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Don’t Make This Mistake!

Don’t Make This Mistake!

 

I will be the first person to tell you that I love going out to eat. For as long as I can remember, my instinctual response to the question “Want to go out with us?” has always been “Are y’all eating somewhere?”. And I’m not the only one… from 2015 to 2016 Americans spent more money on restaurants and takeout than they did on groceries. While there is nothing wrong with indulging in your favorite eateries from time to time, moderation is key. Not only can overindulgence take a toll on your waistline, it can affect your wallet as well.

 

Food is one of the largest expenses in your budget. After your house payment, it is more than likely your largest monthly expenditure. However, it is often times neglected whenever we start thinking of ways to buckle down on our finances. This is a big mistake. Not only are there several ways to save some dough while eating out, statistics show that staying at home is by far the more economical option. In fact, eating at home costs about half as much as eating out. When you take into account that the average American spends just under $8,000 annually on food costs, we’re talking about a decision that could save you literally thousands of dollars.

 

Like most of our advice here at the Money Dojo, it won’t always be easy to break old patterns of behavior. They were easy, that’s why they became habits. But, much like all other facets of life, the harder you work for something, the more rewarding it is whenever you achieve it. In a time where most Americans don’t have the cash set aside to be able to pay for an unforeseen emergency, can we really justify spending twice as much on our diets?

 

This transition from eating out (mostly) to eating at home (mostly) will not only benefit your pocketbook, it will likely make you healthier as well. Our main focus is obviously finance, but we’re also big proponents of health and fitness, and the positive effects they have on our quality of life. Having all the money in the world doesn’t do you much good if you’re not healthy enough to enjoy it.

 

Instead of paying for a 300% markup at your favorite restaurant, try creating that meal at home for a third of the price. If you have a habit of eating out 5 or 6 times a week, cut it down to 3 or 4. You don’t have to go cold turkey, small changes can make a big difference. Whenever you multiply these small changes over a month or even a years time, they will save you thousands of dollars. I don’t know about you, but I can think of a few things I could do with an extra thousand dollars.

 

Put away the takeout menu, and pick up the spatula. You’re cooking dinner tonight! You get to pick the meal, the ingredients, and the portion sizes. Now if we can just figure out how to get the dishes to clean themselves….

 

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Student Loan Attack Plan

Like countless other college graduates, I have the burden of student loans bearing down on me. I have my Bachelors and Masters Degree in which I completed in the Spring of 2016. I’m responsible for paying back just over $35,000 and will have a monthly payment of $300/month for approximately 19 years. That’s a whopping $68,000 I will have paid before I’m finally debt free at the ripe old age of 45, which is about average I am fortunate as I know others are in a much worse position. We’ll be offering classes in the future that will help our readers create custom attack plans for any situation to take down their debt.

To provide some context, I’m not able to pay off a couple thousand dollars a month like my friend. I own a house, have two vehicle payments, and my first child to arrive in June this year. My wife and I are both school teachers so combined we make approximately $90,000/year before taxes.
To be clear, I’m an advocate for most people to college. Look for a post on this later. If it were not for these student loans, neither my wife nor I would’ve been able to receive a degree. And if it were not for our degrees, we would not be able to buy cars, houses, or afford children!

Here’s my game plan:

Once we began earning a consistent income, we did the smart thing and set a budget. But when we created our budget, we didn’t live within our means, we lived below our means. So we’ve been accumulating a surplus of roughly $500 every month that is going directly into savings. I recommend having 3-6 months’ worth of expenses in your emergency savings before you can start using your extra cash. (Note: the minimum payment for all debts is included in monthly expenses.) After our savings reaches our preferred amount, it’s time to go toe to toe with my loans…

I have two options that have roughly the same total payoff amount, but one is much simpler than the other.

Half of my loans are federal and the other half is privatized. There are a total of six loans with all different interest rates. Strategy #1 would be to make the minimum payment plus my aforementioned excess of $500 every month. It’s often important to pay the loans with the highest interest rates first, but not always, in order to minimize the dreaded accruement. Strategy #2 is to refinance and take out a personal loan from a bank to pay off all of my student loans and have a single loan with a simple interest rate. There are two big catches with this, however. You have to have a good credit score to get a low rate and you will no longer be able to write off the interest on your federal taxes.

Making payments in the current system is difficult because I have to log in, mail, or call two different agencies and specify the fluctuating amount for all six loans every month. With a personal loan, I will be billed the exact same amount every month and can leave it on auto pay.

We have decided to take out a personal loan for $35,000 at 11% for a monthly payment of $761/month for five years. The total payoff will only be approximately $46,000! I will save over $22,000 and be debt free 14 years sooner than if I just made the minimum payments! You will have to do the math to find out which strategy is best for you, but we’ll talk more on that later. Here’s the good kind of principle to live by: If you sacrifice now and live below your means to pay off debt, it can save you thousands and thousands in the long run.

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CB

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This May Be The Most Important Article On Debt Elimination You’ll Ever Read

Start Eliminating Your Debt, Now!

Debt. The other 4 letter word. Here at The Money Dojo, debt is a dirty word, and we’re dedicated to its swift and complete eradication. I’ve mentioned in previous posts that I consider myself a disciple of Dave Ramsey. Particularly, his methods for debt elimination. Now, Dave writes entire books on this topic, but I can break it down for you in a few simple steps. Like most of the things we discuss here at the Dojo, the methods we use are simple, but they require commitment in order to be successful.

 

  1. List It: Make a list of all your current sources of debt. Write them down in order from smallest remaining principal to largest.

  2. Make a Budget: Create a budget. I briefly touched on this topic here, but will expound on it even further in the future. To pay more than the minimum on your monthly payments, you’ll have to get the most out of every dollar.

  3. Pay Extra: In your budget, put any “extra” money you have once all the bills and essentials are accounted for, and add it to the payment you normally make on your SMALLEST current debt. This will both reduce the time it will take to pay off the debt, and save you money on interest in the long run.

  4. Keep the Ball Rolling: Once you pay off your first debt, go back to your original list (step 1) and put a big red line through it. Congratulations! You’ve reached a big milestone in your financial journey. Now, add the entire payment from the debt you just paid off to the next debt on the list.

  5. Repeat: Repeat step 4 until every debt on your list has been eliminated.

There are several different schools of thought on debt elimination. You’ll notice that I didn’t mention interest rate a single time in my post. The reason we’re starting on the smallest principal as opposed to the highest interest rate, is because getting a quick victory is important. 90% of the challenge of getting out of debt is just the belief that it’s possible. Once you cross that first debt source off the list, you’ll be enticed to keep going, and in turn create a healthy financial habit.

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The Most Important Tool in Finance

Most Important Tool in Finance

Millions and millions of Americans are living paycheck to paycheck, trying to make ends meet. Trust me, I realize that breaking that cycle can seem like a tall order. Whatever your monetary goals may be, there is one simple tool you can start using today that will help you finally take control of your financial destiny. The best thing about this tool is that it will cost you nothing, aside from a little time every month to set it up and track it. If you haven’t quite been picking up what I’ve been putting down up to this point, get ready to squirm (that is most people’s almost instinctual reaction to this subject, after all) I’m referring to a budget. I’m not talking about a vague idea of how much money you have, and how much you think you’ll need to survive this month. I’m talking about an honest to goodness budget; that you stick to, that you keep track of, and that you update when need be. Budgets take away the guesswork on how much money you THINK you have, and starts allowing you to make decisions based on the money you KNOW you have. Keep these steps in mind whenever building your budget:

 

  1. Do Your Research: Look at your bank statements from the past few months. Calculate how much you have been spending on things like food, fuel, rent, car notes, etc. Make note of how many of those purchases were things you needed vs things that you wanted at the time. You’ll have to make some short-term sacrifices to reap the long-term benefits.
  2. Be Realistic: Use the calculations you made on your previous few months’ spending habits and create a realistic budget that you believe you’ll be able to adhere to. If you have been spending $500 a month on food, don’t expect to slash your costs in half. It’s always better to give yourself a little bit more wiggle room and not spend everything, then to aim low and be disappointed right off the bat.
  3. Zero-sum game: When you receive your paycheck, you need to assign a destination for every last penny. You shouldn’t have any loose cash floating around. If you don’t spend all the money you expected to this month, you can always find a spot for it in next month’s budget. Also, it’s perfectly acceptable to create a small “miscellaneous expenses budget” each month, for any unforeseen purchases.
  4. Cater To Your Strengths: If you are technologically savvy and would like to build your budget into a spreadsheet, by all means do it. If you would rather pull out the old legal pad and a pencil, do it. If chisel and stone is more your thing, be my guest. Don’t let the relatively small task of tracking your spending turn into a big pain.
  5. Be Consistent: Set aside a time of day, everyday, to review that day’s spending. Update your budget with the new numbers. Even when you don’t feel like updating that day, make yourself do it. This lifestyle will become a lot easier if you can turn it into a habit instead of an imposition.

 

Once you begin to budget your money, you will discover that your bank account is no longer in charge, you are. Eventually, you’ll be able to not only budget for the things you need, but also a few things you want!

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