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Delflating Inflation

Inflation Can Be Deflating

Long gone are the days of piggy banks, and stuffing money under your mattress for safekeeping. There is an invisible force working to take that money away from you. Just because you can’t see it doesn’t mean you won’t feel it (especially in your wallet). That force is inflation. Inflation? Inflation.

Now what exactly is inflation? Basically inflation means prices go up, and the value of your money goes down.

Now let’s go over a little scenario.

Say that you currently have a lifestyle that you need $50,000 a year to maintain. Get ready for a cold reality check on the power of inflation. The average rate of inflation is about 3%, so let’s see what that entails…..

Year Income Needed
1 $50,000
5 $56,275
10 $65,238
15 $75,629
18* $82,642
20 $87,675
25 $101,639
30 $117,828
35 $136,595
40 $158,351

*average length of retirement is the USA

As you can see, in 25 years, you’ll need over 2x the amount of income you currently have, just to maintain your same lifestyle. In 40, that number goes up to 3x your current needs.

Inflation is a powerful force that needs to be accounted for. You can’t combat it by putting your savings away in something that won’t start earning interest for you. You need to INVEST! Invest in stocks, invest in bonds, invest in real estate, invest in yourself. Whatever you want to do, and whatever you feel comfortable with. But, before you jump into anything make sure you do your research. YOU can beat inflation, all you have to do is DO IT!

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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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