Category: Debt

Four Personal Finance Rules We Ignored (And Maybe You Should Too)

This is the first in a series about how we’ve disregarded the advice of popular personal finance personalities to forge our own path to debt freedom and financial independence. 

Personal finance is just that:  Personal.  Your interests, values and dreams may be different than mine, and that’s how it should be.  In How Our Home Is Helping Us Achieve Financial Success, I talk about how we’ve chosen to “live little” in order to prioritize spending on things more important to us, like travel and sampling every bottomless Bloody Mary brunch in the greater metropolitan area.  But if you prefer mimosas at home in your McMansion, there is nothing wrong with that!  So when it comes to charting your course for financial success, it’s important you customize a plan that aligns with your individual goals and timelines, as well as how you personally manage money.

Here are just a few ways we tailored (or ignored completely!) the advice administered by today’s most well known personal finance experts, and took a road less traveled:

1.  Plastic is fantastic

There are popular personal finance personalities who will tell you to cancel your credit cards and only carry cash.  This is fabulous advice if you struggle with charging things you can’t afford.  But, that’s. not. everyone.  Since our written budget is what holds us accountable, we use credit cards as a tool, utilizing the consumer protection that comes with using plastic and leveraging them for free travel (right now we’re working toward the coveted Companion Pass thanks to our Southwest-branded Chase card).  We pay off any balance weekly to hold ourselves accountable and avoid paying interest.

2.  We’re all special snowflakes

The most popular strategy for paying off debt is the snowball method.  This philosophy recommends you pay off your debts in the order of the amount owed.  Continue to make the minimum payments, except on the debt with the lowest balance.  Once you’ve paid off that first debt, you move to the next debt with the lowest balance.  This method assumes you’ll find it easier to stay motivated when you’re rewarded more quickly with the elimination of individual debts.

In lieu of snowballing our debts, we choose the avalanche method, saving us time and money.  Instead of listing debts by amount owed, this philosophy had us prioritizing debts by interest rate, starting from highest to lowest.  You will end up paying less interest and eliminating your debt-load more quickly by tackling your debts by interest rate, so long as you can remain committed without the psychological boost the snowball method offers.

3.  Not all debt is equal

The same personal finance gurus often recommend stopping any retirement savings while you’re getting out of debt.  Sure, if you’re buried in high-interest credit card debt, stopping your contributions may be a smart idea.  But, if you receive a tax benefit from your interest payments (including interest paid on a qualifying student loan or mortgage), or your debts are no-interest or low-interest (like your Prius payment or the mid-century modern living room set you just bought on a store charge card), you may come out ahead in the long run to keep contributing while still paying off debt.

4.  Capitalize on compound interest

Compound interest is when an original deposit or investment earns interest which is then added to the principal amount and reinvested, earning more and more each period as the account balance grows larger from interest earned.  Compound interest means the balance of an account will continue to grow because of interest earned, even if the account owner doesn’t make another deposit.

Even though we were committed to becoming debt free, instead of stopping our retirement contributions while aggressively paying off our $85,000 in student loans, we kept saving.  We understood that the greatest financial advantage we have at this point in our lives is time.  Traditional retirement age is more than thirty years away, meaning anything we contribute now has decades to double.  We also knew most accounts have a minimum annual contribution limit, so in the future we wouldn’t be able to contribute more than the max to make-up for lost years.

Before we dedicated every spare dime in our budget to settle-up with Sallie Mae, we contributed the minimum to get the match in our respective employer-sponsored retirement accounts.  In addition to taking advantage of free money from our employers, we also made sure to fully fund our individual ROTH IRAs.  The distinction of a ROTH is that it maximizes the principle of compound interest by offering tax free growth, meaning that since income tax has already been paid on those dollars before they’re deposited, at the time of withdrawal, those monies will be tax free.

There are hundreds of television and radio shows, books and blogs that dictate a detailed plan for getting out of debt.  It’s great to learn from a variety of sources and smart perspectives, but it’s important for you to discern which parts and pieces will help you achieve YOUR definition of financial success.

Next in the Series:  Our Shocking (Yet Successful) Investment Strategy… Individual Stocks!

Five Financial Resolutions for the New Year

New Years is my favorite (because, champagne).  But really, I love cleaning out the clutter in my closets and my inbox, and contemplating how I can be and do better in the coming year.  This January, along with renewing your gym membership, join me in becoming more financially fit.

1. Create and follow a budget

Having a budget is foundational to financial success.  It’s important to know how much you spend and on what, balanced against what you earn, in an average month.  By knowing where you’re overspending you can begin to reallocate and regain control of your money, instead of letting it control you.

If you’re new to budgeting, aim for the 50/30/20 rule.  This means spending 50 percent of your income on needs (housing, utilities, groceries and insurance) 30 percent on your wants (eating out, shopping, travel and entertainment), and saving 20 percent.  If you have credit card or other consumer debt, flip-flop the numbers to put 30 percent of your income towards debt and spend only 20 percent on wants.

For more on how to build a budget, check out my Budget Basics series.

2. Pay-off debt

First, get caught-up on any past-due bills.  Harassing calls from creditors and a ding on your credit score that will follow you for seven years, are just some of the consequences of being late on payments.  If you need help getting your bills current, start a side hustle to earn extra cash.

Once you’re making the minimum monthly payments on all your bills, there are a few options for tackling your debt:

Snowball method – This philosophy recommends you list your debts in the order of the amount owed.  Continue to make the minimum payments, except on the debt with the lowest balance, which is the one you will focus on paying off first.  Once you’ve paid off that first debt, you move to the next debt with the lowest balance.  This method assumes you’ll find it easier to stay motivated when you’re rewarded more quickly with the elimination of individual debts.

Avalanche method – Instead of listing debts by amount owed, this philosophy has you prioritizing your debts by interest rate, starting from highest to lowest.  You will end up paying less interest and eliminating your debt-load more quickly by tackling your debts by interest rate, so long as you can remain committed without the psychological boost the snowball method offers.

Tax-advantaged loans last – Depending in your income, if you itemize on your tax return you may be able to deduct the interest paid on student loans, mortgages and other select debts.  If you benefit from these deductions, consider paying off these loans last.

3. Plan for emergencies

Everyone should have an emergency fund, but what that means is different for every situation.  Dual-income families, those who spend far less than they make, and renters may be comfortable with just a $1,000 buffer in their checking account.  Homeowners, single-income families, and those with unstable or commission-based jobs, may want to have more set aside.

Make sure you have adequate renter’s or homeowner’s insurance and expensive items like jewelry, electronics and art are covered. Also make sure your health insurance fits your individual needs. Everyone needs at least a basic policy that will cover catastrophic injury or illness.  Women planning to get pregnant, families with children, and individuals with a family-history of disease or chronic healthcare needs should consider a policy with better benefits.  And if your employer offers them, take advantage of flex spending, health savings or health reimbursement accounts.  My generous employer offers extra HRA dollars for documenting healthy activities, most of which I’m already doing!

If you have dependents who rely on your income, such as a spouse or children, it’s imperative you have term life insurance, ideally for an amount that equals ten times your annual income or more.  If you have kids, consider how you plan to handle their higher education when choosing the term.

Be prepared for weather and safety emergencies.  We keep $100 cash in our safe, along with important documents should we need to evacuate or take cover from a tornado.  This year, I invested in a survival kit fromWise Company (along with peace of mind I also got 8% cash back by buying through MrRebates.com).

4. Start saving

If you’re in your 20s or 30s and your employer offers a retirement match, contribute the minimum required for the match, even if you’re still working on paying-off high interest credit card debt. With compounding interest, that investment has the potential to double every decade between now and retirement. Plus, free money.

After you’ve eliminated any high interest credit card debt, increase your retirement savings by opening a ROTH IRA.  The benefit of a ROTH is since you’ve already paid taxes on the amount you’re contributing today, withdrawals at retirement will be tax free.  Vanguard and Fidelity are popular low-fee brokerage companies, and accounts are easy to open from the comfort of your couch.

After you’ve started funding your future, you can begin saving for the short term.  Avoid getting back into debt by saving for life events, whether your plan is buying a bungalow, starting a family or spending a week sunning in Santorini.

If buying a house or condo, you can avoid the extra expense of private mortgage insurance (PMI) by putting at least 20 percent down.  Don’t push pause on your retirement savings to achieve your dream of home ownership.  If you do the math, you may find you come out ahead in the long-run by putting that money in the market and paying a little PMI.

5. Commit to learning more about personal finance

Develop your knowledge about and interest in personal finance by reading books, blogs and listening to podcasts about money.  While I disagree with many of his principles and recommendations, the Dave Ramsey podcast is a good source for inspiration and success stories.  I also follow a blogroll that includes Power Over Life, Think Save Retire, and Frugal Woods.

Find a community you can learn from and that will help keep you accountable.  If you’re not comfortable sharing with friends and family IRL, join a forum like those at Mr. Money Mustache or Bogleheads.  Social media is also a great resource for connecting with personal finance bloggers and others with the same money goals as you.

Improving how you manage money in 2017 will change the rest of your life.  Raise a glass and toast to a better financial future.  Cheers!

Lowering the High Cost of Higher Education

We recently paid off the last of our combined $85,000 in student loan debt.  Considering we share more degrees than you can count on one hand, that amount could have been significantly more had I not made these smart decisions along the way:

My high school allowed juniors and seniors to enroll in classes at our local community college for dual credit.  In my small hometown that meant attending class at the college, with college students (which was itself a learning experience).  In bigger school districts, those credit-earning courses are taught at the high school.   I only took advantage of the opportunity my senior year, but already had 12 hours of general education classes completed before even receiving my high school diploma.

After graduating, like most of my high school classmates, I stayed home freshman year and attended the same community college.  In addition to the cost savings of living with my parents walking distance away from school, I also served as Assistant Editor of the newspaper and yearbook, a position that provided for two semesters of tuition plus the cost of books.  I finished my first full year of community college with summer school, which meant I transferred with enough hours to be considered a junior and could immediately begin degree-specific coursework.

When visiting Universities, I toured several Division I schools with sprawling campuses, pompous teachers and huge athletic programs, which pushed me towards choosing a smaller school.  Not only was the tuition less at my alma mater than at the Big 12 colleges I considered, but full time students paid a flat fee, which meant you could take 12 hours or 24 hours a semester for the same price.

In addition to the financial benefits, I enjoyed personal, leadership and job opportunities that would have been out of reach (and over budget) at a larger school.  I was hired for a part-time position as a legal assistant at a local law firm, where I worked for two years.  I was elected to the Student Government Association, where I served a year as the Director of Academic Affairs.  I was a member of the Student Ambassadors and a homecoming queen candidate (twice).  And I joined a sorority and served as a Vice President on the university’s Panhellenic Council.  At commencement, I would be recognized as one of the top ten women in my graduating class.

Those positions and accomplishments looked great on scholarship applications (and later, my resume), and I secured scholarships from a variety of sources.  One of the scholarships I received was from my sorority, which off-set the cost of membership plus some.  Living in the sorority house my senior year was also a significant money-saver.  Not only did it mean I wouldn’t be throwing away three months of summer rent after graduation, but the cost included utilities and some food and was significantly less than an apartment, even with roommates.

After graduation and a summer working in the city (i.e. trying to figure out what I wanted to do with the rest of my life), I returned to the same school after accepting a graduate assistantship.  This position paid for tuition and books, plus a small stipend in return for staffing the department’s computer lab and library a certain number of hours per week.  Additionally, I accepted another on-campus job as the office manager for the university’s legal aid office.

While I set myself up for success with this series of good choices, I also made a few money mistakes along the way.  I graduated with credit card debt and elected to pay Sallie Mae interest only for the first year.  But the education I earned – including the life experiences along the way – has been single best investment in my financial future and even early in my career is an asset that is already paying dividends.

Side Hustle Series

Part Three: eBay, Pawn Shops and On-Line Garage Sales

A great source of extra cash can be found hanging in your closets and tucked away in drawers.

Regular deep cleans of your home have several financial benefits.  You can help minimize the urge to buy new by being content with the things you already own.  Stay satisfied with your stuff by keeping it organized, easy to locate and see, clean and well kept.  And anything you no longer use, need or want, you can sell or donate to put money back in your pocket.  Here are a few ways to do this:

Pawn shops – When we were planning and saving for our wedding and merging two households, we discovered the pawn shop down the street.  Things we sold here included an old iPod, a well-worn gaming system, and jewelry from boyfriends past.  In addition to electronics and precious metals, we also saw home appliances and yard equipment for sale here.

Craig’s List – Use the same sales tactics for smaller ticket items as the ones I outlined in my post Selling Your Car On Craig’s List.

eBay – There isn’t much you can’t sell on eBay.  Just a few of our things that found new homes through eBay include collectibles and sports memorabilia (that bobble head you got for being one of the first 1,000 into the stadium might be worth big bucks online) and randoms like the new door locks I bought but was too lazy to install when I moved into our house seven years ago.

If you don’t already have one, create an eBay account and familiarize yourself with their website by browsing the site and looking at comparable listings.  Once you understand their fee structure, return policies and payment processes, start posting your stuff!  Many of the same suggestions for selling on Craig’s List also apply to eBay, but here are a few key tips:

  • Title your sale in a way to maximize search results.
  • Draft an easy to read, detailed description.
  • Be upfront about the condition of your item.
  • Include good, clear photos from a variety of angles.

Consider the seasonality of your items.  For example, I have a leftover stack of last year’s Christmas card (swoon-worthy Paper Source letterpress loveliness) that I’m holding back for listing in November.

Also, think about combining items into sets or packages.  One of my recent sales included the welcome banners, table centerpieces and other décor leftover from a baby shower I hosted in honor of a friend’s baby who is now in Kindergarten.  Marketed as a “party in a box,” it was snatched up super quick.

Be thoughtful about pricing your items and how you’ll handle shipping.  You can very easily negate any profit or even end up costing yourself money if you under-charge for shipping.  And don’t buy packaging materials.  Save the boxes and bubble wrap from your online orders or keep an eye out for old newspapers in the recycle bin at work.

After the sale, follow eBay etiquette by shipping quickly and giving buyer feedback.

Resale apps – I’ve yet to use them myself, but there are lots of new resale apps like Let Go.  If you have experience with these, please share your thoughts!

Brick and mortar consignment stores – For clothes, you can try Plato’s Closet or Clothes Mentor.  I’ve never had good success selling to stores like this.  I rock a capsule wardrobe with classic pieces that have been in my closet for years (future blog post!)  I love them, but my staple J. Crew Tippi sweater has never found favor at Clothes Mentor.

Selling textbooks can be much more lucrative elsewhere, but Half Price Books will take your used fiction as well as old CDs and DVDs.  Again, not the biggest of money makers, I’ve always been able to net at least $1 per item.

Online consignment sites – Another option growing in popularity.  I’ve yet to try them, but have heard positive things about ThredUp and Poshmark.

Donate – Don’t underestimate the financial benefit of donating the stuff you no longer need or want.  Not only are you helping others, but you can include donations of clothes, household goods and other items among the charitable deductions when you itemize on your taxes.  (Did I mention I’m the daughter of a CPA?)

I’ve prepared returns using both H&R Block and Turbo Tax online and have found adding these deductions to be straightforward and simple.  It’ll be shocking the amount you’ll be credited for a used pair of jeans or an inherited set of pots and pans.

Before drop-off, make a thorough list of the items you’re donating.  And before you part with your goods, be sure that you get a tax-receipt for your donation.  Staple your list and the receipt together and store it with your other tax-prep paperwork.

However you choose to do it, start fresh and help payoff old credit card or other debts by selling or donating the stuff that got you into debt in the first place.

Side Hustle Series

Part 2:  There’s No Shame in Swagbucks


Swagbucks is one of the simplest ways I earn extra income.  By spending a few minutes online with my morning cup of caffeine and adopting a few consistent digital habits like checking for Swag Codes when I log-on to Facebook or using the site as my primary search engine, I am shamelessly using Swagbucks to make extra money every month.

Here are my favorite ways to earn:

  • To Do List offers quick SBs for completing seven daily tasks, including a Daily Poll and clicking on the Deal of the Day. You’ll also get a bonus for completing at least six of the seven daily tasks.
  • Monitor your In-Box for earns like slideshows and videos. I focus on the opportunities that earn 1-2 SBs, since they’re the easiest and don’t require a purchase or an email address to redeem.  You can sort to see those first.
  • Use the Search function instead of Google.  You won’t earn SBs for every search, but their logarithm will have you netting frequent bonuses if you’re using it as your primary search engine.
  • Download the Swagbucks app to watch movie trailers from your phone or other device to earn SBs. (Aside from a tub of buttered popcorn and the Copa Di Vino stashed in my purse, the previews are my favorite part of going to the movies anyways!)
  • Activity Break streams commercials or interactive games promoting a variety of products, from pregnancy tests to veggie burgers. Unlike Discovery Break and nGage (mentioned below), if the opportunity is video-based, it’ll just be one video to redeem SBs.  Often you can redeem these multiple times a day before they expire.
  • Key your eye out for Swag Codes, which appear on social media and are shared online at Swag Codes Spoiler and SBCodez.  These free SB codes are released daily and sometimes, multiple times throughout the day.
  • Swagbucks will also payout bonuses if you hit their Daily Goal. Hitting your daily goal seven days straight will earn you 25 SBs, continue for two weeks and you’ll net another 100.  At three weeks you’ll earn 200 SBs, and a month of hitting your daily goal equates to a whopping 300 SBs.

Here are other ways to earn:

  • Discovery Break and nGage are series of sponsored video clips and internet content that you’ll earn SBs for exploring. These are more cumbersome than the Activity Breaks and SBTV app, plus in general I just don’t find the content as entertaining or interesting.
  • Similar to Ebates and Mr. Rebates.com, there is a Shopping Portal, through which you can make online purchases to earn SBs. I always compare the redemption rate of multiple rebate sites when shopping, and Swagbucks rarely offers the most cash back, but there have been times when they’ve offered rebates for retailers not featured on other sites.
  • Surveys are the most lucrative way to earn SBs. You do get SBs for updating your survey profile, as well as 1-2 SBs for surveys you attempt but are disqualified for after the first few initial eligibility questions.  However, since neither my husband or I travel frequently for work, surveys are one the ways we earn points and miles for free flights and hotel stays.  So if I’m going to spend my time taking surveys, I prefer eMiles, Opinion Miles Club and e-Rewards.

Throw-out any stereotypes or existing perceptions you might have about side hustles like Swagbucks.  Swagbucks is for SAHMs, WOHMs, DINKs, SINKs and AARP members.  No matter your acronym, Swagbucks is a great way for you to make extra CASH.

Next in the Series:  eBay, Pawn Shops and On-Line Garage Sales