This week I read Pay It Down - From Debt to Wealth on $10 a Day by Jean Chatzky for the Read 52 Books in 52 Weeks challenge. I found many suggestions in the book worthwhile; and wished that I had learned this as a teenager and young adult.
Below is information that I found particularly useful and plan to share it with my daughters so they can lead a life free from debt and build their wealth early in life.
- If you have too much debt - particularly credit card debt - I can guarantee that you don't have much of a financial future. Why? Think about what happens when you have credit card bills looming large. You feel like you have to pay those bills first - and so you do. If you don't, the creditors start to call.
- Because those bills are so large (even the minimums look maximum), there's nothing left over to save or invest. So when an emergency hits - whether it's an unreimbursed medical bill or a new transmission - you pay for it with plastic. Then the minimums go even higher, and the cycle continues.
- There's a goo reason for tackling those credit card bills first: at 14, 15, or 16 percent and higher, they're costing you more than you can earn by socking the money away. At 24, 25, or 29 percent, they're costing you double to triple what you can earn. Not only that: they're doing damage to your confidence. They're sabotaging your ability to be content, not only with your money, but with your life. They have to go.
- The rising cost of health care can easily throw you into debt.
- Then there are people who just spend more than they make. Unfortunately, if you're spending more than you make, you're digging deeper and deeper into debt.
- Problems often hit you simultaneously - or one right after the other.
- Score up past the 700 - or even 720 - mark [and] you be able to borrow that money at the very best prices.
- How to increase your credit score:
- 35% of your score is based upon how well you pay your bills. Start paying on time.
- 30% of your score is what Fair Isaac calls "balance and burden," a measure of how much credit you have available to you and how much of that credit you're using. You're in the best shape if you're using 20-30 percent of the credit available to you.
- 10% is based on your search for new credit - how recently have you opened or inquired about opening new accounts.
- 10% is the financial composition of your file: what percentage is bank-card debt and what percentage is installment debt? It's better to have a ratio of 60 to 70 percent bank-card debt to 30-40 percent installment debt.
- Write checks and pay cash. Why? Because once the money's gone. It's really gone.
- Create small stashes for big goals. Save another $10 a day (or another amount consistent with what you want to purchase or invest in) in addition to maintaining your other financial goals.
- We spend because we want things. We want to go out to dinner because we've just had a long day or week. We want a cell phone in addition to our landline because we want to be reachable anytime. We want to look better and feel better than we feel right now - and we think that spending money on new shoes, a new car, or new makeup or a bag will help us do just that. When you stop and think about it, you have to admit that's where a great deal of your money goes.
- When we shop for anything other than the true basics, it's because we're missing something else in our lives.
- Seven reasons why we engage in retail therapy:
.....We want to "get a life."
.....We want to improve our moods.
.....We are trying to assert our independence over our parents, then our partners.
.....We want to feel more attractive.
.....We're on autopilot. We are purchasing items out of habit.
- Who gets paid first? Pay the highest interest rates first.
- Two golden rules for credit card customers: (1) Always pay more than the minimum; and (2) Always pay on time. Remember: One late payment can send your interest rate soaring.
- Rules to guide your spending
.....Use debit not credit.
.....Use a credit card for emergencies only. Take a piece of paper and write - in big letters- FOR EMERGENCIES ONLY on that piece of paper. Wrap the paper around the card and secure it with a rubber band.
.....No online shopping.
.....Shop with a list.
.....Shop for groceries once a week.
.....Return with abandon. Save all receipts for this purpose.
.....Pay your bills as they come in rather than all at once. People who pay their bills as they come in have more in savings, less in debt, and they're happier. It's a powerful habit to adopt.
.....Pay more than the minimum.
.....Pay off the most expensive debts first.