Posted in Budgeting for Everyone, Building Wealth, Debt Free, Financial Freedom, Saving for Your Future, Winning with Your Money, You and Your Money

The Biggest Myth About Needs

dd_01_filetWould you describe this steak as a need or a want?  Okay, that one was easy (it’s a want).  But what about a pair of jeans or shoes?  Or even a washing machine?  Or, the best one, a cell phone?

Each of the items listed above is a want.  Yes, a want.  A need is something that you must have to live, to survive.  And nothing I listed above falls under that description.  We actually only need a few things in life.  We need a roof over our head.  We need food in our bellies.  We need clothes on our back.  However, we don’t need a 2,000 square foot home with granite countertops.  We don’t need steak.  And we definitely don’t need multiple pairs of shoes, jeans or tops.

I had trouble with this one.  I would convince myself that I needed everything that I had – that I just couldn’t survive without them.  God taught me this lesson in the form of a washing machine.  One day my washing machine broke down and I had no way to fix it or replace it.  I was just starting my debt free journey so I didn’t have the cash to pay for a new one – or even a used one – and I wasn’t going to use a credit card.  So what was the answer to my conundrum?  I didn’t need a washing machine.  I knew this because my grandmother didn’t have one for many years and she survived just fine.  (She was my example on my journey)  So I hand washed my clothes for several months until I could save up for a new washing machine.  Was it easy?  No.  Was it annoying?  Yes.  But it was worth not mortgaging my future for something I didn’t need.

The biggest myth about needs is what actually defines a need.  You see, you can have anything you want, but you must meet your needs first and then go after your wants.  If you are homeless, you shouldn’t have a cell phone.  If you are behind on your mortgage, you shouldn’t be eating out.  When you understand the concept of needs versus wants, you will prioritize differently and make better financial decisions knowing that you can live without something for a while.  And a side benefit to embracing this new understanding is you will realize how truly blessed you are.  You not only have your needs met, but you have most of your wants as well.  And if you are on your wealth and financial freedom journey now, it will motivate you to make choices that will move you forward even faster.

You can have anything you want, but you can’t have everything.  Life is about priorities and choices.  Make sure your true needs are always met (they are for most of us) and then prioritize your wants based on your finances and future goals and dreams.  And please don’t misunderstand me or the point of this article – I have a cell phone, a washing machine, a nice home, and I eat steak.  But I have also gone through times in my life where I didn’t have those things and I lived just fine.  Never mortgage your present or your future to obtain or do things that fall in the want category.  It’s not worth it.

Have a blessed and prosperous week!  ~Debbi

http://www.debbiking.com

Check out Debbi’s award winning books on Amazon and Barnes and Noble

Advertisements
Posted in Car Buying, College & Student Loans, Debt Free, Financial Freedom, You and Your Money

To Buy or To Lease – That is the Question

Car

 

This weekend I was having an intense conversation with my 19 year old daughter about all of the options for buying a car.  In her mind the only option is paying cash for a used car and at her age that is the best option.  No one in college or even a young adult starting a family should have a new car with an average car payment of $350.  One of the many things that I have realized over my 15 year career is that there are 2 important steps in making all financial decisions:  always do the math and do what will work for you personally and not anyone else.

Having said that keep in mind that debt doesn’t work for anyone.  Never buy anything that you do not have the money for.  This is why the only option, in my book, for a millennial is paying cash for a used car.  But as we get older, many of us build up our savings accounts and we end up having the money to comfortably drive a new car.  So how do we decide what to do between the two options that are available for getting a new car.  The Bible is an awesome book of instructions that God has given us, but no where in the Bible does it tell us to buy a car over leasing or vice versa.  However, it does tell us to be good stewards and great managers of what God has given us which is where the math comes in.

The math when it comes to buying vs. leasing has to be looked at long term.  For example, if you are planning on owning a car for 10 years, you need to total in the amount you pay for the car in addition to repair bills that will be paid over the course of that time.  About 3 years ago, my husband and I were in need of a different vehicle.  We had the financial ability to get a new car and so we began the numbers game.  The van we had that needed to be replaced had 420,000 miles on it and we had owned it for 9 years.  We paid $20,000 for it and had put in at least $5-6K in repairs including a new engine.  That means that over the time of owning the car, it had cost us $240 a month to have that vehicle.  So we decided to look at both of our options and decide if we wanted to buy or lease our new vehicle.

I want to be up front before I go any further.  Leasing is not for everyone and you should never lease just for the low payments.  It can be very attractive especially to people who live in a monthly payment, paycheck to paycheck world.  And just like deciding whether to rent or to buy a home, you need to do what is going to work for you in a positive way.  Leasing is not what it was 20 years ago and there are advantages to leasing, but you must do your research and be honest with yourself about your needs.

Here are a few things to consider when making the decision between buying and leasing:

  • When you buy a car, you own it but cars are not investments and they are only an asset to the extent of what they are worth minus what you owe.  Don’t pay more for a car just because you will “own” it.  Research the car you are looking at and know how well they hold their value.  For example, a Honda will be worth more 10 years from now than a Kia will.
  • When you lease a car, you have no maintenance and this can be a big deal to many people especially as we get older.  An average lease is for 36 months and that is the minimum warranty on most vehicles.  And tires and brakes usually last at least 40,000 miles so you would only be responsible for oil changes which many dealerships will throw in.
  • As you probably know, new cars lose value quickly in the first year or two.  Most leases come with GAP insurance included which will cover the difference should your car become totaled from an accident.  This is an additional purchase when buying (if you are financing) and should be included in the math.
  • When you buy a car, you can drive it as many miles as you want.  However, with a lease you are limited in how many miles you can drive per year (average is 12,000/year or 36,000 total).  When your lease ends, if you don’t purchase the vehicle you will be responsible for paying for the miles over at the rate of the lease agreement (usually .20/mile)

I am not one of those money people who says “never buy a new car” or “never lease a car”.  I have done the research and there are advantages to both.  You can have anything but not everything.  This means that in life we have to choose what is important to us and use our financial resources to do those things.  God loves giving us the desires of our hearts, but He will never help us get something that is going to hurt us.  You work hard for your money and God wants you to enjoy life.  A godly life has great balance.  That may mean that if you have a new car you can’t travel as much or have as big of a house as some.  It may mean that you don’t buy “stuff” everyday.  But if having a nice car is important to you, you will be willing to sacrifice in other areas in order to have what adds value to your life.

Let me close with this – new cars are not evil.  They are awesome and frankly can give you peace of mind when traveling the highways and byways.  But they can also cripple you and take you into bankruptcy if you buy them before you have the ability to pay for them.  Debt is not ok – God made that one pretty clear.  This is true for a used car or a new car.  Anytime you are looking at getting a new car, weigh all of your options, know your true financial situation and always do the math.  Do what is going to move you forward, not backwards.

Have a blessed week!  Lots of love!

~Debbi

http://www.debbiking.com

 

 

Posted in Budgeting for Everyone, Credit Cards, Debt Free, Financial Freedom, Saving for Your Future, Winning with Your Money, You and Your Money

The Credit Score Game – Part 2

lg_understanding-credit-score

Your credit score is your financial reputation.  It is the only accurate picture the world – and you – has of how you handle your money.  And we all know a picture is worth a thousand words.  We should never become obsessed about our score, but we should all understand what it means so that we can make good financial decisions that will move us forward and not backwards in the area of our finances.

Last week, we talked about the biggest part of the pie – your payment history which makes up 35% of your score.  Today’s factor makes up 30% – which means that just these two things make up almost 2/3 of your score.  In my mind, that means that they are pretty important.  These two things show us very quickly how we handle our finances.  The first factor shows whether we honor our commitments and use tools such as budgets and spending journals to make sure we can follow through on our promises.  It also shows whether we are prepared for emergencies when they arise.  The next factor shows us how much we rely on debt in our finances.  Let’s take a look at factor number two!

Part 2 – 30% of your score is your credit utilization.  This is the percentage of your credit limits you use.  For example, if a credit card has a limit of $5000 and you have a balance of $1000, your utilization is 20%.  Here is a huge factor when it comes to the utilization percentage – it is the balance as of the statement date.  This means that even if you pay your cards in full every month, your utilization can be high.  In a minute, I will share a tip on how to avoid this.

The ideal percentage to keep a good score is 30% and below.  However, if you stay below 10%, your score will get a boost as that is considered excellent.  If you are a person who relies on debt to buy stuff, it may take a while to get this into a good position.  The only way to do this is to pay off your debt.  Unlike part one where you could start today and see results pretty quickly, this will take a little longer based on where you are and how much credit you have access to.  If you owe $400 on a $500 limit, you can knock that 80% down in one month.  But if you owe $5000 on a $10,000 limit, it may take months to get that 50% down.  This factor isn’t about timing so much as it is about the math.  And depending on where you are getting your score from, your percentage can be based on each individual account or can be an overall average of accounts.

There are two keys to helping this as soon as possible – one if you are a pay in full person and one if you are a debt person.  If you pay your card in full every month, the key is to make sure that your payment post before the statement date.  Paying it off then can be the difference in an 80% utilization and a 0% utilization.  Big difference!  If you are a debt person, the best thing you can do is start attacking your debt smallest to largest.  This will start to show zero percentages on cards and will lower your average utilization.  This will weigh heavy on the positive side especially the more you pay down.

The one thing you need to know about all of the parts of your credit score is that what is done is done.  You can’t go back and change it.  However, you can make better decisions going forward which will begin to outweigh the bad ones.  Trying to do it all can seem very overwhelming which is why I wanted to talk about the top 3 factors so that you can begin there.  You may not be able to start paying everything on time immediately if you have struggled with this for a while, but there is no better time than today to sit down, list out all of your bills with their minimums, set up a budget and begin to make it happen.  Doing this will automatically improve your utilization – lower debt = lower utilization.  You can do it!  I was $200,000 in debt making just $10,000/year with a 560 credit score when I started the process.  And look at me now – debt free, making way more than 10 grand, and my score is over 800.  It is not impossible and I hope that these small tips that I will be sharing will help you to start the journey now.

Credit is a part of life – we need it for things other than debt in today’s world.  It is your financial reputation.  And it’s okay if your reputation is scared a little right now.  Just make the decision to start over – start today making one better financial decision, pay one bill on time, pay one debt off, anything!  Today is your day!