency savings. Only about 40% have enough savings to cover three months expenses.  So, please don’t beat yourself up about it, but there is hope, there is a better way to go through life.

If you’re tired of the stress of living on the edge, if you’re tired of living with no margin, I can help. Together, we can develop a detailed strategy to move you from a life of stress to a life of success. Contact me today!

What are some ways you’ve intentionally added margin to your life? Time margin? Money margin? Other kinds of margin?

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Dream for My Son: No Credit Score

I have big dreams for my Little Man. I dream he lives a long, healthy, Christ-centered life. I dream he finds a career he really enjoys. I dream he becomes a true gentleman. I dream he never has a credit score. Wait, what? What was that last one? Yes, I dream he never, ever has a credit score – not a good one, not a bad one, no score at all. Yes, I know, I’m being weird again. Allow me to explain.

Americans today seem to be obsessed with building their credit. The belief is you can’t enjoy a nice life unless that silly number called a credit score happens to be a high one. But, credit is a just a sneaky way of saying debt. How absurd does it sound to say you need to “build your debt”. Ridiculous, right?   But that’s what a credit score shows – how much someone loves debt.

Let’s look at what makes up a credit score, also called the FICO score.

  • 35% of your score is based on your DEBT history.
  • 30% is based on your DEBT level.
  • 15% is based on the length of time you’ve been in DEBT.
  • 10% is based on new DEBT.
  • 10% is based on type of DEBT.

Do you see a common theme? (Hint: I put it in bold font for you.)   Why would I want my son to build debt? Here’s a crazy idea: wouldn’t it be better for him to build wealth? But the FICO score says nothing about wealth. It says nothing about how much money he has in savings. It says nothing about his income. If he were to win the lottery, his credit score would not change at all.

So, yes, my dream is for Little Man to never have a credit score. My dream is for him to build wealth, not debt; to never pay interest to a bank, but instead earn interest on investments. Sound crazy? Not as crazy as you may think. But for this dream to become a reality, he needs a plan. Here’s my two-part plan for him – never own a credit card and always save up and pay for things.

No Credit Cards

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Little Man loves chocolate. He inherited this love from his mother and his mother’s mother, and her mother. Because I understand his chocolate weakness and because he is a 4-year old, I keep his holiday candy (Halloween, Easter, etc) in a basket on top of the fridge out of his reach. The delicious treats are doled out in small doses after he’s eaten a meal or for good behavior. If the basket were left on the counter, I would find a sticky, gooey chocolate covered boy with a tummy ache.

What does chocolate have to do with credit cards? It’s all about self-control. Credit card companies have done an amazing job making the purchasing power of that little piece of plastic an irresistible treat.  Sure it starts out innocently enough, it’s just a convenient way to pay for things. Just pay it off every month and rack up the airline miles. What could go wrong? The problem is a credit card makes it way too easy to pay for things with money he doesn’t have, kind of like leaving candy on the counter.   But instead of a tummy ache, it leads to overspending, crushing debt and interest charges, and insanely rich credit card companies.  I love him too much lead him into this temptation.

Can you believe I haven’t had a credit card for over two years and my life has not stopped? I’ve used cash and a debit card and have not been inconvenienced at all. I don’t miss my bonus points, because I spend way less using cash and a debit card than I ever made with bonus points. A debit card has the same fraud protection as a credit card and can be used anywhere a credit card can be used (with some very minor exceptions that I’ve never run into).

Save up and pay for things 

In other words, if he doesn’t have the money in his bank account, then he doesn’t buy it. If the new toy train he’s dying to have costs $10 but he only has $8 then he needs to do more chores. If he needs $4000 to contribute to the purchase of his first car (we’ll probably pay a portion of his car), but he only has $3500, he needs to find some grass that needs cutting. If he wants to buy a better car a few years after his first car, he needs to make a car payment to himself every month until he has the money to buy the nicer car. If he wants to buy a house…whoa, pay cash for a house?  Actually, I’m ok with him financing a house with at least 10% down and a 15-year mortgage.  But paying cash for a house would be absolutely awesome and it is possible.  Watch this video of a sweet young couple that did.

There are a lot of myths out there promoting the lie that you need a credit score – myths such as you have to have a credit score to rent an apartment or qualify for a mortgage. And they are simply that: myths. Don’t fall for them. I’ll let you read for yourselves why they are just myths in these great articles by Dave Ramsey and Rachel Cruze.

The truth is, without debt, wealth building is easy. Generosity is easy. Life is easy. Ok, that may be stretching it a bit; it doesn’t guarantee him a life without problems, but it can make his problems easier to face. This is my dream for him, because I won’t always be there to soothe the tummy ache.

What dreams do you have for your children?

 

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Win the Smart Money Smart Kids book!!!

2014-04-22 16.26.20Ok, guys, I’ve been telling you how great the Smart Money Smart Kids book is.  Now I’m excited to give away a copy of the book, which debuted #1 on the New York Times Bestseller List!  There are four simple tasks you can do to enter the drawing.  Each task is good for one entry into the drawing.  So the more you do, the more chances of winning!  Here are the tasks:

  1. Leave a comment on this blog post giving one piece of money advice for graduating high school seniors.  This could be based on your own lessons learned, something you’ve done right with money, or anything you want!
  2. Like Good Cents Coaching on Facebook.  
  3. Follow Good Cents Coaching on Twitter.  
  4. Follow this blog via e-mail.  

See the tabs on the right side of this blog to like on Facebook and follow on Twitter and via e-mail.  If you’ve already liked the Facebook page or follow on Twitter or e-mail, that counts too!  Click on the link below to enter.  Good Luck!

Click Here to Enter the Giveaway

A few rules…you must be at least 18 years of age and reside in the United States to be eligible.  All entries must be received by midnight (EST) on May 22, 2014.

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The $2 Million Dollar Mistake

happy student at graduationListen. Can you hear it? It’s that time of year again. Hallmark has filled the shelves with “congrats” cards and “Pomp and Circumstance” will be played thousands upon thousands of times over the next few weeks. Break out the cap and gowns; it’s graduation season.

In the spirit of the season, I’m dedicating the next few blog posts to sharing advice for high school graduates. If you know any soon-to-be graduates, make sure they tune in. And, much of the advice will be useful for us old folks too.

In the last post, I discussed how to go to college debt free. After posting, I realized I neglected to explain why it is so important to avoid student loans. I bet many of you could give me an earful of reasons based on personal experience. But the reasons may not be so obvious to a 17 or 18 year old. So, let’s talk about it about now.

Let’s look at one reason a teenager may think student loans are no big deal. “Everybody takes out student loans. You can’t go to college without them”. Well, that’s almost right. According to The Project on Student Debt, seven in 10 college seniors (71%) who graduated last year had student loan debt, with an average of $29,400 per borrower. So, yes, most students have student loans, but that doesn’t make it a good idea; we’ll see why in a minute.   And you certainly can go to college without them; my last post touched on how.

Let’s look at some math. The average student loan is $29,400, current federal student loan interest rate is 3.86%, and typical term is 10 years. So, this means the average student will pay roughly $300 per month for 10 years to pay off the loan.

Hmm, but what if this same student had zero in student loans after college. Same degree, same earning power, no debt.   Let’s call him “weird” student. What if he took that same $300 per month and, instead of paying back a loan, he invested it in a mutual fund. Let’s assume this mutual fund has an average rate of return of 12%. Guess how much he would have after 10 years? About $65,000. To sum it up, “average” student gave away $300 a month and after 10 years had $0 to show for it. “Weird” student invested $300 a month for 10 years and ended up with $65,000.

Guess what happens if “weird guy” never adds another dime to the $65,000 but keeps it invested at 12%? In another 30 years when he’s ready to retire he’ll have almost $2 million. Who’s ready to be weird?

Here’s another common excuse. “It’ll be easy to pay off once I’m making the big bucks after college. It’s an investment in my future.” Oh, really? Then why did more than 600,000 federal student loan borrowers who entered repayment in 2010 default on their loans by 2012, according to The Project on Student Debt?  I bet every one of them thought it would be easy to pay off too.

Why so many defaults? I don’t know the exact reasons, but here are just two possibilities. First, maybe the big bucks job wasn’t as easy to find as they thought. According to a CNN article, recent college grads face a 36% “mal-employment” rate, meaning they were in jobs that don’t require a college degree. News Flash: Having a college degree doesn’t guarantee you a high paying job, especially in the short run. Having a degree in a marketable field certainly improves your chances, but there are no guarantees.

Here’s another possibility. Student loans weren’t the only debt this student had. Maybe he added credit card debt and a new car payment into the mix, because, hey, he’ll be rolling in dough after graduation. Time to look at the math again, dough boy. The average starting salary for a new grad is $45,000; let’s assume his monthly take home pay after taxes is $3000. Let’s assume a $200 minimum monthly credit card payment and a $500 car payment to go along with the $300 student loan payment. That leaves $2000 for rent ($800), utilities ($200), groceries ($300), gas ($200), smart phone ($100), car insurance ($200). So now we’re down to $200 for things like clothing, eating out, entertainment, vacation, haircuts, hobbies, etc. Not a lot of wiggle room. If this new grad isn’t doing a monthly budget, he probably doesn’t realize how little wiggle room he has and even if he does, one little “emergency” and wiggle room is gone. Suddenly, when the monthly student loan payment is due, there’s no money in the checking account to pay it.

Proverbs 22:7 says “the borrower is slave to the lender.” When you’re a slave, your freedom is limited; you don’t get to make your own choices. This is indeed true for student loans.   You are stuck with a payment for 10 years, more if you miss payments or only make partial payments.   The book Smart Money Smart Kids states “In a survey of recent graduates with school debt, 47 percent say they are putting off buying a house or car, 76 percent are putting off saving for the future, and 35 percent are putting off starting a family.” Many college graduates feel called to the mission field but can’t go because of student loan payments. Others want to be a stay at home mom but just can’t afford to. Slaves to debt.

If you’re about to enter college or are in college, please don’t become a slave to debt. Let me help you find ways to go to school debt free. If you’ve graduated and are struggling to pay off student loans, it’s time to find freedom. Let’s get you on a plan to get those loans paid off as quickly as possible.

Know a graduating high school or college senior? Need a gift idea? How about a financial coaching session? Contact me for details!

Let’s hear your student loan stories!

 

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Smart Money Smart Kids: Debt Free College

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“Student loans are a roadblock to this generation. Current college graduates are leaving school with an average student loan debt of $27,000… Altogether, there is roughly $1 trillion in total outstanding student loan debt in the United States today, and student loans have recently surpassed credit cards in total debt owed.” -Rachel Cruze, Smart Money Smart Kids

Wow! That’s a lot of debt. More than credit cards? Really? My goodness. But guess what? Your child doesn’t have to add to that $1 trillion number to get a college education. He doesn’t have to be burdened with loan payments for years after he leaves school. Smart Money Smart Kids explains how.

“BUT, we haven’t been able to save money to pay for his college and he graduates next month. He’s a good kid, BUT he doesn’t have the grades to get a scholarship. BUT he wants to go to an out-of-state private school because it offers a great degree in xyz. BUT, BUT, BUT….”

Relax. I didn’t say it would be easy, but it is very much possible. In the book Rachel states, “It all comes down to five things: parent planning, school choice, financial aid, working while in school, and your student living a reasonable lifestyle.”

Have I mentioned my husband Eric and I are weird? I think have. Anyway, both of us earned a degree in civil engineering in the mid-1990’s without student loans (ok, full disclosure, Eric had a tiny student loan, so we did it with almost no loans). Weird! We did it in two very different ways. All five of the elements Rachel discusses in the book played a role in our getting through college debt free.

Let’s talk about my story first. I was a nerd in high school, still am, by the way. So, my part-time job my senior year was filling out scholarship applications – lots and lots of scholarship applications. It was a great paying job. The first two years I attended a small local university so I could live at home and had so much scholarship money tuition and books were covered and I got money back to spend as I pleased. The last two years I attended a state university about three hours from home. I had enough scholarships for tuition and books, but no money back. My grandmother had set up a college fund for me years earlier, so I used some of that money for the dorm and meal plan. My parents paid for gas and car insurance; they felt they were getting a great deal since they didn’t have to pay any tuition. I lived at home and worked the three summers in between school years at a civil engineering firm. It was great experience for my resume and I earned spending cash. Spring break of my senior year in college I paid cash for a new car with some of the money my grandmother had set aside for college and, a year after graduating, I used the rest for a down payment on a house.

Not the typical college story, huh? But it had all the elements Rachel discusses in the book. My grandmother saved (planned) for my college fund; paid in-state tuition all four years (school choice); worked hard to get as many scholarships as possible (financial aid); had a job in the summer (worked); lived at home for two years and lived in an affordable dorm for two years (reasonable lifestyle).

Now let’s talk about Eric’s story. He served three years in the Army after graduating high school. The GI Bill covered tuition for his first three out of five years of college.   He lived at home for part of college; shared an apartment with his brother for a short time; and lived in a very small apartment on his own for a time. His first two years were at a community college; he finished at a local state university. And he worked during college – a lot. He earned an EMT certification while going to school so he could work as a beach lifeguard. There were times in which he would attend classes and work at the beach during the day, then work at UPS at night. He lived very frugally – lots of ramen noodles in his pantry. Once a week, an all-you-can-eat buffet was his only splurge (and he would make sure to get his money’s worth). During school he saw some of his friends racking up student loan debt and he really didn’t want to join him, but to finish up his senior year he did take out a small loan. He worked hard to pay it back within a year after graduating.

I didn’t meet Eric until after college, but I’m so impressed with how he did it – on his own. His work ethic during college has helped him become the successful professional he is today. It wasn’t easy, but it came down to school choice (community college, state school), financial aid (GI Bill), working while in school (a lot), and living a reasonable lifestyle (ramen noodles).

Afraid your child isn’t going to have a debt-free college story to tell? Whether he is in diapers or attending prom, now is the time to start planning. Smart Money Smart Kids has a chapter dedicated to college planning. As I’ve mentioned in other blogs, this book offers great practical, detailed advice. Click on the ad located at the top right of this blog to see more about the book (and help me out – I’m trying to win a contest for most ad clicks).

Want to help your child with college expenses, but you’re struggling with your own finances? Contact me about a one-on-one coaching session. Let’s get you on the right track so you have the opportunity to bless your child.

Know a high school senior? Here’s a graduation gift idea – a financial coaching session! What better gift is there? Let me show them how to budget, save for emergencies, live within their means, and start retirement investing early. If they grasp these concepts right out of high school, it will lead to a life of financial peace – a life not burdened by debt, a life of wealth building, a life of generosity.

What’s your college story? I’d love to hear it. Was it weird or normal? Leave a comment here or e-mail me at goodcentscoaching@gmail.com.

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Smart Money Smart Kids – The Good Kind of Tired

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“I learned early on that work creates discipline, and when you have discipline in your life, you are a healthier person. There is no better feeling than coming home from a job and feeling tired. You know, the good kind of tired. The kind of tired that means you actually did something with your life today.” – Rachel Cruze

We got a call from our 16-year-old nephew, J, last week. It was his spring break and he had an offer to spend the weekend at the beach with his buddy and his buddy’s parents. But, he would have to pay for his share of a hotel room. And he needed spending cash. He needed money and he needed it fast. No, he wasn’t calling for a loan or a handout from his favorite aunt and uncle. He was looking for work.

For the next day and a half, he pressure washed, cleaned out gutters, moved landscape rocks, dusted plant shelves, and performed various other tasks around our house. He worked! I mean he really, really worked. It was impressive. His phone sat in our kitchen charging all day. Friends texted all day long, but the texts would have to wait. He was working. At the end of the first day, I gave him a ride – to another job! When he finished the second day, I paid him cash, he left happy and ready for his fun weekend, and we were thrilled with all the finished chores we no longer had to find time to do.

I didn’t ask J, but I have no doubt he experienced that good kind of tired Rachel talks about in Smart Money Smart Kids. I’m sure his time at the beach was all the more sweeter knowing he earned it.

Little Man, our four year old, loves his cousin J. He saw J working hard outside and asked me why (four year olds just love to ask why). I explained J was working to earn dollars to pay for a hotel room; it was similar to when he earned quarters for picking up his toys. He promptly declared that J should buy him a new Percy train with the dollars. Ugh, oh well, I’m just glad we’ve got a few more years to keep working on this whole “training him up” thing.

And I’m so glad there is an entire chapter devoted to the subject of work in Smart Money Smart Kids. It explains how working gives a kid dignity and combats the attitude of entitlement. The book gives detailed, practical advice for how to implement a commission system for any age child (age 3 to college) to teach him that money comes from work. It involves paying the child to do a small number of chores.  It explains the difference between a commission and an allowance and why the difference matters.

There’s a common concern that comes up whenever the commission system is discussed.  The book does a great job of dispelling this concern, but I wanted to address it briefly here since it comes up so often.  Many parents feel kids shouldn’t be paid for household chores; kids should just do them because they are part of the family and everyone should pitch in and help out.  I agree!  But, here’s the thing.  You don’t have to choose one or the other.  We’re talking about choosing just three to five chores to pay commission on, not everything little thing they do.  So they can learn the work-money relationship AND the responsibility of being a part of a family.

If you click on the Smart Money Smart Kids ad on the upper right side of this blog site, you can download the first two chapters of the book for free and see how awesome the Work chapter is for yourself!  And just clicking on the add helps me out.  I’m in a contest with other bloggers to get the most clicks.  So click away please!

If you missed my book review of Smart Money Smart Kids, check it out here.

I’ll leave you with some more of my favorite quotes from the chapter:

“You should view teaching your children to work in the same way you view teaching them to bathe and brush their teeth—as a necessary skill for life. An adult who has no clue how to tackle a job and finish it with vigor is as debilitated as an adult with green teeth and body odor.” – Dave Ramsey 

“Work, get paid; don’t work, don’t get paid.” – Rachel Cruze 

“Handing out money and not teaching strong work habits create people who whine, who feel entitled, and who become perpetual victims. Does this sound like any adults you know?” – Dave Ramsey 

“Encourage your kids to discover the dignity of working and earning money themselves. The worst thing you can do is become a human ATM and give your kids a five, ten, or twenty dollar bill every time they ask.” – Rachel Cruze

Did you work and get paid when you’re growing up, either doing chores for your parents or working for others?  What types of chores/jobs did you do?

If you read the first two chapters of the book, I’d love to hear your thoughts!

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