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Next Month Syndrome

August 3rd, 2009

NCN

There was a time when I was infected with a terrible condition – Next Month Syndrome

When my credit card bill came in the mail, I would make a promise to myself -

Next month, I’m going to do better.

When I reached for my credit card to make ends meet, I would promise myself -

Next month, I’m going to do better.

When a friend would mention that he was living on a budget, I would promise myself -

Next month, I’m going to do better.

When I would read a story about someone saving for retirement, I would promise myself -

Next month, I’m going to do better.

Here are some common side effects of Next Month Syndrome -

A failure to regularly balance one’s checkbook

A propensity to run out of money before one runs out of month

A constant worry about higher and higher interest rates

A rolling credit card balance, which rarely goes down, but often goes up

A stack of bills, unorganized, or even, unopened, piled high on the kitchen counter

A box of abandoned budgeting software and personal finance books

A growing sense of worry and fear

If any of these symptoms sound familiar, fear not! There are cures for Next Month Syndrome!

Gather up all of your most recent bank statements, your checkbook, and a calculator. You need to find out exactly where you stand.

How much money do you have in cash?
How much money do you have in savings?
How much money do you have in checking?
How much debt do you have?

Create a budget. It doesn’t have to be overly-complicated and you will struggle for the first month. That’s okay. The purpose? You need to know exactly how much money you bring home and exactly how much money you spend. Resources -

Develop some system for organizing financial documents. For me, I use an expandable file box and I file bills alphabetically. I use one file folder for each year’s bills. At the end of each year, I simply store that year’s file box, and buy a new one.

Set aside some time, monthly and weekly, to manage finances
Encourage each member of the household to participate in the process

Consider reading the 33 Days Series here at No Credit Needed. This information-rich resource should help those who are looking to save money and get out of debt.

If you are in debt, and you are ready to get out, consider the following resources -

Now, I’ve saved the most important step for last. See, when I had Next Month Syndrome, I was in denial. I wanted to live just like everyone else and I wanted to own what everyone else owned. Then, I discovered something, a deep dark secret – all of those people – the folks that I wanted to be “just like” – THEY had Next Month Syndrome, too!

I made a decision – the most important decision I’ve ever made. I decided to do something about Next Month Syndrome. I created a plan, I set myself with determination, and I turned away from my old lifestyle. It took some time, and I still feel some of the long-term effects, but I was able to overcome Next Month Syndrome. You can, too!

Remember – All of the planning in the world is useless, unless that planning is coupled with determination. Make you plan – and then do all that you can to stick to it. Don’t wait until Next Month – do something NOW!

Posted in Debt Reduction, Guide, Money Management

6 Comments »

What Works For Me – Debt Reduction Mindset

July 26th, 2009

NCN

There are thousands of websites and hundreds of books about debt reduction and debt reduction techniques. Personally, I’ve written several articles about my own debt reduction journey, a comprehensive guide covering how to get out of debt, and I’ve even created my own personal debt reduction method.

Today, I thought it might be beneficial to look beyond the methods and techniques, and really think about what keeps a debt reducer motivated.

What Works For Me – Debt Reduction Mindset

I like to keep things simple, so I like to focus on one debt at a time. After listing my debts, and paying minimums to all creditors, I then spend my time trying to reduce the balance of the first account on my list. As soon as I eliminate the first account, I’m pumped to move to the second account. Focusing really helps.

I think it’s important to build community around a goal. I like for my wife and I to be on the same team, and of one mind. In fact, it would have been impossible for us to get out of debt, if my wife and I had not learned to communicate and work together. We also surrounded ourselves with positive people and friends who would not cause us to stumble.

I find that I need to set an example of restraint and frugality. It’s relatively easy to create a budget. It’s a far more difficult thing to stick to a budget. As a parent, I know that my kids are looking to me for advice, encouragement, and wisdom. The sacrifices that I make today will pay big dividends in the future.

I have learned to eliminate the noise and listen to just a few, trusted voices. Instead of trying fifteen different debt reduction techniques, or looking for a quick fix to my debt problem, I sat down, created a plan, and followed the plan. I never pay attention to gimmicks and get-out-of-debt quick schemes. Instead, I focus on paying the bills that I owe and following the plan that I have created.

I celebrate every success, big or small. My wife and I have learned to celebrate our financial successes – without spending a lot of money. We enjoy a date night or take the kids out for a day at the park. I make a big deal out of our goals – and an even bigger deal when we achieve them.

I admit that I am human. Here’s the reality. Even though thousands of people visit my site each month (which blows my mind), I’m still prone to the occasional mistake. When dealing with a setback, it’s important that I regroup, remember why I started the process in the first place, and move forward. Even when I missed my original debt reduction goal date, I kept going.

What About You? -

I’d love to hear from you, my awesome readers. What keeps you motivated? What steps have you taken to keep your mind in the game? Have you slacked off, but decided to get going as of today? Leave comments here and / or connect with me via Twitter.

Posted in Debt Reduction, Money Management

3 Comments »

Debt Reduction Game Plan

June 5th, 2009

NCN

I love to watch football, especially my beloved Atlanta Falcons. When I was a little kid, I played both running back and safety. I really enjoyed being on offense, but I also learned the value of a good defense. Throw in a little special teams unit, and you have yourself a complete team.

Thinking about debt reduction, I was reminded of the importance of the “team” concept. I think it’s important to start with a solid defense, add in a powerful offense, and then compliment them both with some great special teams. If we can find the proper balance between these three “units”, we can really dominate our debts – and soon be debt free.

Solid Defense -

Before I began repaying my debts, I established a small cash reserve – also known as an emergency fund – of about $2000. Instead of relying on my credit cards for unplanned-for expenses, the small cash reserve provided a defensive cushion against life’s inevitable hiccups. When I had to dip into my cash reserve, I would halt my aggressive debt repayments, rebuild the cash reserve, and then continue with my debt reduction plan. Trying to reduce debt without an emergency fund is like playing football with only 7 men on defense. You can do it, but it’s not very smart.

As I began to focus on reducing my debts, I always made sure to make minimum payments to all creditors – on time. This helped me to avoid penalties (pun intended) like late fees and additional interest charges. Even during the months when I could not make additional debt payments, I still made minimum payments. One of the keys to debt reduction is to stop giving up ground (going deeper into debt) – and there’s nothing like making payments on time to reduce those dreaded fees and penalties.

I put my credit cards in my wallet – and then forgot that they were there. Some will suggest cutting up credit cards or freezing them in a bowl of water. For me, I wanted to learn a little discipline, so I simply put my cards in the wallet, and promised myself that I would not use them. Four years later, this was one of the smartest decisions I’ve ever made.

Powerful Offense -

I created a debt reduction plan. I chose to make extra payments to the credit account with the lowest balance – others may choose to make extra payments to the account with the highest interest. It doesn’t matter which plan you choose, but it does matter that you have a plan. Some teams pass the ball, while others run. Either style can win, but a team must be dedicated to its style of play. The same is true about debt reduction. Pick a strategy, stick with it, and stay focused.

I made multiple extra payments to a single account, each and every month. Remember, as part of my defense, all minimum payments were made (on time or early). After making those payments, I would spend the rest of the month feverishly working to make extra payments to the next account on my list. A good offense is an intense offense. This holds true for debt reduction, as well. Honestly, if you are not a a little mad, and a little fed up, you might never get out of debt. Making these multiple payments “kept my head in the game” and helped me maintain direction and focus.

Special Teams -

I made extra payments as early in the month as possible. This reduced accrued interest, because it lowers the average daily balance.

I used unexpected income to boost my debt reduction payments. I never considered using bonuses, gifts, or cash payments for anything other than debt reduction. Remember, it’s important to maintain a laser-like focus.

I stopped waiting for the hail-Mary, and began to focus on the routine (and boring). Instead of waiting for the next raise, or the next paycheck, or the next whatever, I decided to take the income that I was already making, and deal with my situation. If I had continued to wait for things to “get better” – I’d still be in debt – and I’d still be waiting.

I decided that it was okay to be different. Quick story – The other day I went to buy my wife a gift at a department store. The customer service representative who sold me the gift asked me if I wanted to apply for a store-branded credit card. I declined, even though the store was offering a 15% discount for signing up for the card. The woman behind me in line could not believe that I would give up the “free money”. I politely explained that my wife and I pay cash for the things we want. The woman behind me said, “Yeah, that might work for your wife’s clothes, but I’ll bet you borrow money for things you want, like a new truck or a boat.” (It felt a little odd to be having this conversation with a complete stranger.) I said, again politely, “No, mam. I pay cash for everything, including our last new automobile.” She said, “Really? Why?” (At this point, I was almost tempted to give her the address for this site, but I refrained.) I simply replied, “For 15 years, I lived paycheck to paycheck, and I borrowed money. Now, I’m debt free, I pay cash, and I’m happier than I’ve ever been. This is what works for us, and as long as it’s not broke, I’m not going to try to fix it.” She then looked on, a bit stunned, as I pulled out my cash envelope, paid cash for a really nice gift for my wife, placed my receipt in the envelope, and headed on my way. It’s fun to be different!

I want to thank those of you who have subscribed to No Credit Needed. I’m back home from vacation and my family and I had a wonderful time. Also, I noticed that several of you have followed me on Twitter. Thank you so much, and feel free to drop me a tweet. Regular posting will resume as of today!

Posted in Debt Reduction

7 Comments »

Great News – My Parents Are Debt Free!

May 7th, 2009

NCN

I have some awesome news that I want to share with you guys.

My parents are debt free!

I just got off the phone with my Dad, and he was so excited. For more than two years, my Dad has been focused on paying off his mortgage. Month after month, he made his regular payments, and then used every, extra available dollar to reduce his principal. Today, he was able to walk into his credit union, hand them a check, and pay off his mortgage!

I cannot explain to you how happy I am for my Mom and my Dad. I asked Dad for permission to write a bit about their story, and he was happy to share with you guys. Basically, after reading some of the articles here at No Credit Needed, Dad decided to get out of debt and pay off his mortgage. After just a few months, he was able to rid himself of his consumer debt, and then he began to focus on ridding himself of a mortgage payment. Through hard work, sacrifice, and determination, he paid off a 15 year note in less than 7 years, with the majority of the payments coming in the past 2 years! How cool is that?!?

I love it when I hear about people who are debt free, even people that I don’t know. Can you imagine how cool it is for me to hear that my parents are debt free? I’m very close to my Mom and my Dad and I can’t wait to see what their debt free future holds for them.

For those thinking about debt reduction, consider reading – Debt Reduction 101 – and begin your journey towards being debt free.

Mom and Dad – you rock!

Posted in Debt Free, Debt Reduction, Family

13 Comments »

Debt Reduction And The Emergency Fund

March 21st, 2009

NCN

From a recent email from “Rick” -

If you had to begin your debt reduction journey today, would you immediately begin to attack your debts or would you first take the time to build up my cash reserves?

This is a great question, and one I’ve been asked several times. First, for the sake of this article, I’ll refer to my cash reserves as my emergency fund. Second, I’ll simply share my thoughts on the subject, and leave the financial advice to a qualified professional.

If I Were In Debt Today…

I would create and begin to use a zero-based budget to manage our household finances.
I would list each of my creditors and develop a debt reduction strategy.
Before making any extra payments to my creditors, I would fund a small emergency fund, equal to $500 per person in our home. For our family, that would be $2500. (Four years ago, our youngest daughter had yet to be born, so our figure then was $2000.)

Just two weeks after we began our debt reduction journey, our son was hospitalized. It was during this time that my wife and I learned the value of the emergency fund. While insurance covered the cost of the hospitalization, there were a few associated expenses for which we were directly responsible. These were, obviously, unexpected expenses, so we used money from our emergency fund to pay for them. If we had not funded this small emergency fund, we would have been forced to use our credit cards, thus digging ourselves deeper into debt.

Please note, while we did stop making extra payments to our creditors, we continued to make minimum payments. It is crucial to make all minimum payments, in full, and on time, throughout the debt reduction process. If you are late with payments or you pay less than your minimums, you will be paying late fees and added interest. We hate fees.

There are several ways to calculate how much money one should have in an emergency fund, especially the beginning, smaller emergency fund. I arrived at the $500 per person amount by adding our automobile insurance per accident deductible to our family-wide health insurance deductible. I figured, optimistically or pessimistically, depending on your perspective, that we would have one health-related crisis and one automobile-related crisis during our debt reduction journey. In the end, we had two health-related inconveniences (neither really reached the level of a crisis) and nothing really went wrong with out automobiles. For our family, I calculated that a single crisis, whether it be health-related or automobile-related, would cost roughly $2000, so that’s the amount with which I went.

Throughout our debt reduction process, our small emergency fund balance fluctuated between $1000 and $2000. We had to tap into it on three different occasions, and while this slowed our debt reduction progress, just a bit, we also managed to avoid using our credit cards.

If I Had Just Paid Off My Debt Today…

I would celebrate!
I would continue to live on a budget.
I would redirect the money which had been going towards debt reduction and use it to build my permanent emergency fund.

As soon as I made my last debt reduction payment, I began to build my permanent emergency fund. To the $2000 already in the small emergency fund, I quickly added an additional $18,000. For my family, $20,000 represents roughly six months’ worth of expenses. This money is untouchable, and is to be used only in the case of extreme, actual, real, I-cannot-believe-this-is-happening, emergencies.

If you just spend some time in the archives, you will see that I refer to my emergency fund by another name: non-retirement savings. I do this, simply to differentiate this money from any money that is held inside a retirement account. Not to split hairs, but there is a slight difference between non-retirement savings and the emergency fund, in that the former can be used for any expense (budgeted or non-budgeted) and the latter is to be used specifically for emergencies.

Again, the $20,000 amount is specific to my family and our current situation. For some families, this number might be $10,000. For others, it might be $50,000. In fact, I actually have a poll open, asking readers the question – How Much Is 6 Months Worth Of Expenses? If you haven’t done so, click over and vote. As of today, more than 1100 votes have been cast, and the most popular amount is somewhere between $12,000 and $20,000.

To summarize -

Before and during debt reduction, I would maintain a small emergency fund, based on the size of my family.

After debt reduction, I would increase my emergency fund to six (or more) months’ worth of expenses, again tailored to my family size.

The debt that I am referring to in this article is non-mortgage debt.

Finally, if I had children with special needs or a family member with certain fixed medical expenses, I would consider a larger emergency fund, both during and after debt reduction.

These are my thoughts. What would you say to “Rick” about debt reduction and the emergency fund?

Posted in Debt Reduction, Emergency Fund

13 Comments »