Understanding how the internet has changed our spending habits is a critical move in order to control them. The first step is to remove all of your card information from every shopping site you’ve ever visited. The effort required to retrieve your card to input information each time you want to make a purchase may give you a reprieve from the impulse to buy.
One of the biggest obstacles to being able to pay down debt is overcoming the increase in that debt due to high-interest rates. The internet can play a more positive role here. Comparison shopping balance transfer offers online is easy. Once you’ve transferred a high-interest balance to a zero or no interest card, with diligence and self-discipline, you can attack the principle on your balance.
Another proven approach to attacking credit card debt is “debt-laddering.” There are two theories to choose from in debt-laddering. The first involves making large payments on the card with the highest interest rate while making minimum payments on the lower interest cards until the high-interest card is paid off. This eliminates the biggest offender. The second approach may not save you as much in interest but can motivate you to continue by witnessing tangible triumphs earlier in the game. By paying off the card with the lowest balance first, you can perceive results sooner which inspires you to realize that being debt free is possible.
- Spending vs. Saving
This has always been a difficult question to consider over the long term because none of us really know how long the long term is. In short, we don’t know how long we will live. Online calculators can help gauge the adequacy of your savings rate given your expected income needs in retirement savings and for potential life stages so that you can help cover as many bases as possible.
- Spending Allocations:
Be mindful about the choices you’re making, and if you can find spots to economize without hurting your quality of life too much, take advantage of them. How are you apportioning your money across short vs. long-term expenditures? Are you prioritizing spending on stuff or on experiences? This may force you to ask deep questions about what brings you the more authentic happiness for your dollar.
- Investing vs Debt Pay-Down:
A debt pay-down strategy promises a guaranteed return that’s equal to whatever interest rate you’re paying. Determining a return on investment is more difficult. It’s also worth noting that debt pay-down doesn’t provide liquidity. Throwing everything at debt pay-down without having some emergency savings could put you in a difficult situation.
- Choice of Investment Vehicles:
Do you need discipline and guardrails? Company retirement plans, despite their faults, automate your investment program and constrain you to a list of usually sane choices, features you won’t get with an IRA or taxable brokerage account.
- Investing in Yourself:
The earnings power of our skills, education, and experience is the most valuable asset that most of us will have in our lifetimes. Are you using yours in a way that maximizes your returns over your lifetime? No matter your life stage, staying current on the latest major technology developments, both on and off the job, is a crucial way to ensure that you stay relevant.
Consumers who are facing adversities, and are spending more money on their bills than their income, can obtain help from nonprofit credit counseling agencies which charge nominal fees. A disabled, retired Navy vet found herself drowning in debt after a divorce. Unexpected costly house repairs sunk the 50-year-old quickly into $30,000 of credit card debt. The interest rate on one credit card skyrocketed to 30%, making her monthly payments unaffordable, and her credit score dropped below 500.
After speaking to several non-profit debt consolidation companies, she chose to work with a non-profit counselor at Money Management International, who advised her to enter a debt management plan. Once she entered into the debt management plan, she was not allowed to use her existing credit cards. The credit card companies were no longer allowed to call her. The 30% interest rate credit card was lowered to 9%, allowing more of the monthly payments to go towards the principal. And her payment was lowered from $2000 a month to $661. After five years, she successfully paid off her credit card debt and her credit score rose to nearly 700.
In an economy where the top 160,000 wealthy families own as much as the 145 million families at the bottom, it can be easy for everyday people to give up hope on fixing our imbalanced economy. But financial activists believe that the people have more power than they think they do, and that financing can be used as a tool for social justice.
What can we do to help fix our broken economy?
- Adopt alternatives to big banks by supporting more community-based organizations, like public banks, which are owned by people rather than corporations. Withdraw money from big banks which invest in harmful activities and invest in public banks and socially-minded credit unions instead.
- Place more trustworthy financial institutions in low-income neighborhoods to give people access to financial transactions.
- Reform national and state laws that continually favor the U.S. banking industry which has spent record amounts on lobbying. Increased rules on lobbyists could help curb their influence.
- And finally, empower citizens to fight back. People need to understand that we’re being had. Financial reform is our issue to confront. The Federal Reserve is ours. We have every right to be fighting and pushing against the financial systems.
London-based fintech firm Revolut has emerged as a heavyweight on the European banking financial services scene. The company, which pledges to offer prepaid card customers real-time exchange rates and low-cost money transfers, closed a $5.3 million equity crowdfunding round last week which will allow it to vastly expand its product portfolio.
The big banks are doing their best to play catch-up. However, due to the abundance of red tape and bureaucracy innate in large financial corporations, big banks cannot respond quickly enough to customers’ requests for innovation. Whereas fintech can implement a new feature or service with an app in roughly 7 days, it takes big banks roughly 6-12 months.
Revolut states that its other advantage is that it runs every product decision by its customer community. Listening and learning from its market allows Revolut to focus on the areas of banking that matter most to customers, thus ensuring that customer experience is the top priority.
Chad West, head of the Revolut brand, believes that the big banks are looking at the beginning of the end. He states that, because of Revolut’s line up of “personal current accounts, free money transfers, fee-free global spending and now business accounts, the big banks are taking a hit.” With plans to introduce standing orders and direct debits in the near future, he predicts that “this will be the final nail in the coffin.” Revolut will be expanding into the US and Singapore later this year and will be launching a host of new products including cryptocurrency integration and an investment platform.
- Get an advanced degree in a valuable field
College graduates earn $1 million more than high school graduates over their lifetime, and the income gap between the highest-paid college majors and the lowest-paid is more than $3 million dollars. To make even more, get an advanced degree in a high-paying field.
- Focus on growing your career
Even if you don’t pick a vocation in the highest-earning field, your career is a multi-million dollar asset. For example, a starting salary of $40k with 3% annual raises over 45 years yields $3.7 million. If instead of 3% raises you factor in 8.16% raises, the difference is over $10 million.
- Control spending
Big things like homes, cars, and extravagant vacations can bust your budget in a single move. Little things like eating out for lunch regularly, and drinking $5 cups of coffee several times a day don’t seem like much, but they can add up to big dollars over time. Saving even 10% will make you wealthy over time.
- Eliminate Debt
The average American will spend hundreds of thousands of dollars in interest over the course of his/her lifetime. Imagine if this expense was eliminated or even cut in half and invested? This move alone would make anyone’s net worth sky-high. Debt is a financial killer, especially consumer debt. The sooner you can eliminate debt, the sooner you can begin to amass wealth.
- Invest early and often
Investment value is greatly impacted by three factors: the amount invested, time, and the return rate. Though we don’t have control over the rate of return, the other two factors are within your control. You want to put away as much as you can, as soon as you can. The longer investments earn and grow on their own, the greater they become.
- Marry wisely
This does not mean marry rich. It means making sure that your spouse shares your financial goals and general outlook on money. While you may be adept at making great financial decisions, if you’re married to someone who isn’t, you will struggle to build wealth.
- Have goals and a plan to reach them
Having a goal is key to being financially successful. It sets the bar and allows you to work towards what you want to achieve. Write down your goal and, most importantly, take action. You need to break each goal into bite-sized tasks that allow you to grow your career and control your spending if you want to accumulate wealth.
- Track net worth and cash flow
Many people hate budgets because they think they are too restrictive when in fact they are exactly the opposite. Budgets allow you to know exactly what you are earning and spending, which then frees you to make the lifestyle decisions you want to make. Net worth (assets less liabilities) tells you how you are growing your wealth over time. Net worth and cash flow statements are the scorecards of financial success.
- Develop side hustles
In addition to growing your career, a side hustle is a great way to both do something you enjoy and bring in some extra income to grow your net worth much faster. The great thing about a side hustle is that it speeds up the possibility of early retirement dramatically. Not having a side hustle increases the number of years required for you to reach your financial goal.
- Learn about money so that you can manage it yourself
There are plenty of people who care about your money and want to turn it into their money, and they are quite good at it. Others have good intentions but simply don’t understand how money works. And this, unfortunately, includes many financial advisors. The only way to avoid being taken advantage of is to understand the basics of managing money yourself. Fortunately, we live in an era where the ability to learn about anything is literally at the tips of our fingers.