Kill Your Debt

Home truths about debt and managing it

There are several complicated methods of keeping your casual spending in check, but by far the simplest is using the common old envelope.

This is more appropriate for people who get paid fortnightly or monthly than those who are paid weekly. You will see why in a moment. Also, this method lends itself very well to implementing the Emergency Fund discipline I wrote here.

Firstly, a quick definition of the problem. Eftpos, debit and credit cards. They are the baine of the novice budgeter, and can even get experienced budgeters into trouble. It is simply too easy to lose track of how much you are spending on “casual” expenses. A coffee there, a sandwhich there. It adds up quickly, and by the end of your pay period you will usually run out.

Any business will tell you that cahflow is king, and even in rought times a business with good cashflow is likely to weather the storms.

It is no different with personal cashflow. If you are paid once a month, you need either three or four envelops. Fortnighly requires just one envelop.

On your payday, you go down to your bank and take our your weekly “casual” spending money.  Although this will be covered in another article, it is essential for things that you need/want like coffees, a movie ticket or the like.  It’s not the big regular stuff, its the minor things that you end up spending money on each week without realizing.

If you need to allow for four weeks, you take four weeks worth out.  When you get home, you put each weeks into a seperate envelop.  Stick them in a draw, don’t touch them until the start of the following week.  The balance of money for the current week you stick in your wallet/purse.  That’s all you have for the week.

What this does is make you think every time you spend money, you see that your money is “disappearing”. Discretionary spending is likely to be less frivolous if you see the impact there and then rather than on your bank statement.  It gives you an obvious target for limiting your spending.

Another thing this simple method does is empower you. I remember teaching this method to someone close to me, and after a few months they felt incredible control over there spending. They really felt a lot less stressed over their money, and actually found they had more money to spend than they used to.

Now, let’s say you are going out in the third week somewhere special, and your weekly allowance does not cover it. Simple. You can put ten or twenty dollars from each of the other weeks into the third weeks envelop. You honestly won’t miss it.  You now have power over your money instead of the other way around.

Copyright © 2009 Karl Rohde

Think and Grow Rich
by Napoleon Hill
Review by Karl Rohde

I was once told to surround myself with successful people, and learn from them.

Although that’s a tall order in today’s society, there are books that can give you insights into success producing thinking. Once such book is Think and Grow Rich by Napoleon Hill. It’s one of three books everyone should have in their personal library if they seek to educate themselves about financial freedom. The first being The Richest Man in Babylon, which I have reviewed previously. The third I will reveal next week.

It amazes me how many people I meet that are completely unaware of the foundation books relating to success philosophy and motivation. Young and old alike, a common misconception is that we are powerless to change our lot in life, be it career, finances or even relationships. The issue here, and a resounding theme of Think and Grow Rich is that if you do what you have always done, you will never get more than you have previously got. You have to really think about what it is you want, how to achieve it, and then take action.

This is not an easy book to read, and for many you may not get through it the first time. But persevere, as the gems it hold are worth the effort. It’s also a book that does not necessarily need to be read from end to end. Skim it, then find a few chapters of particular interest.

Most people have heard of Andrew Carnegie, one of the world’s most famous philanthropists. Andrew Carnegie was believed to have more millionaires working for him than any other employer of his time.

The book was largely commission by Andrew Carnegie because of his fascination with the difference between success and failure. He wanted to find a way to provide average people with the skills and techniques that could allow them to also be successful. A total of 504 interviews were carried out by Napoleon Hill. It took him more than twenty years.

The summation of that investment of time was a 13 step approach, detail in this book.

Think And Grow Rich was first published in 1937, and has had wide ranging influence on many modern motivational speakers and consultants. It has become a timeless roadmap for many of the modern world’s success stories.

Copyright © 2009 Karl Rohde

The Richest Man in Babylon
by George S. Clason
Review by Karl Rohde

Seldom are there books as life changing or timeless as this one. George S. Clason was visionary in his approach to writing a personal guide to financial success; and it has stood the test of time.

Education about money is not really in the modern curriculum, sure they teach economics, accounting and the like. But not a guide to controlling your own personal finances. If they ever did, this would be a book on the reading list. In fact, it would likely be the basis of the whole course.

However, a word of warning. This is not a “how to” book, with bullet points and side notes. It’s not a “Personal Finance for Dummies” book. It tells several tales each relating to the seven rules of acquisition. It is up to the individual to glean the intent and lessons of each story. If you are used to being told exactly what to do, then it may take several re-reads to finally get what Clason was trying to highlight.

It’s underlying theme is taking ownership of your personal finances, and not falling for the mediocrity of inaction. Just as with most things in life, this book highlights the doctrine that everything is about choice.  Sometimes you make good choices, sometimes you make bad choices. But if you plan and structure how you deal with your personal finances, the chance of making a bad choice is substantially reduced.

The key outcome I found from this book was to stop treating my finances as something someone else is responsible for. Everything said in the book is up to the individual to action. From how you spend money to how you earn money is covered by this book. Regardless of whether you are a capitalist, or a unionist, there is something of value that may be life changing. I for one think every single worker in the western world should be given this book on the day they start their very first job.

Babylon was once the richest city in the world, known for its lavish houses, palaces and huge city walls. The Richest Man In Babylon provides an insight into how to achieve the same in your own life.

This book shares the secrets of how to be wealthy, ethical and happy. Something we all need in theses troubled  economic times. It will lead you on a journey of self discovery, and allow you to reach financial success many only dream of. With both faith and knowledge you can create fortunes that will last.

Copyright © 2009 Karl Rohde

You have one right?

That little nest egg for a rainy day, the “opps” fund when something in life doesn’t go according to plan?

No?

Why not? It’s one of your most important tools to getting your finances back on track. Some people will tell you it’s reducing your credit card debt, or paying off your student loan, and yes, they are all important.

But the emergency fund is what will stop you ever having to put some unexpected expense on credit.

How does it work?  There is no hard and fast rule, and the amount is specific to the individual. But as with many things to do with budgeting, it is about discipline.

So, want to get started?  Here we go then.

1. Set up a low interest, no fee savings account
2. The day before payday, transfer whatever is “left” before you get paid into this savings account

Simple as that, nothing fancy, not tricky formula.  Whatever you have left in your day to day account before your pay goes in goes towards the emergency fund.  Be it a dollar or ten dollars.

Some people go, “but I never have any money left” or “well, it was only a couple of dollars”.

To the first objection, once we get you onto a budget, you will have some left, and you will see why the above approach works and works well.

To the second objection, so? Do you think Rome was built in a day?  A little every payday adds up.

Now, what exactly is the emergency fund for? A holiday?  Pay the kids school fees?  Nope.  Hopefully you will never touch it, ever, but that’s unlikely.

Consider some of these scenarios:

1. your spouse is away on business and is killed, how quickly can you raise the money to get everything sorted before the insurance comes through to help you out
2. you smash your car up, and urgently need money for legal bills or the excess?
3. insert some other unexpected event that usually means most people have to use their credit card/overdraft

It may seem very simplistic, and to a degree it is. But that’s it’s beauty.

One thing though, it doesn’t help if you need the emergency fund in the first few years.  It’s reliant on time to build it up.

But consider this, lets say you get paid weekly, and you have 3-4 dollars at the end of every pay cycle. After five years you will have around $750 to $800 dollars.  Not a lot you say, but it’s money you would have wasted, and certainly not money you would usually miss each week.

However, if you are caught short due to unexpected events, having that extra money is going to help, and it’s not diluted by other savings (which I will be going into in a future post).

So, get started on your next pay before life throws that curve ball and you have to put stuff on your credit card.

Copyright © 2009 Karl Rohde

IF you go to an accountant and ask them to help you do a budget, they are going to be very “matter-of-fact” about it.

If you go to your spouse, parent, teacher, lecturer, or anyone else and say you want to do a budget, they are also likely to be very “matter-of-fact” about it.

The problem with all these people is they are either in denial, or have never actually done a personal budget before.

I learnt some time ago that dealing with your personal finances is very, well, personal. Trying to work with someone on their personal budget is going to get emotional. It can’t be helped.

Not being a pschycologist I am really unsure as to the specifics about why budgeting becomes so emotional, but I certainly know it does.  Having helped several people with budgets, I can guarantee you will encounter a range of emotions and responses some of which will be in the following list:

• anger
• fear
• despair
• denial
• depression
• hysteria
• resignation
• frustration

I recall working on a budget for some one very close to me. She broke down in tears, and actually started sobbing so bad it took a good 10-15 minutes for her to get herself together.

Another person I was trying to help walked out on me for no apparant reason and never wanted to discuss his budgeting again.

Budgeting is a very life changing experience if done correctly, and as with all life changing experiences, emotions are involved.

If you are serious about getting your finances sorted, you will need to be prepared to feel very vulnerable and have buttons pressed that you did not expect to have pressed.

I am looking forward to this, sharing these ideas journey, and I hope you will follow me on it as I once again go through the process myself.  Get your box of tissues ready, you are going to need them!