The Top Three Ways to Prevent Financial Setback

Photo courtesy Andreas Levers

I use Outright.com to do my business accounting online. One of the added benefits, besides being free, is that they have a very active community. One user posted the question “How have you overcome a financial setback?”. That was an easy one for me. You can read the story here for more background on our “financial setback”.

First of all, you have to live on a budget. If you’re not on a budget making an adjustment to a reduced standard of living is going to be extremely difficult. It’s not necessarily easy even when you know how to live on a budget, but at least you have the tools you need in place.

Secondly, you’ve got to have minimal debt. If you’ve got car payments, and mortgages, and lines of credit and business property payments to be making each month, you’re going to struggle to make the bills each month. If you’ve been operating debt free both personally and professionally, you can keep your focus on the basics like putting food on the table and making the mortgage payment if necessary.

Finally, you’ve got to have an emergency fund in place for your personal expenses as well as for your basic business expenses. Three to six months worth of both living and operating expenses is recommended to smooth out the bumps.

If it weren’t for these items being in place when my factory closed, I would probably have had to take the first job that came along instead of launching my own business. I much prefer setting my own direction rather than being tied to the whims of a company or the economy. How about you?

Keeping Up With the Joneses

Porsche by Alex-s

This morning on ABC’s Good Morning America, they caught up with a group of people that had been on the show last January. They were all deeply in debt and struggling. They received some advice and help from Dave Ramsey at that time to get a Total Money Makeover. In this follow up segment, they review how far they’ve come since their last visit.

What was striking to me was not so much how far in debt they were. What struck me is that the group represented a cross-section of America with salaries ranging anywhere from $15,000 per year to $150,000 per year. You see, it really doesn’t matter how much money you make per year. If you make more money, it just allows you to get into debt that much quicker and that much further. The “keeping up with the Joneses” mentality is a real condition. No matter how much money a person makes, they tend to aspire to the next level up, when in reality, they can’t afford it.

In Thomas Stanley’s book The Millionaire Next Door he relates that most people living in million dollar home are not actually worth a million dollars! In fact he found that there were three times as many millionaires in $300,000 or less homes as there were in $1 million dollar homes! Our society is so focused on image that they don’t really realize that in reality the truly rich Joneses are living in a nice modest ranch style home and driving a Ford F-150! No really! Just read Dr. Stanley’s book!

The real key to being rich is not looking like you are. It’s really quite simple. You’ve got to live on less money than you make. The more frugal you are, the more money you will save, and the richer you will become. Wouldn’t the freedom of not being broke be so much more fulfilling than driving that fancy car or living in that fancy house?

Creative Financing for Dummies

Don't try this at home!!!

Dyan and I were doing some book shopping at our favorite bookstore (Goodwill) and ran across this title, Creative Home Financing. Wow. An entire book for that? I can sum it up in three words DON’T DO IT! Okay, so maybe I cheated a bit with the contraction. I’ll go ahead and allow four words.

THIS is what got so many people in trouble in the first place! Loans for 100% of the value. Home equity lines of credit for 110% of value. And then the market crashed and suddenly you’re so far underwater on your mortgage that you have to be a certified diver to go down that far.

There are some people out there that are so intense when it comes to their finances that they have managed to buy a nice home with 100% down! They eat beans and rice, live above their parent’s garage, and never go out to see a movie. I’m not suggesting you do that, but if you are going to get a home loan, you MUST have 20% down. If you don’t, you’re going to be paying for PMI Insurance (I know that’s redundant people). You will just be throwing that money down the drain when it could be going to pay down your principle instead. Also make sure you get a 15 yr loan so that you don’t end up paying interest forever. And with just a little creativity on your part, you can get it paid off in even less than 15 years. Something as simple as paying your mortgage every two weeks can have a HUGE impact on the amount of interest you pay and thus shortening the length of the loan.

If you want to get creative with your homes financing, try finding creative ways to get your 20%+ down payment even quicker. I’m sure you can come up with some great ways without moving in with the in-laws.