Frugal Friday: My Experience With Debt

I decided to diverge from food a little bit today and talk about a few things that I've learned about debt. I believe that one of the most important things that a mother (or father) needs to create a happy, healthy family is the ability to understand and control finances. I believe it's crucial to maintaining a healthy home environment! Here's a few very simple principles that I've learned from my experience that I want to share with you:

Spend less than you make - and it really doesn't matter how much you make! I know you've probably heard that before, but it really is true! Yes, you have to make enough to sustain life, but most of us don't even understand what that means anymore. Most people these days think that having cable and internet and two new cars and all the latest home appliances is life sustaining! Okay I may be exaggerating a little, but you get what I'm trying to say. Today I'm going to share with you a secret that I've learned...ready? Okay I'll whisper it: *when you spend less than you make, you feel wealthy!* It really is true! The real feeling of wealth is not determined by how much stuff you have around you. A feeling of wealth is determined by peace of mind (security) that can reside inside each of us. And it is within your grasp, if you learn to apply the secret. When you surround yourself with "stuff", you appear to others as being wealthy, but that doesn't change what you feel inside. What really happens is it creates a spending cycle which spirals downward into a dependency on others (debt). Your life is no longer your own - you work for other people. And sadly, so many times this cycle leads to a breaking apart of families and homes. 

Follow your common sense - I know that sounds really basic, but it's another very true principle that you need to know! There are people that are paid to give you advice in regards to finances, but just make sure that you never disregard your common sense because of a person's degree or position. I'm not saying that there aren't a lot of great financial advisers out there - there are! What I'm trying to say is if their advice doesn't follow common sense, take your time to study it out before making a big decision. Usually you'll find that your common sense was correct and you'll have saved yourself from making the wrong decision. Here's a few things to be wary of:

• Anytime someone tells you that you need to spend more money in order to get out of debt or increase your financial security your common sense should tell you that doesn't make sense! Because it doesn't! For example, I've heard of financial advisers tell people that in order to build up their credit faster, they should use a credit card and only pay the minimum balance (letting the interest grow). They claim that this allows their credit to grow faster so they can have a better credit rating and be approved for more purchases. Whether this claim is true or not really doesn't matter! Your common sense should be screaming at you right now that that is the wrong thing to do. It really doesn't make financial sense to bondage yourself in debt in order to have a greater opportunity to get into more debt. Obviously you need a good credit rating in order to reach some important financial goals (like buying a home, etc), but I know for a fact that you can build up credit just fine by using a credit card occasionally and paying off the entire balance (not just the minimum). It's a wiser financial choice in the long run.

• Ask yourself, how does the financial adviser benefit from his recommendation to me? If it is a loan agent, is his fee based on a percentage of the loan value? Many financial advisers are commissioned based and while sometimes they suggest options that equally benefit you and them, don't assume that their recommendation is the best one. Always do the math yourself. Always look into all the options. 

• Be more concerned about total costs than monthly payments - the truth can easily be hidden in "monthly payment" options that seem low and affordable but in the long run you are paying more. 

Be careful what you go into debt for - I know that probably sounds like something your grandmother would say, but it's very true! Here's a few things to think about before going into debt:

• What will be the value to me (or others) of this purchase in 5, 10, or 30 years? If the value goes down over time, usually it is not wise to go into debt for it.
• Is it affordable? Affordable doesn't mean how much the loan officer thinks you can afford! Affordable means how much you decide you can afford. You know your income, you know your other expenses. You know your financial goals. Leave room for savings. Leave room for disasters. Leave room for unexpected expenses. 
• Does your loan allow me to pay off the debt faster? Some do, some don't - check to make sure yours does!
• How fast can I pay this off? This is a big one - are you ready for another secret to financial happiness? Here it goes: *Leave room in your budget to pay off your debts quickly. When you get on the other side of debt and let interest work for you instead of against you, that's when you experience financial success.   

Before going into debt, get yourself an amortization schedule online. Here's a few different amortization schedules. Or you can do a search for one. I like the monthly ones, because you can see your progress. Set goals and decide if this is the right option for you right now. Then if it is, track your progress on the amortization schedule throughout the process of the loan. Keep setting goals and reaching them. Put as much income as you can each month toward paying off your debts. Think of it as saving you money (because it does - it saves you all the interest that you would have paid).

Well I'm going to wrap this up because that's about all I have time for today! Remember, healthy families are financially healthy as well as physically healthy!

Got some more ideas to share? I'd love to hear your experience and advice as well!

linked to Frugal Fridays